DCIT 5(2), MUMBAI V. JNJ HOLDINGS P.LTD, MUMBAI

ITA 707/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3167 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2016
• Appeal Filed By: Department
• Bench Allotted: J
• Assessment Year: 2005-2006
• Appeal Filed On: 31-01-2014
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN V P
• Keywords: Reason to believe
• Section: 143(3); 148

Judgement Text

1 ITA NO.707/MUM/2014 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J, MUMBAI BEFORE SHRI AMIT SHUKLA (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACOUNTANT MEMBER) I.T.A. NO.ITA NO.707/MUM/2014 (ASSESSMENT YEAR : 2005-06) DY.CIT 5(2), MUMBAI VS M/S JN HOLDINGS PVT LTD RAVAL BUILDING NO.1, 2 ND FLOOR, 423, BHADKAMKAR MARG, MUMBAI 04 PAN :AACJ2047D (APPELLANT) (RESPONDENT) APPELLANT BY SHRI ASGHAR ZAIN V.P. RESPONDENT BY SHRI HIRO RAI DATE OF HEARING : 02-06-2016 DATE OF PRONOUNCEMENT : 15-06-2016 O R D E R PER ASHWANI TANEJA, AM THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS) [HEREINAFTER C ALLED LD.CIT(A)] DT 01-11- 2013 PASSED AGAINST THE ASSESSMENT ORDER U/S 143(3) R.W.S. 147 OF THE I.T ACT, 1961 DATED 07-02-2013 FOR A.Y. 2005-06 ON THE FOLL OWING GROUNDS: 1. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. C!T(A) HAS ERRED IN QUASHING PROCEEDIN GS U/S. 147 OF THE 2 ITA NO.707/MUM/2014 I. T. ACT ON THE BASIS OF FACT THAT RE-OPENING WAS DONE AFTER THE LAPSE OF FOUR YEARS, THOUGH IN SIMILAR CIRCUMSTANCES JURI SDICTIONAL HIGH COURT HAS HELD THE REASSESSMENT VALID IN THE CASE O F PRANAWA LEAFIN PVT. LTD.?' 2. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. C!T(A) HAS ERRED IN DELETING THE ADDIT ION ON ACCOUNT OF COMMISSION PAYMENT WHICH WAS PROVISION IN NATURE DU RING THE YEAR AND SAME WAS ALSO NOT REFLECTED IN THE RETURN OF IN COME OF THE DIRECTORS?' THE APPELLANT PRAYS THAT THE ORDER OF THE LD.C!T(A) BE SET ASIDE AND THE ORDER OF THE A 0 BE RESTORED. 2. DURING THE COURSE OF HEARING THE LD. LD. DEPARTM ENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND THE LD.COUNSEL RELIED UPON THE ORDER OF THE LD.CIT(A) AND ALSO DREW OUR ATTENT ION ON THE COPY OF REASONS RECORDED WHICH IS ENCLOSED IN THE PAPER BOOK AND CO NTENDED THAT IN THIS CASE REOPENING WAS BAD IN LAW. THE REOPENING IS BAD BEI NG BARRED BY LIMITATION IN VIEW OF PROVISO TO SECTION 147. THE REASONS ARE FA CTUALLY INCORRECT AND NO BELIEF ABOUT THE ESCAPEMENT OF INCOME COULD HAVE BE EN FORMED ON THE BASIS OF THESE REASONS. IT WAS ALSO SUBMITTED THAT ON MERIT S ALSO ADDITION WAS WRONGLY MADE BY THE ASSESSING OFFICER WHICH HAS BEEN RIGHTL Y DELETED BY THE LD.CIT(A). 3. WE HAVE GONE THROUGH THE ORDERS PASSED BY LOWER AUTHORITIES AND EVIDENCE PLACED BEFORE US AS ALSO THOSE PLACED BEFO RE THE LOWER AUTHORITIES. IN THIS CASE, THE BRIEF FACTS ARE THAT ORIGINAL ASSESS MENT WAS COMPLETED U/S 143(3) VIDE ORDER DATED 17-12-2009. THE ASSESSING OFFICER RECORDED REASONS AND ISSUED NOTICE U/S 148 ON 27-03-2012. THUS, IT IS A CASE WHERE THE REOPENING HAS BEEN DONE AFTER EXPIRY OF FOUR YEARS FROM THE E ND OF THE IMPUGNED ASSESSMENT YEAR WHERE ORIGINAL ASSESSMENT ORDER WAS PASSED U/S 143(3). 3 ITA NO.707/MUM/2014 UNDER THESE CIRCUMSTANCES, THE REOPENING CAN BE DON E SUBJECT TO THE FIRST PROVISO TO SECTION 147 WHICH SAYS THAT NO REOPENING SHALL BE DONE AFTER THE EXPIRY OF FOUR YEARS, WHERE THE ORIGINAL ASSESSMENT WAS DONE U/S 143(3) UNLESS THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DI SCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT FOR THA T ASSESSMENT YEAR. FOR THE PURPOSE OF EXAMINING THE VALIDITY OF THE REOPENING VIS-A-VIS AFORESAID PROVISO WE NEED TO FIRST EXAMINE THE REASONS RECORDED BY TH E ASSESSING OFFICER. THE REASONS RECORDED BY THE ASSESSING OFFICER ARE REPRO DUCED BELOW: ON PERUSAL OF CASE RECORDS IT IS NOTED THAT THE AS SESSEE HAS CLAIMED EXPENSES ON ACCOUNT OF COMMISSION PAID TO THE DIREC TORS SHRI SANJAY JHAVERI OF RS.46,70,703/- AND MR. PRASHANT J. SARKA R OF RS.46,70,703/- HOWEVER IT IS NOTED THAT IN THE RETURN OF INCOME FI LED BY MR. SANJAY JHAVERI, COMMISSION RECEIVED FROM ASSESSEE COMPANY WAS NOT OFFERED TO TAX. SINCE COMMISSION INCOME WAS NOT OFFERED BY THE DIRECTOR IN HIS RETURN OF INCOME FILED, IT WOULD BE CONSTRUED THAT NO COMMISSION IS PAID BY THE ASSESSEE COMPANY TO ITS DIRECTORS AND A SSESSEE'S CLAIM OF EXPENDITURE IS NOT AN ALLOWABLE DEDUCTION. I THEREFORE HAVE REASON TO BELIEVE THAT INCOME TO T HE EXTENT OF RS.46,70,703/- HAS ESCAPED ASSESSMENT AND THEREFORE ASSESSMENT IS REQUIRED TO BE REOPENED U/S.147 OF THE I.T. ACT, 19 61. 4. IT IS NOTED BY US THAT THESE REASONS ARE NOT SUS TAINABLE IN THE EYES OF LAW AND THE REOPENING IS ILLEGAL ON VARIOUS GROU NDS AS DISCUSSED BY US HEREUNDER: 4.1. THE MANDATORY CONDITION TO REOPEN THE CASE WHE RE THE PROVISO IS APPLICABLE AS DISCUSSED ABOVE IN THE EARLIER PARAGR APH IS THAT THERE SHOULD BE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ALL THE MATERIAL FACTS AND FOR THIS PURPOSE, THE ASSESSING OFFICER SHALL RECOR D THE REASONS SO AS TO 4 ITA NO.707/MUM/2014 MAKE OUT A CASE IN THE REASONS ITSELF THAT THERE WA S FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ALL MATERIAL FACTS. FOR T HIS PURPOSE, THE ASSESSING OFFICER IS EXPECTED AND OBLIGED UNDER THE LAW TO AT LEAST RECORD THIS ALLEGATION THAT THERE WAS A FAILURE ON THE PART OF THE ASSESSEE IN DISCLOSING ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. I T IS NOTED BY US THAT PERUSAL OF THE REASONS SUGGESTS THAT NO SUCH ALLEGA TION HAS BEEN RECORDED BY THE ASSESSING OFFICER, EVEN FOR THE SAKE OF MENT IONING. IN THE ABSENCE OF THE SAME, THESE REASONS CANNOT OVERCOME THE EMBA RGO OF LIMITATION PROVIDED IN THE FIRST PROVISO TO SECTION 147. LAW IN THIS RESPECT IS SETTLED ON THE