Income Tax Officer, Ward-2(1), Hyderabad V. M/s Esbee Holdings Private Limited, Hyderabad

ITA 782/HYD/2014

• Counselvise Citation: 78222514 RSA 2014
• Duration Of Justice: 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 01-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Business income; Business expenditure; Source of fund; Wrong claim; Difference of opinion; Change of opinion
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 782/HYD/2014 ASSESSMENT YEAR : 2006-07 THE INCOME TAX OFFICER WARD-2(1) HYDERABAD VS. M/S. ESBEE HOLDINGS PVT. LTD., HYDERABAD PAN: AAACE4388A APPELLANT RESPONDENT APPELLANT BY: SRI SOLGY JOSE T. KOTTARAM RESPONDENT BY: SRI G. PAVAN KUMAR DATE OF HEARING: 01.09.2014 DATE OF PRONOUNCEMENT: 10 .09.2014 ORDER PER SAKTIJIT DEY, J.M.: THE DEPARTMENT HAS PREFERRED THE AFORESAID APPEAL AGAINST ORDER DATED 21.2.2014 OF CIT(A)-III, HYDERA BAD IN ALLOWING ASSESSEE'S APPEAL PERTAINING TO ASSESSMENT YEAR 2006-07. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE DEPARTMENT IS AS FOLLOWS: THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN IGNORING EXPLANATION 1 TO SECTION 147 WHEREIN PRODUCTION BEFORE THE ASSESSING OFFICER OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD, WITH DUE DILIGENCE, HAVE BEEN DISCOVERED BY THE ASSESSING OFFICER WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN THE MEANING OF THE FOREGOING PROVISO. 2 ITA NO. 782/HYD/2014 M/S. ESBEE HOLDINGS PVT. LTD. ======================= 3. BRIEFLY THE FACTS ARE, ASSESSEE IS A NON BANKING FINANCE COMPANY (NBFC) REGISTERED WITH THE RESERVE BANK OF INDIA (RBI). AS STATED BY ASSESSEE, THE RBI HAS PERMITTED ASSESSEE TO CARRY ON THE BUSINESS OF NON- BANKING FINANCE COMPANY WITHOUT ACCEPTING PUBLIC DEPOSITS. FOR THE ASSESSMENT YEAR UNDER DISPUTE ASSESSEE FILED ITS RETURN OF INCOME ON 29.11.2006 DECLARING INCOME OF RS. 9,70,458. ASSESSEE'S CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND ASSESSMENT WAS ULTIMATELY COMPLETED VIDE ORDER DATED 19.11.2008 PA SSED U/S. 143(3) OF THE ACT BY ACCEPTING INCOME RETURNED BY ASSESSEE. SUBSEQUENTLY, LONG AFTER COMPLETION OF ASSESSMENT U/S. 143(3) THE ASSESSING OFFICER ON RE- EXAMINATION OF THE FACTS AND MATERIALS ON RECORD NO TED THAT AN AMOUNT OF RS. 29,50,241 WAS CLAIMED BY ASSE SSEE AS BUSINESS EXPENDITURE WHEREAS ASSESSEE DURING THE RELEVANT PREVIOUS YEAR HAD DERIVED INCOME FROM BANK INTEREST, SHORT TERM CAPITAL GAINS ON INTEREST ON I NCOME TAX REFUND. THE ASSESSING OFFICER WAS OF THE VIEW THAT INTEREST INCOME DERIVED BY ASSESSEE BEING ASSESSABL E UNDER THE HEAD INCOME FROM OTHER SOURCES, THE EXPENDITURE CLAIMED CANNOT BE ALLOWED AS PER SECTIO N 57(III) OF THE ACT. FURTHER, ASSESSING OFFICER ALS O NOTED THAT THERE IS DISCREPANCY BETWEEN THE INTEREST INCO ME SHOWN BY ASSESSEE IN THE RETURN OF INCOME AND THE INTEREST INCOME APPEARING IN THE TDS CERTIFICATE. ON THE BASIS OF THE AFORESAID FACTS, AO FORMED AN OPINION THAT INCOME HAS ESCAPED ASSESSMENT AND ACCORDINGLY, REOPENED THE ASSESSMENT BY ISSUING NOTICE U/S. 148 OF THE ACT ON 27.3.2012. DURING THE ASSESSMENT PROCEEDINGS WHICH FOLLOWED, ASSESSEE SUBMITTED THAT ASSESSEE BEING A NBFC, INTEREST INCOME HAD BEEN RIG HTLY 3 ITA NO. 782/HYD/2014 M/S. ESBEE HOLDINGS PVT. LTD. ======================= TREATED AS INCOME FROM BUSINESS. IT WAS SUBMITTED THAT ONE OF THE MAIN OBJECTS OF THE COMPANY AS PER THE MEMORANDUM AND ARTICLES OF ASSOCIATION IS TO INVEST IN DEPOSITS. THE ASSESSING OFFICER, HOWEVER, DID NOT ACCEPT THE SUBMISSIONS OF ASSESSEE. THOUGH THE ASSESSING OFFICER ADMITTED THAT ONE OF THE OBJECTS AS PER THE MEMORANDUM AND ARTICLES OF ASSOCIATION IS TO INVEST IN DEPOSITS BUT THE INTEREST INCOME EARNED BY ASSESSEE FROM DEPOSITS WITH THE BANK HAS TO BE TREATED AS INCOME FROM OTHER SOURCES AS ASSESSEE IS NOT ENGAGED IN THE BUS INESS OF MONEY LENDING OR ANY OTHER BUSINESS ACTIVITY. TH E ASSESSING OFFICER ULTIMATELY CONCLUDED THAT AS THE INTEREST EARNED BY ASSESSEE IS TO BE TREATED AS INCOME FROM OTHER SOURCES, THE AMOUNT OF RS. 29,50,241 CLAIMED AS BUSINESS EXPENDITURE HAS TO BE DISALLOWED. ACCORDI NGLY, HE ADDED THE AMOUNT OF RS. 29,50,241 TO THE INCOME RETURNED. BEING AGGRIEVED OF THE ASSESSMENT ORDER SO PASSED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) BY CHALLENGING THE ASSESSMENT ORDER BOTH ON THE LEGAL ISSUE OF VALIDITY OF PROCEEDINGS INITIATED U/S. 147 OF TH E ACT AS WELL AS ON MERITS OF THE ADDITION. 4. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE VIS-A-VIS THE FACTS AND MATERIALS AVAILABL E ON RECORD AS WELL AS EXAMINING THEM IN THE CONTEXT OF THE PROVISIONS CONTAINED U/S. 147 AND 148 OF THE ACT, A ND THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD. (320 ITR 561) H ELD AS UNDER: '4.5 THE HON'BLE APEX COURT ALSO AGREED WITH THE AFOREMENTIONED POSITION. THE MADRAS HIGH COURT IN THE CASE OF APOLLO HOSPITALS ENTERPRISES LIMITED VS ACIT (2006) 287 ITR 4 ITA NO. 782/HYD/2014 M/S. ESBEE HOLDINGS PVT. LTD. ======================= 25, STATED THAT THE POWER TO REOPEN AN ASSESSMENT WAS NOT CONFERRED BY THE LEGISLATURE WITH THE INTENTION TO ENABLE AN ASSESSING OFFICER TO REOPEN THE FINAL DECISION MADE AGAINST THE REVENUE IN RESPECT OF QUESTIONS THAT DIRECTLY AROSE FOR DECISION IN EARLIER PROCEEDINGS. IF THAT WERE NOT THE LEGAL POSITION IT WOULD RESULT IN PLACING AN UNRESTRICTED POWER OF REVIEW IN THE HANDS OF THE ASSESSING AUTHORITIES DEPENDING ON THEIR CHANGING MOODS. THE AUTHORITY CANNOT REOPEN THE ASSESSMENT ORDER PASSED BY A MERE CHANGE OF OPINION OR BY DRAWING A DIFFERENT INFERENCE FROM THE SAME FACTS AS WERE EARLIER AVAILABLE. 4.6 IN THE PRESENT CASE, A DETAILED SCRUTINY WAS UNDERTAKEN BY THE ASSESSING OFFICER AND THE ASSESSMENT ORDER WAS PASSED U/S 143(3) OF THE INCOME TAX ACT. IT IS ONLY REASONABLE TO ASSUME THAT THE ASSESSING OFFICER HAD GONE INTO THE MOST FUNDAMENTAL ASPECTS OF THE CASE I.E. THE HEAD OF INCOME UNDER WHICH INCOME RETURN HAD TO BE ASSESSED AND SINCE THERE WAS ONLY ONE ITEM OF EXPENDITURE, WHETHER WAS ALLOWABLE OR NOT. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THERE WAS SOME ISSUE WHICH WAS DEEPLY EMBEDDED IN CERTAIN DOCUMENTS WHICH HAD NOT BEEN SEEN DURING THE SCRUTINY ASSESSMENT. RATHER THE ISSUE PERTAINS TO THE MOST BASIC FACT OF THE CASE. IT IS CLEAR THAT AT THAT TIME DETAILS OF INCOME AND EXPENDITURE WERE EXAMINED BY THE ASSESSING OFFICER AND HE WAS SATISFIED ABOUT BOTH AND ACCEPTED THE RETURN OF INCOME. 4.7 NOW AFTER SOME YEARS, NO FURTHER INFORMATION HAS BEEN COLLECTED BY THE ASSESSING OFFICER. BASED ON THE SAME INFORMATION AND THE SAME FILE, THE ASSESSING OFFICER WAS CHANGED HIS OPINION THAT THE INCOME ACCEPTED AS 'INCOME FROM BUSINESS' IS NOW TO BE ASSESSED UNDER ANOTHER HEAD AND THE EXPENDITURE IS NOT TO BE ALLOWED. THIS IS CLEARLY A CHANGE OF OPINION BASED ON THE REVIEW OF THE CASE AND NOT BASED ON ANY OTHER INFORMATION ON RECORD. THE AFOREMENTIONED 5 ITA NO. 782/HYD/2014 M/S. ESBEE HOLDINGS PVT. LTD. ======================= JUDGMENTS OF THE HON'BLE SUPREME COURT ARE CLEARLY APPLICABLE. ACCORDINGLY, I HOLD THAT THE REOPENING IS NOT IN ORDER BEING AN OBVIOUS CHANGE OF OPINION.' 5. WITH THE AFORESAID OBSERVATIONS THE LEARNED CIT(A) ALLOWED THE APPEAL OF ASSESSEE. 6. THE LEARNED DR SUBMITTED BEFORE US THAT THOUGH ASSESSEE DID NOT HAVE ANY INCOME UNDER THE HEAD BUSINESS BUT WRONGLY CLAIMED BUSINESS EXPENDITURE AGAINST THE INCOME EARNED FROM INTEREST ON DEPOSITS WITH BANK. IT WAS SUBMITTED THAT AS THERE IS UNDER ASSESSMENT/ESCAPEMENT OF ASSESSMENT TO THE EXTENT O F WRONG CLAIM MADE BY ASSESSEE, THE ASSESSING OFFICER WAS EMPOWERED UNDER THE ACT TO INITIATE ACTION U/S. 147 OF THE ACT EVEN BEYOND FOUR YEARS. 7. THE LEARNED AR, ON THE OTHER HAND, SUBMITTED THAT ASSESSEE HAS COMMENCED ITS BUSINESS AS NBFC SINCE T HE YEAR 1993. FROM THE VERY INCEPTION, ASSESSEE HAS B EEN FOLLOWING THE SAME METHOD OF ACCOUNTING OF SHOWING THE INTEREST INCOME AS INCOME UNDER THE HEAD BUSINESS W HICH HAS ALSO BEEN ACCEPTED BY THE DEPARTMENT TILL THE IMPUGNED ASSESSMENT YEAR. IT WAS SUBMITTED BY THE LEARNED AR THAT EVEN IN THE IMPUGNED ASSESSMENT YEA R ALSO DURING THE ORIGINAL SCRUTINY ASSESSMENT, THE ASSESSING OFFICER AFTER EXAMINING THE CLAIM MADE BY ASSESSEE IN THE RETURN OF INCOME AS WELL AS THE STA TEMENT OF ACCOUNTS HAS ACCEPTED THE SAME. THEREFORE, THE RE BEING NO FAILURE ON THE PART OF ASSESSEE TO DISCLOS E FULLY AND TRULY ALL MATERIAL FACTS, THE ASSESSING OFFICER IS DEBARRED FROM REOPENING THE ASSESSMENT BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT 6 ITA NO. 782/HYD/2014 M/S. ESBEE HOLDINGS PVT. LTD. ======================= ASSESSMENT YEAR. FURTHER, THE LEARNED AR SUBMITTED THAT THE ASSESSING OFFICER HAS NO FRESH MATERIAL OR ADDI TIONAL INFORMATION AVAILABLE WITH HIM WHILE REOPENING THE ASSESSMENT. IT WAS SUBMITTED THAT REOPENING OF ASSESSMENT ON THE BASIS OF VERY SAME MATERIALS WHIC H WERE CONSIDERED BY THE ASSESSING OFFICER AT THE TIM E OF SCRUTINY ASSESSMENT AMOUNTS TO CHANGE OF OPINION WH ICH IS NOT PERMISSIBLE UNDER THE PROVISIONS OF THE ACT. IN THIS CONTEXT, THE LEARNED AR RELIED UPON THE FOLLOWING DECISIONS: A) CIT VS. KELVINATOR OF INDIA LTD. 320 ITR 561. B) ITO V. NAWAB MIR BARKAT ALI KHAN BAHADUR, 97 ITR 239 (SC) C) CIT VS. SIMON CARVES LTD. 105 ITR 212 8. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL ON RECORD AS WELL AS THE O RDERS OF THE REVENUE AUTHORITIES. WE HAVE ALSO CAREFULLY APPLIED OUR MIND TO THE DECISIONS RELIED ON BY THE LEARNED AR. UNDISPUTEDLY, IN THE PRESENT CASE, THE ASSESSING OF FICER HAS REOPENED THE ASSESSMENT U/S. 147 OF THE ACT BY ISSUING NOTICE U/S. 148 ON 27.3.2012, WHICH IS AFTE R EXPIRY OF FOUR YEARS FROM THE END OF THE IMPUGNED ASSESSMENT YEAR. ON A PLAIN READING OF SECTION 147 OF THE ACT IT BECOMES CLEAR THAT THOUGH THE ASSESSING OFFI CER IS EMPOWERED UNDER THE ACT TO REOPEN AN ASSESSMENT FOR ASSESSING INCOME WHICH HAS BEEN UNDER ASSESSED OR H AS ESCAPED ASSESSMENT BUT THE FIRST PROVISO TO SECTION 147 OF THE ACT PUTS A RESTRICTION BY PROVIDING THAT IN A C ASE WHERE THE ASSESSMENT HAS ALREADY BEEN MADE U/S. 143 (3) OR SECTION 147 OF THE ACT, NO ACTION SHALL BE TAKEN U/S. 147 AFTER EXPIRY OF FOUR YEARS FROM THE RELEVANT ASSESSMENT YEAR UNLESS ANY INCOME CHARGEABLE TO TAX HAS 7 ITA NO. 782/HYD/2014 M/S. ESBEE HOLDINGS PVT. LTD. ======================= ESCAPED ASSESSMENT DUE TO FAILURE ON THE PART OF AS SESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECE SSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR. AS WOULD BE EVIDENT FROM THE AFORESAID PROVISO THE CONDITION PR ECEDENT FOR REOPENING THE ASSESSMENT BEYOND A PERIOD OF FOU R YEARS IN CASE OF AN ASSESSMENT COMPLETED U/S. 143(3 ) OF THE ACT, IS THERE MUST BE FAILURE ON THE PART OF AS SESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR HIS ASSESSMENT. ON EXAMINING THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE AFORESAID STATUTORY PROVISIONS, IT APPEARS THAT THE ASSESSMENT HAD BEEN REOPENED BY TH E ASSESSING OFFICER FOR THE REASON THAT THE BUSINESS EXPENDITURE CLAIMED BY ASSESSEE IS NOT ALLOWABLE AS ACCORDING TO HIM INCOME DERIVED BY ASSESSEE FROM IN TEREST IS TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND NOT AS BUSINESS INCOME. 9. SO FAR AS THE OTHER REASON VIZ., DISCREPANCY BETWEE N THE INTEREST INCOME SHOWN BY ASSESSEE AND AS APPEAR ING IN THE TDS CERTIFICATE, AS PER THE ASSESSING OFFICE R'S OWN OBSERVATION THERE IS NO SUCH DISCREPANCY. ON THE B ASIS OF THE AFORESAID FACTS, IT NEEDS TO BE EXAMINED WHETHE R THERE IS FAILURE ON THE PART OF ASSESSEE TO DISCLOSE FULL Y AND TRULY ALL MATERIAL FACTS WHICH COULD HAVE ENABLED THE ASS ESSING OFFICER TO REOPEN THE ASSESSMENT BEYOND FOUR YEARS. IT IS CLEARLY EVIDENT FROM THE ASSESSMENT ORDER AND OTHER MATERIALS ON RECORD, ASSESSEE IN THE RETURN OF INCO ME AS WELL AS STATEMENT OF ACCOUNTS HAS NOT ONLY DISCLOSE D THE SOURCES OF INCOME EARNED BY IT BUT HAS ALSO SHOWN T HE EXPENDITURE CLAIMED. ALL THESE FACTS WERE EXAMINED BY THE ASSESSING OFFICER WHILE COMPLETING THE ORIGINAL ASSESSMENT. AS RIGHTLY OBSERVED BY THE LEARNED CIT (A) 8 ITA NO. 782/HYD/2014 M/S. ESBEE HOLDINGS PVT. LTD. ======================= AND WHICH IS ALSO A FACT FOUND ON RECORD THERE ARE NO OTHER ADDITIONAL INFORMATIONS OR FRESH MATERIALS ON RECORD ON THE BASIS OF WHICH THE ASSESSING OFFICER HAS FO RMED HIS BELIEF THAT INCOME HAS ESCAPED ASSESSMENT. ONL Y ON THE BASIS OF INFORMATION AND MATERIALS FURNISHED BY ASSESSEE HIMSELF WHICH WAS CONSIDERED AT THE TIME O F ORIGINAL ASSESSMENT, THE ASSESSING OFFICER HAS REOP ENED THE ASSESSMENT BY COMING TO A DIFFERENT OPINION THA T INTEREST EARNED BY ASSESSEE HAS TO BE ASSESSED UNDE R THE HEAD INCOME FROM OTHER SOURCES AND NOT AS BUSINESS INCOME. THIS, IN OUR VIEW, IS ONLY A CHANGE OF OPI NION BY THE ASSESSING OFFICER ON RE-APPRECIATION OF SAME SE T OF FACTS AND MATERIALS CONSIDERED AT THE TIME OF ORIGI NAL ASSESSMENT. THEREFORE, REOPENING OF ASSESSMENT ON A MERE CHANGE OF OPINION WOULD AMOUNT TO REVIEW OF EA RLIER ORDER PASSED BY THE ASSESSING OFFICER WHICH IS NOT PERMISSIBLE UNDER THE ACT. EVEN OTHERWISE ALSO, ASSESSEE'S CONTENTION THAT FROM THE VERY INCEPTION, ASSESSEE IS FOLLOWING THE SAME METHOD OF ACCOUNTING BY SHOWING THE INTEREST INCOME AS INCOME FROM BUSINESS HAS NOT BEEN CONTROVERTED BY THE DEPARTMENT. 10. THAT BEING THE CASE, THE ASSESSING OFFICER IN THE IMPUGNED ASSESSMENT YEAR CANNOT TREAT THE INCOME IN A DIFFERENT MANNER CONTRARY TO THE SYSTEM OF ACCOUNTI NG FOLLOWED BY ASSESSEE CONSISTENTLY OVER THE YEARS. FURTHERMORE, IT IS CLEAR FROM THE FACTS AND MATERIA LS AVAILABLE ON RECORD, ASSESSEE HAS DISCLOSED ALL MAT ERIAL FACTS IN THE RETURN OF INCOME FILED BY IT AS WELL A S DURING THE SCRUTINY ASSESSMENT PROCEEDINGS. THEREFORE, TH ERE BEING NO FAILURE ON THE PART OF ASSESSEE TO DISCLOS E FULLY AND TRULY ALL MATERIAL FACTS, REOPENING OF ASSESSME NT 9 ITA NO. 782/HYD/2014 M/S. ESBEE HOLDINGS PVT. LTD. ======================= BEYOND THE PERIOD OF FOUR YEARS, IS WITHOUT JURISDI CTION AND LEGALLY INVALID. THE DECISIONS RELIED UPON BY THE LEARNED AR ALSO SUPPORT THIS VIEW. IN THE AFORESAI D FACTS AND CIRCUMSTANCES, THERE BEING NO INFIRMITY IN THE ORDER OF THE CIT(A), WE ARE INCLINED TO UPHOLD THE SAME B Y DISMISSING THE GROUNDS RAISED BY THE DEPARTMENT. 11. IN THE RESULT, DEPARTMENT'S APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 10 TH SEPTEMBER, 2014 SD/ - (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/ - (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 10 TH SEPTEMBER, 2014 TPRAO COPY TO: 1. THE INCOME TAX OFFICER, WARD - 2(1), 'C' BLOCK, IT TOWERS, MASAB TANK, HYDERABAD-500 004. 2. M/S. ESBEE HOLDINGS PVT. LTD., 8 - 2 - 580/2, ROAD NO. 8, BANJARA HILLS, HYDERABAD. 3. THE CIT(A) - I I I, HYDERABAD. 4. THE CIT - II, HYDERABAD. 5 . THE DR, B - BENCH, ITAT, HYDERABAD.