GALAXY CHEMICALS, NAVI MUMBAI V. ASST CIT RG 22(3), NAVI MUMBAI

ITA 818/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2234 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-11-2016
• Appeal Filed By: Assessee
• Bench Allotted: G
• Next Hearing Date: 03-11-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 06-02-2015
• Court: TRIBUNAL
• Assessee Lawyers: C P RAMASWAMI
• Keywords: Reopening of assessment; Audit objection; Earning of tax free income; Tangible material; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 14A; 147; 148

Judgement Text

, , G, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI , , , BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.818/MUM/2015 ASSESSMENT YEAR: 2007-08 GALAXY CHEMICALS, C-49 TTC INDL AREA PAWNE, NAVI MUMBAI-400703 / VS. ACIT RANGE 22 (3 ) VASHI RAILWAY ST. BLDG. NAVI MUMBAI-40020 ( APPELLANT ) (RESPONDENT ) P.A. NO. AAAFG086 0G APPELLANT BY SHRI C.P. RAMASWAMI( A R) REVENUE BY SHRI PRAKASH MANE (DR) / DATE OF HEARING: 03/11/2016 / DATE OF ORDER: 03 /11/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER OF LD. COMMISSIONER OF INCOME TAX(APPEALS), MUMBAI- 26 (IN SHORT CIT(A)}, DATED 21.11.2014 PASSED AGAINST AS SESSMENT ORDER U/S 143(3) R.W. SECTION 148 OF THE ACT, DATED 07.03.2013 FOR ASSESSMENT YEAR 2007-08 ON THE FOLLOWING GROUND S: 1. ON REOPENING THE ASSESSMENT WITHOUT ANY FRESH MATERIAL: (A) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS )-26. GALAXY CHEMICAL 2 MUMBAI GROSSLY ERRED ILL UPHOLDING THE ASSUMPTION O F JURISDICTION BY THE ASSESSING OFFICER U/S.L47 DESPI TE THE FACT THAT THAT THERE WAS NO FRESH TANGIBLE MATERIAL WITH THE ASSESSING OFFICER AND THE NOTICE U/S. 148 WAS ISSUED ON A MERE CHANGE OF OPINION BASED ON AN AUDI T OBJECTION. HE OUGHT TO HAVE ANNULLED THE IMPUGNED REASSESSMENT. B) THE LEARNED CIT(APPEALS) FAILED TO APPRECIATE TH AT IN THE ORIGINAL SCRUTINY ASSESSMENT DISALLOWANCE U/S.14A WAS MADE AFTER FULL DETAILED ENQUIRY AND CONSEQUENTLY ERRED IN UPHOLDING THE REOPENING ON TH E GROUND THAT THE ASSESSING OFFICER WAS NOT APPRISED OF PRIMARY FACTS. HE OUGHT TO HAVE HELD THAT THE REOPE NING WAS VOID AB INITIO AND ANNULLED THE IMPUGNED REASSESSMENT. C) THE LEARNED CIT(APPEALS) FAILED TO APPRECIATE TH AT AUDIT OBJECTION, WITHOUT ANY FRESH TANGIBLE MATERIA L, CANNOT BE THE BASIS FOR REOPENING AN ASSESSMENT, WH EN THERE WAS NO FAILURE ON THE PART OF THE APPELLANT T O DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. CONSEQUENTLY, HE ERRED UPHOLDING THE REOPENING IN GROSS NEGLIGENCE OF PLETHORA OF DECISIONS RENDERED BY THE HON'BLE APEX COURT AND THE HON'BLE BOMBAY HIGH COURT AND THE HON'BLE BENCHES OF ITAT MUMBAI IN THI S REGARD. 2. ON MERITS OF (DISALLOWANCE U/S.1 4A- WITHOUT PREJUDICE TO AROUND NO.1: (A) THE LEARNED CIT(APPEALS) ERRED IN UPHOLDING DISALLOWANCE U/S 14A OF A SUM OF RS.47,00,116/- DES PITE THE FACT THAT NO ORIGINAL INVESTMENT REPRESENTING T HE COST OF SHARES WAS LYING TO THE CREDIT OF THE PARTNERS IN T HEIR CAPITAL ACCOUNTS (THE COST OF SHARES HAVING ALREADY BEEN WITHDRAWN IN THE EARLIER YEARS) AND CONSEQUENTLY ER RED IN ASSUMING FIGURES UNCORROBORATED B) THE STATEMENTS O F ACCOUNTS. (B) THE CIT(APPEALS) FAILED TO APPRECIATE THAT NO I NTEREST WAS PAYABLE DIRECTLY OR INDIRECTLY ON THE INVESTMEN T COST OF SHARES AND CONSEQUENTLY ERRED IN UPHOLDING DISALLOW ANCE OF RS.47.00,1 16/- U/S.14A READ WITH RULE 8D ON ASSUMED FIGURES DIVORCED FROM FACTS. HE OUGHT TO HA VE DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. GALAXY CHEMICAL 3 3.. THE LEARNED CIT(APPEALS) GROSSLY ERRED ILL NOT FOLLOWING BINDING DECISIONS OF JURISDICTIONAL HIGH COURT AND JURISDICTIONAL BENCHES OF HONBLE ITAT ON THE I SSUE OF DISALLOWANCE U/S.14A WITH IDENTICAL FACTS. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI C.P. RAMASWAMI, AUTHORISED REPRESENTATIVES (AR ) ON BEHALF OF THE ASSESSEE AND BY SHRI PRAKASH MANE, DEPARTMENTAL REPRESENTATIVE (DR) ON BEHALF OF THE R EVENUE. 3 . DURING THE COURSE OF HEARING THE PRIMARY OBJECTI ON RAISED BY THE ASSESSEE WAS REGARDING CHALLENGING THE VALID ITY OF THE REOPENING OF THE CASE AND THEREFORE WE FIND IT APPR OPRIATE TO DECIDE THE GROUND OF REOPENING FIRST OF ALL. 4. IT HAS BEEN ARGUED THAT THE REOPENING OF THE CASE I S INVALID IN AS MUCH AS, THE REASONS RECORDED ARE BASED UPON CHANGE OF OPINION AND NOT PERMITTED UNDER THE LAW AND THER EFORE, ASSUMPTION OF JURISDICTION WAS BAD IN LAW AND THERE FORE IMPUGNED REASSESSMENT ORDER SHOULD BE QUASHED. 5. PER CONTRA, LD. DR RELIED UPON THE ORDER OF THE LO WER AUTHORITY. 6. WITH THE ASSISTANCE OF THE PARTIES, IT IS NOTED TH AT FOLLOWING REASONS DATED 30.03.2012 WERE RECORDED BY THE AO. 1. THE RETURN OF INCOME AS FILED ON 27.07.2007 DECL ARING TOTAL INCOME AT RS.1,60,10,110/-. ASSESSMENT ORDER U/S 143(3) WAS PASSED ON 22.12.2009 AT TOTAL INCOME OF RS.9,77,500/-. 2. ON VERIFICATION OF RECORDS OF A.Y. 2007-08, IT I S SEEN THAT THE ASSESSEE HAS EARNED TAX EXEMPT INCOME OF RS.55,64,779/- AND NO CORRESPONDING EXPENSE IS DISALLOWED U/S 14A R.W. RULE 8D OF THE INCOME TAX A CT, 1961. CONSIDERING THE INTEREST PAID TO PARTNERS AMO UNTING TO RS.68,76,229/-, THE DISALLOWANCE U/RULE 8D(2)(II I) WORKS OUT TO RS.46,21,939/- GALAXY CHEMICAL 4 3. THEREFORE, I HAVE REASON TO BELIEVE THAT THE INC OME OF RS.46,41,939/- HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE INCOME TAX ACT, 1961. NOTICE U/S 148 OF THE INCOME TAX ACT, 1961 IS ISSUE D. 6.1. ON THE BASIS OF THE PERUSAL OF THE AFORESAID REASO NS, IT IS CLEAR THAT THE ORIGINAL ASSESSMENT ORDER WAS MADE U /S 143(3) ON 27.12.2009. WE PERUSED THE AFORESAID ASSESSMENT ORDER AND FOUND THAT ASSESSMENT WAS MADE ON TOTAL INCOME OF RS.1,63,76,220/-. BUT, THE ASSESSING OFFICER WHILE RECORDING THE REASONS HAS MENTIONED THAT INCOME WAS ASSESSED AT RS.9,77,500/-. THUS, THERE IS APPARENTLY A FACTUAL MISTAKE IN THE REASONS. 6.2. IN ADDITION TO THAT, IT IS NOTED THAT REASONS HAVE BEEN RECORDED ON THE GROUND THAT ON VERIFICATION OF ASSE SSMENT RECORDS, IT WAS NOTED BY THE AO THAT ASSESSEE HAD E ARNED EXEMPT INCOME BUT NO CORRESPONDING EXPENSES WERE DISALLOWED U/S 14A R.W. RULE 8D OF INCOME TAX ACT 1 961. WE FIND THAT THIS ALLEGATION IN THE REASONS IS INCORRE CT ON THE FACE OF IT. IT IS NOTED THAT ON SECOND PAGE OF THE ASSES SMENT ORDER DATED 22.12.2009, AT ITS PARA 5, DETAILED DISCUSSIO N HAS BEEN MADE BY THE AO WITH REGARD TO EXPENSES DISALLOWABLE BEING ATTRIBUTABLE TO INCOME CLAIMED EXEMPT U/S 14A. THE RELEVANT PART OF THE ORIGINAL ASSESSMENT ORDER IS REPRODUCED HEREUNDER FOR THE SAKE OF READY REFERENCE: 5. EXPENSES ATTRIBUTABLE TO INCOME C1AIMED EXEMPT UIS.14A: IT IS SEEN FROM THE COMPUTATION OF TOTAL INCOME, THE ASSESSES HAS CLAIMED EXEMPT INCOME BEING DIVIDEND INCOME OF RS.55,64,779/- WHIC H WAS SHOWN IN THE PROFIT & LOSS ACCOUNT AND SOME EXP ENSES WERE ALSO DEBITED TO THE PROFIT & LOSS ACCOUNT. SUBSEQUENTLY ENTIRE DIVIDEND INCOME OF RS.55.64.779 1- WAS CLAIMED EXEMPT U/S 10(34) OF THE ACT. HOWEVER, AS GALAXY CHEMICAL 5 PER THE INSERTION OF NEW RULE I.E. RULE 8D AS PER T HE NOTIFICATION NO.45/2008 DATED 24.03.2008 WHICH READ S AS UNDER: 8D(1) WHERE THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSES OF A PREVIOUS YEAR, IS NOT SATISFIED WITH- (A)THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR (B) THE CLAIM MADE BY THE ASSESSEE THA T NO EXPENDITURE HAS BEEN INCURRED, IN RELATION TO INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T FOR SUCH PREVIOUS YEAR, HE SHALL DETERMINE THE AMOUNT O F EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANC E WITH THE PROVISIONS OF SUB-RULE (2). SINCE THE ASSESSEE HAS SHOWN HUGE DIVIDEND INCOME WHICH WAS CREDITED TO PROFIT & LOSS ACCOUNT, IT CAN NOT BE SAID THAT THE ASSESSEE HAD NOT INCURRED ANY EXPENDI TURE IN CONNECTION WITH DIVIDEND INCOME. THE ASSESSEE HA S DEBITED VARIOUS EXPENSES TO THE TUNE OF RS.8,23,971 /- . TO THE PROFIT & LOSS ACCOUNT, AGAINST THE INCOME WHICN1ORRN''RT BT TOTAL INCOME AS WELL AS NOT FORMI NG TOTAL INCOME THEREFORE, THE PROVISIONS OF SECTION 1 4A R.W.R. 8D ARE VERY MUCH APPLICABLE IN THE ASSESSEE'S CASE. FURTHER, IT IS NOT POSSIBLE TO EARN ANY EXEMPT INCO ME WITHOUT INCURRING SOME ADMINISTRATIVE EXPENSES. THE REFORE, AS PER RULE 8D THE EXPENSES ATTRIBUTABLE TO EARN DI VIDEND INCOME IS CALCULATED AS UNDER: 1. AMOUNT OF EXPENSES DIRECTLY RELATED TO SUCH INCO ME RS. NIL 2. AMOUNT OF THE INTEREST EXPENSES INDIRECTLY ATTRI BUTABLE TO SUCH INCOME RS. NIL 3.0.5% OF AVERAGE VALUE OF SUCH INVESTMENT ON THE F IRST AND LAST DAY OF PREVIOUS YEAR (49418400+50259150)/2 (0.5% X 49838775/-) RS.2,49,194/- TOTAL DISALLOWANCE AS PER RULE 8D RS.2,49,194/- AS PER THE RULE 8D THE DISALLOWANCE OF EXPENDITURE IS WORKED OUT AT RS.2,49,194/-. THEREFORE, THE DISALLO WANCE U/S 14A R.W.R.8D IS MADE TO THE EXTENT OF RS.2,49,1 94/- AND ADDED TO THE TOTAL INCOME ACCORDINGLY. 6.3. THUS, FROM THE ABOVE IT IS CLEAR THAT LD. AO HAD G ROSSLY ERRED IN THE RECORDING THE REASONS AND INVOKING THE PROVISIONS OF SECTION 147 OF THE ACT. GALAXY CHEMICAL 6 6.4. IT IS FURTHER NOTED BY US THAT IT HAS BEEN MENTION ED BY THE AO IN THE REASONS THAT THE EXPENSES HAD BEEN ALLOWE D U/S 14A R.W. RULE 8D. IT IS NOTED THAT IMPUGNED ASSESSM ENT YEAR IS 2007-08, WHEREAS RULE 8D WAS INSERTED VIDE IT (F IFTH AMENDMENT) RULES, 2008 W.E.F. 24.03.2008. THUS, RUL E 8D IS CLEARLY NOT APPLICABLE IN THE ASSESSMENT YEAR BEFOR E US. THUS, THE IMPUGNED REASONS ARE NOT ONLY FACTUALLY INCORRE CT BUT APPARENTLY INCORRECT ON LAW AS WELL. FURTHER, THE R EOPENING HAS BEEN DONE IN A HIGHLY CASUAL MANNER AND WITHOUT MAKI NG ANY APPLICATION OF MIND. IT IS A CLASSIC EXAMPLE OF MIS USE OF PROVISIONS OF REOPENING. CONSTITUTION OF OUR COUNTR Y HAS ATTACHED GREAT SANCTITY OF THE FINALITY OF LITIGATI ON. IT HAS BEEN HELD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT V. KELVINATOR OF INDIA LTD. 320 ITR 561(SC) THAT REOPENING CANNOT BE DONE IN ABSENCE OF ANY TANGIBLE MATERIAL AND MERELY ON THE BASIS OF CHANGE OF OPINION OF THE AO. FURTHE R, HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. SAMCOR GLASS LTD. VIDE ITS JUDGMENT DATED 12 TH OCTOBER 2015 IN ITA NO.768/2015 ( REPORTED AT 94 CCH 0075), CAME DOWN HEAVILY UPON INCOME TAX DEPARTMENT FOR REOPENING OF THE ASSESSMENT IN M ECHANICAL AND CASUAL MANNER WHICH RESULTED IN UNNECESSARY HARASSMENT OF THE ASSESSEE. THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED HEREUNDER: 7. THE COURT IS OF THE VIEW THAT NOTWITHSTANDING SE VERAL DECISIONS OF THE SUPREME COURT AS WELL AS THIS COUR T CLEARLY ENUNCIATING THE LEGAL POSITION UNDER SECTIO N 147/148 OF THE ACT, THE REOPENING OF ASSESSMENT IN CASES LIKE THE ONE ON HAND GIVE THE IMPRESSION THAT REOPE NING OF ASSESSMENT IS BEING DONE MECHANICALLY AND CASUALLY RESULTING IN UNNECESSARY HARASSMENT OF THE ASSESSEE . GALAXY CHEMICAL 7 8. THE COURT WOULD HAVE BEEN INCLINED TO IMPOSE HEA VY COSTS ON THE REVENUE FOR FILING SUCH FRIVOLOUS APPE ALS BUT DECLINES TO DO SO SINCE THE APPEALS ARE BEING DISMI SSED EX PARTE. HOWEVER, THE COURT DIRECTS THE REVENUE THROU GH THE PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX (PR CIT) TO ISSUE INSTRUCTIONS TO THE AOS TO STRICTLY ADHERE TO THE LAW EXPLAINED IN VARIOUS DECISIONS OF THE SUPREME COURT AND THE HIGH COURT IN REGARD TO SECTIONS 147/148 OF THE ACT AND MAKE IT MANDATORY FOR THEM TO ENSURE THAT AN OR DER FOR REOPENING OF AN ASSESSMENT CLEARLY RECORDS THE COMPLIANCE WITH EACH OF THE LEGAL REQUIREMENTS. SEC ONDLY, THE AOS MUST BE DIRECTED TO STRICTLY COMPLY WITH TH E LAW EXPLAINED BY THE SUPREME COURT IN GKN DRIVESHAFTS ( INDIA) LTD V. INCOME TAX OFFICER (2003) 259 ITR 19 (SC) AS REGARDS THE DISPOSAL OF THE OBJECTIONS RAISED BY TH E ASSESSEE TO THE REOPENING OF THE ASSESSMENT. 6.5 . WE FIND THAT IN THE CASE BEFORE US ALSO THE REOPE NING HAS BEEN DONE IN A HIGHLY CASUAL AND MECHANICAL MANNER DISREGARDING THE PROVISIONS OF LAW, AS DISCUSSED AB OVE IN DETAIL. THUS, WE HAVE NO OTHER OPTION BUT TO HOLD T HAT REASONS RECORDED BY THE AO ARE FACTUALLY INCORRECT AND ALSO INVALID IN THE EYES OF LAW AND THUS ASSUMPTION OF JURISDICTION BY THE AO WAS BAD IN LAW AND CONSEQUENTLY, THE IMPUGNED REASS ESSMENT ORDER IS NULLITY IN THE EYES OF LAW AND THE SAME IS HEREBY QUASHED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE MA Y BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN THE OPEN COURT AT THE CONCL USION OF THE HEARING. SD/- (AMIT SHUKLA ) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER ' ! / ACCOUNTANT MEMBER MUMBAI; # DATED : 10/11/2016 GALAXY CHEMICAL 8 CTX? P.S/. .. #$%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. % &' / THE APPELLANT 2. ()&' / THE RESPONDENT. 3. * * ( % ) / THE CIT, MUMBAI. 4. * * / CIT(A)- , MUMBAI 5. -. / (01 , * % 012 , / DR, ITAT, MUMBAI 6. / 34 5 / GUARD FILE. / BY ORDER, ) -% ( //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI