DCIT, Bangalore V. Sri. Harish Premdoss (HUF), Bangalore

ITA 692/BANG/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8445 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 24-03-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 09-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V S SREELEKHA
• Keywords: Reopening of assessment; Tangible material; Difference of opinion; Tax effect; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 142(1); 147; 148; 139

Judgement Text

PAGE 1 OF 8 ITA NOS.692 & 693/B/09 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI GEORGE GEORGE K, J.M. AND SHRI A MOHAN ALANKAMONY, A.M ITA NOS.692 & 693/BANG/2009 (ASSESSMENT YEARS 2001-02 & 2002-03) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1), BANGALORE. - APPELLANT VS SRI HARISH PREMDOSS (HUF), NO.143, DEVIDOSS BUILDING, COMMERCIAL STREET, BANGALORE. - RESPONDENT APPELLENT BY : SMT. V S SREELEKHA RESPONDENT BY : NONE ORD ER PER GEORGE GEORGE K : THESE ARE REVENUE'S APPEALS DIRECTED AGAINST THE CONSOLIDATED ORDER OF THE LD. CIT(A)-I, BANGALORE D ATED 15.5.2009. THE ASSESSMENT YEARS CONCERNED ARE 2001-02 AND 2002 -03. 2. SINCE COMMON ISSUES ARE INVOLVED IN BOTH THE AP PEALS, THEY ARE DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 3. IDENTICAL GROUNDS ARE RAISED IN BOTH THE APPEAL S EXCEPT FOR VARIANCE IN FIGURES. THE CRUX OF ISSUES ARE TW O-FOLD, NAMELY, PAGE 2 OF 8 ITA NOS.692 & 693/B/09 2 (I) WHETHER THE CIT(A) WAS JUSTIFIED IN CANCELING T HE REASSESSMENT ON THE GROUND REASSESSMENT WAS INITIATED ON MERE CH ANGE OF OPINION (II) WHETHER CIT(A) WAS JUSTIFIED IN DELETI NG THE DISALLOWANCE OF INTEREST OF RS.3,22,845/- AND RS.1, 08,386/- FOR ASST. YEAR 2001-02 AND 2002-03 RESPECTIVELY CLAIMED AS DE DUCTION U/S 24 OF THE I T ACT. 4. THESE APPEALS WERE POSTED FOR HEARING ON A NUMB ER OF OCCASIONS (5 TIMES). THE ASSESSEE NEITHER FILED AN ADJOURNMENT APPLICATION NOR THE AUTHORIZED REPRESENTATIVE OF TH E ASSESSEE WAS PRESENT. HENCE WE PROCEEDED TO HEAR THE MATTER EXP ARTE ON MERITS. THE FACTS OF THE CASE ARE AS FOLLOWS:- 4.1 FOR THE ASST. YEAR 2001-02, RETURN OF INCOME W AS FILED DECLARING A TOTAL INCOME OF RS.17,65,909/-. THE IN COME DECLARED BY THE ASSESSEE INCLUDES INCOME FROM HOUSE PROPERTY IN REGARD TO CO-OWNERSHIP PROPERTY HELD JOINTLY WITH SHRI JITHEN DRA PREMDOSS. VIDE AGREEMENT DATED 7.2.1992 BETWEEN THE ASSESSEE AND SHRI JITHENDRA PREMDOSS, IT WAS MUTUALLY AGREED TO MANAG E THE PROPERTIES JOINTLY UNDER THE COMMON NAME 'J & H HOL DINGS' TO MAINTAIN THE PROPERTIES AND COLLECT RENT FROM VARIO US TENANTS. 4.2 THE GROSS RENT DERIVED BY M/S J&H HOLDINGS WAS RS.57,72,414/- . AFTER TAKING INTO ACCOUNT THE VAR IOUS DEDUCTIONS, THE INCOME FROM HOUSE PROPERTY WAS ARRIVED AT RS.35 ,19,102/- AND 50% OF THE SAME WAS OFFERED FOR TAX IN THE HANDS OF THE ASSESSEE. THE DEDUCTION CLAIMED INCLUDES INTEREST ON BORROWIN GS AMOUNTING PAGE 3 OF 8 ITA NOS.692 & 693/B/09 3 TO RS.7,73,262/-. OUT OF THE INTEREST ON BORROWING CLAIMED, AN AMOUNT OF RS.1,27,988/- WAS DISALLOWED ON ACCOUNT O F INTEREST PERTAINING TO INCOMPLETE PORTION OF THE PROPERTY. THEREFORE, A SUM OF RS.63,994/- (50% OF THE DISALLOWANCE) WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 4.3 NOTICE U/S 148 OF THE ACT WAS ISSUED TO THE AS SESSEE FOR THE REASON THAT THERE WAS NO NEXUS BETWEEN THE MONEY BORROWED AND THE CONSTRUCTION OF THE PROPERTY AND IT WAS PRO POSED TO DISALLOW THE ENTIRE INTEREST CLAIMED AS DEDUCTION U/S 24 OF THE ACT. THE ASSESSEE OBJECTED TO THE PROPOSAL STATING THAT THE REOPENING OF ASSESSMENT IS BAD IN LAW, SINCE NO NEW INFORMATION OR MATERIAL CAME INTO THE POSSESSION OF THE ASSESSING OFFICER A ND REASSESSMENT INITIATED IS ON THE BASIS OF CHANGE OF OPINION. TH E ASSESSEE RELIED ON THE FOLLOWING DECISIONS:- I) SRI KRISHNA PRIVATE LIMITED V ITO 221 ITR 538 (SC) II) INDIAN AND EASTERN NEWSPAPER SOCIETY LIMITED 119 ITR 996 (SC) & III) KELVINATOR INDIA 256 ITR 1 (DEL.) ON MERIT, IT WAS CONTENDED, THERE WAS NEXUS BETWEEN THE BORROWED FUNDS AND THE CONSTRUCTION OF THE BUILDING. IT WAS FURTHER SUBMITTED THAT ADVANCE GIVEN TO THE CONTRACTOR HAS TO BE TAKE N INTO CONSIDERATION FOR THE PURPOSE OF ALLOWING INTEREST AS ADVANCE GIVEN TOWARDS THE CONSTRUCTION OF BUILDING. PAGE 4 OF 8 ITA NOS.692 & 693/B/09 4 4.4 THE ASSESSING OFFICER REJECTED THE CONTENTIONS/OBJECTIONS OF THE ASSESSEE AND HELD THA T THE ASSESSEE HAS NOT DISCLOSED FULL FACTS, HENCE, REOPENING IS IN OR DER AND IS CORRECT. ON MERIT, THE ASSESSING OFFICER DISALLOWED THE CLAI M OF DEDUCTION OF RS.3,22,647/- U/S 24 OF THE ACT. 5. SIMILARLY, FOR THE SUBSEQUENT ASST. YEAR I.E. 2 002-03, THE ASSESSMENT WAS REOPENED U/S 148 ON 27.2.2007, W HICH WAS SERVED ON THE ASSESSEE ON 2.3.2007. THE REASONS FO R REOPENING THE ASSESSMENT WERE IDENTICAL AS IN THE PRECEDING ASST. YEAR. ASSESSEE RAISED TWO-FOLD OBJECTIONS AS IN THE PRECEDING ASST . YEAR AND THE SAME WAS REJECTED BY THE AO AND INTEREST CLAIMED BY THE ASSESSEE TO THE EXTENT OF RS.1,08,386/- WAS DISALLOWED AND B ROUGHT TO TAX. 5.1 BEFORE THE FIRST APPELLATE AUTHORITY, IT WAS S UBMITTED THAT OBJECTIONS WITH REGARD TO REASONS RECORDED FOR REOPENING THE ASSESSMENT WAS NOT CONSIDERED BY THE AO BEFORE THE ORDERS OF ASSESSMENT WERE PASSED AND HENCE, THE PROCEDURE LAI D DOWN BY HON'BLE SUPREME COURT IN THE CASE OF GKN DRIVE SHAF TS (INDIA) LTD. V ITO 259 ITR 19 WAS NOT FOLLOWED. IT WAS FUR THER SUBMITTED THAT THE CLAIM OF DEDUCTION U/S 24 OF THE ACT, WAS EXAMINED IN DETAIL BY THE AO IN THE SCRUTINY ASSESSMENT COMPLET ED FOR BOTH THE ASST. YEARS AND THE AO HAD DISALLOWED THE PROPORTIO NATE INTEREST AMOUNTING TO RS.63,994 AND RS.96,623/- FOR THE REAS ON, INTEREST ON LOAN TAKEN PERTAINS TO INCOMPLETE PORTION OF THE BU ILDING. HENCE, IT WAS SUBMITTED REASSESSMENTS WERE INITIATED ON MERE CHANGE OF OPINION. PAGE 5 OF 8 ITA NOS.692 & 693/B/09 5 5.2 THE CIT(A), FOR DETAILED REASONING MENTIONED I N PARA 4.1 OF HER ORDER, HELD THAT REASSESSMENT INITIATED IS NOT VALID AND ON MERIT, THE CIT(A) HELD THAT THE ASSESSEE HAS BEEN A BLE TO ESTABLISH THE NEXUS BETWEEN THE BORROWING AND THE CONSTRUCTIO N OF THE PROPERTY. THEREFORE, ON TECHNICAL PLEA AND ALSO ON MERIT, THE CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 5.3 THE REVENUE BEING AGGRIEVED IS IN APPEAL BEFOR E US. 5.4 THE LEARNED DR SUBMITTED, THOUGH THE MONETARY TAX EFFECT IS BELOW THE LIMIT PRESCRIBED BY THE BOARD'S INSTRUCTION, APPEALS HAVE BEEN FILED, FOR THE REASON, THAT THERE WAS A REVENUE AUDIT PARTY OBJECTION. SHE SUBMITTED, THOUGH ASSES SEE HAS BEEN ABLE TO FURNISH NECESSARY PARTICULARS REGARDING BORROWIN G OF FUNDS AND THE NEXUS OF THE SAME WITH THE CONSTRUCTION OF THE BUILDING, THE SAME HAS NOT BEEN EXPLAINED BEFORE THE AO AND THERE FORE, IN THE INTEREST OF JUSTICE, THE MATTER NEEDS TO BE RESTORE D TO THE FILE OF THE ASSESSING OFFICER. 5.5 WE HAVE HEARD THE LEARNED DR AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACT IN THE I NSTANT CASE IS THAT THERE HAS BEEN SCRUTINY ASSESSMENT COMPLETED U/S 14 3(3) OF THE ACT PRIOR TO THE INITIATION OF THE ASSESSMENT. THE OTH ER FACT IS, THE REASSESSMENT NOTICE WAS ISSUED AFTER FOUR YEARS FRO M THE END OF THE CONCERNED ASST. YEARS. IF THE ORIGINAL ASSESSMENT IS MADE U/S 143(3) OR U/S 147 OF THE I T ACT, 1961, THEN REASSESSMENT CANNOT BE DONE AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF RELE VANT ASST. YEARS, PAGE 6 OF 8 ITA NOS.692 & 693/B/09 6 UNLESS INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSM ENT FOR THE REASON OF FAILURE ON THE PART OF ASSESSEE TO MAKE R ETURN U/S 139 OR IN RESPONSE TO NOTICE ISSUED U/S 142(1) OR SEC. 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSE SSMENT FOR THAT ASST. YEAR . THE REASONS MAY BE GERMANE TO EXCESSIVE DEDUCTIO N BUT COULD NOT GUIDE THE ASSESSEE TO ISSUE NOTICE U/S 14 8 AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASST. YE AR IF HE HAS ALREADY MADE THE ASSESSMENT U/S 143(3) OF THE ACT, UNLESS IT IS ESTABLISHED THAT ESCAPEMENT OF INCOME WAS ONLY DUE TO THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND T RULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT. OTHERWISE IT W OULD AMOUNT TO ABATING THE PRESCRIPTION OF THE PROVISO TO SECTION 147 OF THE ACT. 5.6. IN THE INSTANT CASE, FROM THE REASONS RECORD ED FOR REOPENING THE TWO ASSESSMENTS, WE FIND ALL MATERIAL FACTS WERE ALREADY AVAILABLE ON RECORD AND BASED ON THE SAME, INTEREST WAS DISALLOWED AMOUNTING TO RS.63,994/- AND RS.96,623/- IN THE ORIGINAL ASSESSMENT COMPLETED U/S 143(3) OF THE ACT FOR THE ASST. YEARS CONCERNED I.E. 2001-02 AND 2002-03. NO FRESH MATERIALS ARE AVAILABLE IN THE INSTANT CASE FOR REOPENING THE ASS ESSMENT. IT IS AN ADMITTED FACT; THE REASSESSMENT