METAL TUBE AND ROLLING MILLS, MUMBAI V. ITO WD 24(2)(5), MUMBAI

ITA 845/MUM/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 3308 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 05-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Depreciation; Difference of opinion; Assessment record; Unabsorbed depreciation; Change of opinion
• Section: 147; 148; 143(3); 142(1); 133(6); 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, HON'BLE JUDICIAL MEMBER ITA NO. 845/MUM/2017 (A.Y: 2007-08) Metal Tubes & Rolling Mills 1 st Floor, Metal Tube & Rolling Mills Marol Maroshi Road, Marol Village Andheri (E), Mumbai – 400059 PAN: AAEFM9353N v. Income Tax Officer – 24(2)(5) Mumbai (Appellant) (Respondent) Assessee by : Shri Deepak Tralshawala & Shri D.B. Shah Department by : Shri T. Shankar Date of Hearing : 08.02.2022 Date of Pronouncement : 29.04.2022 O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals)–39, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 16.12.2016 for the A.Y.2007-08. 2. Brief facts of the case are, assessee filed its return of income for the A.Y. 2007-08 declaring total income of ₹.NIL on 27.10.2007. The 2 ITA NO. 845/MUM/2017 (A.Y: 2007-08) Metal Tubes & Rolling Mills Assessee is engaged in the business of manufacturing and trader of Metal and Metal Alloys. The assessee is also having income under the head “income from other sources”. The return was processed u/s. 143(1) of Income-tax Act, 1961 (in short “Act”). The case was reopened by recording the reasons for reopening and necessary approvals were taken from Addl. CIT of Range. Then notice u/s. 148 of the Act was issued and served on the assessee. 3. The relevant reasons for reopening is reproduced in the Assessment Order and for the sake of clarity it is reproduced below: - “Reasons for Re-opening of assessment: - During the course of assessment proceedings for AY. 202142, the details were called for from assessee with respect of other Liabilities of Rs. 5,01,25,772/ payable to Maharashtra Small Industrial Scale Industries Rs.14,72,868/- and also to MSSIDC limited Rs4,86,52,923/, The assessee informed that said other liabilities were in dispute. From the documents filed by the assessee in respect of said disputed amount, it was thought to verify since when the disputed liability of Rs, 5,01,25,771/- were reflected in Income Tax Records. Assessment records for AY. 2006 07 revealed that the audited balance sheet shows above liabilities were payable to Maharashtra Smell Scale industries Rs. 14,72,868/- and also to MSSIDC Ltd., Rs.4,86, 52,9234/-. However, there is conspicuous absence of total secured loan of Rs.7,85,61,097.82 in the returned income for AY. 2007-08. Further, scrutiny of Return of income for A.Y, 2007-08 reveals that substantial increase of Rs. 1,74,55,796.45 in Partner's Capital: accounts as compared to A.Y, 2006-07, balance of Rs. 2,55,32,221/- on liability side, but the partner’s capital brought forward from A.Y. 2006-07 as per audited balance sheet was having credit balance of Rs.38,32,466.55 only. (before adjustment for of unabsorbed 3 ITA NO. 845/MUM/2017 (A.Y: 2007-08) Metal Tubes & Rolling Mills depreciation and C/f business losses), which ought to have been credit to partners capital account, However, the difference in partner's capital account credit balance of Rs.1,74,55,796.45 remains unanswered and need to be verified. From AY. 2008-09, audit balance sheet, revealed that out of secured loans of Rs. 7,85,61,097.82 for AY. 2006-07, Rs. 5,01,25,771/- representing the amount payable to Maharashtra Small Scale industries Rs. 14,72,868/and also to MSSIDC Ltd., Rs. 4,86,52,923/- had been shown under the group “Current Liabilities” Rs.12,43,65,712.88/- under the head “Other liabilities of Rs.7,02,60,625.64 under which aforesaid disputed amount were shown, This disputed amount has been brought forward from AY. 2006-07 records under the grouping secured loan of Rs.7,85,61,097.82. Thus in AY. 2007-08 out of secured loans shown as Nil in the Return form out of Rs. 7,85,61,097.82 shown of A.Y. 2006-07, Rs. 5,01,25,771/has been traced and disputed liability to Maharashtra small Scale Industries & MSSIOC Ltd., continued for A.Y. 2006-07 to A.Y. 2007-08 and A.Y, 2008-09 onwards. Out of secured loan of A.Y. 2006-07 Rs. 7,85,61,097.82 which has been shown as Nil in A.Y. 2007-08 the balance source of repayment of secured loan amounting to Rs. 2,84,35,326.82 (Rs. 7,85,61,097.82 - 5,01,25,771/- in lieu of insufficient profits. Reduction in unsecured loans remains unanswered and need to be verified. in view of the above and by reason for an opportunity to verify as the Return for A.Y. 2007-08 was processed U/s. 143(1) which was filed by the assessee on 27.10.2007 declaring total income at Rs. Nit on account of set off of unabsorbed depreciation and C/f business losses. Balance as per balance Sheet. in A.Y. 2006-07 MSSI Rs. 14, 72,868 MSSIDC Rs. 4,86,52,923 Grouping Total: 7,85,61,097.82 Balance (as per Balance sheet) as per A.Y. 2007-08 on wards MSSI Rs. 14,72,868 MSSIDC Rs. 4,86,52,923 Grouping Total: Rs. 5,01,25,771 4 ITA NO. 845/MUM/2017 (A.Y: 2007-08) Metal Tubes & Rolling Mills Prime fascia it appears that reduction of secured loons of Rs.2,84,35,326.82 is attributable to waiver of loan by financial institution in A Y. 2007-08 which was appearing in the balance sheet of AY. 2006-07, Coupled with the corresponding argumentation in the partners capital of Rs. 1,74,55,796.45 Such waiver of loan out to have been offered to tax in the return of income of AY. 2007-08. The Income has escaped assessment. Since the assessee has not offered this income to tax in the return of income, I have got reasons to believe that Income has escaped assessment to the extent of such waiver of Rs. 2,84,35,326.82” 4. The reasons recorded were also supplied to the assessee and subsequently notice u/s. 142(1) were issued and served on the assessee. Assessee filed objections regarding reopening of the assessment and the same was disposed off by the Assessing Officer vide letter dated 12.02.2015 as under: - “It is reported here that the assessee firm has to pay only a lesser amount of Loan as the assessee has got waiver of loan which has been borrowed by assessee as working capital of Business and not for investment purpose. The amount which has been borrowed by the assessee as loan amounts to Rs. 7,85,61,097.82. The assessee got waiver of loan amounting to Rs. 2,84,35,326.82. Thus, there is remission of liability u/s. 41(1) of the Act and the same is taxable. In this context reliance is place on the decision of Bombay High Court in the case of M/s. Solid Containers Ltd., Vs. DCIT, Mumbai 308 ITR 407. A Loan is categorized in three parts: (1) working capital loan (2) term loan (3) overdraft account. The term loan may be outside the purview of Section 41(1) in accordance with decision of Bombay High Court in the case of Solid Containers Ltd., but the other two loans being directly connected with business of the assessee are hit by the said decision. In the order of assessment, the Assessing Officer had categorically said that the loan includes working capital loans. 5 ITA NO. 845/MUM/2017 (A.Y: 2007-08) Metal Tubes & Rolling Mills The view is also supported by the order of ClT-Madhurai Vs. T. V. Sunderam lyerngar and Sons Ltd. 222 ITR 344, where it was held that the Capital character of the amount changes when the amount become assessee’s own money because of limitation or by any other statutory or contractual right.” 5. Assessee was asked to submit the details relating the cessation of liability and in this regard assessee has filed the following chart: - S.N Party Name CI. Bal 31.03.06 Op.Bal. 01.04.06 Payments Recepts Remission U/s .41(1) CL.Bal. 1 Bank of India 2,76,54,215.03 2,76,54,215.03 74,89,539.49 -- 2,01,64,675.54 -- 2 Central Bank of India 3,54,779.71 3,54,779.71 3,54,779.71 -- -- 3 HDFC Bank Ltd. 1,53,057.49 1,58,057.49 1,58,057.49 -- -- 4 Maharasthra Small Scale Industries 14,72,863.24 14,72,868.24 -- -- 14,72,868.24 5 MSSIDC Ltd 4,86,52,903.00 4,86,52,903.00 -- -- 4,86,52,903.00 6 Apeejay Fiance 2,68,274.35 2,68,274.35 2,68,274.35 -- -- Total 7,85,61,097.82 7,85,61,097.82 82,70,651.04 -- 2,01,64,675.54 50,125,771.24 6. Further, Assessing Officer observed that enquiries were conducted by issue of notice u/s. 133(6) of the Act to Bank of India with whom the assessee was having unsecured loans and during the year the assessee has got waiver of ₹.2,01,64,675.64 of loan amount. The Bank of India provided the details of loan granted and waiver granted to the assessee vide letter dated 17.03.2015 and confirmed that one-time settlement was granted to the assessee of sanctioned loan amount. Accordingly, Assessing Officer observing that assessee has to pay only a lesser amount of loan as the assessee has got waiver of loan which has been borrowed 6 ITA NO. 845/MUM/2017 (A.Y: 2007-08) Metal Tubes & Rolling Mills by the assessee as working capital and not for investment purpose. Accordingly, he made the addition ₹.2,01,64,676/-. 7. Aggrieved assessee, preferred an appeal before the Ld.CIT(A) and before the Ld.CIT(A) assessee also raised grounds relating to reopening of the assessment and on merits. Ld.CIT(A) confirmed the reopening of the assessment u/s. 147 of the Act and also sustained the additions by upholding the additions made by the Assessing Officer. 8. Aggrieved assessee is in appeal before us raising following grounds in its appeal: - “1. On the facts and in the circumstances of the case and in law, the learned CIT (A) 39 has erred in confirming the reopening of assessment u/s 147 of the Income Tax Act, 1961, by the Learned Assessing Officer, Ward 24(2)(5), Mumbai, as valid. 2. On the facts and in the circumstances of the case and in law, the learned CIT (A) 39 has erred in upholding addition of Rs.2,01,64,676/- on account of alleged suppression of profit on waiver of loan. 3. The order under appeal is not only bad in law and invalid, but also against the principals of natural law of equity and justice. 4. The Appellant reserves the right to add, alter, amend, delete, modify, omit, substitute, and vary any one or more or all grounds of appeal.” 7 ITA NO. 845/MUM/2017 (A.Y: 2007-08) Metal Tubes & Rolling Mills 9. At the time of hearing, Ld. AR submitted as under: - “Notice u/s 148 is bad in law for following reasons: i. Provisions of section 151 are mandatory. Para 3 of the Notice dt 28.3.2014 is blank on this aspect and does not indicate whether prior approval has been taken of the higher authority as per section 151(2), being the it CIT. It is necessary to show whose approval has been taken. ii. Notice can be issued only if the higher authority has recorded his satisfaction for issuance of notice. iii. Satisfaction has to be recorded after applying his mind, not by merely stating 'approved' or "satisfied". From the records submitted by the Sr. AR, it is clear that the AG had sent the proposal dt. 28.03.2014 for the re-opening to the Addl. CIT on that date, without any case records or accounts. Col.11 of the proposal format asks for Reasons of the belief that income has escaped assessment. The approval was granted on the same date 28.03.2014, a with the cryptic remark: "Yes, I am satisfied that it is a fit case for re-opening" (see pages 4-6 of the Sr. AR's Paper Book dt. 08.02.2022). The question is: how can the Addl. CIT be satisfied without looking at the accounts or the case records? "The satisfaction of the higher authority is paramount for which the least that is expected from the Commissioner is application of mind and due diligence before according sanction to the reasons recorded by the AO." Amarlal Bajaj 60 SOT 83 (Mum). iv. The absence of detailed reasons clearly shows that the approval, given on the same day as the proposal for approval was sent without the benefit of case records and statement of accounts, was clearly mechanical without application of mind. The decision in the case of Mayurbhai Mangaldas Patel, relied upon by the Sr. AR, is not applicable, as assessee's ground in that case was that the AO had not taken the approval/satisfaction of the JCIT - but of the CIT. This has been factually negatived at para 7 by the ITAT. v. Reliance is placed upon (a) Dr. Shashi Kant Garg 285 ITR 158 (All), H.M. Constructions 366 ITR 277 (Karn), for the proposition that satisfaction has to be recorded for granting 8 ITA NO. 845/MUM/2017 (A.Y: 2007-08) Metal Tubes & Rolling Mills approval and (ii) Amarlal Bajaj 60 SOT 83 (Mum), for what constitutes statutory satisfaction. Reasons for Re-opening are bad in law for the following reasons: i) Re-opening was done after 4 years. The primary facts necessary for assessment were fully and truly disclosed at the 'initial stage. The accounts are audited. The AO has not said what item was not fully and truly disclosed by the assessee. The AO cannot exercise the power to reopen, unless he discloses what was the material fact which was not fully and truly disclosed. Ananta Landmark P Ltd 323 CTR 138 (Bom). ii. AO has said nothing about what was not disclosed. AO starts with AY 2011-12, where he wanted to verify the liabilities of Rs. 5,01,25,771/- payable to Maharashtra Small Scale Industries and MSS 100. In AY 2006-07, the AO confirms that these liabilities of Rs.5,01,25,771/- were shown under Secured Loans. For AY 2008-09, he says that these liabilities were shown under Other Liabilities. For AY 2007-08, the AO first says in 3rd para of Reasons that there is an absence of total secured loan of Rs. 7,85,61,097/-, but in 5th para he says that Rs. 5,01,25,771/- has been traced out. Then, again in 6 para, he says that out of Secured Loans of Rs. 7,85,61,097/-, NIL was shown in AY 2007-08. This is factually incorrect, as the assessee has shown Other Liabilities of Rs. 8,01,86,745/- (page 16 of paper book). Hence, the AO does not know what material was not fully and truly disclosed and is only making a fishing inquiry. From the above figures taken from the assessee's own records, the AO concludes that the reduction of secured loan of Rs. 2,84,35,326/- is attributable to waiver of loan by Financial Institution. AO is totally silent as to what loan, when taken, from which Fl, on what terms, for what purposes etc. In fact, there is no connection at all anywhere. 9 ITA NO. 845/MUM/2017 (A.Y: 2007-08) Metal Tubes & Rolling Mills iv. Reasons for reopening have been drawn from the case records of the assessee itself. Entire reasons proceed on the basis of "From the documents filed by the assessee", "From the AY 2008-09 audited balance sheet revealed that secured loans had been shown under Current Liabilities" etc. Entire process of reopening has been based upon the balance sheet and the accounts filed by the assessee. Mogaveera Co.op Bank 5 NYPCTR 918 (Born), Great Eastern Shipping Co 5 NYPCTR 1140 (Born). v. The AO has mentioned at 3 places in his Reasons for reopening that the figures "need to be verified". Reopening is not permitted for purposes of verification, nor for a fishing or a rowing enquiry. Manzil Dineshkumar Shah 406 ITR 326 (Guj) vi. The AO is not entitled, on change of opinion, to commence proceedings for reassessment. The reliance placed by the Sr. AR on the judgment of 3i Infotech has been displaced in Ananta Landmark P Ltd 323 CTR 138 (Bom) at para 17. All the judgments cited by me above have been placed before the Hon'ble Tribunal. In an unlikely possibility of the jurisdiction point not getting decided in favour of the appellant, please, fix this matter for arguing on merits.” 10. On the other hand, Ld.DR submitted that, Assessing Officer has formed a belief based on the reasons recorded and Assessing Officer has taken and followed due process of law and got approval from Addl. CIT. The view expressed by the Assessing Officer in reasons recorded will not be or not to be taken as review. He submitted that Assessing Officer has clearly formed a view that income has escaped assessment. With regard to the satisfaction he submitted that Assessing Officer has taken a proper approval from Addl. CIT in this regard, he submitted that Assessing Officer 10 ITA NO. 845/MUM/2017 (A.Y: 2007-08) Metal Tubes & Rolling Mills has followed proper procedure and for this proposition he relied on ITA.No. 3451/AHD/2014 dated 30.11.2017. On merits he relied on the orders passed by the tax authorities. 11. Considered the rival submissions and material placed on record, we observe from the record that the assessment was reopened beyond four years and the original assessment was completed only u/s. 143(1) of the Act not u/s. 143(3) of the Act. However, to initiate the reopening proceeding it is the duty of the Assessing Officer to record the reasons for reopening and since the issue involved in this assessment year is, reassessment was reopened beyond four years, as per section 151 of the Act the Assessing Officer has to get proper approval at the same time the respective CIT/Addl.CIT has to verify the assessment record and record the satisfaction for the purpose of granting permission to reopen the assessment. As held in several cases the reopening cannot be done on mechanical basis, it undermines the procedures laid down by the legislature. We observe from the submissions made by the Ld.DR as well as the assessment records submitted before us that the proposal for reopening u/s. 147 of the Act , satisfaction form and notice u/s. 148 of the Act all were made on the same date i.e. 28.03.2014, for the sake of clarity it is reproduced below:- 11 ITA NO. 845/MUM/2017 (A.Y: 2007-08) Metal Tubes & Rolling Mills 12 ITA NO. 845/MUM/2017 (A.Y: 2007-08) Metal Tubes & Rolling Mills 13 ITA NO. 845/MUM/2017 (A.Y: 2007-08) Metal Tubes & Rolling Mills 14 ITA NO. 845/MUM/2017 (A.Y: 2007-08) Metal Tubes & Rolling Mills 12. From the above documents it clearly shows that the approval granted in the case of assessee is mere formality and proceeded with mechanically. 13. The Coordinate Bench in the case of Amarlal Bajaj v. ACIT [60 SOT 83 (Mum)] held as under: - “A simple reading of the provisions of section 151(1) with the proviso clearly show that no notice shall be issued under section 148 unless the Commissioner is satisfied on the reasons- recorded by the Assessing Officer that it is a fit case for the issue of notice, which means that the satisfaction of the Commissioner is paramount for which the least that is expected from the Commissioner is application of mind and due diligence before according sanction to the reasons recorded by the Assessing Officer. In the instant case, the Commissioner has simply affixed 'approved' at the bottom of the report prepared by the Assessing Officer. Nowhere the Commissioner has recorded his satisfaction. [Para 6] Sections 147 and 148 are charter to the revenue to reopen earlier assessments and are, therefore, protected by safeguards against unnecessary harassment of the assessee. They are sword for the revenue and shield for the assessee. Section 151 guards that the sword of section 147 may not be used unless a superior officer is satisfied that the Assessing Officer has good and adequate reasons to invoke the provisions of section 147. The superior authority has to examine the reasons, material or grounds and to judge whether they are sufficient and adequate to the formation of the necessary belief on the part of the Assessing Officer. If, after applying his mind and also recording his reasons, the Commissioner is of the opinion that the Assessing Officer's belief is well reasoned and bona fide, he is to accord his sanction to the issue of notice under section 148. In the instant case, the Commissioner in the report submitted by Assessing Officer has simply put 'approved' and signed the report thereby giving sanction to the Assessing Officer. Nowhere the Commissioner has recorded a satisfaction note. Therefore, it cannot be said that the Commissioner has accorded sanction under section 151(1) after applying his mind and after recording his satisfaction. [Para 7] 15 ITA NO. 845/MUM/2017 (A.Y: 2007-08) Metal Tubes & Rolling Mills Therefore, reassessment proceedings were bad in law and consequently the assessment was void ab initio. [Para 9]” 14. Respectfully following the above said decision, we are inclined to accept the submissions made by Ld. AR, accordingly, ground raised by the assessee are allowed and other grounds raised are not adjudicated at this stage. 15. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 29.04.2022. Sd/- Sd/- (AMARJIT SINGH) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 29.04.2022 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum