DCIT 3(1), MUMBAI V. HMG INDUSTRIES LTD, NAVI MUMBAI

ITA 7406/MUM/2012

• Counselvise Citation: 740619914 RSA 2012
• Duration Of Justice: 2 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 26-06-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 14-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR BORA
• Assessee Lawyers: FA RROKH V IRANI
• Keywords: Reopening of assessment; Depreciation; Audit objection; Tangible material; Difference of opinion; Tax effect; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 148; 2; 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, M UMBAI BEFORE HONBLE S/SHRI D. MANMOHAN , VICE-PRESIDENT AND B.R.BASKARAN (AM) , . , . . , ./I.T.A. NO.7406/MUM/2012 ( ! ' / ASSESSMENT YEAR : 2006-07) ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 3(1), ROOM NO.607, 6 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020. / VS. M/S H M G INDUSTRIES LTD, C-21/6, TTC INDUSTRIAL AREA, MIDC, PAWNE VILLAGE, VASHI, NEW MUMBAI-400703 ( #$ / APPELLANT) .. ( %&#$ / RESPONDENT) # ./ '( ./ PAN/GIRNO.:AAACH3119C #$ ) / APPELLANT BY : SHRI VIJAY KUMAR BORA %&#$ * ) /RESPONDENT BY: SHRI FARROKH V IRANI + , * -. / DATE OF HEARING : 15.12.2014 / '! * -. /DATE OF PRONOUNCEMENT : 17.12.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 10.8.2012 PASSED BY LD CIT(A)-7, MUMBAI AND IT RELA TES TO THE ASSESSMENT YEAR 2006-07. 2. THE REVENUE, INTER ALIA, IS AGGRIEVED BY THE DEC ISION OF THE LD. CIT(A) IN HOLDING THAT THE REOPENING OF THE ASSESSMENT WAS BA D IN LAW. 3. WE HAVE HEARD THE PARTIES ON THIS PRELIMINARY IS SUE AND PERUSED THE RECORD. THE FACTS THAT EMERGE FROM THE RECORD ARE THAT THE ASSESSMENT IN THE HANDS OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION WAS COMPLETED U/S 143(3) OF THE INCOME TAX ACT, 1961(TH E ACT) ON 23.12.2008. SUBSEQUENTLY, THE AO REOPENED THE ASSESSMENT BY ISS UING SHOW CAUSE NOTICE I.T.A. NO7406/MUM/2012 2 U/S 148 ON 30.3.2011 I.E. WITHIN THE FOUR YEARS FRO M THE END OF RELEVANT ASSESSMENT YEAR. THE REASONS RECORDED BY THE AO FOR REOPENING OF THE ASSESSMENT ARE EXTRACTED IN THE ASSESSMENT ORDER IT SELF AND THE SAME IS REPRODUCED BELOW:- RETURN OF INCOME FOR THE AY 2006-07 WAS FURNISHED ON 01.12.2006 DECLARING TOTAL LOSS OF RS.25,03,670/-. ASSESSMENT U/S. 243(3,) WAS COMPLETED ON 23.12.2008 ASSESSING THE TOTAL LOSS AT RS.25,03,670/-. ON PERUSAL OF THE RECORDS, IT WAS OBSERVED THA T AS PER NOTE SUBMITTED BY THE ASSESSEE ON BUSINESS ACTIVITY, VID E LETTER DATED 11.12.2008, THE ASSESSEE COMPANY WAS IN THE BUSINES S OF MANUFACTURING CHEMICALS, PAPER AND PROCESSING OF SE A FOOD AND EXPORTING THE SAME. THE PAPER AND CHEMICAL DIVISION S CLOSED DOWN THEIR ACTIVITIES IN THE YEARS 1998- AND 2000 RESPEC TIVELY. HOWEVER, AS SEEN FROM THE BALANCE SHEET AND TAX AUDIT REPORT TH E ASSETS PERTAINING TO CLOSED DIVISIONS ALSO SEEM TO HAVE BEEN INCLUDED FOR THE PURPOSE OF AVAILING DEPRECIATION ALLOWANCE. SINCE THE VALUE OF ASSETS PERTAINING TO PAPER AND CHEMICALS DIVISIONS COULD N OT BE ASCERTAINED SEPARATELY OUT OF BLOCK OF ASSETS, NO TAX EFFECT HAS BEEN COMPUTED. THUS, I HAVE A REASON TO BELIEVE THAT THE ASSESSEE HAD NOT MADE A FULL AND TRUE DISCLOSURE WITH RESPECT TO THE RETURN OF I NCOME FOR AY 2006- 07, AS SUCH I HAVE REASON TO BELIEVE THAT THE INCOM E CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE I T ACT, 1961 HAS ESCAP ED ASSESSMENT FOR A Y 2006-07. 4. THE ASSESSEE CHALLENGED THE VALIDITY OF THE REOP ENING OF THE ASSESSMENT IN THE APPEAL FILED BEFORE THE LD. CIT(A) ON THE G ROUND THAT THE AO HAS REOPENED THE ASSESSMENT ON THE BASIS OF AUDIT OBJECTION WITH OUT APPLYING HIS MIND INDEPENDENTLY. FURTHER, IT WAS ALSO CONTENDED THAT THE REASONS STATED BY THE AO ARE VERY VAGUE, I.E., WITHOUT ARRIVING AT ANY DEFIN ITE CONCLUSION ABOUT THE ESCAPEMENT OF INCOME. THE ASSESSEE ALSO PLACED RE LIANCE ON THE VARIOUS CASE LAW BEFORE THE LD CIT(A). 5. THE LD. CIT(A) WAS CONVINCED WITH THE CONTENTION S OF THE ASSESSEE AND ACCORDINGLY HELD THAT THE REOPENING OF THE ASSESSME NT WAS BAD IN LAW. THE RELEVANT OBSERVATIONS OF THE LD. CIT(A) ARE EXTRAC TED BELOW : 4.5. HAVING CONSIDERED THE AO'S ORDER AS WELL AS T HE APPELLANT AR'S SUBMISSION, I FIND THAT THE REOPENING OF THE ASSESS MENT BY THE AO WAS NOT CORRECT ON TWO FOLD, FIRST THAT THE INFORMATION WHI CH WAS THE BASIS OF REOPENING OF THE ASSESSMENT WAS ALREADY AVAILABLE O N RECORD. IT IS EVIDENT THAT THAT THE REASONS RECORDED BY THE AO WHICH TAKE S NOTE OF THE I.T.A. NO7406/MUM/2012 3 APPELLANT'S ORIGINAL RETURN OF INCOME WHICH WAS FIL ED AND ITS BALANCE SHEET AND TAX AUDIT REPORT WAS ALREADY AVAILAB L E ON RECORD AS IT WAS FILED AS ON 01/12/2006 WITH ORIGINAL RETURN OF INCOME. SUBSEQUE NT TO THAT, EVEN I FIND THAT THE JURISDICTIONAL HIGH COURT IN THE CASE OF P URITY TECHTEXTILE PVT. LTD V/S. ACIT REPORTED IN 325 ITR 459 HAS HELD THAT THE REOPENING OF THE ASSESSMENT BASED ON THE AUDIT OBJECTION CANNOT BE H ELD TO BE JUSTIFIED. IN ADDITION TO THIS, I ALSO TAKE NOTE OF THE OBSERVATI ON MADE BY THE JURISDICTIONAL HIGH COURT IN PARA-7 OF ITS ORDER OF WRIT PETITION OF 430/2012 REFERRED AS ABOVE WHICH IS EXTRACTED HEREIN BELOW: HOWEVER, AS SUBMISSIONS WERE MADE ON OTHER ISSUES A LSO WE ARE EXAMINING THEM ALSO. IT IS A SETTLED POSITION IN LA W THAT WHERE ASSESSMENT SOUGHT TO BE REOPENED IS BEFORE THE EXPI RY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR THEN IN SUCH CASES THE POWER TO REOPEN AN ASSESSMENT IS VERY WID E. HOWEVER, EVEN THOUGH SUCH A POWER IS VERY WIDE YET SUCH A POWER WOULD NOT JUSTIFY A REVIEW OF THE ASSESSMENT ORDER ALREAD Y PASSED. THE SUPREME COURT IN THE MATTER OF CIT V/S. KELVINATOR (INDIA) LTD., REPORTED IN 320 ITR PAGE. 561 HAS OBSERVED THAT THE POWER TO REASSESS IS CONCEPTUALLY DIFFERENT FROM A POWER TO REVIEW. THE ASSESSING OFFICER UNDER THE SAID ACT HAS ONLY POWER TO REASSESS ON FULFILLMENT OF CERTAIN PRECONDITION NAMELY, HE MUST HAVE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT AND THAT THERE MUST BE TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE IS AN ESCAPEMENT OF INCOME FROM ASSESSMENT, THE APEX COUR T CAUTIONED THAT IN THE GARB OF REOPENING AN ASSESSM ENT REVIEW SHOULD NOT TAKE PLACE. THIS COURT FOLLOWING THE APE X COURT IN THE MATTER OF CARTINI INDIA LTD. V. ADDL. CIT REPORTED IN 314 ITR 275 HAS ALSO HELD THAT EVEN WHERE ASSESSMENT IS OUGHT TO BE DONE WITHIN FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, THERE MUST BE REASON TO BELIEVE THAT INCOME HAS ESCAPED A SSESSMENT AND SUCH REASON TO BELIEVE SHOULD NOT BE ON ACCOUNT OF MERE CHANGE OF OPINION. THEREFORE, WHERE FACTS HAVE BEEN VIEWED DURING THE ORIGINAL PROCEEDING AND AN ASSESSMENT ORDER HAS BEEN PASSED THEN IN SUCH CASES, REOPENING OF AN ASSESSMENT ON T HE SAME FACTS WITHOUT ANYTHING MORE WOULD BE A REVIEW AND NOT PER MITTED UNDER THE GARB OF REASSESSMENT. THIS WOULD BE A MERE CHAN GE OF OPINION IN THE ABSENCE OF ANY TANGIBLE MATERIAL AND IS NOT SUFFICIENT TO ASSUME JURISDICTION TO ISSUE THE IMPUGNED NOTICE. I N FACT, OUR COURT IN THE MATTER OF IDEA CELLULAR LTD. V. DEPUTY COMMI SSIONER OF INCOME TAX REPORTED IN 301 ITR 407 HAS HELD THAT ON CE ALL THE MATERIAL WITH REGARD TO PARTICULAR ISSUE IS BEFORE THE ASSESSING OFFICER AND HE CHOOSES NOT TO DEAL WITH THE SAME, I T CANNOT BE SAID THAT HE HAD NOT APPLIED HIS MIND TO ALL THE MATERIA L BEFORE HIM. FURTHER, AS OBSERVED BY THE FULL BENCH OF DELHI HIG H COURT IN THE MATTER OF CIT V. KELVINATOR OF INDIA LTD. REPOR T ED IN 256 ITR 1, WHEN THE ENTIRE MATERIAL IS PLACED BEFORE THE ASSESSING OFFICER AT THE TIME OF ORIGINAL ASSESSMENT AND HE PASSES AN ASSESS MENT ORDER UNDER SECTION 143(3) OF THE ACT A PRESUMPTION CAN B E RAISED THAT HE APPLIED HIS MIND TO ALL THE FACTS INVOLVED IN THE ASSESSMENT. I.T.A. NO7406/MUM/2012 4 4.6. TAKING NOTE OF ALL THE FACTS AVAILABLE ON RECO RD, I HAVE NO HESITATION TO HOLD THAT THE REOPENING THE ASSESSMENT WAS COMPLETE LY INCORRECT AND HENCE THE REOPENING OF THE ASSESSMENT BY THE AO IS HELD TO BE BAD IN LAW. ACCORDINGLY, THE REASSESSMENT ORDER PASSED BY AO IS ANNULLED. HENCE, APPELLANT'S THIS GROUND OF APPEAL IS ALLOWED. 6. BEFORE US, THE LD DR PLACED RELIANCE ON THE DEC ISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V/S P V S BEEDIE S (P) LTD (1999) 237 ITR 13 (SC) TO CONTEND THAT THE REOPENING OF ASSESSMENT ON THE BASIS OF OPINION GIVEN BY THE AUDIT PARTY WAS VALID IN LAW. HE ALSO PLAC ED RELIANCE ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V /S USHA INTERNATIONAL LTD IN ITA NO.2026 OF 2010 DATED 21.7.2012 TO CONTEND THAT NON CONSIDERATION OF CLAIM FOR ANY DEDUCTION IN THE ORIGINAL ASSESSMENT PROCEE DINGS CANNOT BE LEAD TO AN INFERENCE THAT THERE WAS A CHANGE OF OPINION DURING THE REASSESSMENT PROCEEDINGS. THE LD. DR FURTHER SUBMITTED THAT THE LD. CIT(A) HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DE CISION RENDERED BY THE JURISDICTIONAL HIGH COURT IN PURITY TECHTEXTILE P VT. LTD V/S. ACIT REPORTED IN 325 ITR 459. THE LD. DR, INVITING OUR ATTENTION TO PAR A 15 OF THE SAID ORDER, SUBMITTED THAT THE HONBLE JURISDICTIONAL HIGH COURT HAS DECI DED THE ISSUE IN THE ABOVE SAID CASE ON THE BASIS OF THE FACTS PREVAILING IN THAT C ASE. 7 HOWEVER, VARIOUS CASE LAWS RELIED UPON BY THE LD . DR, IN OUR VIEW, CANNOT SUPPORT THE CASE OF THE AO, IN VIEW OF THE PECULIAR FACTS PREVAILING IN THE INSTANT CASE. AS POINTED OUT BY THE LD A.R DURING THE COURS E OF HIS ARGUMENTS, THE REASONS RECORDED BY THE AO ARE COMPLETELY VAGUE AND THE AO HAS NOT GIVEN ANY DEFINITE CONCLUSION ABOUT THE ESCAPEMENT OF INC OME. THE ASSESSEE HAS OBTAINED A COPY OF AUDIT OBJECTION AND THE SAME IS PLACED IN THE PAPER BOOK AT PAGES 46 AND 47. A COMPARISON OF THE SAME WITH THE REASONS RECORDED BY THE AO WOULD SHOW THAT THE AO HAS SIMPLY COPIED THE AUD IT OBJECTIONS IN VERBATIM AND IT CLEARLY SHOWS THAT THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND INDEPENDENTLY. THOUGH, IN OUR VIEW, THE AUDIT OBJE CTION CAN BE A SOURCE OF INFORMATION, YET WE ARE OF THE VIEW THAT THE ASSESS ING OFFICER HAS TO INDEPENDENTLY APPLY HIS MIND IN ORDER TO ARRIVE AT THE CONCLUSION THAT HE HAD REASON TO BELIEVE ABOUT ESCAPEMENT OF INCOME. THE HIGH-LIGHTED THE PORTION IN THE REASONS RECORDED FOR REOPENING, VIZ., SEEMS T O HAVE BEEN INCLUDED AND SINCE THE VALUE OF ASSETS PERTAINING TO PAPER AND CHEMICALS DIVISIONS COULD NOT I.T.A. NO7406/MUM/2012 5 BE ASCERTAINED SEPARATELY OUT OF BLOCK OF ASSETS, N O TAX EFFECT HAS BEEN COMPUTED WOULD ONLY SHOW THAT THE AO DID NOT HAVE ANY REASO N TO BELIEVE ABOUT THE ESCAPEMENT OF INCOME, WHICH IS THE VITAL INGREDIENT TO UPHOLD THE REOPENING OF ASSESSMENT. ONE MORE POINT TO BE NOTI CED IS THAT THE AO/AUDIT PARTY IS MAKING REFERENCE OF A LETTER DATED 11.12.2 008 FURNISHED BY THE ASSESSEE DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDING S, MEANING THEREBY, A REFERENCE IS BEING MADE TO THE VERY SAME MATERIAL, WHICH WAS EXAMINED BY HIM IN THE ORIGINAL ASSESSMENT PROCEEDINGS. IT WAS NOT SHOWN TO US THAT THE ASSESSING OFFICER COULD NOT HAVE CONSIDERED THE ABO VE SAID LETTER DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. THIS FAC T ALSO SUPPORTS THE CASE OF THE ASSESSEE. 8. IN VIEW OF THE AFORESAID DISCUSSIONS, WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT THE REASSESSMENT IS BAD IN LAW AND ACCORDINGLY JUSTIFIED IN ANNULLING THE IMPUGNED REASSESSMENT. 9. SINCE WE HAVE UPHELD THE DECISION OF THE LD. CIT (A) ON THE PRELIMINARY ISSUE AND CONSEQUENTLY THE ANNULMENT OF ASSESSMENT IS HELD TO BE JUSTIFIED, WE DO NOT FIND IT NECESSARY TO ADJUDICATE THE REMAININ G GROUNDS URGED BY THE REVENUE ON MERITS. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPE N COURT ON 17TH DEC, 2014. / '! + 0 1 2 3 17TH DEC , 2014 * <, = SD SD ( . / D. MANMOHAN ) ( . . ,/ B.R. BASKARAN) / VICE- PRESIDENT / ACCOUNTANT MEMBER + , MUMBAI: 17TH DEC, 2014. . . ./ SRL , SR. PS I.T.A. NO7406/MUM/2012 6 ! / COPY OF THE ORDER FORWARDED TO : 1. #$ / THE APPELLANT 2. %&#$ / THE RESPONDENT. 3. + >- ( ) / THE CIT(A)- CONCERNED 4. + >- / CIT CONCERNED 5. 6. ?@< %- A , . A ! , + , / DR, ITAT, MUMBAI CONCERNED < B, / GUARD FILE. C + / BY ORDER, TRUE COPY ' (ASSTT. REGISTRAR) . A ! , + , /ITAT, MUMBAI