BASIS OF VARIOUS JUDGEMENTS COMING FROM VARI OUS COURTS ALL OVER THE COUNTRY. THE LD.COUNSEL OF THE ASSESSEE PLACED REL IANCE BEFORE US ON THE FOLLOWING JUDGEMENTS: 1. HINDUSTAN LEVER LTD VS. R.B. WADKAR, A.C.IT.268 ITR 332 (BOM) 2. ALLANASONS LTD. V DC IT 369 ITR 648 (BOM) 3. BUSINESS INDIA V JT. CIT 370 ITR 154 (BOM) 4. DIL LTD. V ACIT 343 ITR 296 (BOM) 5. MONITOR INDIA P LTD. V UNION OF INDIA 343 ITR 23 6 (BOM) 4.2 WE HAVE GONE THROUGH THESE JUDGMENTS AND FIND F ORCE IN THE ARGUMENTS OF LD.COUNSEL OF THE ASSESSEE. THE REAS ONS ARE NOT SUSTAINABLE IN THE EYES OF LAW AS NO CASE IS MADE OUT IN THE REASO NS ABOUT THE FAILURE OF THE ASSESSEE TO FULLY AND TRULY DISCLOSE ALL THE MATERI AL FACTS NECESSARY FOR THE ASSESSMENT. 5 ITA NO.707/MUM/2014 4.3 IT HAS ALSO BEEN EXAMINED BY US AS TO WHETHER, ACTUALLY, WAS THERE ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ALL THE MATERIAL FACTS OR NOT. FROM THE EVIDENCES SHOWN TO US IT IS NOTED TH AT ASSESSEE HAD CONSPICUOUSLY DISCLOSED IN ITS BOOKS OF ACCOUNT THE PAYMENT OF COMMISSION (BEING PART OF SALARY PAID TO ITS DIRECT ORS). EVEN DURING THE COURSE OF ASSESSMENT PROCEEDINGS VARIOUS QUERIES WE RE RAISED BY THE ASSESSING OFFICER FROM TIME TO TIME AND ASSESSEE GA VE ITS REPLY IN VARIOUS LETTERS JUSTIFYING AND SUBSTANTIATING THE PAYMENT O F COMMISSION TO DIRECTORS. IT WAS ALSO SUBMITTED BY THE ASSESSEE T HAT TDS WAS DEDUCTED ON THE SAID PAYMENT WHICH WAS DEPOSITED IN THE GOVE RNMENT TREASURY. THE ASSESSEE ALSO BROUGHT ON RECORD THE BOARD RESOL UTION AUTHORISING PAYMENT OF COMMISSION TO DIRECTORS @5% ON THE NET P ROFIT EARNED BY THE ASSESSEE COMPANY. THE BOARD RESOLUTION DATED 25-01 -2005 WAS PLACED BEFORE THE ASSESSING OFFICER VIDE ASSESSEES REPLY DATED 03-11-2007 DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. EVI DENCE OF PAYMENT OF COMMISSION AND DEDUCTION OF TAX AT SOURCE AND ITS D EPOSIT IN THE GOVERNMENT TREASURY WAS PLACED BEFORE THE ASSESSING OFFICER VIDE ASSESSEES REPLY DT 05-10-2007. UNDER THESE CIRCUM STANCES WE FAIL TO UNDERSTAND HOW CAN IT BE EVEN ALLEGED THAT ASSESSEE DID NOT DISCLOSE THE IMPUGNED TRANSACTIONS DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. THUS, THERE IS NO FAILURE ON THE PART OF THE ASSESSEE IN DISCLOSING ALL MATERIAL FACTS NEEDED FOR THE ASSESS MENT. WE DERIVE SUPPORT FROM THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS KELVINATOR OF INDIA LTD 320 ITR 561 (SC) AND THE JU DGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE IN DUSTRIES LTD 382 ITR 574 (BOM). 6 ITA NO.707/MUM/2014 4.4 WE HAVE ALSO EXAMINED OTHER CRUCIAL ASPECT, AS TO WHETHER THERE WAS ANY ESCAPEMENT OF INCOME IN THIS CASE. A PERUS AL OF THE REASONS REVEALS THAT AS PER THE ASSESSING OFFICER THE COMMI SSION INCOME WAS NOT OFFERED IN THE RETURN OF INCOME BY THE PAYEE DIRECT ORS IN THEIR INDIVIDUAL RETURNS AND, THEREFORE, IT WOULD BE PRESUMED THAT N O COMMISSION WOULD HAVE BEEN PAID BY THE ASSESSEE COMPANY TO ITS DIREC TORS. THIS IS A CASE WHERE ASSESSING OFFICER IS TRYING TO PUT THE CART B EFORE THE HORSE. THE APPROACH OF THE AO HAS BEEN HIGHLY IRRESPONSIBLE AN D CASUAL IN REOPENING THIS CASE. THE CONSTITUTION OF OUR COUNTRY HAS ATT ACHED GREAT SANCTITY TO THE CONCEPT OF FINALITY OF LITIGATION. NO REOPENIN G OF AN ALREADY CONCLUDED ASSESSMENT CAN BE DONE EXCEPT AS PROVIDED BY THE LE GISLATURE. ANY CASUAL AND IRRESPONSIBLE REOPENING OF AN ALREADY CONCLUDED ASSESSMENT IS MISUSE OF PROCESS OF LAW AND PIERCES THE FAITH OF THE TAXP AYERS UPON THE INCOME- TAX DEPARTMENT. IF THE DIRECTORS HAVE NOT SHOWN THE COMMISSION INCOME IN THEIR INDIVIDUAL RETURNS AND IF THESE FACTS ARE TRUE, THEN FIRST OF ALL, THE INDIVIDUAL CASES OF THE DIRECTORS SHOULD HAVE BEEN REOPENED, THAT TOO, AFTER VERIFICATION OF PRIMARY FACTS. IT IS FURTHER NOTICED BY US THAT ON FACTS ALSO, THE ASSESSING OFFICER HAS GONE WRONG. IT IS SHOWN TO US THAT COMMISSION WAS PAID AS PART OF SALARY TO THE DIRECT ORS. THEREFORE, THE ASSESSEE WAS LIABLE TO DEDUCT TDS U/S 192 AND NOT U /S 194H. SECTION 192 PROVIDES THAT TDS ON SALARIES SHALL BE DEDUCTED AT THE TIME OF PAYMENT OF SALARY. THE COMPANY PROVIDED FOR THE COMMISSION AS PART OF SALARY IN THE IMPUGNED YEAR. THE TDS WAS DEDUCTED AT THE TIME OF PAYMENT OF THE SAME IN THE SUBSEQUENT FINANCIAL YEAR BUT BEFORE TH E DUE DATE OF FILING OF THE RETURN U/S 139. THUS, VIEWED FROM THIS ANGLE A LSO, THE SAME WAS NOT DISALLOWABLE, IN VIEW OF THE CLEAR PROVISIONS OF LA W AS HAS EMERGED AFTER VARIOUS AMENDMENTS AND LEGAL PRECEDENTS. EVEN OTHE RWISE, PAYMENTS 7 ITA NO.707/MUM/2014 MADE ON ACCOUNT OF SALARY IS NOT COVERED U/S 40(A)( IA) OF THE ACT. THUS, IT IS A CLEAR CASE WHERE THE PAYMENT WAS DULY MADE BY THE ASSESSEE, EXPENSES WERE PROPERLY BOOKED AND CLAIMED IN THE RE TURN OF INCOME AND DUE COMPLIANCE WAS MADE WITH REGARD TO THE PROVISIO NS OF TDS ALSO. NO CASE OF ESCAPEMENT HAS BEEN MADE OUT BY THE ASSESSI NG OFFICER, AT ALL. IT IS NOT A CASE WHERE ANY BELIEF COULD HAVE BEEN FORM ED ABOUT THE ESCAPEMENT OF INCOME. THE REOPENING HAS BEEN DONE IN AN ABSOLUTELY ILLEGAL MANNER AND IS A BY-PRODUCT OF CASUAL APPROA CH OF THE ASSESSING OFFICER, WHO HAD RECORDED THE REASONS. THE LD.CIT( A) HAS RIGHTLY HELD THAT THE REOPENING WAS NOT VALID AND HAS RIGHTLY QUASHED THE SAME. EVEN ON MERITS, NO DISALLOWANCE WAS LIABLE TO BE MADE AND H AS RIGHTLY BEEN DELETED BY THE LD.CIT(A). THUS, WE UPHOLD THE ORDE R OF THE LD.CIT(A) AND DISMISS THE GROUNDS RAISED BY THE REVENUE. 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE COURT ON THIS 15 TH DAY OF JUNE, 2016. SD/- SD/- (AMIT SHUKLA) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 15 TH JUNE, 2016 PK/- COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE , J-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES