SOMMERVILLE FARMS P. LTD, MUMBAI V. ACIT 1(3), MUMBAI

ITA 8238/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8414 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2001-2002
• Appeal Filed On: 29-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: F V IRANI
• Keywords: Reopening of assessment; Proportionate interest; Difference of opinion; Validity of assessment; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148

Judgement Text

1 ITA NO.8238/MUM/2010 IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI SMC BENCH MUMBAI SMC BENCH MUMBAI SMC BENCH MUMBAI SMC BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFORE SHRI P M JAGTAP, ACCOUNTANT MEMBER BEFORE SHRI P M JAGTAP, ACCOUNTANT MEMBER BEFORE SHRI P M JAGTAP, ACCOUNTANT MEMBER BEFORE SHRI P M JAGTAP, ACCOUNTANT MEMBER ITA NO. 8238/MUM/2010 ITA NO. 8238/MUM/2010 ITA NO. 8238/MUM/2010 ITA NO. 8238/MUM/2010 (ASST YEAR 2001 (ASST YEAR 2001 (ASST YEAR 2001 (ASST YEAR 2001- -- -02) 02) 02) 02) SOMMERVILLE FARMS P LTD 615 MAKER CHAMBER V 221 NARIMAN POINT MUMBAI 21 VS THE ASST COMMR OF INCOME TAX 1(3), MUMBAI (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO.AAGCS0875C PAN NO.AAGCS0875C PAN NO.AAGCS0875C PAN NO.AAGCS0875C ASSESSEE BY SHRI F V IR ANI REVENUE BY SHRI SATBIR SINGH-DR PER P M JAGTAP, AM PER P M JAGTAP, AM PER P M JAGTAP, AM PER P M JAGTAP, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD CIT(A)- 2, MUMBAI DATED 9.9.2010. 2 THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, WH ICH IS ENGAGED IN THE BUSINESS OF BREEDING OF HORSES AND MAKING INVESTMEN TS. RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 30. 10.2001 DECLARING LOSS OF RS.43,89,076/-. IN THE ASSESSMENT ORIGINALLY COMPL ETED U/S 143(3) VIDE ORDER DATED 27.2.2004, THE TOTAL INCOME OF THE ASSESSEE W AS DETERMINED BY THE ASSESSING OFFICER AT A LOSS OF RS. 26,11,771/- AFTE R DISALLOWING INTEREST EXPENDITURE OF RS. 17,77,305/- OUT OF THE TOTAL INTEREST EXPENDITURE OF RS. 46,84,680/- CLAIMED BY THE ASSESSEE. THE SAID ASSESSMENT WAS SUBSEQUENTLY REOPENED BY THE ASSESSING OFFICER BY ISSUING NOTICE U/S 148 ON 30.3.2006 AND IN THE REASSESSMENT COMPLETED VIDE ORDER DATED 29.11.2 006 PASSED U/S 143(3) 2 ITA NO.8238/MUM/2010 R.W.S 147, THE TOTAL INTEREST EXPENDITURE CLAIMED B Y THE ASSESSEE AMOUNTING TO RS. 46,84,680/- WAS DISALLOWED BY THE ASSESSING OFF ICER. 2.1 AGAINST THE ORDER PASSED BY THE ASSESSING OFFIC ER U/S 143(3) R.W.S. 147, THE AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD CIT(A) CHALLENGING THEREIN THE VALIDITY OF ASSESSMENT MADE BY THE ASSE SSING OFFICER AS WELL AS DISPUTING THE ADDITIONAL DISALLOWANCE MADE ON ACCO UNT OF INTEREST EXPENDITURE. THE LD CIT(A) FOUND NO MERIT IN THE CONTENTION RAIS ED ON BEHALF OF THE ASSESSEE IN SUPPORT OF BOTH THE ISSUES AND DISMISSED THE APPEAL OF THE ASSESSEE. AGGRIEVED WITH SUCH ORDER OF THE LD CIT(A), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 3 IN GROUND NO.1, THE ASSESSEE HAS RAISED A PRELIMI NARY ISSUE CHALLENGING THE VALIDITY OF REASSESSMENT MADE BY THE ASSESSING OFFICER ON THE GROUND THAT REOPENING OF ASSESSMENT ITSELF WAS BAD IN LAW AS TH E SAME WAS BASED ON MERELY ON CHANGE OF OPINION. 4 THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE ASSESSMENT ORIGINALLY COMPLETED U/S 143(3), THE ISSUE RELATES TO THE ASSESSEES CLAIM FOR INTEREST EXPENDITURE WAS DULY EXAMINED BY THE ASSES SING OFFICER AND ON SUCH EXAMINATION, THE SAID EXPENDITURE WAS PARTLY DISALL OWED BY HIM. HE SUBMITTED THAT DURING THE COURSE OF ORIGINAL ASSESSMENT PROCE EDINGS, A DETAILED SUBMISSION WAS FURNISHED BY THE ASSESSEE IN REPLY TO A SPECIFI C QUERY RAISED BY THE ASSESSING OFFICER ON THIS ISSUE AND ON THE BASIS OF THIS VERY SUBMISSION, 3 ITA NO.8238/MUM/2010 ASSESSMENT COMPLETED U/S 143(3) WAS REOPENED BY THE ASSESSING OFFICER WITHOUT THERE BEING ANY NEW MATERIAL OR INFORMATION COMING TO HIS POSSESSION. HE CONTENDED THAT ASSESSMENT ORIGINALLY COMPLETED U/S 143(3) THUS WAS REOPENED BY THE ASSESSING OFFICER MERELY ON THE BASIS OF CHA NGE OF OPINION, WHICH IS NOT PERMISSIBLE. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS KELVINA TOR OF INDIA LTD REPORTED IN 320 ITR 561 AND IN THE CASE OF CARTINI INDIA LTD V S ACIT & ORS REPORTED IN 314 ITR 275. 4.1 THE LD DR, ON THE OTHER HAND, RELIED ON THE IMP UGNED ORDER OF THE LD CIT(A) IN SUPPORT OF THE REVENUES CASE THAT REOPENING OF THE ASSESSMENT BY THE ASSESSING OFFICER ON THE BASIS OF REASONS DULY RECO RDED BY HIM WAS IN ACCORDANCE WITH LAW. 5 I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IN ORDER TO APPRECIAT E THE STAND OF BOTH THE PARTIES ON THIS ISSUE, IT WOULD BE WORTH THE REASONS RECORD ED BY THE ASSESSING OFFICER FOR REOPENING IN THE PRESENT CASE. THE SAID REASONS AR E REPRODUCED BELOW: IN THIS CASE, THE ASSESSEE FILED RETURN ON 30.10.2 001 SHOWING TOTAL LOSS AT RS. 43,89,076/. THE ASSESSMEN T WAS COMPETED U/S 143(3) ON 27.2.2004 ON TOTAL LOSS OF R S. 26,11,771/- BY DISALLOWING INTEREST EXPENDITURE OF RS. 17,77,30 5/- BEING PROPORTIONATE INTEREST @ 18% ON LOAN GIVEN TO SUBSI DIARY COMPANY OF RS. 98,73,914/-. 2 THE ASSESSEE HAS CLAIMED DEDUCTION AMOUNTING TO RS. 46,84,680/- TOWARDS EXPENDITURE ON ACCOUNT OF B ANK INTEREST. FROM THE SUBMISSION DATED 8.1.2003 MADE BY THE ASSE SSEE DURING THE COURSE OF ASSESSMENT, IT IS NOTICED THAT THE EN TIRE LOAN OF RS. 3,45,65,817/- ON WHICH INTEREST WAS PAID WAS UT ILISED AS BELOW: 4 ITA NO.8238/MUM/2010 I) INVESTMENT IN SHARES OF A SUBSIDIARY COMPANY AND CAPITAL CONTRIBUTION AS PARTNER AND II) LOAN TO OTHERS THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING TH E RELEVANT PREVIOUS YEAR WAS INTEREST ON INCOME TAX REFUND OF RS. 3,13,071/- 3. UTILIZATION OF INTEREST BEING FUNDS FOR GIVING I NTEREST FREE ADVANCES AND CAPITAL CONTRIBUTION AS A PARTNER IN A FIRM DID NOT EARN ANY TAXABLE INCOME AND SO THE INTEREST EXPENDI TURE ON SUCH LOAN TAKEN, CANNOT BE ALLOWED AS BUSINESS EXPENDITU RE. THE INTEREST EXPENDITURE OF RS. 46,84,680/- WAS REQUIRE D AS SUCH TO BE DISALLOWED AS INTEREST PAID ON BORROWED CAPITAL NOT FOR THE PURPOSE OF BUSINESS. AS INTEREST WORTH RS. 17,77,305/- ONLY WAS DISALLOWED IN THE ASSESSMENT ORDER U/S 143(3) DATED 27.2.2004, I HAVE REASONS TO BELIEVE THAT INCOME WORTH RS. 29,07,375/ - (RS. 46,84,680/- - RS. 17,77,305/- = RS. 29,07,37 5/-) IN RESPECT OF INTEREST EXPENDITURE WHICH REMAINED T BE DISALLOWED IN THE ORDER U/S 143(3) DATED 27.2.2004 BEING CHARGEABLE TO TAX, ESCAPED ASSESSMENT FOR THE ASSESSMENT YEAR 2001-02 WITHIN T HE MEANING OF PROVISIONS OF SEC. 147 OF THE I T ACT, 1961. 5.1 ON PERUSAL OF THE ABOVE REASONS RECORDED BY THE ASSESSING OFFICER CLEARLY SHOW THAT REOPENING OF ASSESSMENT MADE BY HIM WAS N OT BASED ON ANY NEW MATERIAL OR INFORMATION WHICH HAD COME TO HIS POSSE SSION AFTER THE COMPLETION OF THE ORIGINAL ASSESSMENT IN THE CASE OF THE ASSESSEE U/S 143(3). THE ASSESSMENT COMPLETED ORIGINALLY U/S 143(3) THUS WAS REOPENED B Y HIM ON THE BASIS OF THE SAME MATERIAL WHICH WAS AVAILABLE EVEN AT THE TIME OF COMPLETION OF THE ORIGINAL ASSESSMENT AS WELL AS ON THE BASIS OF THE SAME SET OF FACTS AND EVEN THE LD DR HAS NOT BEEN ABLE TO DISPUTE THIS POSITION AT THE T IME OF HEARING BEFORE ME. 6 IN THE CASE OF KELVINATOR OF INDIA LTD., CITED BY THE LD COUNSEL FOR THE ASSESSEE, THE SUPREME COURT OBSERVED THAT MERE CHAN GE OF OPINION CANNOT BE PER SE REASON TO REOPEN AND IF THE ASSESSING OFFICER IS A LLOWED TO REOPEN THE ASSESSMENT COMPLETED ORIGINALLY U/S 143(3) MERELY O N THE BASIS OF CHANGE OF OPINION, REVIEW WOULD TAKE PLACE IN THE GRAB OF RE OPENING THE ASSESSMENT, WHICH 5 ITA NO.8238/MUM/2010 IS NOT PERMISSIBLE. IT WAS HELD THAT CONCEPT OF CHANGE OF OPINION AS AN IN-BUILT TEST TO CHECK ABUSE OF POWER BY THE ASSESSING OFFIC ER AND HENCE, EVEN AFTER THE AMENDMENT MADE W.E.F 1.4.1989, THE ASSESSING OFFICE R HAS POWER TO REOPEN THE ASSESSMENT U/S 147 ONLY WHEN THERE IS TANGIBLE MATE RIAL TO COME TO THE CONCLUSION THAT INCOME OF THE ASSESSEE IS ESCAPED A SSESSMENT. 6.1 IN THE CASE OF CARTINI INDIA LTD (SUPRA), THE H ONBLE BOMBAY HIGH COURT HAD AN OCCASION TO CONSIDER SIMILAR ISSUE AND WAS HELD BY THEIR LORDSHIP THAT SECTION 147 CONTEMPLATES THE EXISTENCE OF MATERIAL ON RECORD ON THE BASIS OF WHICH A PRIMA FACIE OPINION COULD BE FORMED BY THE ASSESSING OFFICER THAT ANY INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT AN D NO MATERIAL ON RECORD ON THE BASIS OF WHICH A FINAL DECISION HAS ALREADY BEEN TAKEN AT THE TIME OF ASSESSMENT U/S 143(3). IT WAS HELD THAT REOPENING OF ASSESSMENT BASED ON MATERIAL ALREADY CONSIDERED AND ADJUDICATED WOULD A MOUNT TO REVIEW THE ASSESSMENT ORDER BY RE-APPRECIATING THE MATERIAL ON RECORD, WHICH IS NOT CONTEMPLATED U/S 147 OF THE I T ACT. 7 AS ALREADY NOTED, THE INITIATION OF REASSESSMENT PROCEEDINGS IN THE PRESENT CASE WAS NOT BASED ON ANY NEW MATERIAL OR I NFORMATION, WHICH COME TO THE POSSESSION OF THE ASSESSING OFFICER AFTER COMPL ETION OF ORIGINAL ASSESSMENT U/S 143(3) AND THE SAME THUS WAS BASED MERELY ON FR ESH APPLICATION OF MIND BY THE ASSESSING OFFICER TO THE SAME SET OF FACTS AND THE SAME MATERIAL ON RECORD AS WAS AVAILABLE AT THE TIME OF COMPLETION OF ASSESSME NT ORIGINALLY U/S 143(3). THIS, BEING UNDISPUTED POSITION, I AM OF THE VIEW THAT INITIATION OF REASSESSMENT PROCEEDINGS WAS BASED ON A MERELY CHANGE OF OPINIO N OF THE ASSESSING OFFICER, 6 ITA NO.8238/MUM/2010 WHICH IS NOT PERMISSIBLE IN LAW AS HELD BY THE HON BLE SUPREME COURT IN THE CASE OF KELVINATOR INDIA OF INDIA LTD (SUPRA) AND ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CARTINI INDIA LTD (SUPRA ). 8 RESPECTFULLY FOLLOWING THE CITED JUDICIAL PRONOUN CEMENTS, I HOLD THAT INITIATION OF REASSESSMENT PROCEEDINGS IN THE PRESE NT CASE ITSELF WAS BAD IN LAW AND THE REASSESSMENT COMPLETED BY THE ASSESSING OF FICER U/S 143(3) R.W.S 147 IN PURSUANCE OF SUCH INITIATION IS LIABLE TO BE CAN CELLED BEING INVALID. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 9 KEEPING IN VIEW MY DECISION RENDERED ON THE PRELI MINARY ISSUE RAISED BY THE ASSESSEE IN GROUND NO.1 CANCELLING THE ASSESSME NT MADE BY THE ASSESSING OFFICER U/S 143(3) R.W.S 147, THE SECOND GROUND RAI SED BY THE ASSESSEE DISPUTING THE ADDITION MADE IN THE SAID ASSESSMENT ON ACCOUNT OF DISALLOWANCE OF INTEREST AS BECOME INFRUCTUOUS. I, THEREFORE, DEEM IT NOT N ECESSARY TO ADJUDICATE THE SAME. 10 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THE 23 RD DAY OF FEB 2011. SD/- (P M JAGTAP ) (P M JAGTAP ) (P M JAGTAP ) (P M JAGTAP ) ACCOUNTANT MEMBER. PLACE: MUMBAI : DATED: 23 RD , FEB 2011 RAJ* 7 ITA NO.8238/MUM/2010 COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI