INDIAN RARE EARTHS LTD., MUMBAI V. D.C.I.T. - (2), MUMBAI

ITA 8504/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71837 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 20-11-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 15-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: V MOHAN
• Keywords: Depreciation; Tangible material; Wrong claim; Difference of opinion; Revised return; Change of opinion
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AN D DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 8504/MUM/2011 ASSESSMENT YEAR: 2005-06 M/S. INDIAN RARE EARTHS LIMITED PLOT NO. 1207, VEER SAVARKAR MARG, NEAR SIDDHI VINAYAK TEMPLE, PRABHADEVI MUMBAI- 400 028 PAN :AAACI 2799 F VS. DCIT-1(2) 5 TH FLOOR, AAYAKAR BHAVAN MUMBAI. 400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V. MOHAN RESPONDENT BY : SHRI O. P. SINGH DATE OF HEARING : 20.11.2013 DATE OF PRONOUNCEMENT : 06.12.2013 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD.CIT(A) -2, MUMBAI DATED 19.09.2011 FOR THE ASSESSMENT YEAR 20 05-06. 2. IN THIS APPEAL, THE ASSESSEE HAS AGITATED THE AC TION OF THE LD.CIT(A) CONFIRMING THE DISALLOWANCE OF RS.43,36,227/- MADE BY THE AO AGAIN ST THE DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF DE-BONDING INTEREST ON CAPIT AL GOODS. DURING THE PROCEEDINGS, VIDE LETTER DATED 18.11.2013, THE ASSESSEE HAS ALSO RAIS ED AN ADDITIONAL GROUND WHICH READS AS FOLLOWS:- ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) ERRED IN NOT HOLDING THAT THE REOPENING OF THE ASSESSMENT U/S 147 OF THE INCO ME TAX ACT 1961 WAS BAD IN LAW AND CONSEQUENTLY THE ASSESSMENT MADE UNDER SECTION 143(3) R/W SECTION 147 IS BAD IN LAW SINCE THIS GROUND OF APPEAL DEALS WITH THE JURISDIC TION TO INITIATE PROCEEDINGS ON REOPENING THE ASSESSMENT U/S 147 OF THE ACT INVOLVES A QUESTI ON OF LAW WHICH EMERGES FROM THE FACTS ON RECORD IN THE ASSESSMENT PROCEEDINGS, WE A DMIT THE SAME AND PROCEED TO ADJUDICATE THE APPEAL. ITA NO. 8504/MUM/2011 M/S. INDIAN RARE EARTHS LIMITED ASSESSMENT YEAR: 2005-06 2 3. THE RELEVANT FACTS LEADING TO THE PRESENT APPEAL ARE THAT THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF MINERAL BENEFICIATION OR IGINALLY FILED THE RETURN OF INCOME DECLARING A TOTAL INCOME AT RS.90,51,61,769/- ON 29 .10.2005 AND AGAIN FILED THE REVISED RETURN OF INCOME OF RS.90,51,85,329/- ON 18.02.2006 . THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 20.12.2007 ASSESSING THE TOTAL INCOME AT RS.91,29,81,779/-. 3.1 THEREAFTER, THE PROCEEDINGS U/S 147 WAS INITIAT ED WITH THE ISSUANCE OF NOTICE U/S 148 OF THE I.T. ACT ON 11.03.2010 AS THE WRONG CLAI M MADE BY THE ASSESSEE RESULTED IN ESCAPEMENT OF INCOME FROM ASSESSMENT TO THE TUNE OF RS.95,62,865/. ACCORDING TO AO, THE REASONS CITED FOR REOPENING THE ASSESSMENT WERE , FIRSTLY, IT CAME TO NOTICE THAT DEPRECIATION CLAIMED BY THE ASSESSEE DURING THE PRE VIOUS YEAR INCLUDED AN AMOUNT OF RS.52,26,638/- ON ACCOUNT OF TERMINAL DEPRECIATION ON VARIOUS KIND OF ASSETS VIZ. BUILDING, PLANT & MACHINERY, FURNITURE & FIXTURES AND VEHICLE S. THE CLAIM OF THE ASSESSEE ON ACCOUNT OF TERMINAL DEPRECIATION IS WRONG AS THERE IS NO SU CH PROVISION IN THE IT ACT TO ALLOW TERMINAL DEPRECIATION. THE WRONG CLAIM MADE BY THE ASSESSEE RESULTED IN ESCAPEMENT OF INCOME OF RS.52,26,638/- FROM ASSESSMENT. SECONDLY, IT WAS NOTICED THAT ASSESSEE HAD CLAIMED INTEREST OF RS.43,36,227/- ON ACCOUNT OF IN TEREST KNOWN AS DE-BONDING INTEREST ON THE CAPITAL GOODS BEING PLANT AND MACHINERY WHICH W AS IMPORTED AND LYING IN THE BONDED HOUSE. AS THE MACHINE WERE LYING IN THE BONDED HOUS E AND WERE NOT PUT TO USE, THE INTEREST OF RS.43,36,227/- IS NOT ALLOWABLE AS INTE REST EXPENDITURE UNDER THE PROVISION OF SECTION 36(1)(III) OF THE I.T. ACT. THE WRONG CLAIM IN RESPECT OF SUCH INTEREST OF RS.43,36,227/- RESULTED IN ESCAPEMENT OF INCOME TO THAT EXTENT FROM ASSESSMENT. ACCORDINGLY, IN THE ASSESSMENT COMPLETED U/S 143(3) READ WITH SECTION 147, THE AO DISALLOWED BOTH THE CLAIM OF DEDUCTIONS AND THEREBY ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, THE LD.CIT(A) CONFIRMED THE ACTION OF THE AO IN REOPENING OF THE ASSESSMENT U/S 147 AND THEREBY FURTHER CONFIRME D THE IMPUGNED DISALLOWANCES MADE BY THE AO. AGGRIEVED BY THE IMPUGNED ORDER, THE ASS ESSEE IS IN APPEAL BEFORE US. 4. BEFORE US, THE LD.AR FOR THE ASSESSEE HAS CONTEN DED THAT THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 20.12.2007 ASSESSING THE TO TAL INCOME AT RS.91,29,81,779/. AT THE TIME OF THE SCRUTINY ASSESSMENT PROCEEDINGS, TH E DETAILS OF THE CLAIMS OF DEDUCTION ON ACCOUNT OF TERMINAL DEPRECIATION AND THE CLAIM OF D EDUCTION OF INTEREST ON ACCOUNT OF DE- BONDING INTEREST ON THE CAPITAL GOODS HAVE BEEN FIL ED BEFORE THE AO. AFTER PASSING THE ITA NO. 8504/MUM/2011 M/S. INDIAN RARE EARTHS LIMITED ASSESSMENT YEAR: 2005-06 3 ASSESSMENT ORDER U/S 143(3) ACCEPTING THE CLAIM OF DEDUCTION, REOPENING OF THE ASSESSMENT BY HAVING RESORTED TO SECTION 147 AMOUNT S TO CHANGE OF OPINION. THE RECORDING OF THE REASON FOR REOPENING CLEARLY SUGGE STS THAT NO NEW TANGIBLE MATERIAL HAS COME TO THE NOTICE OF THE AO, WHICH IS A PRE REQUIS ITE FOR INVOKING SECTION 147 FOR REOPENING AN ASSESSMENT WHICH HAS ALREADY BEEN MADE U/S 143(3) OF THE ACT. THEREFORE, THE LD.CIT(A) OUGHT TO HAVE HELD THAT THE REOPENING OF THE ASSESSMENT U/S 147 OF THE ACT IS BAD IN LAW AND CONSEQUENTLY THE RE-ASSESSMENT MA DE UNDER SECTION 143(3) R/W SECTION 147 SHOULD HAVE BEEN QUASHED. ON MERITS, THE LD.AR HAS ARGUED IN THE SIMILAR LINE OF CONTENTIONS RAISED BEFORE THE LOWER AUTHORITIES 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD. ON THE ISSUE OF VALIDITY OF THE REOPENING OF THE ASSESSMENT, IT IS PERTINENT TO MENTION THAT THE LETTER DATED 19.09.2007 ADDRESSED BY THE ASSESSEE TO THE AO DURI NG THE ASSESSMENT PROCEEDINGS ORIGINALLY FRAMED U/S 143(3) OF THE ACT CLEARLY IND ICATES THAT THE ASSESSEE HAS PROVIDED ALL THE DETAILS ON THE IMPUGNED CLAIMS OF DEDUCTION AND AFTER OPINING ON THE SAID DETAILS THE ASSESSMENT HAS BEEN COMPLETED BY THE AO ON 20.12.20 07 ASSESSING THE TOTAL INCOME AT RS.91,29,81,779/. HOWEVER, THE REASONS RECORDED FOR REOPENING THE SAID ASSESSMENT DO NOT SUGGEST THAT ANY TANGIBLE MATERIAL HAS COME FOR CONCLUDING THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. IN THIS CONNECTION, IT I S RELEVANT TO MENTION THAT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD. [2010] 320 ITR 561 (SC), THE HONBLE APEX COURT HAS HELD THAT THE CONCEPT OF CHANGE OF OPINION MUST B E TREATED AS AN IN-BUILT TEST TO CHECK ABUSE OF POWER BY AO AND THAT THE REASONS MUST HAVE A LIVE LINK WITH FORMATION OF BELIEF. HENCE, AFTER 1-4-1989, THE AO HAS POWER TO REOPEN, PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO CONCLUSION THAT THERE IS ESCAPEMENT OF I NCOME FROM ASSESSMENT. APPLYING THE RATIO OF THE HONBLE APEX COURT TO THE FACTS OF THE ASSESSEE IN THE CASE BEFORE US, SINCE THE REASONS RECORDED FOR REOPENING THE SAID ASSESSM ENT DO NOT SUGGEST THAT ANY TANGIBLE MATERIAL HAS COME FOR CONCLUDING THAT THERE IS ESCA PEMENT OF INCOME FROM ASSESSMENT, FOLLOWING THE RATIO OF THE HONBLE APEX COURT IN TH E CASE OF KELVINATOR OF INDIA LTD (SUPRA), WE ARE OF THE CONSIDERED OPINION THAT THE LD.CIT(A) IS NOT JUSTIFIED IN CONFIRMING REOPENING OF THE ASSESSMENT MADE BY THE AO U/S 147 OF THE ACT. THEREFORE, FOR THE REASONS AS AFOREMENTIONED, THE REOPENING OF THE ASS ESSMENT MADE UNDER SECTION 147 IS BAD IN LAW AND THE SAME IS QUASHED. RESULTANTLY, TH E ASSESSMENT ORDER PASSED IN ITA NO. 8504/MUM/2011 M/S. INDIAN RARE EARTHS LIMITED ASSESSMENT YEAR: 2005-06 4 PURSUANCE THERETO IS ALSO QUASHED AND THE ORIGINAL ASSESSMENT ORDER PASSED UNDER SECTION 143(3) IS RESTORED. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 6 TH DAY OF DECEMBER, 2013. SD/- SD/- (D. KARUNAKARA RAO) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 06.12.2013. *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR I BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.