HOTEL CORPORATION OF INIDIA LTD, MUMBAI V. DCIT 8(2), MUMBAI

ITA 7246/MUM/2008

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7598 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 14-03-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 23-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: D J SHUKLA
• Keywords: Business income; Cost of acquisition; Wholly owned subsidiary; Tangible material; Difference of opinion; Revised return; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148; 154

Judgement Text

HOTEL CORPORATION OF INDIA LTD ITA NO. 7246/MUM/2008 (ASST YEAR 2003-04) IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI H BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI VIJAY PAL RAO, JM & SHRI N K BILLAIY A, AM ITA NO. 7246/MUM/2008 (ASST YEAR 2003-04) HOTEL CORPORATION OF INDIA LTD TRANSPORT ANNEXURE BLDG 1 ST FLOOR, AIR INDIA COMPLEX OLD AIRPORT, SANTACRUZ (E) MUMBAI 29 VS THE DY COMMR OF INCOME TAX 8(2), MUMBAI (APPELLANT ) (RESPONDENT) PAN NO. AAACH2768R ASSESSEE BY SH D J SHUKLA REVENUE BY SH GOLI SRINIWAS RAO DT.OF HEARING 14 TH MARCH 2012 DT OF PRONOUNCEMENT 28 TH , MARCH 2012 ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 17 TH NOV 2008 OF THE CIT(A) FOR THE ASSESSMENT YEAR 2003-04. 2 THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE G ROUNDS IN THIS APPEAL: 1. THE LD DY CIT ERRED IN REOPENING ASSESSMENT COMPLE TED VIDE ASST ORDER U/S 143(3) DT 31.3.2006 U/S 147 OF THE I T ACT. 2.THE LD DCIT ERRED IN DETERMINING TAXABLE LONG TER M CAPITAL GAIN IN RESPECT OF SALE OF CENTAUR HOTEL MUMBAI AIRPORT (CHMA) AT RS. 90, 38,74,654/- INSTEAD OF RS. 70,38,74,654/- AS CERTIFIED BY THE AUDITOR IN PRE SCRIBED FORM NO.3CEA AND DECLARED BY THE APPELLANT IN RETURN OF INCOME. 3. THE LD DCIT ERRED IN CONSIDERING DEPOSIT OF RS. 1. 58 CRORES MADE BY THE APPELLANT RELATABLE TO CENTAUR HOTEL JUHU BEACH (CH JB) IN BOMBAY HIGH COURT AS A LIABILITY OF CHJB UNIT AND FURTHER ERRED IN DEDUCTING THE SAME FROM W D V OF ASSETS OF CHJB. 4. THE LD DCIT ERRED IN CONCLUDING THAT INTEREST PAID BY THE APPELLANT OF RS. 113.20 LACS ON SETTLEMENT OF DISPUTED AMOUNT WAS OF CAPITAL NATURE AND HOTEL CORPORATION OF INDIA LTD ITA NO. 7246/MUM/2008 (ASST YEAR 2003-04) 2 FURTHER ERRED IN DISALLOWING RS. 113.20 LACS FOR COM PUTING BUSINESS INCOME OF THE APPELLANT FOR ASST YEAR 2003-04. 3 GROUND NO.1 IS REGARDING VALIDITY OF REOPENING OF THE ASSESSMENT. 3.1 THE ASSESSEE IS A PUBLIC SECTOR CORPORATION BEI NG 100% SUBSIDIARY OF AIR INDIA. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LUXURY H OTELS AT MUMBAI, DELHI AND SRINAGAR AS WELL AS FLIGHT KITCHENS AT MUMBAI AND D ELHI. DURING THE YEAR, THE ASSESSEE HAS SOLD TWO HOTELS OWNED AND OPERATED BY IT AT MUMBAI NAMELY, CENTAUR HOTEL, AIRPORT AND CENTAUR HOTEL AT JUHU BEACH AS P ER THE DISINVESTMENT POLICY OF GOVERNMENT OF INDIA. 3.2 THE ASSESSEE FILED ITS RETURN OF INCOME ON 27.1 1.2003 DECLARING LOSS OF RS. 31,65,90,803/- AND LONG TERM CAPITAL GAINS OF R S.99,18,34,847/- WHICH WAS SET OFF AGAINST THE BUSINESS LOSS AND THE BALANCE OF RS. 6 7,5244,044/- WAS DECLARED AS INCOME. 