PROCEEDINGS WERE IN ITIATED ON THE BASIS OF REVENUE AUDIT PARTY OBJECTION. THE HON'BL E SUPREME COURT IN THE CASE OF INDIAN AND EASTERN NEWSPAPER SOCIETY LIMITED 119 ITR 996 HAD VERY CATEGORICALLY HELD THAT THE OPINIO N OF INTERNAL AUDIT PARTY ON A POINT OF LAW CANNOT FORM THE BASIS OF HIS REASON TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAP ED ASSESSMENT. AS RIGHTLY POINTED OUT BY CIT(A), THE ASSESSING OFF ICER HAD PAGE 7 OF 8 ITA NOS.692 & 693/B/09 7 EVALUATED THE SAME SET OF FACTS TO ARRIVE AT A CERT AIN CONCLUSION WHEN HE COMPLETED THE ORIGINAL ASSESSMENT U/S 143(3 ) ON 20.11.2003 FOR A.Y. 2001-02 AND ON 27.7.2004 FOR A. Y. 2002-03. ANY DIFFERENT VIEW TAKEN BY THE ASSESSING OFFICER O N CONSIDERATION OF SAME MATERIAL AND SAME SET OF FACTS WOULD TANTAM OUNT TO A CHANGE OF OPINION. 5.7 THE HON'BLE SUPREME COURT IN THE CASE OF CIT V KELVINATOR OF INDIA LTD. 320 ITR 561 HAS HELD AS FO LLOWS:- 'THE CONCEPT OF 'CHANGE OF OPINION' ON THE PART OF THE ASSESSING OFFICER TO REOPEN AN ASSESSMENT DOES NOT STAND OBLITERATE AFTER THE SUBSTITUTION OF SECTION 147 OF THE I T ACT, 1961, BY THE DIRECT TAX LAWS (AMENDMENT) ACTS, 1987 AND 1989. AFTER THE AMENDMENT, THE ASSESSING OFFICER HAS TO HAVE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, BUT THIS DOES NOT IMPLY THAT THE ASSESSING OFFICER CAN REOPEN AN ASSESSMENT ON MERE CHANGE OF OPINION. THE CONCEPT OF 'CHANGE OF OPINION' MUST BE TREATED AS AN IN-BUILT TEST TO CHECK THE ABUSE OF POWER. HENCE, AFTER APRIL 1, 1989, THE ASSESSING OFFICER HAS POWER TO REOPEN AN ASSESSMENT, PROVIDED THERE IS 'TANGIBLE MATERIAL' TO COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASON MUST HAVE A LINK WITH THE FORMATION OF THE BELIEF'. 5.8 ON FACTS OF THIS CASE, WE FIND THAT REASSESSME NT IS BASED ON A MERE CHANGE OF OPINION AND AS HELD BY TH E HON'BLE SUPREME COURT IN THE CASE CITED SUPRA, REASSESSMENT BASED ON MERE PAGE 8 OF 8 ITA NOS.692 & 693/B/09 8 CHANGE OF OPINION IS BAD IN LAW AND WITHOUT ANY LEG AL BASIS. FOR THE AFORESAID REASONS, WE ARE OF THE VIEW THAT THE TECHNICAL PLEA THAT REASSESSMENT INITIATED IS INVALID, IS CORRECT AND I S IN ACCORDANCE WITH LAW. THEREFORE, THE ORDER OF THE CIT(A) IS JUS TIFIED ON THIS COUNT AND NO INTERFERENCE IS CALLED FOR. 5.9 AS REGARDS THE ISSUE ON MERIT, THE CIT(A) HAS CATEGORICALLY FOUND THAT AMOUNTS BORROWED ARE UTILI ZED FOR THE PURPOSE OF CONSTRUCTION OF THE BUILDING. THUS, THE NEXUS ESTABLISHED BETWEEN THE BORROWINGS AND THE CONSTRUC TION HAS NOT BEEN DISPROVED BY THE REVENUE. ACCORDINGLY, THE DE CISION OF THE CIT(A) ON MERIT ALSO IS CONFIRMED. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. SD/- SD/- (A MOHAN ALANKAMONY) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED : 29/3/2010 COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF 7. GF, ITAT, NEW DELHI. MSP/26/3/ BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.