WADIA GHANDY & CO., MUMBAI V. ASST CIT CIR 11(3), MUMBAI

ITA 7191/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93126 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 30-06-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 24-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Tangible material; Wrong claim; Reason to believe; Reassessment proceedings
• Section: 143(3); 32; 147; 148

Judgement Text

G IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI A.D. JAIN, JM AND SHRI N.K. BILLAIYA, A M .. , . . , ./ I.T.A. NO. 7191 /MUM/2011 ( / ASSESSMENT YEAR : 2005-06 WADIA GHANDY & CO., N.M. WEADIA BUILDING, 123, M.G. ROAD, FORT, MUMBAI 400 001. / VS. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 11(3), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AAAFW1081H ( ! / APPELLANT ) .. ( '# ! / RESPONDENT ) A PPELLANT BY SHRI HIRO RAI R E SPONDENT BY : SHRI VIJAY KUMAR BORA SR. A.R. $ % & ' ( ) / DATE OF HEARING : 30-06-2015 *+,- ' ( ) / DATE OF PRONOUNCEMENT : 30-06-2015 [ . / O R D E R PER A.D. JAIN, J.M . : .. , IN ASSESSEES APPEAL FOR A.Y. 2005-06, THE FOLLOWIN G GROUNDS HAVE BEEN TAKEN:- 1. THE LEARNED COMMISSIONER (APPEALS) WAS NOT JUST IFIED IN CONFIRMING THE ASSESSING OFFICER'S ACTION OF DISALL OWANCE OF DEPRECIATION ON TENANCY RIGHTS OF RS.36,23,587. 2. THE LEARNED COMMISSIONER (APPEALS) WAS WRONG IN CONCLUDING THAT TENANCY RIGHTS DID NOT FALL WITHIN THE BLOCK O F INTANGIBLE ASSETS. 3. THE LEARNED COMMISSIONER (APPEALS) FAILED TO APP RECIATE THAT TENANCY RIGHTS WERE A FORM OF LICENCE. ITA 7191/M/11 2 AS REGARDS ADDITION OF PAYMENT TO RETIRED PARTNER 4. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONF IRMING ADDITION OF PAYMENT MADE TO A RETIRED PARTNER OF RS.25,85,61 7 IN TERMS OF THE PARTNERSHIP DEED. 5. THE LEARNED COMMISSIONER (APPEALS) FAILED TO APP RECIATE THAT SUCH PAYMENT WAS DIVERTED BY OVERRIDING TITLE. 6. THE LEARNED COMMISSIONER (APPEALS) WAS WRONG IN HOLDING THAT THAT SUCH PAYMENT, BEING A SELF IMPOSED OBLIGATION, WAS A GRATUITOUS ONE. RELIEF SOUGHT 7. YOUR APPELLANTS PRAY THAT THE ORDER OF THE LEARN ED COMMISSIONER (APPEALS) BE MODIFIED BY: A. ALLOWING DEPRECIATION OF RS.36,23,587 ON TENANCY RIGHTS; B. DELETING ADDITION OF PAYMENT TO RETIRED PARTNER OF RS.25,85,617. 2. THE FOLLOWING ADDITIONAL GROUND HAS BEEN TAKEN B Y WAY OF AN APPLICATION:- THE LEARNED ASSESSING OFFICER WAS NOT JUSTIFIED IN REOPENING THE ASSESSMENT U/S 147 OF THE ACT. THE RESORT TO THE P ROVISIONS OF SECTION 147 AS ALSO THE ORDER PASSED CONSEQUENT THERETO, AR E ILLEGAL AND INVALID. 3. APROPOS THE ADMISSION OF THE ADDITIONAL GROUND, IT IS SEEN THAT THIS ADDITIONAL GROUND IS A LEGAL GROUND. THOUGH IT HAS BEEN RAISED FOR THE FIRST TIME BEFORE US, SINCE IT INVOLVES A PURELY LEGAL IS SUE, AFFECTING THE TAX LIABILITY OF THE ASSESSEE AND SINCE IT DOES NOT REQUIRE ANYTH ING FRESH TO BE GONE INTO AND BECAUSE IT GOES TO THE ROOT OF THE MATTER, THIS GROUND IS ADMITTED, IN KEEPING WITH THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF NTPC LTD., 239 ITR 383. RELIANCE BY THE DEPARTMENT ON T HE CASE OF CIT VS. TOLLARAM HASSOMAL 298 ITR 22 (MP) IS OF NO CONSEQU ENCE INASMUCH AS THE DECISION IN THE CASE OF NTPC LTD. (SUPRA) WAS NOT B EFORE THE HONBLE M.P. HIGH COURT AND THEREFORE, THEIR LORDSHIPS NEVER HAD THE OCCASION TO CONSIDER IT. ITA 7191/M/11 3 4. SO FAR AS REGARDS THE MERITS OF THE ADDITIONAL G ROUND, THE LD. COUNSEL FOR THE ASSESSEE ARGUED THAT THERE WAS NO TANGIBLE MATERIAL BEFORE THE A.O. AT THE TIME OF RECORDING OF THE REASONS FOR RE-OPENING THE COMPLETED ASSESSMENT OF THE ASSESSEE, SO AS TO ENABLE THE A.O. TO FORM A BELIEF OF ESCAPEMENT OF INCOME. THUS, ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE, THE COMPLETED ASSESSMENT OF THE ASSESSEE HAS WRONGLY BEEN REOPENE D. 5. ON THE OTHER HAND, THE LD. D.R. HAS CONTENDED TH AT IN THE RETURN OF INCOME, THE ASSESSEE HAD CLAIMED DEPRECIATION @ 25% ON WDV OF AN INTANGIBLE ASSET; THAT WHEREAS, A PERUSAL OF THE RE CORDS OF THE ASSESSEE SHOWED THAT THIS ASSET REPRESENTED THE TENANCY RIGH TS IN A BUILDING WHICH WAS USED BY THE ASSESSEE AS ITS OFFICE PREMISES; THAT T HEREFORE, A WRONG CLAIM OF DEPRECIATION HAD BEEN MADE BY THE ASSESSEE, WHICH W AS NOT ALLOWABLE AND THIS HAVING RESULTED INTO ESCAPED ASSESSMENT TO THE TUNE OF RS. 36,23,587/-, THE COMPLETED ASSESSMENT OF THE ASSESSEE WAS CORREC TLY REOPENED. 6. WE HAVE HEARD THE PARTIES ON THIS LEGAL ISSUE. T HE A.O. RECORDED THE FOLLOWING REASONS FOR REOPENING THE COMPLETED ASSES SMENT OF THE ASSESSEE:- THE ASSESSEE M/S WADIA GANDHY & CO ASSESSED UNDER PAN AAAFW1081H HAS FILED ITS RETURN OF INCOME FOR THE A . Y 2005-06 ON 2611012005 ADMITTING TOTAL INCOME OF RS 10,68,01,85 0/- AND THE RETURN OF INCOME HAS BEEN PROCESSED U/S 143(L)(A). ON PERUSAL OF THE RETURN OF INCOME, IT IS SEEN THAT THE ASSESSEE HAS CLAIMED DEPRECIATION OF RS 36,23,587/- @ 25% ON WDV OF RS. 1,42,94,347/- IN RESPECT OF INTANGIBLE ASSET. ON PERUSAL OF THE RECORDS OF THE ASSESSEE, IT IS SEEN THAT THIS ASSET REPRESENTS THE TENANCY RIGHT IN THE FIRST FLOOR OF N.M. WADIA BUILDING, WHICH IS USED BY THE ASSESSEE AS IT S OFFICE PREMISES. AS PER THE PROVISIONS OF SECTION 32, THE DEPRECIATI ON IS ALLOWABLE ONLY ON THE TANGIBLE ASSETS BEING BUILDING, MACHINERY, P LANT OR FURNITURE. THE AMENDED PROVISION PROVIDES FOR DEPRECIATION AS INTANGIBLE ASSETS SUCH AS KNOW-HOW, PATENTS, COPY RIGHT, TRADE MARKS, LICENSES OR FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RECE IPTS OF SIMILAR NATURE ACQUIRED ON OR AFTER IST APRIL, 1998. IN VIEW OF THE ABOVE, THE ASSESSEE'S CLAIM OF DEPRE CIATION OF RS. 36,23,5871- ON THE TENANCY RIGHT PROPERTY UNDER INT ANGIBLE ASSETS IS ITA 7191/M/11 4 NOT ALLOWABLE AND HENCE IN MY OPINION, I HAVE REASO NS TO BELIEVE THAT THE ASSESSEE HAS MADE A WRONG CLAIM OF DEPRECIATION AT RS 36,23,587/- WHICH HAS ESCAPED ASSESSMENT AND THEREFORE IF IS A FIT CASE FOR 'REOPENING THE ASSESSMENT FOR CONSIDERING THE ASSES SING THE SUM OF RS 36,23,5871- BY ISSUE OF NOTICE U/S 148 '. 7. A PERUSAL OF THE REASONS RECORDED BY THE A.O. FO R INVOKING REASSESSMENT PROCEEDING AGAINST THE ASSESSEE SHOWS THAT THE A.O. ENTERTAINED A BELIEF OF ESCAPEMENT OF INCOME, SINCE ACCORDING TO HIM, THE A SSESSEE HAD CLAIMED DEPRECIATION IN RESPECT OF TENANCY RIGHTS, WHEREAS ACCORDING TO THE PROVISIONS OF SECTION 32 OF THE I.T. ACT, DEPRECIATION IS ALLO WABLE ONLY ON TANGIBLE ASSETS AND THE AMENDED PROVISIONS FOR DEPRECIATION PERTAIN ING TO INTANGIBLE ASSETS ALSO DOES NOT INCLUDE WITHIN ITS FOLD, TENANCY RIGH TS AND THAT SO, DUE TO THE WRONG CLAIM OF DEPRECIATION MADE BY THE ASSESSEE, I NCOME HAD ESCAPED ASSESSMENT. 8. THUS, EVIDENTLY, THERE WAS NO TANGIBLE MATERIAL AVAILABLE WITH THE A.O. AT THE TIME OF RECORDING OF REASONS FOR INITIATING REASSESSMENT PROCEEDING SO AS TO ENABLE SUCH REASSESSMENT PROCEEDINGS TO BE IN ITIATED, THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED U/S 143( 1) OF THE ACT ON 26-10- 2005. AT THAT TIME, THE TAX AUDIT REPORT FILED BY THE ASSESSEE WAS BEFORE THE A.O. AND IT WAS THIS VERY TAX AUDIT REPORT, AND NOT HING ELSE, OR FURTHER, WHICH HAD COME TO THE NOTICE OF THE A.O., ON THE BASIS OF WHICH, THE REASONS FOR REOPENING THE COMPLETED ASSESSMENT OF THE ASSESSEE WERE RECORDED. THE REASONS RECORDED, AS REPRODUCED ABOVE, DO NOT TALK OF ANY INDEPENDENT TANGIBLE MATERIAL HAVING COME TO THE NOTICE OF THE A.O. IN CIT VS. ORIENT CRAFT LTD. 354 ITR 536 (DELHI), IT HAS BEEN HELD, INTER ALIA, THAT THE EXPRESSION REASON TO BELIEVE CANNOT HAVE TWO DIFFERENT STAND ARDS AND SETS OF MEANING ONE APPLICABLE WHERE THE ASSESSMENT ORDER EARLIER M ADE U/S 143(3) OF THE ACT, AND ANOTHER APPLICABLE WHERE THE INTIMATION WAS ISS UED U/S 143(1);THAT AS SUCH, WHERE THE REASONS DISCLOSED THAT THE A.O. REA CHED THE BELIEF OF ESCAPEMENT OF INCOME ON GOING THROUGH THE RETURN O F INCOME FILED BY THE ITA 7191/M/11 5 ASSESSEE AFTER HE ACCEPTED THE RETURN U/S 143(1) WI THOUT SCRUTINY AND NOTHING MORE, THIS WAS NOTHING BUT A REVIEW OF THE EARLIER PROCEEDINGS AND AN ABUSE OF POWER BY THE A.O. THIS IS EXACTLY WHAT HAS HAPPENED IN THE PRESENT CASE, AS DISCUSSED. THE REASONS RECORDED BY THE A. O. DO NOT SHOW THAT ANY TANGIBLE MATERIAL COME IN THE POSSESSION OF THE A.O . SUBSEQUENT TO THE ISSUE OF THE INTIMATION U/S 143(1) OF THE ACT, AS SUCH, A ND THEREFORE, THE NOTICE REFLECTED AN ARBITRARY EXERCISE OF THE POWER CONFER RED U/S 147 OF THE ACT. 9. IN VIEW OF THE ABOVE, THE GRIEVANCE SOUGHT TO BE RAISED BY THE ASSESSEE BY WAY OF THE ADDITIONAL GROUND TAKEN IS JUSTIFIED AND IS ACCEPTED AS SUCH. IT IS HELD THAT IN THE ABSENCE OF ANY TANGIBLE MATERIA L BEFORE THE A.O., THE A.O. WAS NOT ENTITLED TO INVOKE THE REASSESSMENT JURISDI CTION AND TO PROCEED TO REOPEN THE COMPLETED ASSESSMENT OF THE ASSESSEE. AC CORDINGLY, THE REASSESSMENT PROCEEDINGS ARE FOUND TO BE VOID AB IN ITIO, AND AS SUCH, THEY WERE CANCELLED. 10. CONSEQUENT TO THE ABOVE CANCELLATION OF THE REA SSESSMENT PROCEEDING, NOTHING PURSUANT TO SUCH REOPENING OF THE COMPLETED ASSESSMENT OF THE ASSESSEE SURVIVES ANY LONGER FOR ADJUDICATION AND A S SUCH, THE GROUNDS TAKEN BY THE ASSESSEE ON THE MERITS OF THE ADDITION MADE AND CONFIRMED ARE NO LONGER REQUIRED TO BE GONE INTO, AND THEY ARE NOT B EING ADJUDICATED. 11. IN THE RESULT, APPEAL FILED BY THE ASSESASEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30-06-2015. . ' *+,- $ /0 1 2 30-06-2015. + ' 3& SD/- SD/- (N.K. BILLAIYA) (A.D. JAIN ) ACCOUNTANT MEMBER /J UDICIAL MEMBER / $ & MUMBAI ; 1 DATED 30-06-2015 [ %.../ R.K. R.K. R.K. R.K. , SR. PS ITA 7191/M/11 6 ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '# ! / THE RESPONDENT. 3. $ F( () / THE CIT(A)- 2, MUMBAI 4. $ F( / CIT- 11, MUMBAI 5. I%J 3 '(KL , ) KL- , / $ & / DR, ITAT, MUMBAI G BENCH 6. 3 M N & / GUARD FILE. ! ( / BY ORDER, # I( '( //TRUE COPY// )/(* + ( DY./ASSTT. REGISTRAR) , / $ & / ITAT, MUMBAI