3.3 THE ASSESSEE ALSO REVISED ITS RETURN OF INCOME ON 31.3.2005 REVISING THE TOTAL INCOME TO RS. 67,24,51,351/-. THE LONG TERM CAPITAL GAINS WERE OFFERED FROM THE SALE OF THESE HOTELS NAMELY CENTAUR HOTEL, AIRPORT AND C ENTAUR HOTEL AT JUHU BEACH U/S 50B OF THE I T ACT. 3.4 THE ASSESSMENT WAS COMPLETED VIDE ORDER U/S 143 (3) ON 31.3.2006. SUBSEQUENTLY, THE ASSESSING OFFICER PROPOSED TO REC TIFY THE ASSESSMENT ORDER BY ISSUING NOTICE U/S 154 DT 18.4.2006. THE ASSESSEE F ILED ITS REPLY DT 24TH AUG 2006 TO THE NOTICE ISSUED U/S 154. THEREAFTER, THE ASSESSING O FFICER ISSUED NOTICE U/S 148 DT 17.8.2006. HOTEL CORPORATION OF INDIA LTD ITA NO. 7246/MUM/2008 (ASST YEAR 2003-04) 3 3.5 THE ASSESSING OFFICER SUPPLIED THE REASONS RECO RDED FOR THE REOPENING OF THE ASSESSMENT IN RESPONSE TO THE REQUEST OF THE ASSESS EE VIDE LETTER DATED 20 TH SEPT 2006. THE ASSESSEE ALSO STATED IN THE SAID LETTER THAT THE ORIGINAL RETURN OF INCOME ALONG WITH THE REVISED RETURN EARLIER FILED MAY BE TREATED AS FILED IN DUE COMPLIANCE WITH THE NOTICE U/S 148 OF THE I T ACT. AFTER RECE IVING THE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT, THE ASSESSEE FILED ITS REPLY DT 15.3.2007 WHEREIN INTER- ALIA RAISED THE OBJECTION AGAINST REOPENING OF THE ASSESSMENT BEING ON THE BASIS OF CHANGE OF OPINION. 4 THE ASSESSING OFFICER COMPLETED THE REASSESSMENT U/S 147 R.W.S 143(3) ON 5.12.2007 THEREBY DISALLOWED INTEREST OF RS. 1,13,2 0,000/- AND MADE AN ADDITION IN LONG TERM CAPITAL GAINS COMPUTED U/S 50B OF THE I T ACT. 5 THE ASSESSEE CHALLENGED THE REASSESSMENT ORDER BE FORE THE CIT(A) AND APART FROM OTHER GROUNDS RAISED, THE GROUND OF VALIDITY O F REOPENING. THE CIT(A) DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE AND CONFI RMED THE ACTION OF THE ASSESSING OFFICER VIDE IMPUGNED ORDER. 6 BEFORE US, THE LD AR OF THE ASSESSEE HAS NARRATED THE FACTS THAT IN VIEW OF THE DISINVESTMENT POLICY OF GOVERNMENT OF INDIA, IT WAS DECIDED TO MAKE SALE OF TWO HOTELS RUN BY THE ASSESSEE AT MUMBAI I.E. CENTAUR H OTEL, AIRPORT AND CENTAUR HOTEL AT JUHU BEACH. BIDS WERE INVITED FROM THE INTEREST ED PARTIES FOR PURCHASE OF THE ASSESSEES BUSINESS AS A GOING CONCERN ON AS IS WH ERE IS BASIS. HE HAS FURTHER SUBMITTED THAT IT WAS A SLUMP SALE AND ALL RELEVANT DOCUMENTS, EXPLANATION, PAPERS ETC., IN RESPECT OF TWO HOTELS WERE SUBMITTED BEFOR E THE ASSESSING OFFICER DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. HOTEL CORPORATION OF INDIA LTD ITA NO. 7246/MUM/2008 (ASST YEAR 2003-04) 4 7 THE LD AR HAS POINTED OUT THAT THE MATTER OF PAY MENT OF RS. 10 CRORES TO AIRPORT AUTHORITY OF INDIA (AAI) ON SETTLEMENT OF D ISPUTED LEASE RENT WAS DULY BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER AND THIS FAC T WAS ALSO RECORDED IN THE NOTES TO ACCOUNTS AND WAS ALSO DISCUSSED WITH THE ASSESSING OFFICER. THE ASSESSEE EXPLAINED THE CLAIM OF DEDUCTION OF RS. 10 CRORES VIDE ITS LE TTER DATED 23/27 TH MARCH 2006 AND 29.3.2006. THUS, THE ASSESSING OFFICER HAS DULY CON SIDERED THE ISSUE OF DEDUCTION OF RS. 10 CRORES WHILE COMPUTING THE LONG TERM CAPITAL GAINS U/S 50B AT THE TIME OF ORIGINAL ASSESSMENT PASSED U/S 143(3). THE LD AR H AS FORCEFULLY CONTENDED THAT ONCE THE ASSESSING OFFICER ISSUED NOTICE U/S 154, WHICH WAS SUBSEQUENTLY DROPPED. THEREFORE, THE ASSESSING OFFICER CANT RESORT TO THE PROVISIONS OF SEC. 147 WHEN THE PROCEEDINGS U/S 154 WERE ALREADY DROPPED. IN SUPPOR T OF HIS CONTENTION, THE LD AR HAS RELIED UPON THE FOLLOWING DECISIONS: I) MALINDER FREIGHT CARRIERS V DCIT 129 ITD 278 (M UM) II) BERGER PAINTS I P LTD VS CIT 322 ITR 369 (CAL) III) WESTERN OUTDOOR INTERACTIVE LTD VS ITO 286 IT R 620(BOM) 8 THE SECOND LEG OF ARGUMENTS OF THE LD AR IS THAT THE REASONS FOR REOPENING ARE VAGUE AND BASED ON CHANGE OF OPINION. IN SUPPORT OF HIS CONTENTION, HE HAS SUBMITTED THAT THE ASSESSEE HAS MADE IT CLEAR BEFOR E THE ASSESSING OFFICER THAT NO EXPENDITURE WAS CLAIMED OR ANY PROVISION WAS MADE T OWARDS LEASE RENT IN THE EARLIER YEARS. THE DISPUTE OF LEASE RENT WAS SETTLED THROU GH ARBITRATION AWARD AND FINALLY BY THE INTERVENTION OF THE CABINET COMMITTEE OF DISINV ESTMENT AT RS. 10 CROEES WHICH WAS PAID BY THE ASSESSEE. HE HAS REFERRED LETTER D ATED 29.3.2006 AT PAGE 34 ONWARDS OF THE PAPER BOOK AND SUBMITTED THAT THE AS SESSEE HAS NARRATED AND EXPLAINED ALL THE FACTS IN RESPECT OF THE DISINVEST MENT AND SALE OF THESE HOTELS. HE HOTEL CORPORATION OF INDIA LTD ITA NO. 7246/MUM/2008 (ASST YEAR 2003-04) 5 HAS ALSO REFERRED NOTE OF ACCOUNTS IN SCHEDULE 14 AT PAGE 38 AND 39 OF THE PAPER BOOK WHEREIN IT HAS BEEN EXPLICITLY MENTIONED THAT THE DISPUTE OF LEASE RENT HAS BEEN SETTLED BY THE CABINET COMMITTEE ON DISINVESTM ENT AND THE AMOUNT WAS REDUCED FROM 6% TO 2% OF THE TURNOVER. 8.1 THE LD AR FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS NOT SPECIFICALLY POINTED OUT IN THE REASONS RECORDED AS TO HOW THE I NCOME ESCAPED ASSESSMENT; THEREFORE, THE REASSESSMENT IS INVALID AND NOT SUST AINABLE. HE HAS REFERRED THE OBJECTIONS RAISED BEFORE THE ASSESSING OFFICER VIDE LETTER DATED 15.3.2007 DURING THE REASSESSMENT PROCEEDINGS AND SUBMITTED THAT THE ASS ESSEE TOOK THE OBJECTION THAT NO SPECIFIC REASON OR INFORMATION ON THE BASIS OF W HICH THE ASSESSING OFFICER SOUGHT TO REOPEN THE ASSESSMENT AND THE REASONS RECORDED I NDICATES THAT THE ASSESSING OFFICER WAS SEEKING TO REVIEW THE COMPLETED ASSESSM ENT U/S 143(3) ON ACCOUNT OF MERE CHANGE OF OPINION. IN SUPPORT OF HIS CONTENTI ON, THE LD AR HAS RELIED UPON THE FOLLOWING DECISIONS: I) ITO VS NAWAB MIR BARKAR ALIKHAN 97 ITR 239(SC) II) ACIT VS ROLTA INDIA LTGD 139 TTJ 385(MUM) III) AVENTIS PHARMA LTD VS ACIT 232 ITR 570(BOM) IV) CIT VS KELVINATOR OF INDIA LTD 320 ITR 561.