DCIT, New Delhi V. M/s. Jagson International Ltd., New Delhi

ITA 6542/DEL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8285 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 21-03-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 06-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAJEEV SAX ENA SUMANGLA SAXENA; BHARTI CHAUHAN ADVO
• Keywords: Reopening of assessment; Bad and doubtful debts; Difference of opinion; Assessment record; Tax effect; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH D NEW DELHI BEFORE : SHRI C.M. GARG , JUDICIAL MEMBER & SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 6542/DEL./2013 ASSTT. YEAR : 2004 - 05 D.C.I.T., CIRCLE 4(1), VS. JAGSON INTERNATIONAL LTD., NEW DELHI. 3 RD FLOOR, VANDANA BUILDING, TOLSTOY MARG, NEW DELHI. [PAN: AAACJ2147A] (APPELLANT) (RESPONDENT) APPELLANT BY : MS. RITU SHARMA, SR. DR RESPONDENT BY : SH. RAJEEV SAX ENA, SUMANGLA SAXENA & BHARTI CHAUHAN, ADVOCATES DATE OF HEARING : 21.03.2016 DATE OF PRONOUNCEMENT : 06 .04.2016 ORDER PER L.P. SAHU, ACCOUNTANT MEMBER: THIS APPEAL BY THE REVENUE ARISES OUT OF THE ORDER DATED 19.09.2013 OF LD. CIT(A) - VIII, NEW DELHI FOR THE ASSESSMENT YEAR 2004 - 05 ON THE FOLLOWING GROUNDS : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE ACTION OF AO IN REOPENING ASSESSMENT U/S. 147/148 IS NOT C ORRECT ? ITA NO. 6542/DEL./2013 2 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.39,53,226/ - BEING PRIOR PERIOD EXPENSES ON MERIT ALSO. 3. THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND IS NOT T ENABLE ON FACTS AND IN LAW. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF SHIPPING & STORAGE. T HE ASSESSMENT IN THIS CASE WAS COMPLETED U/S. 143(3) ON 26.12.2006 AT AN INCOME OF RS.15,87,44,340/ - AS AGAINST RE TURNED INCOME OF RS.2,51,46,040/ - . THE ASSESSMENT WAS REOPENED UNDER SECTION 148 AFTER RECORDING THE FOLLOWING REASONS : 01. ASSESSMENT IN THIS CASE WAS COMPLETED UNDER SECTION 143(3) AT INCOME OF RS. 15,87,44,340/ - . SCRUTINY OF INCOME TAX ASSESSMENT RECORDS REVEALED THAT THE ASSESSEE C L AIMED AN EXPENDITURE OF RS.1033.52 LACS ON ACCOUNT OF 'BANK GUARANTEE , THOUGH AS PER THE 3CD REPORT THIS BEING IN NATURE OF CONTINGENT LIABILITY SHOULD HAVE BEEN DISALLOWED. THE MISTAKE RESULTED IN UNDER ASSESSMENT OF INCOME OF RS. 1033.52 LACS INVOLVING TAX EFFECT OF RS.493.12 LACS . 02. IT IS ALSO REVEALED THAT THE ASSESSEE HAD SHOWN NET INCOME FOR PRIOR PERIOD AT RS.1,01,92,402/ - WHICH WAS INCLUSIVE OF PRIOR PERIOD EXPENSES OF RS.39,53,226/ - . AS THE ASSESSEE IS FOLLO WING MERCANTILE SYSTEM OF ACCOUNTING, THE EXPENSES RELATED TO PRIOR PERIOD SHOU L D HAVE BEEN DISALLOWED. THE MISTAKE RESULTED IN UNDER ASSESSMENT OF INCOME OF RS.39,53,226/ - INVOLVING TAX EFFECT OF RS.18,86,231/ - . 03. I N VIEW OF THE ABOVE, I HAVE REASONS T O BELIEVE THAT THE INCOME OF RS.1033.52 LACS AND RS.39,53,226/ - AGGREGATING TO RS.10,73,05,226/ - CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 /148 OF THE INCOME TAX ACT, 1961. ITA NO. 6542/DEL./2013 3 IN RESPONSE TO THE NOTICE U/S. 148, THE ASSESSE E FILED ITS REPLY STATING THAT THE RETURN ALREADY FILED BE TREATED AS THE RETURN FILED IN RESPONSE TO NOTICE U/S. 148 OF THE ACT. THE ASSESSEE ALSO FILED WRITTEN SUBMISSIONS AFTER OBTAINING THE REASONS RECORDED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE, THE ASSESSING OFFICER DID NOT TAKE ANY ADVERSE VIEW ON POINT NO. 1 OF THE REASONS RECORDED AS ABOVE. ON POINT NO. 2 OF THE REASONS RECORD ED , IT WAS SUBMITTED BY THE ASSESSEE THAT THE PRIOR PERIOD EXPENSES ARE IN THE FORM OF BAD DEBTS WRITTEN OFF. IT WAS ALSO SUBMITTED THAT THEY HAVE BEEN ERRONEOUSLY CATEGORIZED AS PRIOR PERIOD EXPENSES. THE LD. ASSESSING OFFICER AFTER CONSIDERING THE REPLY OF THE ASSESSEE AND THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT AND SECTION 36(2) OBSERVED THAT A BAD DEBT W RITTEN OFF CAN BE CLAIMED AS AN EXPENSE ONLY WHEN IT HAS BEEN SHOWN AS AN INCOME IN THE RELEVANT PREVIOUS YEAR OR AN EARLIER PREVIOUS YEAR, BUT IN THE INSTANT CASE, THE ASSESSEE HAS NOT SHOWN THAT THE BAD DEBTS WRITTEN OFF CLAIMED AS AN EXPENSE WERE SHOWN AS AN INCOME IN AN EARLIER PREVIOUS YEAR. IN VIEW OF THIS, THE AO MADE ADDITION OF RS.39,53,226/ - AFTER DISALLOWING THE BAD DEBTS WRITTEN OFF RELATING TO PRIOR PERIOD. THE ASSESSEE CHALLENGED THE REASSESSMENT ORDER IN APPEAL BEFORE THE LD. CIT(A) WHERE THE ASSESSEE OBJECTED AND CHALLENGED THE ISSUANCE OF NOTICE U/S. 148 AS DEFECTIVE, ERRONEOUS AND WITHOUT PROPER LEGAL SANCTION. IT WAS SUBMITTED THAT THE CASE WAS REOPENED AFTER THE EXPIRY OF FOUR ITA NO. 6542/DEL./2013 4 YEARS, BUT NO SATISFACTION HAS BEEN RECORDED IN THE REASONS AS TO THE INCOME ESCAPING ASSESSMENT DUE TO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT, NOR IS THERE ANY APPROVAL OF HIGHER AUTHORITIES TO ISSUE SUCH NOTICE AGAINST THE ASSESSEE. IT WAS ALSO SU BMITTED THAT WRONG INTERPRETATION OF ACCOUNTS BY THE AO LEADING TO EXCESSIVE RELIEF CANNOT BE A GROUND FOR REOPENING AND THUS, CANNOT CONFER JURISDICTION ON THE AO TO REOPEN THE ASSESSMENT. IT WAS ALSO SUBMITTED THAT MERELY ON THE BASIS OF CHANGE OF OPINIO N, REOPENING PROCEEDINGS ARE NOT VALID. THE ASSESSEE ALSO CHALLENGED THE ADDITION MADE BY AO ON MERITS. IT WAS ALSO SUBMITTED THAT THE AO DID NOT APPLY HIS MIND BEFORE REOPENING OF ASSESSMENT INASMUCH AS THE PRIOR PERIOD EXPENSES CALCULATED BY THE AUDIT TE AM WORKS OUT TO RS.39,53,226/ - WHEREAS THE ACTUAL FIGURE OF THE EXPENSES AS PER ASSESSMENT RECORD WAS RS.36,85,691/ - . THE ASSESSEE ALSO RELIED ON VARIOUS CASE LAWS AS MENTIONED IN THE IMPUGNED ORDER. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE FACTS ATTENDING TO THE CASE, HELD THE REASSESSMENT PROCEEDINGS INVALID AND DELETED THE ADDITION OBSERVING AS UNDER : 3.7 I HAVE CONSIDERED THE ABOVE SUBMISSIONS AND JUDGMENTS FILED BEFORE ME. IT IS A CLEAR FACT NOW THAT REOPENING U/S 147 CANNOT BE INITIATED ON A MERE CHANGE OF OPINION. FROM THE PERUSAL OF NOTICE U/S 142 (1), VARIOUS DETAILS AND EXPLANATIONS SOUGHT WHICH WERE DULY REPLIED ALONG WITH ALL THE DETAILS AND WERE FIL ED BEFORE THE AO. IT IS SEEN THAT ALL THESE DOCUMENTS ARE PART OF ASSESSMENT RECORD. THE AO CANNOT AGITATE ITA NO. 6542/DEL./2013 5 THOSE ISSUES AGAIN UNLESS THERE IS INCORRECT STATEMENT OR MATERIAL FACT IS CONCEALED. THE AR HAS RIGHTLY AGITATED THAT THIS ASSESSMENT RELATES TO AY 2004 - 05 WHICH WAS COMPLETED U/S 143 (3) MAKING HUGE DISALLOWANCES/ADDITIONS. THIS MATTER WENT IN APPEAL BEFORE CIT (A) AND THE REVENUE PREFERRED AN APPEAL BEFORE HON'BLE IT AT. COPY OF ALL THESE ORDERS WERE PROVIDED TO HIM AT THE TIME OF FILING APPLICATION U/S 154 OF THE IT ACT. THE AO THEREAFTER OPTED TO REOPEN ON THE DIRECTIONS OF AUDIT TEAM. THE AO DID NOT NOTICE THAT THE PRIOR PERIOD EXPENSES CALCULATED BY THE AUDIT TEAM OF RS. 39,53,226/ - WHILE THE ACTUAL FIGURE OF THE EXPENSE AS PER ASSESSMENT RECORD W AS RS. 36,85,691/ - . THIS SHOWS THAT AO DID NOT APPLY HIS MIND AND MERELY ACTED ON THE DIRECTION OF THE AUDIT TEAM. THIS IS NOT PERMISSIBLE IN LAW. FURTHER AFTER GOING THROUGH THE ASSESSMENT ORDER, 1 DID NOT FIND ANY OBSERVATION OF THE AO TO CONCLUDE THAT A SSESSEE HAS NOT DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT. I FIND THAT THE ASSESSEE HAS PLACED ALL MATERIAL FACTS BEFORE THE AO IN THE ORIGINAL ASSESSMENT PROCEEDINGS. THE AO BEING SATISFIED DID NOT RAISE ANY QUERY FURTHER O N THIS ISSUE. NOW IN THE REASSESSMENT PROCEEDINGS AFTER FOUR YEARS HE CANNOT RAISE ANY SUCH ISSUE IN ABSENCE OF ANY MATERIAL TO SHOW THAT ASSESSEE HAS NOT FULLY AND TRULY DISCLOSED ALL MATERIAL FACTS. THIS IS NOT ONLY CONTRARY TO THE PROVISO OF SECTION 147 BUT ALSO AMOUNTED TO CHANGE OF OPINION WHICH IS NOT PERMISSIBLE IN LAW AND ALSO CONTRARY TO THE INTENTION OF THE LEGISLATURE AND AS SUCH THE WORDS 'REASON TO BELIEVE' ARE ABSENT TO INITIATE THE PROCEEDINGS U/S 147. HON'BLE SC IN THE MATTER OF CIT VS. KELV INATOR INDIA 320 ITR 561 HAVE ALREADY HELD THAT REOPENING IS NOT PERMISSIBLE MERELY ON THE BASIS OF CHANGE OF OPINION. HON'BLE SC HAVE ALSO HELD THAT ONE OF THE MAJOR REASONS FOR TAKING SUCH A VIEW ALSO APPEARS TO BE THE FACT THAT IF THE AO IS PERMITTED TO REOPEN THE ASSESSMENT ON A MERE CHANGE OF OPINION SECTION 147 WOULD GIVE ARBITRARY POWERS TO THE AO TO REOPEN THE ASSESSMENT. RESPECTFULLY FOLLOWING THE DECISION I AM FULLY IN AGREEMENT WITH THE ARGUMENTS RAISED BY THE AR ON THE FACTS AND CIRCUMSTANCES OF THE CASE. I, THEREFORE, ALLOW GROUND NO. 1 BY HOLDING THAT REOPENING OF THE ASSESSMENT MADE 143 (3) IS NOT CORRECT HENCE ASSESSMENT MADE DOES NOT SURVIVE. 3.8 THAT I HAVE ALREADY DISPOSED OFF GROUND NO. 1 IN ASSESSEE'S FAVOUR HENCE THERE IS NO NEED TO GO ON MERITS OF THE CASE BUT AFTER PERUSING THE SUBMISSIONS AND CASE LAWS CITED BY THE AR OF THE HON'BLE SC IN THE CASE OF TRF LTD. IN CIVIL NO. 5292 OF 2 003 AND VIJAYA BANK VS. CIT 2010 - TIOL - 31 - SC - IT COPIES OF WHICH IS FILED BEFORE RESPECTFULLY FOLLOWING THESE DECISIONS, I ALSO HOLD THAT AFTER THE AMENDMENT TO SECTION 36 (1) (VII) ASSESSEE IS ITA NO. 6542/DEL./2013 6 ENTITLED TO CLAIM DEDUCTION OF ANY BAD DEBTS WHICH IS WRITTEN OF F AS IRRECOVERABLE IN THE ACCOUNTS OF THE PREVIOUS YEAR. HENCE, GROUND NO. 2 IS ALSO ALLOWED ON MERITS. THE APPELLANT OR ANY TAX PAYER CAN WRITE OFF BAD DEBT IN THE SAME YEAR IN ITS ACCOUNTS UNDER SECTION 36(1) (VII), AND IF RECOVERABLE AT A LATER STAGE, H E WILL SHOW THIS AS INCOME OF THE ENTITY IN THE YEAR OF RECEIPT OF SUCH INCOME. HENCE, THE ADDITION MADE BY AO OF RS.39,53,226/ - IS HEREBY DELETED. 3. THE LD. DR RELYING ON THE ORDER OF THE AO, SUBMITTED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION AND IN HOLDING THE PROCEEDINGS AS INVALID. IT WAS SUBMITTED THAT THE INCOME WAS UNDER - ASSESSED IN THE ORIGINAL ASSESSMENT AND THEREFORE, INITIATION OF PROCEEDINGS WERE QUITE VALID. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE RELIED ON THE F IRST APPELLATE ORDER. ON THE ISSUE OF VALIDITY OF RE - ASSESSMENT PROCEEDINGS, THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED ON VARIOUS DECISIONS ON VARIOUS ASPECTS OF THE CASE . 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE PERUSED THE ENTIRE MATERIAL AVAILABLE ON RECORD AND WE FIND NO JUSTIFICATION TO INTERFERE WITH THE FINDINGS REACHED BY THE FIRST APPELLATE AUTHORITY IN THE IMPUGNED ORDER. THE LD. DR COULD NOT ADDUCE ANY MATERIAL ON RECORD TO REBUT THE CONTENTION OF THE ASSESSEE THAT THE IMPUGNED NO TICE U/S. 148 WAS ISSUED AFTER EXPIRY OF FOUR YEARS FROM THE ASSESSMENT YEAR UNDER APPEAL AND THE REASONS RECORDED NOWHERE MENTION THE SATISFACTION OF THE AO THAT ANY INCOME HAS BEEN ESCAPED FROM ASSESSMENT DUE TO FAILURE ON THE PART OF THE ASSESSEE TO DIS CLOSE ITA NO. 6542/DEL./2013 7 FULLY AND TRULY MATERIAL FACTS NECESSARY FOR THE PURPOSE OF ASSESSMENT , AS CONTEMPLATED IN PROVISO TO SECTION 147 OF THE IT ACT . THEREFORE, IN VIEW OF DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF WEL INTERTRADE P. LTD. VS. ITO 308 ITR 22 (DEL) AND M/S. JSRS UDYOG VS. CIT, 313 ITR 321 (DEL.) RELIED UPON BY THE ASSESSEE, ACTION UNDER SECTION 147 COULD NOT BE TAKEN AGAINST THE ASSESSEE IN THE PRESENT SITUATION. THE ASSESSEE ALSO OBJECTED TO INITIATE THE PROCEEDINGS WITHOUT APPROVAL OF HIGHER AUTHO RITIES U/S. 151, ON WHICH NO MATERIAL IS AVAILABLE FROM THE SIDE OF REVENUE TO REBUT THE OBJECTION OF THE ASSESSEE. THE SUBMISSIONS OF THE ASSESSEE THAT THE ISSUES ON THE BASIS OF WHICH REASSESSMENT PROCEEDINGS HAVE BEEN INITIATED HAVE ALREADY BEEN CONSIDE RED IN THE ORIGINAL ASSESSMENT PROCEEDINGS AND HENCE, THEIR RECONSIDERATION IN REASSESSMENT PROCEEDINGS WOULD AMOUNT TO CHANGE OF OPINION, ALSO STANDS UNCONTROVERTED ON THE PART OF REVENUE. FURTHER CONTENTION OF ASSESSEE THAT DURING THE ORIGINAL ASSESSMENT PROCEEDINGS, ONCE THE QUESTIONNAIRE/QUERIES STOOD REPLIED BY ASSESSEE ON EACH AND EVERY ASPECT OF THE CASE, REOPENING OF ASSESSMENT WILL AMOUNT TO CHANGE OF OPINION, HAS ALSO NOT BEEN REBUTTED BY THE REVENUE BEFORE US. THEREFORE, IN VIEW OF SEVERAL DECIS IONS RELIED ON BY THE LD. CIT(A) IN THE IMPUGNED ORDER, AS WELL AS BY ASSESSEE BEFORE US, THE RE - ASSESSMENT PROCEEDINGS HAVE RIGHTLY BEEN HELD AS INVALID. WE, THEREFORE, ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE ITA NO. 6542/DEL./2013 8 LD. CIT(A) GIVEN IMPUGNED ORDE R AS REPRODUCED ABOVE AND THE APPEAL OF THE REVENUE IS, THUS, FOUND TO HAVE NO MERITS. ACCORDINGLY, THE APPEAL OF THE REVENUE DESERVES TO FAIL. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 06.04.16. SD/ - SD/ - ( C.M. GARG ) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 06.04.2016 *AKS/ - COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPART MENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT. REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI