DY.CIT-8(2), MUMBAI V. M/S. MONSANTO HOLDINGS PVT. LTD., MUMBAI

ITA 6725/MUM/2008

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6192 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-11-2010
• Assessment Year: 1999-2000
• Appeal Filed On: 21-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DURGESH SUMROTT
• Keywords: Audit objection; Assessment record; Reason to believe
• Section: 143(3); 148; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER. I.T.A.NO.6725/MUM/2008 - A.Y 1999-2000 DY. COMMISSIONER OF I.T. 8(2), MUMBAI. VS. M/S MONSANTO HOLDINGS PVT. LTD., AHURA CENTRE, 5 TH FLOOR, 96, MAHAKALI CAVES ROAD, ANDHERI (E), MUMBAI 400 093. PAN: AAACM 5981 H (APPELLANT) (RESPONDENT) AND C.O.NO.91/MUM/2009 - A.Y 1999-2000 [ARISING OUT OF I.T.A.NO.6725/M/08] M/S MONSANTO HOLDINGS PVT. LTD., MUMBAI DY. COMMISSIONER OF I.T. 8(2), MUMBAI. (CROSS OBJECTOR) (RESPONDENT) REVENUE BY : SHRI DURGESH SUMROTT. ASSESSEE BY : SHRI RAJAN R. VORA. O R D E R PER T.R.SOOD, AM : FIRST WE WILL TAKE UP THE CROSS OBJECTION IN WHICH GROUND NO.1 RELATES TO THE REOPENING OF THE ASSESSMENT. 3. BRIEF FACTS ARE THAT ORIGINALLY RETURN WAS PROCE SSED U/S.143(1) ON MARCH 15, 2001 WITHOUT MAKING ANY ADJUSTMENTS. LATE R ON, THERE WAS AN AUDIT OBJECTION BY THE INTERNAL AUDIT IN RESPECT OF DEDUCTION CLAIMED BY THE ASSESSEE IN RESPECT OF AN AMOUNT WHICH WAS C LAIMED AS IRRECOVERABLE. THE AO ISSUED A NOTICE U/S.154 AND A DDED THAT SUM TO THE INCOME OF THE ASSESSEE. THIS ORDER WAS SET ASID E BY THE LD. CIT[A] 2 HOLDING THAT IT CANNOT BE CALLED A MISTAKE APPARENT FROM RECORDS. THEREAFTER, AFTER SOME DISCUSSION THE REVENUE INITI ATED THE PROCEEDINGS FOR REOPENING OF THE ASSESSMENT AND ISS UED A NOTICE U/S.148 ON 8-7-2005. 4. BOTH THE PARTIES WERE HEARD. IN FACT, DETAILED A RGUMENTS WERE MADE BY BOTH THE PARTIES INCLUDING THE ARGUMENT ON WHETHER AN AUDIT OBJECTION CAN BE THE BASIS FOR REOPENING OF THE ASS ESSMENT AND WHETHER THE REOPENING WAS ON DIRECTIONS OF THE HIGH ER AUTHORITIES. WE ARE NOT REPRODUCING ALL THESE ARGUMENTS IN DETAIL B ECAUSE, ACCORDING TO US, THEY ARE NOT RELEVANT FOR DECISION OF THE ISSUE BEFORE US. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT RECENTLY THE HON'BLE JURISDICTIONAL HIGH COURT WHIL E ADJUDICATING THE ISSUE IN THE CASE OF PRASHANT S. JOSHI VS. ITO [324 ITR 154] ON REOPENING OF THE ASSESSMENT NOTED WITH APPROVAL THE FOLLOWING OBSERVATIONS OF THE DIVISION BENCH IN THE CASE OF B ,D,BHATT IAC, I.T V. I.B.M.WORLD TRADE CORPORATION (1995) 216 ITR 811, 8 23 (BOM) : 'IT IS ALSO WELL-SETTLED THAT THE REASONS FOR REOPE NING ARE REQUIRED TO BE RECORDED BY THE ASSESSING AUTHORITY BEFORE ISSUING ANY NOTICE UNDER SECTION 148 BY VIRTUE OF THE PROVISIONS OF SECTION 148(2) AT THE RELEVANT TIME. ONLY THE REASONS SO RECORDED CAN BE LOOKED AT FOR SUSTAINING OR SETTING ASIDE A NOTICE ISSUED UNDER S. 148. IN THE CASE OF EQUITABLE INVESTMENT CO. (P) LTD. VS. ITO 174 ITR 714 (CAL), A DIVISION BENCH OF THE CALCUTTA HIGH COURT HAS HELD THAT WHERE A NO TICE ISSUED UNDER SECTION 148 OF THE INCOME TAX ACT, 1961, AFTER OBTA INING THE SANCTION OF THE COMMISSIONER OF INCOME TAX IS CHALLENGED, TH E ONLY DOCUMENT TO BE LOOKED INTO FOR DETERMINING THE VALIDITY OF T HE NOTICE IS THE REPORT ON THE BASIS OF WHICH THE SANCTION OF THE COMMISSIO NER OF INCOME TAX HAS BEEN OBTAINED. THE INCOME TAX DEPARTMENT CANNOT RELY ON ANY OTHER MATERIAL APART FROM THE REPORT.' 3 THUS, IT IS CLEAR THAT ONLY REASONS RECORDED BY THE AUTHORITIES HAVE TO BE LOOKED INTO FOR DECIDING WHETHER REOPENING OF TH E ASSESSMENT IS DONE VALIDLY OR NOT. BECAUSE OF THESE REASONS, WE H AVE NOT REPRODUCED THE OTHER ARGUMENTS OF THE LD. COUNSELS OF BOTH THE PARTIES. 6. IN THIS CASE, REASONS WERE NEITHER SUPPLIED TO T HE ASSESSEE NOR REPRODUCED IN THE ORDERS OF THE LOWER AUTHORITIES. THEREFORE, WE HAVE GONE THROUGH THE ASSESSMENT RECORDS. THE LD. DR SUB MITTED THAT REASONS HAVE BEEN RECORDED IN THE ORDER-SHEET ITSEL F WHICH READ AS UNDER: M/S MONSANTO INDIA LTD. THE RETURN OF INCOME FOR A.Y 99-00 WAS FILED ON 31 -12-99 DECLARING TOTAL INCOME OF ` `` ` .1,33,05,030/-. THE RETURN WAS PROCESSED U/S.143(1) OF THE I. T. ACT. 2. ON VERIFICATION OF THE RECORDS, IT IS SEEN THAT AN AMOUNT OF ` `` ` .45,00,000/- OUT OF THE ADVANCE GIVEN TO M/S PARLE NUTRASWEET LTD. FOR FORMING A JOINT VENTURE ALONG WITH M/S ACQUA BI SLERI INDIA LTD. WAS WRITTEN OFF BY THE ASSESSEE ON WINDING UP OF TH E JOINT VENTURE DURING THE PREVIOUS YEAR RELEVANT TO A.Y 1999-2000. THE ADVANCE GIVEN BY THE ASSESSEE WAS FOR THE PURPOSE OF FORMAT ION OF A JOINT VENTURE I.E. A CAPITAL INVESTMENT. THE LOSS OF ` `` ` .45,00,000/- WRITTEN OFF, BEING A CAPITAL NATURE, IS NOT DEDUCTIBLE AGAINST T HE INCOME OF THE ASSESSEE FOR THE A.Y 1999-2000. 3. I HAVE REASONS TO BELIEVE THAT THE INCOME AMOU NTING TO ` `` ` .45,00,000/- ESCAPED ASSESSMENT. THE ASSESSMENT IS REQUIRED TO BE REOPENED U/S.147 OF THE I.T.ACT TO BRING THE AMOUNT OF ` `` ` .45,00,000/- TO TAX FOR A.Y 1999-2000. 4. PERMISSION FOR ISSUE OF NOTICE U/S.148 MAY BE GR ANTED U/S.151(2) OF THE I.T.ACT AS MORE THAN FOUR YEARS H AS EXPIRED FROM THE END OF THE ASSESSMENT YEAR. SD/- ACIT-8(2), MUMBAI THE ADDL. CIT, RG.8(2), MUMBAI 4 ON GOING THROUGH THE REASONS RECORDED BY THE ACIT 8 (2), IN HIS NOTE ABOVE, I AM SATISFIED THAT THIS IS A FIT CASE FOR I SSUE OF NOTICE U/S.148. SD/- 6/07/05 A PLAIN READING OF THE ABOVE SHOWS THAT THE AO HAD NO MATERIAL OR CAUSE FOR JUSTIFICATION IN REOPENING OF THE ASSESSM ENT. 7. THE LD. DR HAD VEHEMENTLY ARGUED THAT IN THIS C ASE ORIGINALLY RETURN WAS PROCESSED U/S.143(1), THEREFORE, NO OPIN ION CAN BE SAID TO HAVE BEEN EXPRESSED AND HENCE THE REOPENING WAS POS SIBLE IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF CIT VS. RAJESH JHAVERI SHARE BROKERS LTD., REPORTED IN 291 ITR 500. WE FIND THAT THIS ISSUE WAS ALSO ADDRESSED BY THE HON'BLE J URISDICTIONAL HIGH COURT IN THE CASE OF PRASHAN S. JOSHI VS. ITO [SUPR A] AT PAGES 163-164 OF THE REPORT. THE HON'BLE HIGH COURT REPRODUCED TH E FOLLOWING PARA FROM PAGE 511 OF 200 ITR IN THE CASE OF CIT VS. RAJ ESH JHAVERI SHARE BROKERS LTD. 