(S C) 8.2 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THERE WAS AN APPARENT ARITHMETICAL MISTAKE IN COMPUTING THE CAPITAL GAIN AS PER SEC. 50B. HE HAS REFERRED THE TABLE OF COMPUTATION AS REPRODUCED BY THE CIT(A ) IN PARA 2.1 OF THE IMPUGNED ORDER AND SUBMITTED THAT THE ASSESSEE HAS SHOWN THE VALUE OF THE TOTAL ASSETS OF THE CENTAUR HOTEL, AIRPORT MUMBAI AT RS. 6,67,10,346/ - AND THE LIABILITIES AT RS 10 CRORES AND THE SAID FIGURE SHOWN IN MINUS; THEREFORE, THE NET WORTH OF THE UNDERTAKING SHOULD HAVE BEEN MINUS RS 3.32 CRORES INSTEAD OF R S.16.67 CRORES SHOWN BY THE HOTEL CORPORATION OF INDIA LTD ITA NO. 7246/MUM/2008 (ASST YEAR 2003-04) 6 ASSESSEE. THE LD DR HAS FURTHER SUBMITTED THAT IF THE NET WORTH OF RS. 3.30 CRORES IS TAKEN, THEN THE CAPITAL GAIN ARISES AT RS. 90.38 CR ORES INSTEAD OF RS. 70.38 CRORES SHOWN BY THE ASSESSEE. 8.3 THE LD DR HAS REFERRED THE EXPLANATION TO SEC. 50B AND SUBMITTED THAT THE NET WORTH SHALL BE THE GROSS VALUE OF THE UNDERTAKING A S REDUCED BY THE VALUE OF LIABILITY OF SUCH UNDERTAKING AS APPEARED IN THE BOOKS OF ACC OUNT. THEREFORE, RS. 10 CRORES SHOWN BY THE ASSESSEE SHOULD BE REDUCED FROM THE VA LUE OF THE ASSET TO WORK OUT THE NET WORTH AND IN THIS WAY, THE ASSESSEES NET W ORTH OF THE HOTEL AT MUMBAI AIRPORT COMES TO NEGATIVE (-) RS. 3.32 CRORES AND T HEREFORE, THERE IS A VALID REASON TO BELIEVE THAT THE INCOME ASSESSABLE TO TAX HAS ESCAP ED ASSESSMENT AS THE ASSESSING OFFICER HAS OVER LOOKED THE PROVISIONS OF SEC. 50B WHILE COMPLETING THE ORIGINAL ASSESSMENT. IN SUPPORT OF HIS CONTENTION, THE LD D R HAS RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F IPCA LABORATORIES LTD. V. DCIT REPORTED IN 251 ITR 420 AS WELL AS THE ORDER OF TH E TRIBUNAL IN THE CASE OF ZUARI INDUSTRIES LTD VS ACIT REPORTED IN 105 ITD 569. HENCE, THE LD DR HAS SUBMITTED THAT WHEN THE ASSESSING OFFICER OVERLOOKED THE PROVISIO NS OF SEC. 50B, WHICH HAS RESULTED THE INCOME ESCAPED ASSESSMENT, THEN THE REASSESSMEN T WITHIN FOUR YEARS IS VALID AND JUSTIFIED. 9 WE HAVE CONSIDERED THE RIVAL CONTENTION AS WELL A S THE RELEVANT MATERIAL ON RECORD. AFTER COMPLETING THE ASSESSMENT U/S 143(3) , THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENT BY RECORDING THE REASONS AS UNDER: THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 27.11.2003 DECLARING TOSS AT RS.31,65,90,803/-. INCOME FROM LONG TERM CAPITAL G AIN OF AN AMOUNT OF HOTEL CORPORATION OF INDIA LTD ITA NO. 7246/MUM/2008 (ASST YEAR 2003-04) 7 RS.99,18,34,847/- WAS DECLARED WHICH WAS SET OFF AG AINST THE BUSINESS LOSS AND BALANCE INCOME OF RS.67,52,44,044/- WAS DECLARED AS INCOME OF THE YEAR. THE RETURN WAS ACCOMPANIED WITH AUDITED BALANCE SHEET, PRO FIT AND LOSS ACCOUNT AND TAX AUDIT REPORT IN FROM NO.3CA & 3CD. THE RETURN WAS PROCESSED U/S.143(1). THE ASSESSEE COMPANY HAS ALSO FILED REVI SED RETURN ON 31.03.2005 REVISING TOTAL INCOME TO RS.67,24,51,351/-. THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE INCOME TAX ACT, 1961 D ETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS.70,91,96,790/-. FROM THE PERUSAL OF THE CASE RECORDS, IT HAS BEEN NOT ICED THAT AS PER FORM I 3 CEA THAT THE CAPITAL GAINS HAVE BEEN COMPUTED INCOR RECTLY, WHICH HAS RESULTED IN AN UNDER ASSESSMENT OF INCOME FOR THE A.Y. 2003-04. ALSO, IT IS OBSERVED THAT INSTEAD OF ADDING AN AMOUNT OF RS.1.04 CRORES WHICH WAS DISALLOWED IN THE ASSESSMENT ORDER TOWARDS RENOVATION E XPENSES, ONLY AN AMOUNT OF RS.76.23 LAKHS WAS ADDED IN THE COMPUTATI ON OF INCOME. THIS HAS RESULTED IN UNDER ASSESSMENT OF INCOME FOR A.Y.2003- 04. IN VIEW OF ABOVE FACTS, I HAVE THEREFORE, REASONS TO BELIEVE THAT RS.27,92,692/- CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, IN VIEW O F EXPLANATION 2(C)Q) OF SEC.147 OF I.T. ACT. ACCORDINGLY, ASSESSMENT HAS TO BE REOPENED UNDER SECTION 147 OF THE LT. ACT, 1961. 9.1 AS IT IS CLEAR FROM THE REASONS RECORDED BY THE ASSESSING OFFICER THAT THE ASSESSMENT WAS REOPENED BASICALLY ON TWO POINTS VIZ (I) INCORRECT COMPUTATION OF CAPITAL GAIN AND (II) ERROR IN ADDITION OF AMOUNT T OWARDS DISALLOWANCE OF RENOVATION EXPENDITURE. 9.2 AS REGARDS THE LESS ADDITION ON ACCOUNT OF DISA LLOWANCE OF RENOVATION EXPENDITURE IS CONCERNED, WE WOULD LIKE TO MENTION THAT THE ASSESSING OFFICER HAS NOT MADE ANY ADDITION ON THIS ACCOUNT IN THE REASSE SSMENT ORDER BECAUSE IN THE ORIGINAL ASSESSMENT ORDER, THE ASSESSEE HAS MADE AN ADDITIONAL CLAIM OF RS. 27,92,693/- IN THE REVISED RETURN OF INCOME; W HEREAS THE ORIGINAL CLAIM ON THE RENOVATION EXPENDITURE WAS RS. 76.23 LACS AND THE A SSESSING OFFICER COMPLETED THE ORIGINAL ASSESSMENT ON THE BASIS OF THE ORIGINAL RE TURN OF INCOME AND NOT ON THE BASIS OF THE REVISED RETURN OF INCOME. THE ASSESSING OF FICER WAS SATISFIED WITH THE REPLY AND THE EXPLANATION OF THE ASSESSEE TO THE NOTICE U /S 148 AND DID NOT PROCEED WITH HOTEL CORPORATION OF INDIA LTD ITA NO. 7246/MUM/2008 (ASST YEAR 2003-04) 8 THIS ISSUE IN THE REASSESSMENT PROCEEDINGS. THEREFO RE, IT WAS TURNOUT TO BE A MERE SUSPICION, CONFUSION AND MISUNDERSTANDING ON THE PA RT OF THE ASSESSING OFFICER WHILE ISSUING THE NOTICE U/S 148 REGARDING THE REASONS FO R REOPENING ON THIS POINT. 9.3 WHEN THE ASSESSING OFFICER HAS ACCEPTED THE EXP LANATION OF THE ASSESSEE AND DID NOT PROCEED WITH THE ISSUE, THEN THE REASON TO THIS EXTENT BECOMES IRRELEVANT FOR REOPENING OF THE ASSESSMENT. HENCE, ONLY EFFECTIVE REASON ON THE BASIS OF WHICH THE ASSESSING OFFICER PROCEEDED WITH THE REASSESSMENT IS INCORRECT COMPUTATION OF CAPITAL GAIN. 10 IT IS SETTLED PROPOSITION OF LAW THAT THE REASON S SHALL HAVE A LIVE CONNECTION WITH FORMULATION OF BELIEF THAT THE INCOME ASSESSAB LE TO TAX HAS ESCAPED ASSESSMENT. THE REASONS TO BELIEVE MUST BE BASED ON SOME COGENT AND TANGIBLE EVIDENCE OR INFORMATION WHICH CAME TO THE KNOWLEDGE OF THE ASSESSING OFFICER AND NOT ON MERE SUSPICION. 11 IN THE CASE OF CIT VS KELVINATOR (SUPRA), THE HO NLBLE SUPREME COURT HAS OBSERVED THAT TANGIBLE MATERIAL AND NOT MERE CHANGE OF OPINION CAN ENTITLE THE ASSESSING OFFICER TO TAKE RECOURSE TO THE POWER TO REOPEN THE ASSESSMENT. 12 IN THE CASE IN HAND, THE REASONS RECORDED BY THE ASSESSING OFFICER ON THE POINT OF INCORRECT COMPUTATION OF CAPITAL GAIN DOES NOT DEMONSTRATE AS TO HOW THE INCOME ASSESSABLE TO TAX HAS ESCAPED ASSESSMENT AND WHAT WENT WRONG IN THE COMPUTATION OF CAPITAL GAIN WHICH IS AGAINST THE PR OVISIONS OF LAW. THE REASONS RECORDED SHOULD BE SELF EXPLANATORY AND SHOULD NOT KEEP THE ASSESSEE GUESSING FOR THE REASONS. THE REASONS RECORDED MUST DISCLOSE TH E MIND OF THE ASSESSING OFFICER HOTEL CORPORATION OF INDIA LTD ITA NO. 7246/MUM/2008 (ASST YEAR 2003-04) 9 AND THEREFORE, ARE MANIFESTATION OF THE MIND OF TH E ASSESSING OFFICER, AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF HINDUSTAN LIVE R (SUPRA). 12.1 THERE IS NO WHISPER OR INDICATION OF A SPECIFI C REASON OF ESCAPEMENT OF TAXABLE INCOME IN THE CASE IN HAND; THOUGH, IN THE REASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER TOOK A VIEW THAT LEASE RENT LIABI LITY OF RS. 10 CRORES PAYABLE TO AAI WAS WRONGLY DEDUCED FROM THE SALE PROCEEDS OF CENTA UR HOTEL MUMBAI AIRPORT. IN THE OPINION OF THE ASSESSING OFFICER, THE SAID AMOU NT HAS TO BE FIRST REDUCED FROM THE ASSET TO WORK OUT THE NET WORTH OF THE UNDERTAKING AND THEN THE CAPITAL GAIN HAS TO BE COMPUTED. A VERY SIGNIFICANT ASPECT INVOLVED IN THIS POINT IS THAT THE SAID LIABILITY OF RS. 10 CRORES WAS NOT TRANSFERRED TO THE PURCHAS ER OF THE HOTEL BUT THE ASSESSING OFFICER PRESUMED THE SAME AS TRANSFERRED TO THE PUR CHASER. THERE IS NO DISPUTE ON THE FACT THAT THE ASSESSEE NEVER CLAIMED LEASE RENT PAYABLE TO AAI TOWARDS LEASE RENT OF CENTAUR HOTEL MUMBAI AIRPORT. 12.2 IT IS PERTINENT TO MENTION THAT THE HOTEL WAS CONSTRUCTED ON THE LEASE LAND OWNED BY THE AAI AND LEASE RENT WAS PAYABLE BY THE ASSESSEE TO THE AAI BUT WAS NEITHER PAID AND NOR CLAIMED AS DEDUCTION BY THE ASSESSEE IN EARLIER YEARS. 12.3 AT THE TIME OF INVITING BIDS FOR SALE, THE LIA BILITY WAS EVEN NOT FINAL AS THE DISPUTE WAS NOT RESOLVED BETWEEN THE PARTIES. THE D ISPUTE WAS FINALLY SETTLED BETWEEN THE ASSESSEE AND AAI BY INTERVENTION OF THE CABINET COMMITTEE ON DISINVESTMENT AS WELL AS CONCERNED MINISTRY. THIS L IABILITY TOWARDS LEASE RENT WAS NOT PART OF THE SALE TRANSACTION BETWEEN THE ASSESSEE A ND THE PURCHASER. THE ASSESSEE HAS RETAINED THE SAID LIABILITY AND ULTIMATELY PAID THE SAID AMOUNT OF RS. 10 CRORES TO THE AAI. THIS BEING THE FACT, THE CASE IS CLEARLY F ALLS UNDER SUB.SEC. (2) OF SEC.50B BEING THE COST OF ACQUISITION OF THE LAND, WHICH IS PART AND PARCEL OF TRANSFER OF HOTEL HOTEL CORPORATION OF INDIA LTD ITA NO. 7246/MUM/2008 (ASST YEAR 2003-04) 10 IN QUESTION. THE ASSESSING OFFICER HAS FINALLY COM PUTED THE CAPITAL GAIN IN THE REASSESSMENT PROCEEDINGS IN PARA. 3.5 AS UNDER: 2 DETAILS OF UNDERTAKING OR DIVISION TRANSFERRED BY WAY OF SLUMP SALE HOTEL CENTAUR (A) ADDRESS/LOCATION AIRPORT, MUMBAI (B) NATURE OF BUSINESS HOTEL 3 NAME, ADDRESS & PERMANENT ACCOUNT OF THE PERSON W HO HAS PURCHASED THE UNDERTAKING OR DIVISION BATRA HOSPITALITY P LTD DELHI 4 DT OF SLUMP SALE OF THE UNDERTAKING OR DIVISION 5 JUN 02 5 AMT OF CONSIDERATION RECEIVED FOR SLUMP SALE ADD: CONSIDERATION FOR NET CURRENT ASSET/LIABILITY 80,00,00,000 4,05,85,000 87,05,85,000 6 NET WORTH OF THE UNDERTAKING OR DIVISION (A) IN THE CASE OF DEPRECIABLE ASSETS, WRITTEN DOWN VALUE OF THE ASSETS OF THE UNDERTAKING OR DIVISION TRANSFERR ED BY WAY OF SLUMP SALE, DETERMINED IN ACCORDANCE WITH SU B ITEM OF ITEM (1) OF SUB CLAUSE (6) OF SEC. 43 6,67,10,346 (B) IN THE CASE OF OTHER ASSETS, BOOK VALUE OF SUCH ASSETS 0 ( C) AGGREGATE VALUE OF TOTAL ASSETS, OF THE UNDER TAKING OF DIVISION TRANSFERRED BY WAY OF SLUMP ALE (A+B) 6,67,10,346 (D) VALUE OF LIABILITIES RELATABLE TO THE UNDERTAKI NG OR DIVISION AS APPEARING IN THE BOOKS OF ACCOUNT/EXPENSES INCIDENTAL TO SALES -10,00,00,000 (E) NET WORTH OF THE UNDERTAKING OR DIVISION (C _ D) -3,32,89,654 7 CAPITAL GAIN 90,38,74,654 12.4 THE EFFECT OF COMPUTATION MADE BY THE ASSESSI NG OFFICER IS DOUBLE ADDITION OF RS. 10 CRORES IN THE CAPITAL GAIN AS RS.20 CRORE S WAS ADDED. SECTION 50B PREPOSSESSES THE CONSIDERATION OF ALL ASSETS AND LI ABILITIES OF ON-GOING CONCERN UNDER SLUMP SALES. THEREFORE, THE LIABILITY EXITS IN THE BOOKS OF ACCOUNT AND TRANSFERRED TO THE PURCHASER ARE TAKEN INTO ACCOUNT WHILE COMPUTIN G THE NET WORTH FOR DETERMINING THE CAPITAL GAIN U/S 50B. 12.5 THIS IS A CASE OF SALE OF PUBLIC SECTOR UNDER TAKING UNDER DISINVESTMENT SCHEME OF GOVT. OF INDIA AND THE PROCESS OF SALE AN NOUNCED IN THE YEAR 2001 WHEN THE BIDS WERE INVITED AND RECEIVED. THE SALE PROCE SS WAS COMPLETED ON 5.6.2002 WHEREAS THE DISPUTE BETWEEN THE ASSESSEE AND THE AA I REGARDING THE LEASE RENT HOTEL CORPORATION OF INDIA LTD ITA NO. 7246/MUM/2008 (ASST YEAR 2003-04) 11 WAS RESOLVED ON 30.6.2003 WHEN THE ASSESSEE FINALLY PAID THE BALANCE AMOUNT OF RS. 2.50 CRORES IN THE FULL SETTLEMENT OF DUES. THE SAID PAYMENT WAS MADE BY THE ASSESSEE AND NOT BY THE PURCHASER; THEREFORE, THE L IABILITY, WHICH WAS NOT TRANSFERRED TO THE PURCHASER AND WAS PAID BY THE ASSESSEE SHALL BE DEDUCTED FROM THE SALE PROCEEDS WHILE COMPUTING THE CAPITAL GAIN U/S 50B. 13 FROM THE ABOVE FACTS, IT IS CLEAR THAT THE REASO NS RECORDED BY THE ASSESSING OFFICER ARE VERY VAGUE AND UNSPECIFIC EVEN NOT INDI CATING AS TO HOW THE INCOME ASSESSABLE TO TAX HAS ESCAPED ASSESSMENT. THUS, THE REOPENING IS BASED ON WRONG PERCEPTION OF FACTS AS WELL AS LAW. 14 THE SECOND ASPECT OF THE ISSUE IS REGARDING REOP ENING IS BASED MERELY ON CHANGE OF OPINION BECAUSE THE ASSESSEE HAS VERY MUC H BROUGHT THIS FACT OF DISPUTE BETWEEN THE ASSESSEE AND THE AAI ON RECORD AT THE T IME OF ORIGINAL ASSESSMENT U/S 143(3). FROM THE NOTES OF ACCOUNT AS WELL AS IN TH E COMPUTATION OF CAPITAL GAIN, THIS FACT IS CLEARLY ESTABLISHED THAT THE ASSESSEE HAS E XPLAINED ABOUT THE LIABILITY OF RS. 10 CRORES NOT CLAIMED BY THE ASSESSEE AT ANY POINT OF TIME. FURTHER, THE ASSESSEE, VIDE ITS LETTER DATED 29.3.2008 HAS EXPLAINED ABOUT THE DUES PAYABLE TO THE AAI AS UNDER; DUES PAYABLE TO AIRPORT AUTHORITY OF INDIA IN RESP ECT OF VARIOUS UNITS OF HCI RS. 1,265.80 LAKHS. WE HAVE ALREADY SUBMITTED THAT THE AUDITOR HAS SHOWN THIS AMOUNT AS INDETERMINATE IN THE SCH. 15, NOTE 2 OF ANNUAL REPO RT 20001-02 AND IT HAS NOT BEEN PROVIDED IN THE ACCOUNTS BECAUSE THE LIABILITY WAS DISPUTED BY THE COMPANY. DURING THE YEAR 2002-03 ONLY PART OF THIS D ISPUTED LIABILITY RELATED TO MUMBAI AIRPORT HOTEL WAS SETTLED FOR RS.1000 LAKHS, WHICH IS CONSIDERED AS DEDUCTION FROM SALE PROCEEDS OF MUMBAI AIRPORT HOTEL . IN THIS CONNECTION WE HAVE TO INVITE YOUR KIND ATTEN TION TO NOTE 2 TO THE ACCOUNTS OF THE IMMEDIATELY PRECEDING YEAR ENDED ON 31.3.2002 WHICH READ AS UNDER: VIDE THE ARBTRAT1ON AWARD DATED 22-11-1999 GIVEN BY T HE JOINT SECRETARY, MINISTRY OF CMI AVIATION, LEASE RENTALS, TU RNOVER LEVY & HOTEL CORPORATION OF INDIA LTD ITA NO. 7246/MUM/2008 (ASST YEAR 2003-04) 12 INTEREST OF RS2,1271 .81 LACS IS PAYABLE TO THE AIRP ORTS AUTHORITY OF INDIA. NO PROVISION IN THIS REGARD HAS BEEN MADE IN THE BOO KS OF ACCOUNTS AS THE MATTER WAS REFERRED TO THE MINISTRY OF CIVIL AVIA TION FOR REVIEW OF THE AWARD IN REDUCTION OF TURNOVER LEVY FROM 8% TO 2 % BY THE CABINET COMMITTEE ON DISINVESTMENT FOR WHICH A COMMITTEE HA S BEEN CONSTITUTED AND THEIR REPORT IS STILL AWAITED. FURTHE R THE LIABILITY ON THIS ASPECT WOULD ARISE ONLY IN EVENTUALITY OF THE SALE O F THE RESPECTIVE UNITS. SINCE THE SALE OF THE LEASE PROPERTY OF CENTAU R HOTEL MUMBAI AIRPORT HAS BEEN AFFECTED IN THE NEXT FINANCIAL YEA R, THE LIABILITY THEREOF WOULD BE PROVIDED IN THE YEAR OF SALE I.E. FINANCIAL YEAR 2OO2.O3 BASED ON THE REVIEW DECISION MADE BY THE COMMITTEE. IT WILL KINDLY BE OBSERVED FROM ABOVE THAT IN ACCORD ANCE WITH THE ARBITRATION AWARD GIVEN BY JOINT SECRETARY, MINISTRY OF CIVIL AVIATION THE LIABILITY IN THIS RESPECT WOULD ARISE ONLY ON THE E VENTUALITY OF THE SALE OF RESPECTIVE UNITS AND HENCE THE SETTLED AMOUNT OF RS. 1000/- LAKHS ARISING FOR PAYMENT ON SALE OF MUMBAI AIRPORT HAS BEE N ACCORDINGLY CLAIMED AS DEDUCTION. 18 THUS, THE ACTION OF THE ASSESSING OFFICER IS OTH ERWISE IS NOT SUSTAINABLE BECAUSE OF RELEVANT MATERIAL IN RESPECT TO THE DISP UTE OF LIABILITY OF RS. 10 CRORES TOWARDS THE LEASE RENT AVAILABLE ON RECORD AND THER EFORE, NOT A NEW MATERIAL OR EVIDENCE OR INFORMATION CAME TO THE KNOWLEDGE OF TH E ASSESSING OFFICER SUBSEQUENT TO THE ORIGINAL ASSESSMENT U/S 143(3) ON THE BASIS OF WHICH THE ASSESSING OFFICER COULD FORM A BELIEF THAT THE INCOME ASSESSABLE TO TAX HAS ESCAPED ASSESSMENT. THE DECISION RELIED UPON BY THE LD DR IN THE CASE OF IP CA LAB (SUPRA) IS NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE BECAUSE THIS IS NOT A CASE OF OVERLOOKING MATERIAL FACT OR PROVISIONS AT THE TIME OF ORIGINAL ASSESSMENT. 19 SECONDLY, IN VIEW OF THE LATEST DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS M/S. SUMMIT SECURITIES LTD., DT 7.3.2012, THE DECISION IN THE CASE OF ZUARI INDUSTRIES LTD (SUPRA) IS NO MORE A GOOD L AW. 20 IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT TH E REOPENING OF THE ASSESSMENT IS NOT VALID AS THE SAME IS BASED ON MERE SUSPICION AND CHANGE OF OPINION; ACCORDINGLY, THE SAME IS QUASHED. HOTEL CORPORATION OF INDIA LTD ITA NO. 7246/MUM/2008 (ASST YEAR 2003-04) 13 21 SINCE THE REOPENING IS HELD AS INVALID, WE DO NO T PROPOSE TO GO INTO THE OTHER ISSUES RAISED BY THE ASSESSEE AS WELL AS MERITS OF THE CASE. 22 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 28 TH DAY OF MAR 2012 SD/ SD/- ( N K BILLAIYA ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 28 TH ,MAR 2012 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI