JET SPEED AUDIO PVT. LTD., MUMBAI V. A.C.I.T.-11(1), MUMBAI

ITA 8424/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62548 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 18-06-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 12-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Assessee Lawyers: J D MISTRY
• Keywords: Business income; Depreciation; Tangible material; Bad and doubtful debts; Difference of opinion; Validity of assessment; Reason to believe; Change of opinion
• Section: 143(3); 142(1); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J MUMBAI BEFORE SHRI D.K. AGARWAL (JUDICIAL MEMBER) AND SHRI N.K. BILLAIYA (ACCOUNTANT MEMBER ) ITA NO. 8424/MUM/2011 ASSESSMENT YEAR-2005-06 M/S. JET SPEED AUDIO PVT. LTD., 48, PRAVASI INDL. ESTATE, 2 ND FLOOR, OPP. AAREY ROAD, GOREGAON EAST, MUMBAI-400 063 PAN-AAACJ-0260A VS. THE ACIT, CIRCLE-11(1), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI J.D. MISTRY & SATISH MODI RESPONDENT BY: SHRI D.S. SUNDER SINGH DATE OF HEARING :18.06.2012 DATE OF PRONOUNCEMENT: 22.6.2012 O R D E R PER N.K. BILLAIYA (AM): THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)- 3, MUMBAI DT. 21.11.2011 FOR ASSESSMENT YEAR 2005-0 6. 2. IN THIS APPEAL, THE ASSESSEE HAS QUESTIONED THE C ORRECTNESS OF THE ORDER OF LD. CIT(A) IN UPHOLDING THE AOS NOTICE U/ S. 148 OF THE ACT AND ALSO IN UPHOLDING THE AOS ORDER FOR THE DISALLOWANCE OF BAD DEBTS CLAIMED AND THE VALIDITY OF ASSESSMENT MADE IN PURSUANT TO SEC. 148 . LET US SEE THE FACTS AS THEY WERE AT THE TIME OF THE ORIGINAL ASSESSMENT AN D RE-ASSESSMENT PROCEEDINGS . 3. THE FACTS SHOW THAT RETURN OF INCOME FOR THE YEA R UNDER CONSIDERATION WAS FILED ON 24.10.2005 DECLARING TOTAL INCOME OF R S. 83,34,184/-. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND STATUTORY NOTICES WERE ISSUED AND SERVED ON THE ASSESSEE. WITH NOTICE U/S. 142(1) OF THE ACT, A QUESTIONNAIRE ITA NO. 8424/M/2011 2 WAS SENT TO THE ASSESSEE. THE ASSESSEE WAS ASKED TO EXPLAIN 19 POINTS RAISED BY THE SAID QUESTIONNAIRE. WE ARE CONCERNED WITH Q .19 WHICH IS AS FOLLOWS: Q.19. JUSTIFY BAD DEBTS CLAIMED IN FORMAT BELOW: DEBTOR PARTY NAME & ADDRESS AMOUNT OUTSTANDING SINCE YEAR IN WHICH INCOME ADMITTED FOR WHICH DEBT AROSE 4. THE ASSESSEE FILED A DETAILED REPLY. WE RESTRIC T OUR CONCERN TO THE REPLY FOR Q.19. THE ASSESSEE FILED A CHART OF DETA ILS OF BAD DEBTS. ITEM NO. 1 RELATES TO THE FACTS UNDER CONSIDERATION BY WHICH T HE ASSESSEE FURNISHED THE NAME AND ADDRESS OF LA CREAM FINANCE LTD. AMOUNT OU TSTANDING IS RS. 1,35,00,000/-, YEAR OF DEBIT 2000-01 A/C HEAD LOAN GIVEN . THE REPLY WAS CONSIDERED BY THE AO AND THE ASSESSMENT WAS COMPLET ED BY MAKING DISALLOWANCE FOR EDUCATION EXPENDITURE, VEHICLE EXP ENSES AND DEPRECIATION. THE ASSESSED INCOME WAS COMPUTED AT RS. 1,12,87,910 /- BY ORDER DT. 12.12.2007. 5. ON 24.11.2009, THE AO ISSUED AND SERVED UPON THE ASSESSEE NOTICE U/S. 154 OF THE ACT BY WHICH THE AO SOUGHT TO RECTI FY THE ASSESSMENT ORDER DT. 12.12.2007. ACCORDING TO THE AO, THE ASSESSEE COMPANY HAS DEBITED PROFIT AND LOSS ACCOUNT AN AMOUNT OF RS. 1,50,59,72 0/- AS A BAD DEBT WHICH INCLUDED THE WRITE OFF OF THE LOAN OF RS. 1,35,00,0 00/- WHICH ACCORDING TO THE AO WAS A CAPITAL LOSS AND WHICH HAS RESULTED INTO MISTAKE APPARENT FROM RECORD WHICH DESERVES TO BE RECTIFIED. THEREAFTER, ON 1.7.2010 THE AO ISSUED NOTICE U/S. 148 OF THE ACT TO REOPEN THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION. THE REASONS RECORDED FOR THE REOPEN ING OF THE ASSESSMENT SUGGESTS THAT THE WRITE OFF OF LOAN AMOUNTING TO RS . 1,35,00,000/- IS THE CAPITAL LOSS AND SHOULD HAVE BEEN TREATED AS CAPITA L LOSS WHICH IS TO BE ADDED BACK TO THE TAXABLE INCOME BECAUSE OF WHICH THE OM ISSION HAS RESULTED IN ITA NO. 8424/M/2011 3 UNDER ASSESSMENT OF INCOME OF RS. 1,35,00,000/-. I N RESPONSE TO THE SAID NOTICE, THE ASSESSEE HAS OBJECTED TO THE REOPENING OF THE ASSESSMENT AS ALL PARTICULARS AND DETAILS WHICH ARE THE SUBJECT MATTE R OF THE REOPENING WERE ALREADY ON THE RECORD OF THE INCOME TAX DEPARTMENT A ND FURTHER MORE THESE HAVE BEEN DULY CONSIDERED WHILE COMPLETING THE ASSE SSMENT U/S. 143(3) OF THE ACT. WITHOUT PREJUDICE TO THE QUESTION OF THE VALIDITY OF THE NOTICE U/S. 148 ON THE FACTS , THE ASSESSEE SUBMITTED THAT AS ITS PRINCIPAL BUSINESS INCLUDED MONEY LENDING AND INCOME FROM SUCH LENDING WAS DULY ASSESSED AS BUSINESS INCOME. THE LOAN GIVEN TO M/S. LA CREAM FINANCE LTD WAS IN THE ORDINARY COURSE OF ITS BUSINESS WHICH IS ALSO COVER ED BY THE OBJECT CLAUSE NO. 16 OF THE COMPANYS MEMORANDUM OF ASSOCIATION. THE WRITE OFF OF THIS LOAN OF RS. 1,35,00,000/- IS DULY COVERED BY PROVISIONS OF SECTION 36(VII) R.W.S 36(2) OF THE ACT. HOWEVER, THIS SUBMISSION OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE AO WHO WAS OF THE OPINION THAT THI S WRITE OFF OF LOAN OF RS. 1,35,00,000/- IS IN CONTRAVENTION OF PROVISIONS OF SEC. 36(2) DISALLOWED THE CLAIM OF THE ASSESSEE AND COMPLETED THE REASSESSMEN T PROCEEDINGS U/S. 143(3) R.W.S. 147 OF THE ACT. 6. BEFORE THE LD. CIT(A) THE ASSESSEE QUESTIONED TH E VALIDITY OF THE ISSUE OF NOTICE U/S. 148 AND ASKED THE CIT(A) TO QUASH T HE ORDER PASSED U/S. 143(3) R.W.S 147 OF THE ACT. IN ALTERNATIVE, THE AS SESSEE ALSO ARGUED THAT THE AMOUNT OF RS. 1,35,00,000/- WAS GIVEN IN THE ORDINA RY COURSE OF BUSINESS AND THE AO OUGHT TO HAVE ALLOWED THE WRITE OFF OF THIS AMOUNT. HOWEVER, THE ASSESSEE COULD NOT SUCCEED BEFORE THE CIT(A) WHO UP HELD THE VALIDITY OF THE NOTICE U/S. 148 AND ALSO CONFIRMED THE ADDITION OF RS. 1,35,00,000/- TREATING IT AS CAPITAL LOSS. 7. BEFORE US, THE LD. SENIOR COUNSEL STRONGLY OBJEC TED TO THE FINDING OF LD. CIT(A). THE COUNSEL ARGUED THAT IN THE ORIGINA L ASSESSMENT ON A SPECIFIC QUERY RAISED BY THE AO, ASSESSEE HAS FILED A DETAIL ED REPLY AND NO FURTHER QUERY WAS RAISED ON THAT ACCOUNT. IT CAN BE SAFELY PRESUMED THAT THE AO WAS SATISFIED WITH THE REPLY AS NO ADVERSE FINDING WAS GIVEN BY THE AO IN THE ITA NO. 8424/M/2011 4 ORIGINAL ASSESSMENT ORDER. THE SENIOR COUNSEL FURT HER SUBMITTED THAT AFTER THE COMPLETION OF THE ORIGINAL ASSESSMENT, THE AO S OUGHT TO RECTIFY THE ASSESSMENT BY NOTICE DT. 24.11.2009. THE COUNSEL FURTHER SUBMITTED THAT TILL DATE , OUTCOME OF THE SAID NOTICE IS NOT KNOWN. T HE REASONS FOR REOPENING OF THE ASSESSMENT ARE SAME AS THE REASONS WHICH WER E GIVEN FOR THE RECTIFICATION OF THE ASSESSMENT WHICH CLEARLY ESTAB LISHES THAT THE AO HIMSELF IS NOT CERTAIN WHETHER THE ISSUE INVOLVED RELATES T O RECTIFICATION OF ERROR OR ESCAPEMENT OF INCOME. THIS IS NOTHING BUT MERE CHA NGE OF OPINION ON THE PART OF THE AO AND ON THAT BASIS ASSESSMENT CANNOT BE REOPENED. THE COUNSEL RELIED UPON THE RATIO LAID DOWN BY THE HON BLE SUPREME COURT IN THE CASE OF CIT VS KELVINATOR OF INDIA LTD. (2010) 320 ITR 561 (SC). THE COUNSEL FURTHER RELIED UPON THE DECISION OF ITAT MU MBAI IN THE CASE OF MAHINDER FREIGHT CARRIERS VS CIT 129 ITD 278 WHEREI N THE ASSESSMENT MADE U/S. 148 AFTER THE ISSUE OF NOTICE U/S. 154 ON SIMI LAR REASONS HAS BEEN QUASHED BY THE TRIBUNAL. 8. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUP PORTED THE ORDERS OF LOWER AUTHORITY AND SUBMITTED THAT THIS IS NOT A CA SE OF CHANGE OF OPINION AS THE AO SOUGHT DETAILS VIDE QUESTIONNAIRE WITH NOTI CE U/S. 142(1) AND THE REPLY FILED BY THE ASSESSEE DID NOT MATCH WITH THE QUERY . THE REPLY OF THE ASSESSEE WAS NOT IN THE LINE OF THE DETAIL SOUGHT B Y THE AO. THEREFORE, THE AO HAD REASONABLE AND VALID REASONS FOR REOPENING THE ASSESSMENT. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE PER USED THE ORDERS OF LOWER AUTHORITIES. WE FIND THAT AT THE TIME OF ORI GINAL ASSESSMENT PROCEEDINGS, A SPECIFIC QUERY WAS RAISED BY THE AO AS POINTED OUT IN PARA -7 ABOVE FOR WHICH THE ASSESSEE MADE A PROMPT REPLY. WE FIND THAT NO FURTHER QUERY WAS RAISED BY THE AO DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS , THERE FORE SUBMISSION OF THE LD DR THAT THE REPLY OF THE ASSESSEE IS NOT IN LINE WITH THE QUERY OF THE AO CANNOT BE ACCEPTED AS NOTHING PREVENTED THE AO TO CALL FOR FURTHER DETAILS FROM THE ASSESSEE . WE ALSO FIND THAT NOTICE U/S. 154 WAS ISSUED TO RECTIFY THE MISTAKE APPARENT FR OM RECORD WHICH MISTAKE ITA NO. 8424/M/2011 5 ACCORDING TO THE AO WAS THE ALLOWANCE OF THE CLAIM OF BAD DEBT OF RS. 1,35,00,000/-. WE ALSO FIND THAT THE REASONS GIVEN FOR THE REOPENING OF THE ASSESSMENT ARE ON PRINCIPLE IDENTICAL WITH THE REAS ONS GIVEN FOR THE REOPENING OF THE ASSESSMENT WHICH SHOWS THAT AO HIMSELF WAS N OT CERTAIN AS TO UNDER WHICH SECTION HE SHOULD PROCEED WHILE FRAMING THE A SSESSMENT U/S. 147. WE FIND THAT NO TANGIBLE MATERIAL HAS BEEN BROUGHT ON RECORD, THE AO HAS SIMPLY DISALLOWED THE CLAIM OF WRITE OFF ON THE FACTS AND CIRCUMSTANCES WHICH WERE AVAILABLE BEFORE HIM WHILE FRAMING THE ORIGINAL ASS ESSMENT. THIS APPROACH CLEARLY SHOW THAT THE AO HAS MERELY CHANGED HIS OPI NION IN RELATION TO THE ALLOWABILITY OF THE SAID WRITE OFF WHICH IS IN CONT RAVENTION TO THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF KE LVINATOR OF INDIA LTD. (SUPRA) WHEREIN THE HONBLE SUPREME COURT HELD THA T . THE CONCEPT OF 'CHANGE OF OPINION' ON THE PART OF THE ASSESSING OFFICER TO REOPEN AN ASSESSMENT DOES NOT STAND OBLITERATED AFTER THE SUBSTITUTION OF SECTION 147 OF THE INCOME- TAX ACT, 1961, BY THE DIRECT TAX LAWS (AMENDMENT) ACTS, 1987 AND 1989 . AFTER THE AMENDMENT, THE ASSESSING OFFICER HAS TO HAVE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, BUT THIS DOES NOT IM PLY THAT THE ASSESSING OFFICER CAN REOPEN AN ASSESSMENT ON MERE CHANGE OF OPINION. THE CONCEPT OF 'CHANGE OF OPINION' MUST BE TREATED AS AN IN- BUILT TEST TO CHECK THE ABUSE OF POWER. HENCE AFTER APRIL 1, 1989, THE ASSESSING OFFICER HAS POWER TO REOPEN AN ASSESSMENT , PROVIDED THERE IS 'TANGIBLE MATERIAL' TO COME TO THE CONCLUSION TH AT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASON MUST H AVE A LINK WITH THE FORMATION OF THE BELIEF. 10. WE ALSO FIND THAT ON IDENTICAL FACTS, THE MUMBA I BENCH IN THE CASE OF MAHINDER FREIGHT CARRIERS VS CIT(SUPRA) HAS QUASHED THE ASSESSMENT U/S. 147 PASSED AFTER THE ISSUE OF NOTICE U/S. 154. WE ALSO DRAW SUPPORT FROM THE DECISION OF THE ITAT MUMBAI IN THE CASE OF M/S YASM IN TEXTURISING PVT. LTD., IN ITA NO. 3061/M/11 FOR ASSESSMENT YEAR 2002-03 W HEREIN ONE OF US (AM) IS THE AUTHOR OF THE SAID DECISION IN WHICH THE TRI BUNAL HAS HELD THAT AFTER INITIATING THE PROCEEDINGS U/S. 154, THE ACTION OF AO TO SUBSEQUENTLY ISSUE NOTICE U/S. 148 IS BAD IN LAW. IN THE PRESENT CASE, THERE IS NO EVIDENCE BROUGHT ON RECORD BY THE LD. DR THAT PROCEEDINGS I NITIATED U/S. 154 ARE CONCLUDED OR COMMUNICATION TO THAT EFFECT HAS BEEN SENT TO THE ASSESSEE. ITA NO. 8424/M/2011 6 THEREFORE UNDER THESE CIRCUMSTANCES, IT CANNOT BE S AID THAT ASSESSMENT PROCEEDINGS WERE COMPLETED AS THE ORDER PASSED U/S. 154 IS ALSO AN ORDER WHICH CAN BE SUBJECT TO APPEAL AND REVISION AND AS THE PROCEEDINGS ARE NOT BEEN COMPLETED ON RECORD, IT CANNOT BE SAID THAT AN Y INCOME HAS ESCAPED ASSESSMENT. 11. AFTER CONSIDERING THE FACTS AND SUBMISSIONS IN TOTALITY AND THE JUDICIAL PRONOUNCEMENTS, WE HOLD THAT THE ASSESSMENT ORDER P ASSED U/S. 147 IS BAD IN LAW AND IS ACCORDINGLY CANCELLED. THE LD. COUNSE L SUPPORTED HIS CASE BY ARGUING THAT THE SAID LOAN AMOUNT WAS GIVEN IN THE ORDINARY COURSE OF BUSINESS AND THEREFORE IT SHOULD BE ALLOWED AS BAD DEBT U/S. 36(2) OF THE ACT. THE LD. DR HAS STRONGLY OBJECTED TO THIS STAND OF T HE ASSESSEE. SINCE WE HAVE QUASHED THE ORDER U/S. 147, WE DO NOT FIND IT NECESSARY TO DEAL THE ISSUES RAISED BY THE RIVAL PARTIES . 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 22 ND DAY OF JUNE,2012 SD/- SD/- (D.K. AGARWAL) (N.K. BILLAIYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 22 ND JUNE, 2012 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR J BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 8424/M/2011 7 DATE INITIALS 1. DRAFT DICTATED ON: 19.06.2012 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 20.06.2012 SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: