K.D.Madan, CHENNAI V. ACIT, CHENNAI

ITA 780/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61291 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-07-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 12-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VI KRAMADITYA
• Assessee Lawyers: R LAKSHMI RATAN
• Keywords: Gift; Business income; Depreciation; Assessment record; Reassessment proceedings
• Section: 143(3); 147; 148; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B B ENCH C HENN AI BEFORE SHRI ABRAHAM P.GEORGE ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY , JUDICIAL MEMBER .. SP NO.61/MDS./2012 AND ITA NO. 780 /MDS./ 20 12 ASSESSMENT YEAR: 200 1 - 02 SHRI K D MADAN, C/O. R.LA KSHMI RATAN & CO CHARTERED ACCOUNTANTS, 48, TAYLORS ROAD, KILPAUK, CHENNAI 600 010. VS. THE ACIT, BUSINESS CIRCLE XV, CHENNAI 600 034. PAN AFTPM 6739 C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.LAKSHMI RATAN. C.A. RESPONDENT BY : SHRI VIKRAMADITYA, JCIT DR DATE OF HEARING : 09 .0 7 .12 DATE OF PRONOUNCEMENT : 19 .0 7 .12 O R D E R PER ABRAHAM P.GEORGE ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE ASSESSEE, ITS GRIEVA NCE IS THAT THE CIT(A) SUSTAINED THE REOPENING DESPITE ORIGINAL ASSESSMENT HAVING BEEN COMPLETED UNDER SECTION.143(3) OF THE INCOME TAX ITA . 780 /MDS/ 12 SP NO.61/MDS/12 2 ACT, 1961(IN SHORT THE ACT ) AND THAT TOO, WITHOUT GIVING THE REASONS SOUGHT BY THE ASSESSEE FOR SUCH REOPENING. 2. SHORT FACTS APROPOS ARE THAT ASSESSEE HAD FILED ITS RETURN FOR IMPUGNED ASSESSMENT YEAR ON 31.03.2002 DECLARING AN INCOME OF ` 10,95,450/ - AND AGRICULTURAL INCOME OF ` 12,500. DURING THE COURSE OF SUCH ASSESSMENT PROCEEDINGS, ASSESSEE WAS REQUIRED TO FURN ISH VARIOUS DETAILS. THEREAFTER, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT ON 31.03.2004 UNDER SECTION 143(3) OF THE ACT MAKING AN ADDITION OF ` 3,10,481/ - TO THE RETURNED INCOME IN SUCH ASSESSMENT ORDER . A DDITION S DISCUSSED ARE ON INTEREST THAT IS T O BE CONSIDERED IN ASSESSEE S HANDS ARISING OUT OF GIFTS GIVEN TO HIS WIFE , INCOME FROM CERTAIN PROPERTY CLAIMED BY THE ASSESSEE TO BE SELF - OCCUPIED AND DISALLOWANCE RELATING TO EXPENSES CLAIMED WITHOUT PROPER BILLS AND VOUCHERS. HOWEVER, A.O. HAS NOT STA TED ANYTHING REGARDING THE COMPONENTS OF THE ADDITION OF ` 3,10,481/ - AGAINST EACH OF THE ABOVE . 3. THEREAFTER, ASSESSMENT WAS REOPENED UNDER SECTION.147 OF THE ACT AND NOTICE UNDER SECTION. 148 OF THE ACT ISSUED TO ASSESSEE ON 26.06.07. ASSESSEE REPLI ED TO THE SAID NOTICE THAT ITA . 780 /MDS/ 12 SP NO.61/MDS/12 3 RETU RN ALREADY FILED ON 31.03.2002 SH OULD BE DEEMED AS THE RETURN FILED IN RESPONSE TO SUCH NOTICE. THOUGH THE ASSESSEE ALSO OBJECTED THE REOPENING, IT SEEMS THE ASSESSING OFFICER OVER - RULED THE OBJECTIONS AND PROCEEDED WITH TH E RE ASSESSMENT. ASSESSING OFFICER DURING THE COURSE OF THE REASSESSMENT PROCEEDINGS NOTED THAT ASSESSEE HAD CHARGED A SUM OF ` 23,10,007/ - I N ITS PROFIT AND LOSS ACCOUNT, A S LOSS ON SALE OF FIXED ASSETS. AS PER ASSESSING OFFIC ER, BUSINESS INCOME WAS WORKED OUT BY THE ASSESSEE AFTER CONSIDERING SUCH CLAIM OF LOSS ON SALE OF FIXED ASSETS. W HEN PUT ON NOTICE, ASSESSEE REPLIED THAT ASSETS WORTH ` 1,05,90,483/ - WER E TRANSFERRED TO ONE M/S. O S A SHIPPING P . LTD , ASSETS WORTH ` 1,36,817/ - WERE TRANSFERRED TO ONE M/S.D . B . MADAN & CO., AND ASSETS WORTH ` 45,09,187/ - WERE TRANSFERRED TO CERTAIN OTHER PARTIES. HOWEVER, AS P ER ASSESSING OFFICER, NO DETAILS WERE SUBMITTED BY THE ASSESSEE IN THIS REGARD. HE ALSO NOTED THAT M/S.OSA SHIPPING P LTD AS WELL AS M/S.D B . MAD AN & CO WE RE RELATED CONCERNS. FURTHER, ACCORDING TO HIM, PERSONS TO WHOM ASSETS WORTH ` 45,09,187/ - WERE TRANSFERRED, WERE NOT KNOWN. THUS, HE CAME TO A CONCLUSION THAT THE CLAIM OF LOSS ON SALE OF ASSETS OF ` 26,34,555/ - PREFERRED BY THE ASSESSEE AS ARIS ING OUT OF TRANSFER OF THE ASSETS , COULD NOT BE ALLOWED. THUS, REASSESSMENT WAS C OMPLETED MAKING AN ADDITION OF A LIKE AMOUNT. ITA . 780 /MDS/ 12 SP NO.61/MDS/12 4 4 . IN ITS APPEAL, ASSESSEE QUESTIONED THE REOPENING, WHICH WAS INITIATED AFTER EXPIRY OF FOUR YEARS FROM THE IMPUGNED ASSESSMEN T YEAR. ACCORDING TO ASSESSEE, ORIGINAL ASSESSMENT PROCEEDINGS WERE COMPLETED BY ASSESSING OFFICER AFTER CONSIDERING TH E RETURN OF INCOME AND COMPUTATION STATEMENT ATTACHED TO SUCH RETURN WHICH GAVE ALL DETAILS OF ASSETS DISPOSED OF, AND LOSS ARISING THE REFROM . ACCORDING TO ASSESSEE, THERE WAS NO FAILURE ON HIS PART TO DISCLOSE FULLY AND TRULY ANY INFORMATION. HOWEVER, CIT(A) WAS NOT IMPRESSED. ACCORDING TO HIM, ASSESSEE H AD SOLD HIS BUSINESS ASSETS TO RELATED CONCERN S . ASSESSING OFFICER DURING THE SC RUTINY ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEARS 1999 - 00 & 2000 - 01 HAD FOUND THAT SIMILAR LOSSES WERE CLAIMED BY THE ASSESSEE IN THOSE YEARS ALSO , AND THESE WERE NOT ALLOWABLE. HE NCE ACCORDING TO THE CIT(A), REOPENING RESORTED TO FOR THE IMPUGNED ASSES SMENT YEAR WAS BASED ON INFORMATION AND CONCLUSION DRAWN DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEARS 1999 - 00 & 2000 - 01. AS PER CIT(A), THESE WERE INFORMATION WHICH WAS EXTERNAL AND NOT COMING FROM THE ASSESSMENT RECORDS OF THE IMPUGNE D ASSESSMENT YEAR. HE ,THEREFO RE, HELD THE REOPENING TO BE VALI D. ITA . 780 /MDS/ 12 SP NO.61/MDS/12 5 5 . NOW BEFORE US, LD. AUTHORISED REPRESENTATIVE OF ASSESSEE STRONGLY ASSAILING THE REOPENING DONE FOR THE IMPUGNED ASSESSMENT Y EAR, SUBMITTED THAT ASSESSEE HAD IN ITS COMPUTATION STATEME NT CLEARLY SHOWN THE CLAIM OF LOSS ON SALE OF ASSETS. RELYING ON PAPER BOOK VOLUME II AT PAGE - 7, LD. A.R. SUBMITTED THAT ASSESSEE HAD SEPARATELY CONSIDERED LOSS ON SALE OF ASSETS BASED ON BOOKS AND CLAIMED LOSS FOR THE DIFFERENCE BETWEEN SALE CONSIDERAT ION AND W DV. AGAIN ACCORDING TO HIM, DEPRECIATION STATEMENT FOR TAX PURPOSES APPENDED BY THE ASSESSEE ALONG WITH RETURN PLACED AT PAPER BOOK VOLUME - II PAGE - 13 CLEARLY SHOWED THAT ASSETS WORTH ` 1,29,26,480/ - WERE DISPOSED OF DURING THE RELEVANT PREVIOUS Y EAR. LD. A.R. POINTED OUT THAT ASSESSING OFFICER HAD DURING THE ORIGINAL ASSESSMENT PROCEEDINGS , REQUIRED THE ASSESSEE TO FURNISH DETAILS OF ITS VARIOUS CLAIMS AND VIDE ITS LETTER DT.08.01.04 PLACED AT PAGE S 6 TO 9 OF PAPER BOOK VOLUME I , ALL THE REQUIR ED INFORMATION WERE FURNISHED, WHICH INTER ALIA INCLUDED DETAILS OF THE ASSETS ADDED AND DELETED DURING THE RELEVANT PREVIOUS YEAR. IN ANY CASE, ACCORDING TO HIM, ASSESSEE HAD SOUGH T REASONS FOR REOPENING VIDE ITS LETTER DT.09.08.07 PLACED AT PAPER BOOK VOL UME I, PAGE - 11 AND ASSESSING OFFICER DESPITE STATING THAT RE ASONS WOULD BE INTIMATED VIDE HI S LETTER DT.28.04.08 , PLACED AT PAPER BOOK VOL UME I PAGE - 12, HAD FAILED TO ITA . 780 /MDS/ 12 SP NO.61/MDS/12 6 DO SO. THEREFORE, ACCORDING TO HIM, THE ASSESSMENT NOT ONLY WAS BASED ON A MERE CHA NGE OF OPINION , THAT TOO AFTER FOUR YEARS FROM THE END OF THE IMPUGNED ASSESSMENT YEAR, BUT REASONS FOR REOPENING NEVER GIVEN TO THE ASSESSEE . SINCE REASONS WERE NOT GIVEN, ASSESSEE COULD NOT RAISE ITS OBJECTION AGAINST THE REOPENI NG BEFORE THE ASSESSING OFFICER, AND A VALUABLE RIGHT WAS LOST. 6 . PER CO NTRA LD. D.R. SUBMITTED THAT CIT(A) HAD TAKEN A CONSIDERED VIEW THAT THE REOPENING WAS VALID . ACCORDING TO HIM, CLAIM OF ASSESS EE WAS PATENTLY NOT ALLOWABLE SINCE ASSESSING OFFICER HAD NOT FOLLOWED SECTI ON 50 OF THE ACT WHICH PROVIDED THE METHOD TO BE ADOPTED , WHEN DEPRECIABLE ASSETS WERE SOLD. G AINS/LOSS ARISING ON DISPOSAL OF DEPRECIABLE ASSETS , WHEN THE RELATED BLOCK OF ASSETS BECAME FULLY EXTINCT , COULD ONLY BE CONSIDERED AS SHORT TERM CAPITAL GA INS/LOSS . FURTHER ACCORDING TO HIM, TH E ASSESSING OFFICER DID NOT REL Y ON ANY INFORMATION AVAILABLE IN THE RECORDS RELATING TO IMPUGNED ASSESSMENT YEAR , AND THE REOPEN ING WAS BASED ON HIS FINDINGS FOR A PRECEDING YEAR. 7 . WE HAVE PERUSED THE ORDERS OF TH E AUTHORITIES BELOW AND HEARD THE RIVAL CONTENTIONS. ASSESSEE IN ITS RETURN FOR IMPUGNED ITA . 780 /MDS/ 12 SP NO.61/MDS/12 7 ASSESSMENT YEAR HAD WORKED OUT THE DEPRECIATION FOR TAX PURPOSES AS UNDER: - DESCRIPTION WDV AS ON 1.4.00 ADDITION DELETION TOTAL DEPRECIATION WDV AS ON 31.3.01 BL OCK A BUILDING 67,335 - - 67,335 67,335 (10%) 60,601.50 BLOCK B PLANT & MACHINERY FRANKING MACHINE PUMP SET OTHERS 170 11,145 7,29,899 7,41,214 - - 36,668 36,668 - - 3,79,668 3,79,668 170 11,145 .. 11,315 42.50(25%) 2,786.25 ( ) .. 2,828.75 127.50 8,358.75 . 8,486.25 BLOCK C FURNITURE AND FITTINGS 11,37,431 11,37,431 15,785 15,785 6,45,000 6,45,000 -- -- -- BLOCK D VEHICLES MOTOR VEHICLES MARULTI PY 01 1411 MARUTI TN 09 Z9099 ZEN TN 01 A3625 IMPORTED CARS 37,04,783 3,48,000 88,000 2,16,749 89,00,000 132,57,532 -- -- 116,96,812 -- -- --- BLOCK E COMPUTERS 3,27,204 2,05,448 2,05,000 - - - TOTAL A+B+C+D+E 155,30,716 2,57,901 129,26,480 78,650 9,562.25 69,087.75 LD . A.R. HAD ALSO GIVEN US HOW THE LOSS CLAIMED ON SALE OF ASSETS WAS COMPUTED AND THIS APPEARS AS UNDER: - W DV OF ASSETS AS ON 01.04.2000 1,55,30,716 ADD: COST OF NEW ASSETS PURCHASED DURING THE YEAR. 2,57,901 1,57,88,617 LESS: ASSETS IN HAND AS ON 31.03.2001 78,650 ITA . 780 /MDS/ 12 SP NO.61/MDS/12 8 COST OF ASSETS SOLD DURING THE YEAR 1,57,09,967 LESS: SALE CONSIDERATION OF THE ASSETS SOLD 1,29,26,480 LOSS ON SALE OF ASSETS 27,83,487 THERE IS NO DOUBT THAT THE REOPENING FOR THE IMPU GNED ASSESSMENT YEAR WAS RESORTED TO AFTER FOUR YEARS FROM THE END OF THAT YEAR AND THEREFORE, PROVISO TO SECTION 147 APPLY. WE ALSO FIND THAT ASSESSEE WAS NEVER GIVEN THE REASONS FOR REOPENING DESPITE SPECIFIC REQUEST MADE IN THIS BEHALF. ASSESSEE IN HI S LETTER DATED 09.08.07 CLEARLY MENTIONS THAT REASONS FOR REOPENING WAS NOT GIVEN TO IT AND THAT THIS WAS A PRE - REQUISITE FOR A REASSESSMENT . ASSESSING OFFICER IN HIS LETTER DT.28.04.08 HAS STATED ASUNDER: - SUB: INCOME TAX ASSESSMENT A.Y.01 - 02 YOUR OWN - REOPENED UNDER SECTION 148 - REASONS FOR REOPENING REG. REF: YOUR LETTER DATED 9.8.07 PLEASE REFER TO THE ABOVE. YOU ARE REQUESTED TO COMPLY WITH THE REQUIREMENTS OF THE NOTICE CITED ABOVE. ON YOUR COMPLIANCE THE REASONS W ILL BE INTIMATED TO YOU. ASSESSEE HAD AS EARLY AS 10.08.07 ITSELF REQUESTED THE ASSESSING OFFICER TO TREAT THE RETURN ALREADY FILED BY IT ON 10.08.07 AS ONE FILED PURSUANT TO THE NOTICE UNDER SECTION 148 OF THE ACT. . D.R. HAS NOT DISPUTED THAT REASONS WERE NEVER INTIMATED TO THE ASSESSEE , DESPITE THE ABOVE LETTER OF THE ITA . 780 /MDS/ 12 SP NO.61/MDS/12 9 ASSESSING OFFICER BUT HE HAD DEALT WITH IT ONLY IN THE ASSESSMENT ORDER. 8. NEVERTHELESS, THERE IS A PIQUANT SITUATION ARISING HERE . I N ORIGINAL ASSESSMENT PROCEEDINGS, THE A.O. HA D APPLIED A WRONG PROVISION OF LAW. A SSETS DISPOSED OF F WERE ALL BUSINESS ASSETS ON WHICH DEPRECIATION WERE CLAIMED BY THE ASSESSEE . A SSESSEE HAD WORKED OUT ITS DEPRECIATION FOR THE IMPUGNED ASSESSMENT YEAR ALSO UNDER SEC.32(1) OF THE ACT, WHICH CLEARLY GI VES THE METHODOLOGY , WHERE ASSETS ARE TO BE DIVIDED UNDER VARIOUS BLOCKS. HOWEVER UNDER THE COLUMN DELETION IN THE DEPRECIATION SCHEDULE, THOUGH IT SHOWED RS.1,29,26,480/ - , RESULTING LOSS WAS CLAIMED AS A REVENUE OUTGO. A SSESSEE ALSO DID NOT COMPUTE IT S SHORT TER M GAINS OR SHORT TERM LOSS CONSIDERING THE PROVISIONS OF SEC.50 OF THE ACT, WHICH APPLIED FOR COMPUTATION OF GAINS IN CASE OF DEPRECIABLE ASSETS. ASSESSEE HAD INDEED GIVEN CERTAIN DETAILS OF THE ASSETS ADDED AND DELETED VIDE ITS LETTER DATED 0 8.01.04 DURING THE C OURSE OF ASSESSMENT PROCEEDINGS. B UT IN OUR OPINION THIS CANNOT BE CONSIDERED AS A DISCLOSURE WHICH WAS FULL AND TRUE , WITH REGARD TO ITS INCOME OF THE IMPUGNED ASSESSMENT YEAR. WE CANNOT SAY THAT ASSESSEE HAD DISCLOSED ALL MATERIAL FA CTS AND PARTICULARS NECESSARY FOR THE ASSESSMENT. ITA . 780 /MDS/ 12 SP NO.61/MDS/12 10 A.O. HAD ALSO FAILED TO TAKE NOTE OF THIS DURING THE ORIGINAL ASSESSMENT PROCEEDINGS. AT THE SAME TIME, IT IS ALSO TRUE THAT ASSESSEE WAS NEVER SUPPLIED WITH THE REASONS FOR REOPENING DESPITE REQUEST. HON B LE APEX COURT IN THE CASE OF GKN DRIVESHAFTS (INDIA) LTD . VS. ITO IN 259 ITR 19 (SC) CLEARLY HELD THAT WHEN A NOTICE UNDER SECTION.148 WAS ISSUED AND ASSESSEE AFTER FILING RETURN HAD SOUGHT REASONS FOR ISSUE OF NOTICE, ASSESSING OFFICER WA S BOUND TO FURNI SH REASONS WITHIN A REA SONABLE TIME. LORDSHIPS HAD NOTED THAT WHEN OBJECTIONS WERE FILED BY THE ASSESSEE, ASSESSING OFFICER WAS BOUND TO DISPOSE OF SUCH OBJECTIONS BY PASSING A SPEAKING ORDER. IN THE CASE BEFORE THE APEX COURT, REASONS W ERE DISCLOSED BY T HE A.O., BUT THE OBJECTIONS FILED BY ASSESSEE WERE NOT DISPOSED OF. NONE THE LESS , IT IS CLEAR THAT THE A.O. HAS TO PROVIDE THE ASSESSEE WITH THE REASON FOR REOPENIN G, IF IT WAS SOUGHT AND DISPOSE OF SUCH OBJECTIONS. SO, THE PLEA OF THE ASSESSEE WAS THAT IT WAS NOT SUPPLIED OF REASONS FOR REOPENING AND THEREFORE, IT COULD NOT OBJECT TO SUCH REA S ONS , IS JUSTIFIED. HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF K.S.SURESH VS. DCIT IN [2005] 279 ITR 61 ALSO HAS HELD THAT REASSESSMENT CAN BE MADE ONLY AFT ER CONSIDERING THE OBJECTIONS FILED BY THE ASSESSEE CHALLENGING THE VALIDITY OF NOTICE ; SO THIS SHOWS THAT THERE IS FUNDAMENTAL ITA . 780 /MDS/ 12 SP NO.61/MDS/12 11 REQUIREMENT OF PROVIDING THE ASSESSEE WITH REASONS FOR REOPENING AND DISPOSING OF ITS OBJECTIONS TO SUCH REOPENING. THIS PROC EDURE HAS NOT BEEN ADHERED TO BY THE ASSESSING OFFICER IN THE CASE BEFORE US. NEVERTHELESS, IN OUR OPINION, THIS, BY ITSELF, WILL NOT RENDER WHOLE PROCE EDINGS UNLAWFUL AND I LLEGAL . HON BLE APEX COURT LAID DOWN THE PROCEDURE , THAT WAS MANDATORY TO BE FOL LOWED WHEN A NOTICE UNDER SECTION 148 WAS ISSUED. IF THE SAID PROCEDURE IS NOT FOLLOWED, ORDERS OF LOWER AUTHORITIES HAVE TO BE SET ASIDE AND MATTER REMITTED BACK TO ASSESSING OFFICER FOR DOING THE ASSESSMENT AFTER SUPPLYING COPIES OF REASONS RECORDED. I T IS A CURABLE PROCEDURAL INFIRMITY AND THE MATTER HAS TO GO BACK TO THE POINT WHERE THE DEFECT OCCURRED, SO AS TO CURE OF SUCH DEFECT, AND CONTINUE WITH THE PROCEEDINGS IN ACCORDANCE WITH LAW. WE THEREFORE, DEEM IT FIT TO SET ASIDE THE ORDERS OF AUTHORITI ES BELOW AND REMIT THE MATTER BACK TO THE FILE OF ASSESSING OFFICER FOR FURNISHING THE R EASONS FOR REOPENING, SO THAT ASSESSEE CAN FILE ITS OBJECTIONS . ASSESSING OFFICER SHALL THEREAFTER PROCEED IN ACCORDANCE WITH LAW. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ITA . 780 /MDS/ 12 SP NO.61/MDS/12 12 9. SI NCE WE HAVE ALLOWED THE APPEAL FILED BY ASSESS EE FOR STATISTICAL PURPOSES, STAY PETITION HAS BECOME INFRUCTUOUS. SUCH PETITION IS, THEREFORE DISMISSED. ORDER P RONOUNCED ON THURSDAY , T HE 19 TH JULY , 2012 AT CHENNAI SD/ - SD/ - ( VIKAS AWASTHY ) (ABRAHAM P.GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED 19 TH JULY , 2012 . K S SUNDA RAM COPY TO: ASSESSEE / AO / CIT (A) / CIT / D.R. / GUARD FILE ITA . 780 /MDS/ 12 SP NO.61/MDS/12 13