'SEC. 147 AUTHORISES AND PERMITS THE ASSESSING OFFI CER TO ASSESS OR REASSESS INCOME CHARGEABLE TO TAX IF HE HAS REASON TO BELIEVE THAT INCOME FOR ANY ASSESSMENT YEAR HAS ESCAPED ASSESSME NT. THE WORD 'REASON' IN THE PHRASE 'REASON TO BELIEVE' WOULD ME AN CAUSE OR JUSTIFICATION. IF THE ASSESSING OFFICER HAS CAUSE O R JUSTIFICATION TO KNOW OR SUPPOSE THAT INCOME HAD ESCAPED ASSESSMENT, IT C AN BE SAID TO HAVE REASON TO BELIEVE THAT AN INCOME HAD ESCAPED ASSESS MENT. THE EXPRESSION CANNOT BE READ TO MEAN THAT THE ASSESSIN G OFFICER SHOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL EVIDENCE OR CONCLUSION....... AT THAT STAGE, THE FINAL OUTCOME OF THE PROCEEDING IS NOT RELEVANT. IN OTHER WORDS, AT THE INITIATION STAGE, WHAT IS REQUI RED IS 'REASON TO BELIEVE', BUT NOT ESTABLISHED FACT OF ESCAPEMENT OF INCOME. AT THE STAGE OF ISSUE OF NOTICE, THE ONLY QUESTION IS WHETHER TH ERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FO RMED A REQUISITE BELIEF. WHETHER THE MATERIALS WOULD CONCLUSIVELY PR OVE THE ESCAPEMENT IS NOT THE CONCERN AT THAT STAGE. THIS IS SO BECAUSE THE FORMATION OF BELIEF BY THE ASSESSING OFFICER IS WITHIN THE REALM OF SUBJECTIVE SATISFACTION. ' 5 ON THE BASIS OF THE ABOVE, IT WAS OBSERVED BY THE H ON'BLE HIGH COURT AS UNDER: THE SUPREME COURT HELD THAT SO LONG AS THE INGREDI ENTS OF SECTION 147 ARE FULFILLED, THE ASSESSING OFFICER IS FREE TO INI TIATE PROCEEDINGS UNDER SECTION 147 AND FAILURE TO TAKE STEPS UNDER SECTION 143(3) WILL NOT RENDER HIM POWERLESS TO INITIATE REASSESSMENT PROCE EDINGS EVEN WHEN AN INTIMATION UNDER SECTION 143(1) HAD BEEN ISSUED. IN OTHER WORDS, WHEN AN INTIMATION HAS BEEN ISSUED UNDER S. 143(1), THE ASSESSING OFFICER IS COMPETENT TO INITIATE REASSESSMENT PROCE EDINGS PROVIDED THAT THE REQUIREMENTS OF SECTION 147 ARE FULFILLED. IN S UCH A CASE AS WELL, THE TOUCHSTONE TO BE APPLIED IS AS TO WHETHER THERE WAS REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT. THE HIGHLIGHTED PORTION OF THE JUDGMENT OF THE HON' BLE SUPREME COURT CLEARLY SHOWS THAT AT THE STAGE OF ISSUANCE OF NOTI CE, SOME RELEVANT MATERIAL IS REQUIRED TO FORM AN OPINION THAT THERE ARE REASONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. SUCH MA TERIAL NEED NOT BE CONCLUSIVE MATERIAL. ON THIS ASPECT, THE HON'BLE HIGH COURT FURTHER OBSERVED THAT WHEN AN INTIMATION U/S.143[1] IS ISSU ED EVEN THEN AO IS COMPETENT TO INITIATE THE ASSESSMENT PROCEEDINGS PR OVIDING THE REQUIREMENTS OF SECTION 147 ARE FULFILLED. BUT AT T HE SAME TIME, EVEN IN SUCH CASE, THE TOUCHSTONE TO BE APPLIED IS AS TO WHETHER THERE WAS REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMEN T. IN FACT, THE FACT REGARDING MAKING OF ADVANCES TO AQUA BISLERI ( INDIA) LTD, SEEMS TO HAVE BEEN REVEALED FROM THE NOTES TO THE RETURN OF INCOME AND IT WAS BROUGHT TO OUR ATTENTION BY THE LEARNED CHARTERED A CCOUNTANT OF THE ASSESSEE SHRI RAJAN VORA THAT COPIES OF SUCH NOTES HAVE BEEN PLACED ON RECORD AT PAGES 30 TO 32 OF THE PAPER BOOK AND T HROUGH NOTE NO.5 THIS FACT WAS ALREADY KNOWN TO THE ASSESSING AUTHOR ITIES. 6 8. NOTE 5: THE COMPANY HAD ENTERED INTO AN AGREEMENT DATED MAR CH 7, 1996 WITH ACQUA BISLERI (INDIA) LTD. (BISLERI) FOR THE PURPOSE OF ESTABLISHING A JOINT VENTURE COMPANY NAMELY PARLE NUTRASWEET LIMITED (PNL). SUBSEQUENTLY, THE COMPANY MADE ADVANCES OF RS.5,000 ,000 TO PNL FOR ITS WORKING CAPITAL REQUIREMENTS. IN THE FINANCIAL YEAR ENDED ON MARCH 31, 1998, THE COMPANY MADE A PROVISION OF RS.500,000 AGAINST THE ADVANCES MADE T O PNL. SINCE IT WAS A MERE PROVISION, IT WAS OFFERED FOR DISALLOWANCE IN ASSESSMENT YEAR 1998-99. DURING THE YEAR UNDER CONSIDERATION, THE COMPANY EN TERED INTO AN AGREEMENT DATED MARCH 31, 1999 WITH BISLERI TO DISCONTINUE AN D WIND UP THE JOINT VENTURE. IT WAS INTER ALIA AGREED THAT THE COMPANY AND ITS ASSOCIATES SHALL SELL IN FAVOUR OF BISLERI THEIR SHAREHOLDING IN PNL. THE COMPANY ALSO AGREED TO WAIVE ALL ITS LOANS DUE FROM PNL. OUT OF THE TOTAL AMOUNT OF RS.5,000,000 ADVANCED TO PNL THE COMPANY RECOVERED RS.500,000 AND WROTE OFF THE BALANCE RS.4 ,500,000 IN ITS BOOKS OF ACCOUNT FOR THE FINANCIAL YEAR ENDED ON MARCH 31, 1 999. OUT OF THE SAME RS.500,000 WAS WRITTEN OFF DIRECTLY FROM THE PROVIS ION ACCOUNT. AS THIS IS A LOSS MADE IN THE COURSE OF BUSINESS, THE SAME IS AL LOWABLE UNDER THE PROVISIONS OF SECTION 28 OF THE INCOME TAX ACT, 196 1. SINCE THE PROVISION WAS ALREADY OFFERED FOR DISALLO WANCE, THE SAME IS CLAIMED AS A DEDUCTION IN THIS YEAR AS THE SAME IS NOW WRIT TEN OFF. THE ABOVE NOTE FURTHER SHOWS THAT THIS FACT WAS KNO WN TO THE AO WHEN THE RETURN WAS PROCESSED AND, THEREFORE, THIS CANNOT BE SAID TO BE FRESH MATERIAL FOR LEADING TO A BELIEF THAT INCO ME HAS ESCAPED ASSESSMENT. THEREFORE, IN OUR VIEW, THE ASSESSMENT WAS NOT VALIDLY REOPENED AND, ACCORDINGLY, WE ANNULLED THE RE-ASSES SMENT PROCEEDINGS. 9. SINCE WE HAVE ANNULLED THE RE-ASSESSMENT PROCEED INGS AS DECIDED IN ABOVE NOTED PARAS, WE DECLINE TO ADDRESS OTHER ISSUES 7 RAISED BY THE ASSESSEE IN CROSS OBJECTION AS WELL A S IN THE APPEAL FILED BY THE REVENUE BECAUSE THE SAME ARE OF NOW ACADEMIC NATURE. 10. IN THE RESULT, REVENUES APPEAL IS DISMISSED AN D ASSESSEES CROSS OBJECTIONS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF, NOVEMBER,2010. SD/- SD/- (N.V.VASUDEVAN) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 30 TH NOVEMBER, 2010. P/-*