THE DY CIT CC-8, V. SHRI M.P. RAMCHANDRAN,

ITA 743/MUM/2005

• Counselvise Citation: 74319914 RSA 2005
• Duration Of Justice: 6 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 09-08-2011
• Assessment Year: 2000-2001
• Appeal Filed On: 31-01-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJIV DUTT
• Assessee Lawyers: S E DASTUR; SANJIV M SHAH
• Keywords: Reopening of assessment; Depreciation; Block assessment; Reassessment proceedings

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SM T. ASHA VIJAYARAGHAVAN, JM ITA NO.743/MUM/2005 : ASST.YEAR 2000-2001 THE DY.COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE 8 MUMBAI. VS. SHRI M.P.RAMACHANDRAN 44 SHIVSHAKTI INDUSTRIAL ESTATE MAROL, ANDHERI (EAST) MUMBAI 400 059. PAN : ADZPM3832E. (APPELLANT) (RESPONDENT) ITA NO.590/MUM/2005 : ASST.YEAR 2000-2001 SHRI M.P.RAMACHANDRAN 44 SHIVSHAKTI INDUSTRIAL ESTATE MAROL, ANDHERI (EAST) MUMBAI 400 059. VS. THE DY.COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE 8 MUMBAI. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SANJIV DUTT ASSESSEE BY : S/SHRI S.E.DASTUR & SANJIV M.SHAH DATE OF HEARING : 09.08.2011 DATE OF PRONOUNCEMENT : 12.08.2011 O R D E R PER R.S.SYAL, AM : THESE TWO CROSS APPEALS ONE BY THE A SSESSEE AND THE OTHER BY THE REVENUE ARISE OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 17.11.2004 IN RELATION TO THE ASSESSMENT YEAR 2000-2001. 2. FIRST ISSUE IN THE ASSESSEES APPEAL IS AGAINST THE INITIATION OF REASSESSMENT. BRIEFLY STATED THE FACTS OF THIS GROUND ARE THAT THE ASSESSMENT IN THIS CASE WAS COMPLETED U/S.143(1) ON 23.05. 2001. AFTER RECORDING CERTA IN REASONS THE ASSESSING OFFICER ISSUED NOTICE U/S.148. IN RESPONSE TO THAT NOTICE THE AS SESSEE FILED RETURN DECLARING SAME INCOME AS PER THE ORIG INAL RETURN AMOUNTING TO RS.42,38,050. THEREAFTER THE REASONS WERE DEMANDED BY THE ASSESSEE, WH ICH THE ASSESSING OFFICER PROMPTLY SUPPLIED. ULTIMATELY THE ASSESSMENT WAS COMPLETED AT A TOTAL INCOME OF RS.14,93,98,892 ON PR OTECTIVE BASIS. SUCH TOTA L INCOME WAS DETERMINED ITA NOS.590 & 743/MUM/2005 SHRI M.P.RAMACHANDRAN. 2 BY THE AO STARTING WITH THE RETURNED INCOME OF RS.42.38 LAKH MAKING FURTHER FOLLOWING THREE ADDITIONS:- (A) ADVERTISEMENT EXPENDITURE RECEIVABLE FROM JLL DISALLOWED RS.11,05,52,000 (B) ROYALTY RS. 3,46,06,943 (C) DEPRECIATION ON LAND RS. 1,900 --------- ----------- RS.14,51,60,843 ============ 3. THE ASSESSEE CHAL LENGED THE ASSESSMENT ORDER BEFORE THE LEARNED CIT(A). THE GROUND CHALLENGING THE REOPENING OF THE ASSESSMENT WAS NOT ALLOWED BY THE LEARNED CIT(A). NOW THE ASSESSEE IS AG AIN ASSAILING THE REOPENING OF ASSESSMENT. 4. AT THE VERY OUTSET THE LEARNED SENI OR COUNSEL FOR THE ASSESSEE PLACED ON RECORD A COPY OF THE ORDER DATED 14.05.20 09 PASSED BY THE TRIBUNAL IN HIS OWN CASE FOR ASSESSMENT YEAR 1997-98 IN ITA NO.587 /MUM/2005. IN THAT Y EAR ALSO THE ISSUES OF ADVERTISEMENT EXPENDITURE AS WELL AS DEPRECIATION ON LAND WERE INVOLVED. THE TRIBUNAL NOTED THAT THE ASSESSING OFFICER WHILE FINALIZING BL OCK ASSESSMENT HAD MADE ADDITION ON ACCOUNT OF ADVERTISEM ENT EXPENDITURE WHICH WAS REPEATED ON PROTECTIVE BASIS IN THE REASSESS MENT ORDER FOR THAT YEAR AS WELL. IN VIEW OF THE FACT THAT THE ADDITION ON ACCOUNT OF ADVERTIS EMENT EXPENDITURE WAS MADE IN THE BLOCK ASSESSMENT ORDER AS WELL, THE TRIBUNAL, RELYING ON TH E JUDGEMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN MIRA NAIK VS. DCIT [(2008) 15 DTR (BOM.) 8], CAME TO HOLD THAT THE INITIATION OF REASSESSMENT PROCEEDINGS ON THIS IS SUE WAS NOT PROPER FOR THE REASON THAT THE SAME INCOME COUL D NOT BE INCLUDED IN THE BLOCK ASSESSMENT AS WELL AS THE ASSESSMENT U/S. 147. RELEVANT DISCUSSION H AS BEEN MADE IN PARAS 18 ONWARDS OF THE TRIBUNAL ORDE R HOLDING THAT THE INITIATI ON OF REASSESSMENT ON THIS COUNT WAS NOT VALID. IT WA S, THEREFORE, ARGUED THAT SIMILAR VIEW BE TAKEN IN THE INSTANT YEAR AS WELL. ON THE CONTRARY THE LEARNED DEPARTMENTAL REPRESENTATIVE OPPOSED THE CONTENTION BY ARGUING THAT EACH YEAR IS INDEPENDENT AND VIEW TAKEN IN ONE YEAR NEED NOT BE REP EATED IN THE NEXT YEAR. ITA NOS.590 & 743/MUM/2005 SHRI M.P.RAMACHANDRAN. 3 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELE VANT MATERIAL ON RECORD IT IS NOTICED THAT IN ASSESSMEN T YEAR 1997-98 ALSO THE REASSESSMENT WAS INITIATED FIRSTLY ON ACCOUNT OF ADVERTISEMENT EXPENDITURE AND SECONDLY ON ACCOUNT OF DEPRECIATION ON LAND. BOTH THESE ISSUES ARE PRESENT IN THE ASSESSMENT YEAR UNDER CONSIDERATION AS WELL. APART FROM THAT TH ERE IS ONE MORE ISSUE THAT WE WILL DISCUSS IN DETAIL LITTLE LATER. THE TRIBUNAL IN TH E AFORE-NOTED ORDER HAS HELD THAT THE INITIATION OF REASSESSMENT PROCEEDINGS ON AC COUNT OF DISALLOWANCE OF ADVERTISEMENT EXPENDITURE WAS NOT PERMISSIBLE ON THE GR OUND THAT SIMILAR INCOME WAS INCLUDED BY THE A.O. IN THE BLOCK ASSESSMENT AS WELL . IT IS NOTICED THAT THE BLOCK PERIOD OF THE ASSESSEE IS FROM 1.4.1990 TO 1.11.2000. IN OTHER WORDS, LIK E ASSESSMENT YEAR 1997-98, ASSESSMENT Y EAR 2000-2001 UNDER CONSIDERATI ON IS ALSO FULLY COVERED WITHIN THE BLOCK PERIOD. NO MATERIAL HAS BEEN BROUGHT ON RECORD TO DEMONSTRATE THAT THE EARLIER ORDER OF THE TRIBUNAL IN A.Y. 1997-98 HAS BEEN SET ASIDE OR MODIFIED BY THE HONBLE HIGH COURT IN ANY MANNER . FOLLOWING THE REASONING TAKEN IN THE EARLIER ORDER BY THIS BENCH WE HOLD THAT INITIATION OF REA SSESSMENT IS NOT VALID ON THE QUESTION OF ADVERTISEM ENT EXPENDITURE. AS REGARD S THE DISALLOWANCE OF DEPRECIATION ON LAND, THE TRIBUNAL NOTED IN THE SAID EARLIER CASE THAT THE ASSESSEE ACCEPTED THIS ADDITION AND DID NOT FILE ANY APPEAL ON THIS ISSUE. ON THAT REASONING THE INITIATION OF REASSESSMENT ON THIS ISSU E WAS UPHELD. IN THE CURRENT YEAR THE ASSESSEE HAS RAISED A DDITIONAL GROUND CHALLENGING THE DISALLOWANCE OF DEPRECIATION. THE LEARNED DEPARTMENTAL REPRESENTATI VE SUBMITTED THAT THE QUESTION OF DISALLOWANCE OF DEPRECIATI ON ON LAND CAME UP BEFORE THE TRIBUNAL IN ASSESSMENT YEARS 1998-99 AND 1999-2000. INVITING OUR AT TENTION TOWARDS THE COPY OF THE SAID ORDER IT WAS STATED THAT THIS MATTER HAS BEEN RESTORED TO THE FILE OF A.O. FOR VERIFICATION AND FRESH DETERMINATION. ON THIS, THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT THE TRIBUNAL ORDER FOR ASSE SSMENT YEAR 1998-99 A ND 1999-2000 HAS BEEN RECALLED IN THE MISCELLANEOUS APPLICATION FILED BY THE ASSESSEE. HE HOWEVER DID NOT RAISE ANY OBJECTION IF THE QUESTION OF GR ANTING OR OTHERWISE OF DEPRECIATION WAS RESTORED TO THE FILE OF A.O. IN VIEW OF THE FACT THAT NO DISALLOWANCE WAS MADE ON ITA NOS.590 & 743/MUM/2005 SHRI M.P.RAMACHANDRAN. 4 ACCOUNT OF DEPRECIATION IN THE BLOCK ASSESSMENT ORDE R, THE RATIONALE OF THE REASONING GIVEN BY THE TRIBUNAL IN ASS ESSMENT YEAR 1997-98 FOR NOT INITIATING REASSESSMENT IN RESPECT OF AN INCOME WHIC H HAS ALREADY BEEN INCLUDED IN THE BLOCK ASSESSMENT ORDER, THER EFORE, WILL NOT APPLY QUA THE DISALLOWANCE OF DEPRECIATION. FURTHER SINCE THE LEARNED A.R. HAS NOT RAISED ANY OBJECTION TO THE RESTORATION OF THIS ISSUE TO THE FILE OF A.O. FOR A FRESH DETERMINATION, WE ARE OF THE CONSIDERED OPINION THAT NO INFIRMITY CAN BE FOUND AT TH E A.O.S END IN INITIATING REASSESSMENT PROCEEDINGS ON THIS ISSUE. ONCE A REASSESSME NT IS VALIDLY INITIATED, THE AO GETS THE POWER TO ASSESS OR REASSESS ANY OTHER IN COME ALSO WHICH CO MES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF PROCEE DINGS UNDER SECTION 147. WE, THEREFORE, HOLD THAT THE ASSESSING OFFICER WAS JUSTIFIED IN INITIATING THE REASSESS MENT. THIS ISSUE IS DECIDED AGAINST THE ASSESSEE AND RESULTANTLY GROUNDS RAIS ED IN THIS BEHALF FAIL. 6. SECOND GROUND OF THE REVENUES APPEAL IS AGAINST THE DELETION OF ADDITION OF ROYALTY INCOME OF RS.3,46,06,943 WHICH IN THE OPINION OF TH E ASSESSING OFFICER ACCRUED TO THE ASSESSEE DURIN G THE YEAR BY VIRTUE OF AGREEMENT WITH M/S.JYOTHY LABORATORIES LIMITED (JLL). BR IEFLY STATED THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE DECLARED ROYALTY INCOME FROM JLL UP TO 30 TH SEPTEMBER, 1999 AMOUNTING TO RS.166.43 LAKH. ON BEING QUESTIONED AS TO WHY NO ROYALTY WAS DECLARED FOR THE PERIOD OCTOBER 1999 TO MARCH 2000, THE AS SESSEE STATED THAT IT ENTERED INTO AGREEMENT WITH JLL ON 23.12.1994 WHICH WAS VALID FOR A PE RIOD OF 10 YEARS. SUBSEQUENTLY SUCH AGREEMENT CEASED TO BE OPERATIVE FROM OCTOBER 1999 ONWARDS. IN VIEW OF THE FACT THAT NO ROYALTY INCOME WAS EARNED, THE ASSESSEE STATED THAT THE ROYALTY INCOME WAS ACCORD INGLY NOT OFFERED FOR TAXA TION FOR THIS PERIOD. NOT CONVINCED WITH THE ASSESS EES SUBMISSION, THE ASSESSIN G OFFICER NOTED THAT THE ASSESSEE WAS FOLLOWING MERCANTIL E SYSTEM OF ACCOUNTING. IN THAT VIEW OF THE MATTER IT WAS HELD THAT THE ASSESSEE WAS ENTITLED TO RECEIVE ROYALTY INCOME FOR THE REMAINING PERIOD OF SIX MONTHS OF THIS YEAR. BY SOME MATHEMATICAL EXERCISE A SUM OF RS.3.46 CRORE WAS ADDE D TO THE ASSESSEES INCO ME. THE LEARNED CIT(A) ITA NOS.590 & 743/MUM/2005 SHRI M.P.RAMACHANDRAN. 5 FOLLOWING THE VIEW TAKEN BY HIM IN ASSESSMENT YEAR 2001-2002 HELD THAT SUCH INCOME WAS NOT LIABLE TO BE TAXED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. A COPY OF THE ORDER PASSED BY TH E TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001-2002 TO 2005-2006 IN ITA NO.744/MUM/2005 ETC. HAS BEEN PLACED ON RECORD. IN THIS ORDER DATED 4 TH FEBRUARY, 2011, THE TR IBUNAL HAS HELD THAT THERE WAS NO OBLIGATION ON JLL TO PAY ROYA LTY TO THE ASSESSEE FROM OCTOBER 1999. RESULTANTLY SIMILAR ADDITIONS MADE ON ACCOUNT OF ROYALT Y IN ALL THE SUBSEQUENT YEARS HAVE BEEN DELETED. SINCE WE ARE DEALING WITH A PERIOD FROM OCTOBER 1999 TO 31 ST MARCH, 2000 WHICH HAS ALSO BEEN CONSID ERED BY THE TRIBUNAL IN THE AFORE-NOTED ORDER FOR ASSESSMENT YEAR 2001-2002 ETC. AND A CATEGORICAL FINDING HAS BEEN RECORDED THAT THE OBLIGATION TO PAY ROYA LTY BY JLL CEASED FROM OCTOBER 1999, IT IS OBVIOUS THAT NO INCOME ON THIS SCORE W AS LIABLE TO BE INCLUDED IN THE ASSESSEES INCOME. RESPECTFULLY FOLLOWI NG THE ORDER OF THE CO-ORDINATE BENCH ON SIMILAR ISSUE, WE APPROVE THE VIEW TAKEN BY THE L EARNED CIT(A) ON THIS ISSUE. THIS GROUND FAILS. 8. AS REGARDS ADDITIONAL GROUND RAISED BY THE ASSESSEE ON THE QUESTION OF DISALLOWANCE OF DEPRECIATION ON LAND, THE LEARNED A.R. HAS FAIRLY CONCEDED THAT IF THE MATTER IS RESTORED TO TH E FILE OF A.O. UNDER SUCH CIRCUMSTANCES WE ARE OF THE CONSIDERED OPINION THAT IT WOULD BE IN TH E INTEREST OF JUSTIC E IF THE IMPUGNED ORDER ON THIS ISSUE IS SET ASIDE AND THE MATTER IS RE STORED TO THE FILE OF A.O. THE ASSESSING OFFICER IN FRESH PROCEEDINGS ON THIS ISSU E, WILL VERIFY THE DETAILS SOUGHT TO BE PLACED BEFORE HIM AND THEN TAKE A FINA L DECISION ON THE POI NT AS PER LAW. THE ADDITIONAL GROUND IS ACCORD INGLY DISPOSED OFF. 9. THE ONLY OTHER ISSUE COMMON IN THE CROSS APPEALS IS AGAINST ADVERTISEMENT EXPENSES. THE ASSESSEE CLAIME D EXPENDITURE OF RS.11.73 CRORE UNDER THIS HEAD. FOR THE DETAILED REASON GIVEN IN THE ASSESSMENT ORDER THE ASSESSING OFFICER OBSERVED ITA NOS.590 & 743/MUM/2005 SHRI M.P.RAMACHANDRAN. 6 THAT THE ASSESSEE IN CURRED SUCH EXPENDITURE RELA TABLE TO JLL BUT DID NOT GET REIMBURSEMENT OF SUCH AMOUNT. HE NOTICED THAT IN EARLIER YEARS A PART OF THE AMOUNT WAS REIMBURSED BUT IN THE INST ANT YEAR THE ASSESSEE DID NOT CLAIM ANY REIMBURSEMENT. IT WAS HELD TO BE A PL OY TO REDUCE THE ASSES SEES INCOME AND CONSEQUENTLY INCREASE THE IN COME OF JLL IN WHICH THE ASSESSEE WAS INTE RESTED, SO THAT THE COMPANY MAY CLAIM DEDUCTION U/S.80-IA TO THE EXTENT OF 100% OR 30% OF ITS INCOME. CONSIDERING THESE FACTS HE AL LOWED DEDUCTION TO THE EXTENT OF RS.68 LAKH AND DISALLOWED THE REMAINING AMOUNT OF RS.11.05 CRORE. WHEN THE MATTER CAME UP BEFORE THE LEARNED CIT(A) IT WA S NOTICED BY HIM TH AT HE HAD PARTLY CONFIRMED SIMILAR ADDITION IN ASSESSMENT YEAR 1997-98. BY APPLYING THE SAME FORMULA, HE CONFIRMED ADDITI ON AT RS.9.39 CRORE AS AGAINS T RS.11.05 CRORE MADE BY THE ASSESSING OFFICER. BOTH THE SIDES ARE IN APPEAL ON THEIR RESPECTIVE STANDS. 10. BEFORE US THE LEARNED DEPARTMEN TAL REPRESENTATIVE CONTENDED THAT THE ASSESSEE WAS NOT JUSTIFIED IN ARTIFICIALLY REDUCIN G ITS INCOME BY NOT CLAIMING REIMBURSEMENT OF ADVERTISEM ENT EXPENSES INCURRED BY HIM ON BEHALF OF JLL. HE RELIED ON CERTAIN JUDGEMENT S TO CONTEND THAT THE AS SESSEE HAD ADOPTED A TAX AVOIDANCE DEVICE. HIS FURTHER SUBMISSIONS WERE THAT SINCE THE EXPENDITURE WAS NOT WHOLLY AND EXCLUSIVELY INCURRED BY THE ASSESSEE FOR HIS BUSINESS PURPOSES, THE SAME WAS LIABLE TO BE DISALL OWED IN ENTIRETY. IN THE OPP OSITION, THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE FACTS AND CIRCUMSTANCES OF THIS ISSUE ARE SIMILAR TO THOSE ALREADY CONSIDERED AND DECIDE D BY THE TRIBUNAL IN ASSESSMENT YEAR 1997- 98 AND HENCE THERE IS NO REASON FOR TAKING A CONTRARY VIEW. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS SEEN FROM THE IMPUGNED ORDE R THAT THE LEARNED CIT(A) DECIDED THIS GROUND PARTLY IN FAVOUR OF THE ASSESSEE BY RELYING HI S OWN ORDER FOR ASSESSMENT YEAR 1997-98. NO SEPARATE REASONING HA S BEEN ASSIGNED IN THE IMPUGNED ORDER EXCEPT FOR FOLLOWING HIS OWN VIEW IN ASS ESSMENT YEAR 1997-98. THAT APART, IT IS FURTHER NOTED THAT THE ASSESSING OFFICER HA S ALSO PASSED THE ORDER FOR ASSESSMENT ITA NOS.590 & 743/MUM/2005 SHRI M.P.RAMACHANDRAN. 7 YEAR 1997-98 ON THE SAME DATE ON WHICH THE ASSESSMENT ORDER FOR THE CURRENT YEAR WAS PASSED. FURTHER THE CURREN T ASSESSMENT ORDER, TO THAT EXTENT, IS ALMOST CUT AND PASTE OF THE ASSESSMENT ORDER FOR ASSESSMEN T YEAR 1997-98. IT, THEREFORE, DISCERNS THAT THERE IS NOT MUCH DISTINCTION IN THE F ACTS AND CIRCUMSTANCES OF THIS YEAR ON THE ISSUE IN QUESTION VIS--VI S THOSE CONSIDERED AND D ECIDED BY THE TRIBUNAL IN ASSESSMENT YEAR 1997-98. FOLLOWING THE VI EW TAKEN IN SUCH EARLIER TRIBUNAL ORDER, WE ORDER FOR THE DELETION OF ENTIRE ADDITION. THE GROUND TAKEN BY THE ASSESSEE IS ALLOWED AND THAT BY THE RE VENUE IS DISMISSED. 12. IN THE RESULT, THE APPEAL OF THE ASS ESSEE IS PARTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN TH E OPEN COURT ON THIS 12 TH DAY OF AUGUST, 2011. SD/- SD/- (ASHA VIJAYARAGHAVAN) (R.S.SYAL) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI : 12 TH AUGUST, 2011. DEVDAS* COPY TO : 1. THE APPELLANT.` 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) CENTRAL II, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.