THE ACIT 2(1), MUMBAI V. M/S. HEATLY & GRESHAM INDIA LTD, MUMBAI

ITA 7306/MUM/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3919 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 13-10-2010
• Assessment Year: 1998-1999
• Appeal Filed On: 07-12-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R S SRIVASTAVA
• Keywords: Reopening of assessment; Depreciation; Reason to believe
• Section: 143(3); 148

Judgement Text

1 ITA 7306/M/07, M/S HEATLY & GRESHAM INDIA LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H BEFORE SHRI P.M. JAGTAP, A.M. AND SHRI R.S. PADVEKA R, JM ITA NO. 7306/MUM/07 ASSESSMENT YEAR 1998-99 A.C.I.T. 2(1), ROOM NO. 575, 5 TH FLOOR, AAYAKAR BHAWAN, M.K. ROAD, MUMBAI. 400 020. VS. M/S HEATLY & GRESHAM INDIA LTD., 43, DR. V.B. GANDHI MARG, FORT, P.O. BOX NO. 225, MUMBAI 04. PAN AAACH3791G APPELLANT RESPONDENT APPELLANT BY SHRI R.S. SRIVASTAV A RESPONDENT BY SHRI SATISH AGGARWAL ORDER PER P.M. JAGTAP, A.M. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF THE LD. CIT(A)-II, MUMBAI DATED 6.6.07 WHEREBY HE CANCELLED THE ASSESS MENT MADE BY THE A.O. U/S 143(3) R.W.S. 147. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY. THE RETURN OF INCOME FILED BY IT FOR THE YEAR UNDER CONSIDERATION ON 30.11.98 DECLARING TOTAL INCOME OF ` 9,88,230/- WAS INITIALLY ACCEPTED BY THE A.O. U/S 143(1). ON THE BASIS OF CERTAIN INFORMATION RECEIVED BY HIM, THE A.O. SUBSEQUENTLY INITIATED RE-ASSESSMENT PROCEEDINGS BY ISSUE OF NOTICE U/S 148 ON 28.3.05 AFTER RECORDING THE REASONS. AS PER THE SAID INFORMATION RECEIVED BY THE A.O., ONE M/S SETH ALLOYS PVT. LTD. HAD GIVEN ACCOMMODATI ON BILLS TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. DURING THE COURSE OF RE- ASSESSMENT PROCEEDINGS, THE SAID INFORMATION WAS CONFRONTED BY THE A.O. TO THE ASSES SEE AND AN OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO FURNISH THE RELEVANT DETAILS AND DO CUMENTARY EVIDENCE TO SUPPORT AND 2 ITA 7306/M/07, M/S HEATLY & GRESHAM INDIA LTD. SUBSTANTIATE ITS CLAIM FOR SERVICE CHARGES PAID TO M/S SETH ALLOYS PVT. AS NOTED BY THE A.O. IN HIS ORDER, THE ASSESSEE, HOWEVER, COULD NOT FURNISH ANY DETAILS ABOUT THE NATURE OF SERVICES CLAIMED TO BE RENDERED BY M/S SETH ALLOYS PVT. THE EXPENDITURE CLAIMED BY THE ASSESSEE ON ACCOUNT OF SERVICE CHARGES PAID TO M/S SETH ALLOYS PVT. THEREFORE WAS DISALLOWED BY THE A.O. AND THE SAID AMOUNT WAS ADDE D BY HIM TO THE TOTAL INCOME OF THE ASSESSEE IN THE ASSESSMENT COMPLETED U/S 143(3) R.W .S. 147 BY AN ORDER DTD. 24.2.06. 3. AGAINST THE ORDER PASSED BY THE A.O. U/S 143(3) R.W.S. 147, AN APPEAL WAS FILED BY THE ASSESSEE BEFORE THE LD. CIT(A) CHALLENGING THE VALIDITY OF THE SAID ASSESSMENT AS WELL AS DISPUTING THE ADDITION OF ` 11,09,468/- MADE IN THE SAID ASSESSMENT ON MERIT. IT WAS CONTENDED ON BEHALF OF THE ASSESSEE BEFORE THE LD. CIT(A) THAT THE REASONS RECORDED BY THE A.O. DID NOT HAVE LIVE NEXUS WITH THE MATERIAL AVAI LABLE ON RECORD AND THE ASSESSMENT WAS RE-OPENED BY HIM ONLY TO MAKE ROVING ENQUIRY. IT WAS ALSO CONTENDED THAT THE A.O. DID NOT HAVE ANY REASON TO BELIEVE THAT INCOME OF T HE ASSESSEE COMPANY HAD ESCAPED ASSESSMENT. IT WAS ALSO POINTED OUT FROM THE REASO NS RECORDED BY THE A.O. THAT AS PER THE INFORMATION RELIED UPON THEREIN, THE ASSESSEE COMPA NY HAD PAID A SUM OF ` 23,99,751/- TO M/S SETH ALLOYS PVT. LTD. WHEREAS THE ACTUAL PAYMEN T MADE BY IT TO THE SAID PARTY WAS ONLY ` 11,09,468/-. IT WAS CONTENDED THAT THE INFORMATIO N RECEIVED BY THE A.O. THUS WAS NOT RELIABLE AND THE REOPENING OF ASSESSMENT MADE B Y THE A.O. ON THE BASIS OF SUCH WRONG INFORMATION WAS NOT VALID. 4. THE. LD. CIT(A) FOUND MERIT IN THE CONTENTIONS R AISED ON BEHALF OF THE ASSESSEE COMPANY WHILE CHALLENGING THE VALIDITY OF REOPENING OF ASSESSMENT AND ACCEPTING THE SAME, HE CANCELLED THE REASSESSMENT MADE BY THE A.O . FOR THE FOLLOWING REASONS GIVEN IN PARA NO. 6 OF HIS IMPUGNED ORDER: I HAVE GONE THROUGH THE FACTS OF THE CASE AND THE S UBMISSIONS OF THE APPELLANT. THERE IS NO DISPUTE ABOUT THE FACT THAT THE ASSESSM ENT WAS REOPENED ON GETTING INFORMATION RECEIVED FROM INCOME TAX AUTHORITIES, A LWAR AND THE ASSESSEE WAS NOT CONFRONTED WITH THIS INFORMATION. THE ASSESSING OF FICER OF M/S SETH ALLOYS PVT. LTD. HAS ACCORDING TO THE ASSESSING OFFICER OF THE APPELLANT REACHED TO THE 3 ITA 7306/M/07, M/S HEATLY & GRESHAM INDIA LTD. CONCLUSION THAT THE ASSESSEE ALONG WITH OTHER PARTI ES HAVE GIVEN ACCOMMODATION BILLS TO M/S SETH ALLOYS PVT. LTD. BECAUSE M/S SETH ALLOYS PVT. LTD. HAVE RECEIVED THE PAY ORDERS ON 28/10/97 AND THE BILLS FOR WORK D ONE WAS RAISED PRIOR TO THIS DATE. THIS FINDING OF THE ASSESSING OFFICER DOES NOT HELP HIM IN MAKING THE CASE AGAINST THE ASSESSEE BECAUSE THE BILLS FOR WORK DONE ARE TO BE RAISED FIRST AND THE PAY ORDERS ARE TO BE GIVEN SUBSEQUENTLY. THE ASSESSING OFFICE R DID NOT HAVE ANY INFORMATION WITH HIM NOR HAS HE COLLECTED ANY INFORMATION TO RE ACH TO THE CONCLUSION THAT THE PAYMENTS MADE TO M/S SETH ALLOYS PVT. LTD. ARE NOT GENUINE. FURTHER FROM THE REASONS RECORDED IT IS SEEN THAT THE ASSESSMENT WAS REOPENED ON THE BASIS OF INFORMATION THAT M/S SETH ALLOYS PVT. LTD. WAS PAID ` . 23,99,751/- WHICH ULTIMATELY PROVED TO BE INCORRECT AND THE ACTUAL PAYMENTS MADE BY THE ASSESSEE WAS ` . 11,09,468/-. THE INFORMATION ON WHICH THE ASSESSME NT WAS REOPENED WAS ALSO NOT CORRECT AND CANNOT BE SAID TO BE RELIABLE. THE ACT ION TAKEN BY THE ASSESSING OFFICER THEREFORE DOES NOT SEEM TO BE JUSTIFIED. THE ORDER U/S 143(3)/148 IS THEREFORE CANCELLED. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVEN UE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 5. THE LD. D.R. SUBMITTED THAT THE RETURN OF INCOME FILED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS ORIGINALLY ACCEPTED U/S 143 (1) AND THE ONLY CONDITION WHICH WAS REQUIRED TO BE SATISFIED BY THE A.O. TO REOPEN THE ASSESSMENT WAS THAT HE SHOULD HAVE REASONS TO BELIEVE THAT INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT. HE INVITED OUR ATTENTION TO THE COPY OF THE REASONS RECORDED BY TH E A.O. AND SUBMITTED THAT A SPECIFIC INFORMATION WAS RECEIVED BY THE A.O. REGARDING BOGU S COMMISSION BILLS ISSUED BY M/S SETH ALLOYS PVT. LTD. TO THE ASSESSEE DURING THE YE AR UNDER CONSIDERATION. HE CONTENDED THAT THE BELIEF OF THE A.O. ABOUT THE ESCAPEMENT OF ASSESSEES INCOME THUS WAS BASED ON THE SPECIFIC INFORMATION RECEIVED BY HIM WHICH WAS SUFFICIENT TO FORM A BELIEF THAT THERE WAS ESCAPEMENT OF INCOME OF THE ASSESSEE. HE CONTE NDED THAT AT THE STAGE OF REOPENING, THE A.O. WAS NOT SUPPOSED TO COME TO ANY DEFINITE C ONCLUSION ABOUT THE ESCAPEMENT OF INCOME AND IT WAS SUFFICIENT THAT THERE WAS A REASO N TO BELIEVE THAT INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT. IN SUPPORT OF THIS CONTENT ION, HE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ACIT VS. RAJES H JHAVERI STOCK BROKERS PVT. LTD. 291 ITR 500. HE ALSO CONTENDED THAT EVEN THOUGH THE AMOUNT OF ACCOMMODATION BILLS AS MENTIONED IN THE INFORMATION RECEIVED BY THE A.O. W AS DIFFERENT FROM THE AMOUNT 4 ITA 7306/M/07, M/S HEATLY & GRESHAM INDIA LTD. ACTUALLY PAID BY THE ASSESSEE TO M/S SETH ALLOYS PV T. LTD., IT CANNOT BE DISPUTED THERE WAS ESCAPEMENT OF INCOME OF THE ASSESSEE AND BELIEF OF THE A.O. ABOUT THE ESCAPEMENT OF INCOME WAS BASED ON THE SAID INFORMATION. HE CONTE NDED THAT THE ASSESSMENT IN THE CASE OF THE ASSESSEE THUS WAS VALIDLY REOPENED BY THE A. O. AND THE LD. CIT(A) WAS NOT JUSTIFIED IN CANCELLING THE ASSESSMENT MADE BY THE A.O. U/S 143(3) R.W.S. 147 ON THE GROUND THAT THE REOPENING WAS BAD IN LAW. 6. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, STRONGLY RELIED ON THE IMPUGNED ORDER OF THE LD. CIT(A) AS WELL AS ON THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE THE LD. CIT(A) WHILE CHALLENGING TH E VALIDITY OF REOPENING OF ASSESSMENT MADE BY THE A.O. HE CONTENDED THAT THE INFORMATION CLAIMED TO BE RECEIVED BY THE A.O. WAS NOT RELIABLE ENOUGH TO SHOW ANY DEFINITE ESCAPE MENT OF INCOME OF THE ASSESSEE AND THE REOPENING OF ASSESSMENT BY THE A.O. ON THE BASI S OF THE SAID INFORMATION WAS BAD IN LAW AS RIGHTLY HELD BY THE LD. CIT(A). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE RETURN ORIGINALL Y FILED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS ACCEPTED BY THE A.O. U/S 143(1) A ND THERE BEING NO ASSESSMENT MADE U/S 143(3), THE CASE OF THE ASSESSEE IS COVERED BY THE MAIN PROVISIONS OF SECTION 147. THE ONLY REQUIREMENT FOR REOPENING THE ASSESSMENT IN TH E PRESENT CASE BEYOND THE PERIOD OF 4 YEARS AS PER THE SAID PROVISIONS READ WITH PROVISIO NS OF SECTION 149(1)(B) THUS WAS THAT THE A.O. SHOULD HAVE REASON TO BELIEF THAT ANY INCO ME OF THE ASSESSEE CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT AND THE INCOME SO ESCAPED AM OUNTED TO OR LIKELY TO AMOUNT TO ` 1 LAC OR ABOVE. IN ORDER TO ASCERTAIN WHETHER THIS REQUIREMENT WAS SATISFIED IN THE CASE OF THE ASSESSEE, IT WOULD BE RELEVANT TO REFER TO THE REASONS RECORDED BY THE A.O. WHICH ARE EXTRACTED BELOW: I NFORMATION HAS BEEN RECEIVED FROM CIT(ASSESSMENT) S PL. RG. ALWAR THAT THE ASSESSEE HAS DEBITED A SUM OF ` 23,99,751/- IN ITS P&L A/C., ON ACCOUNT OF COMMISSION PAID TO M/S SETH ALLOYS PVT. LTD. 5 ITA 7306/M/07, M/S HEATLY & GRESHAM INDIA LTD. IT IS FURTHER INFORMED THAT M/S SETH ALLOYS PVT. LT D. HAD HEAVY UNABSORBED BUSINESS LOSS AND DEPRECIATION WHICH HAVE BEEN SET OFF AGAIN ST THE COMMISSION INCOME EARNED FROM THE ASSESSEE. IT IS ALSO INFORMED THAT NO SER VICES WHATSOEVER WERE RENDERED BY M/S SETH ALLOYS P. LTD. TO THE ASSESSEE AND THAT TH E COMMISSION BOOKED BY THE ASSESSEE IS BOGUS. HENCE, I HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR A.Y. 1998-99. 8. A PERUSAL OF THE REASONS RECORDED BY THE A.O. CL EARLY SHOWS THAT THE CONDITION PRECEDENT TO REOPEN THE ASSESSMENT COMPLETED ORIGIN ALLY U/S 143(1) WAS DULY SATISFIED IN AS MUCH AS THE A.O. HAD REASON TO BELIEF ON THE BAS IS OF SPECIFIC INFORMATION RECEIVED BY HIM THAT THERE WAS ESCAPEMENT OF INCOME OF THE ASSE SSEE FOR THE YEAR UNDER CONSIDERATION AND SUCH ESCAPED INCOME WAS MORE THAN ` 1 LAC. ALTHOUGH AS PER THE INFORMATION RECEIVED BY THE A.O., THE AMOUNT PAID BY THE ASSESS EE TO M/S SETH ALLOYS PVT. LTD. ALLEGEDLY AGAINST BOGUS COMMISSION BILLS WAS ` 23,99,751/- AS AGAINST THE ACTUAL AMOUNT OF ` 11,09,468/- PAID BY THE ASSESSEE, THE FACT REMAINS TO BE SEEN IS THAT EVEN GOING BY THIS ACTUAL AMOUNT, ESCAPED INCOME WAS MORE THAN ` 1 LAC. IN OUR OPINION, THE LD. CIT(A) THEREFORE WAS NOT JUSTIFIED IN TREATING THE INFORMA TION RECEIVED BY THE ASSESSEE AS UNRELIABLE MERELY BECAUSE THE AMOUNT MENTIONED THER EIN WAS NOT CORRECT OVERLOOKING THE FACT THAT EVEN THE ACTUAL AMOUNT PAID BY THE ASSESS EE TO M/S SETH ALLOYS PVT. LTD. WAS MUCH MORE THAN ` 1 LAC AND THE SAID AMOUNT WAS CLAIMED AS DEDUCTION BY THE ASSESSEE WHICH APPARENTLY WAS WRONGLY ALLOWED. 9. IN THE CASE OF RAJESH JHAVERI STOCK BROKERS PVT. LTD. (SUPRA) RELIED UPON BY THE LD. D.R. AT THE TIME OF HEARING BEFORE US, THE HONBLE SUPREME COURT HAS HELD THAT TAXING INCOME ESCAPING ASSESSMENT IN THE CASE OF AN INTIMA TION UNDER SECTION 143(1) IS COVERED BY THE MAIN PROVISION OF SECTION 147 AS SUBSTITUTED WITH EFFECT FROM APRIL 1, 1989 AND NOT BY THE PROVISO THEREIN. IT WAS ALSO HELD THAT ONLY ONE CONDITION HAS TO BE SATISFIED BY THE A.O. AND IF THE A.O. FOR WHATEVER REASON BELIEVE TH AT THE INCOME HAS ESCAPED ASSESSMENT, IT CONFERS THE JURISDICTION TO REOPEN THE ASSESSMEN T. EXPLAINING FURTHER, IT WAS OBSERVED BY THE HONBLE APEX COURT THAT THE EXPRESSION REAS ON TO BELIEVE IN SECTION 147 WOULD MEAN CAUSE OR JUSTIFICATION AND IF THE A.O. HAS CAU SE OR JUSTIFICATION TO KNOW OR SUPPOSE 6 ITA 7306/M/07, M/S HEATLY & GRESHAM INDIA LTD. THAT INCOME HAD ESCAPED ASSESSMENT, HE CAN BE SAID TO HAVE REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT. IT WAS ALSO OBSERVED BY TH E HONBLE APEX COURT THAT THE EXPRESSION REASON TO BELIEVE CANNOT BE READ TO ME AN THAT THE A.O. SHOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL EVIDENCE OR CONCLUSIO N AND WHAT IS REQUIRED IS REASON TO BELIEVE BUT NOT THE ESTABLISHED FACT OF ESCAPEMENT OF INCOME. IT WAS HELD THAT AT THE STAGE OF ISSUE OF NOTICE, THE ONLY QUESTION IS WHET HER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED THE REQUISITE BELIEF. WHETHER MATERIAL WOULD CONCLUSIVELY PROVE ESCAPEMENT OF INCOME IS NOT THE CONCERN AT THAT STAGE BECAUSE THE FORMATION OF THE BELIEF IS WITHIN THE REALM OF THE SUBJECTIVE SATISFACTION OF THE A.O. KEEPING IN VIEW THE DECISION OF HONBLE APEX COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS PVT. LTD. (SUPRA) AND HAVING REGARD TO ALL THE FACTS OF THE CASE INCLUDING ESPECIALLY THE REASONS RECORDED BY THE A.O. WE ARE OF THE VIEW THAT THE REOPENING OF ASSESSMENT MADE BY THE A.O. FOR THE YEAR UNDER CONS IDERATION WAS IN ACCORDANCE WITH LAW AND THE LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING THE SAME TO BE BAD IN LAW AND CANCELLING THE ASSESSMENT MADE BY THE A.O. PURSUANT TO THE SAME. THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE IS THEREFORE SET AS IDE AND THE MATTER IS REMITTED TO HIM FOR DECIDING THE OTHER ISSUE RAISED BY THE ASSESSEE IN ITS APPEAL FILED BEFORE THE LD. CIT(A) CHALLENGING THE ADDITION OF ` 11,09,468/- MADE BY THE A.O. ON MERITS. 10. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED . ORDER PRONOUNCED ON 4 TH NOVEMBER, 2010. (R.S. PADVEKAR) (P.M. JAGTAP) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI, DATED 4 TH NOVEMBER , 2010. RK 7 ITA 7306/M/07, M/S HEATLY & GRESHAM INDIA LTD. COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) II - MUMBAI 4. THE CIT- MUMBAI CITY II 5. THE DR BENCH, H 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI 8 ITA 7306/M/07, M/S HEATLY & GRESHAM INDIA LTD. DATE INITIALS 1. DRAFT DICTATED 19.10.10, 26.10.10 SR.P.S./P.S. 2. DRAFT PLACED BEFORE AUTHOR 21.10.10, 26.10.10 SR.P.S./P.S. 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER. - J.M./A.M. 4.DRAFT DISCUSSED/ APPROVED BY SECOND MEMBER. J.M./A.M. 5. APPROVED DRAFT COMES TO THE SR.P.S./P.S. SR.P.S./P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S. 8. DATE OF WHICH FILE GOES TO THE HEAD CLERK. 9. DATE OF DISPATCH OF ORDER.