Top Gear Sales Pvt. Ltd. (formerly, Garodia Construction Pvt. Ltd.), Kolkata V. ITO, Ward - 6(2), Kolkata, Kolkata

ITA 857/KOL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2498 (ITAT-KOLKATA)
• Duration Of Justice: 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2010
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 30-04-2010
• Court: TRIBUNAL
• Department Lawyers: PIYUSH KOLHE
• Assessee Lawyers: S BAJORIA
• Keywords: Depreciation; Tangible material; Reason to believe; Reassessment proceedings; Capital Gains
• Section: 143(3); 147

Judgement Text

1 , B , , IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH- B , KO LKATA [ . . . . . . . . , , , , . . . . . . . . ! !! !' '' ', , , , # ] [BEFORE SHRI D.K. TYAGI, JUDICIAL MEMBER & SRI K.K. GUPTA, ACCOUNTANT MEMBER] $ $ $ $ / ITA NO. 857 (KOL) OF 2010 %&' () / ASSESSMENT YEAR 2004-05 TOP GEAR SALES PVT. LTD. (FORMERLY GARODIA CONSTRUCTION P. LTD. (PAN-AABCG0180B) INCOME-TAX OFFICER, WARD-6(2), KOLKATA. (,- / APPELLANT ) - & - - VERSUS - (0,-/ RESPONDENT ) ,- 1 2 / FOR THE APPELLANT: / SRI S. BAJORIA 0,- 1 2 / FOR THE RESPONDENT: / SRI PIYUSH KOLHE, SR. D.R. 3 / ORDER ( . . . . . . . . !' !' !' !') )) ) , # (K.K. GUPTA), ACCOUNTANT MEMBER : THE ASSESSEE IN THIS APPEAL HAS RAISED THE FOLLOW ING GROUNDS :- 1. THAT, ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE, THE LD. COMMISSIONER OF INCOME- TAX (APPEALS) ERRED IN LAW IN OBSERVING THAT THE JU RISDICTION U/S. 147 HAD BEEN VALIDLY ASSUMED BY THE ASSESSING OFFICER FOR LOOKING INTO T HE DETAILS OF LONG TERM CAPITAL GAINS FROM SALE OF MOTOR CARS, AND ON THE BASIS OF SUCH MISCONCEIVED OBSERVATION ALONE, HE FURTHER ERRED IN UPHOLDING THE VALIDITY OF ASSES SMENT U/S. 147 OF THE INCOME-TAX ACT. 2. THAT, WITHOUT PREJUDICE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. C.I.T.(A) ERRED IN OBSERVING THAT NO SPECIFIC REASO N COULD BE SHOWN FOR THE METHOD OF VALUATION ADOPTED FOR INVENTORIES, AND ON THE BASIS OF SUCH ERRONEOUS APPRECIATION OF FACTS, HE FURTHER ERRED IN CONFIRMING THE ADDITION OF RS.1,74,000/- TO THE VALUE OF CLOSING STOCK OF THE COMPANY. 2. THE BRIEF FACTS ON THE ISSUE OF DISPUTE AS NARR ATED BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE THAT THE A.O. IN HIS ORIGINAL ORDER U/ S. 143(3) HAD CONSIDERED THE COMPUTATION OF LONG-TERM CAPITAL GAINS (IN SHORT LT CG) AS RETURNED BY THE ASSESSEE BY ASSESSING THE TOTAL INCOME AT RS.4,27,924/-, EXCLUD ING THE CAPITAL GAINS ON SALE OF ASSETS FOR SEPARATE CONSIDERATION AMOUNTING TO RS.72,715/- . IN HIS NOTICE FOR PROCEEDINGS U/S. 147/148, THE A.O. INDICATED THAT AT THE TIME OF COM PUTATION OF TOTAL INCOME, THE LTCG ON THE SALE OF CARS FOR SEPARATE CONSIDERATION WAS NOT CONSIDERED LATER AND, THEREFORE, 2 HAD REASON TO BELIEF THAT THERE WAS AN UNDER-ASSESS MENT OF TAX. THE ASSESSEE IN PURSUANCE TO NOTICE U/S. 147/148 APPEARED BEFORE TH E A.O. AND OBJECTED TO THE INITIATION OF PROCEEDINGS U/S. 147/148 BY INDICATING THAT THE LTCG HAD BEEN TAKEN CARE OF IN THE BLOCK OF ASSETS AS THEY WERE DEPRECIABLE ASSETS AND , THEREFORE, DID NOT REQUIRE SEPARATE CONSIDERATION FOR HOLDING THE SAME AS INCOME HAVING ESCAPED ASSESSMENT. THE A.O. IN HIS ORDER, THEREFORE, NOTED THAT THE COMPUTATION AN D SUPPORTING BILLS WERE FOUND TO BE IN ORDER AND THUS CLEARLY HELD THAT THE ACTION INITIAT ED U/S. 147/148 WAS NOT TO BE PROCEEDED FURTHER. HOWEVER, IN HIS ORDER U/S. 147/143(3) HE T RIED TO EVALUATE THE CLOSING STOCK OF 5 CARS WHICH WERE DEALT WITH BY THE ASSESSEE AS A DEA LER IN USED CARS BY HOLDING THAT THE CLOSING STOCK STOOD UNDERVALUED BY A SUM OF RS. 1,7 4,000/-. HE MADE CERTAIN OTHER DISALLOWANCES APART FROM THE ADDITION ON ACCOUNT OF VALUATION OF CLOSING STOCK WHICH ALL WERE APPEALED AGAINST BEFORE THE LD. C.I.T.(A). TH E LD. C.I.T.(A) CATEGORICALLY NOTED THAT THE ADDITIONS OTHER THAN RS.1,74,000/- ON MERI T WERE NOT SUSTAINABLE AND DELETED THE SAME. HOWEVER, ON THE LIMITED ISSUE OF ASSESSEES AGITATION BEFORE HIM IN RESPECT OF PROCEEDINGS U/S. 147 ON THE BASIS OF NOT HAVING JUS TIFIED THE ESCAPEMENT OF INCOME ON ACCOUNT OF LTCG VIS--VIS VALUATION OF CLOSING STOC K, THE LD. C.I.T.(A) HELD THAT THE A.O. COULD NOT BE SAID TO HAVE REVIEWED HIS OWN OPI NION WHEN THE SAME WERE TWO DIFFERENT ISSUES. AFTER HAVING VERIFIED THE DETAIL S REGARDING THE LTCG, THE A.O. FOUND THE SAME TO BE IN ORDER AND, THEREFORE, COULD HAVE PROCEEDED TO VALUE THE CLOSING STOCK WHICH DID NOT FORM PART OF THE FIXED ASSETS. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE A.O. AFTER HAVING INITIATED THE PROCEEDINGS U/S. 147/148 SHOULD HAVE JUSTIFIED THE REASSESSMENT PROCEEDINGS ON THE VERY INCOME HE BELIEVED HAD ESCA PED ASSESSMENT. HAVING FOUND THE SAME IN ORDER AND NOTING THE SAME WAS NOT A CHANGE IN OPINION IN SO FAR AS THE ASSESSEE HAD VERY CLEARLY INDICATED THAT NO INCOME HAD ESCAP ED ASSESSMENT IN VIEW OF THE ASSESSEE RENDERING THE SAME IN ACCORDANCE WITH THE BOOKS OF ACCOUNT AS FIXED ASSETS. THE DEPRECIATION CLAIMED, THEREFORE, TOOK CARE OF T HE PROFIT ON SALE OF LTCG WHICH THE LD. C.I.T.(A) ALSO SUPPLEMENTED. THEREFORE, THE VER Y GENESIS OF INITIATING THE PROCEEDINGS U/S. 147/148 STOOD DEMOLISHED BY THE RE SPECTIVE AUTHORITIES THEMSELVES WOULD NOT HAVE GIVEN GROUND TO EVALUATE A CLOSING S TOCK WHICH WAS PART OF THE TRADING BUSINESS TRANSACTION REQUIRING SEPARATE ASSESSMENT, WHICH HE HAD ALREADY CONSIDERED IN 3 THE ORIGINAL ORDER U/S. 143(3). HE POINTED OUT THAT THERE ARE DIRECT CASE LAWS SQUARELY APPLICABLE ON THE FACTS OF THE CASE OF THE ASSESSEE AS WAS RENDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF AVENTIS PHARMA LTD . VS. ACIT, REPORTED IN 323 I.T.R. 570, WHEREIN THE HONBLE BOMBAY HIGH COURT H ELD THAT THE CONDITION PRECEDENT TO FRAMING OF REASSESSMENT IS BASED ON THE REASON T O BELIEVE THAT THE INCOME HAVING ESCAPED ASSESSMENT IS CRYSTALLIZED BY EXISTENCE OF A TANGIBLE MATERIAL FOR FORMING SUCH BELIEF. WHEN BOTH THE AUTHORITIES HAVE GLARINGLY H ELD THAT THERE WAS NO REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT, THEY SHOULD NOT HAVE PROCEEDED FURTHER, MORE SO WHEN THE MATTER WAS CONSIDERED BY THE HONBLE BOMBA Y HIGH COURT STATING THAT THE REASSESSMENT PROCEEDING TO RECOMPUTE CAPITAL GAINS AND DEPRECIATION WAS NOT VALID. SIMILARLY ON THE SECOND GROUND RAISED WITH REGARD T O VALUATION, THE LEARNED COUNSEL POINTED OUT THAT THE HONBLE APEX COURT IN THE CASE OF C.I.T. VS. ALFA LAVAL (INDIA) LTD., REPORTED IN 295 I.T.R. 451, HAD HELD THAT WHEN VAL UATION OF STOCK WAS DULY SUPPORTED BY THE AUDIT REPORT AND VERIFIED IN ACCORDANCE WITH THE VALUATION AT LOWER OF COST OR MARKET VALUE, SALE AT LESS THAN MARKET VALUE, THERE FORE, COULD NOT BE SUBJECTED TO TAX IN THE PRECEDING ASSESSMENT YEAR AS UNDERVALUATION OF STOCK IN THE RELEVANT YEAR. IN THE CASE OF C.I.T. VS. WOLKEM INDIA LTD., REPORTED IN 3 15 I.T.R. 211 BY HONBLE RAJASTHAN HIGH COURT, IT WAS HELD THAT THE VALUATION OF CLOSI NG STOCK COULD ONLY BE CONSIDERED UNDER THE PROVISIONS OF SEC. 145A WHEN THE OBSOLETE STORES WERE WRITTEN OFF AND REDUCED FROM THE CLOSING STOCK, WHICH WAS AN EXERCI SE TO BE CONSIDERED BY THE AUDITORS NOT TO BE SUPERIMPOSED BY AN OPINION OF THE A.O. 4. SUMMING UP HIS SUBMISSIONS IN SUPPORT OF HIS CO NTENTION, THE LEARNED COUNSEL HAS FILED A PAPER BOOK WHICH INCLUDES THE AUDITED A CCOUNTS FOR THE TWO YEARS PRIOR TO THE IMPUGNED ASSESSMENT YEAR AND TWO YEARS LATTER TO TH E ASSESSMENT YEAR UNDER APPEAL, WHICH CLEARLY ESTABLISH THE CONSISTENT SYSTEM OF AC COUNTING IN RESPECT OF VALUATION OF THE ASSESSEES CLOSING STOCK AT LOWER OF COST OR MARKET VALUE. WHEN THE PRICE OF THE CLOSING STOCK HAS FURTHER BEEN REDUCED TO THE MARKET VALUE, THE A.O. HAD NO RIGHT TO BRING THE COST FOR TAXATION WHICH HAS ALREADY BEEN CONSIDERED FOR TAX IN AN EARLIER YEAR. IT WAS NOT THE CASE OF THE A.O. THAT THE ASSESSEE HAD POSTPONE D PAYING TAX ON INCOME OF A SUBSEQUENT YEAR BY ENHANCING THE VALUE IN THE YEAR UNDER CONSIDERATION BUT SOLD AT A LOWER PRICE IN THE SUBSEQUENT YEAR. HE, THEREFORE, SUBMITTED THAT ON HAVING CONSIDERED 4 THE INITIATION OF PROCEEDING U/S. 147/148 AS INVALI D, THE AUTHORITIES BELOW OUGHT NOT TO HAVE PROCEEDED TO BRING OTHER INCOMES WHICH WERE NO T PART OF THEIR BELIEF THAT INCOME HAS ESCAPED ASSESSMENT AND, THEREFORE, SUCH PROCEED INGS SHOULD BE QUASHED. 5. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED T HAT THE INITIATION OF PROCEEDINGS U/S. 147/148 WERE MERELY ON THE BASIS OF INCOME HAV ING ESCAPED ASSESSMENT UNDER THE GARB OF ASSESSEE HAVING NOT OFFERED LTCG IN ACCORDA NCE WITH THE PROVISIONS OF THE INCOME-TAX ACT WHICH REMAINED TO BE TAX AS CAN BE P URSUED IN THE ORIGINAL ORDER. IN THE REASSESSMENT PROCEEDINGS, THE A.O. HAD CONSIDERED T HE VALUATION OF THE CLOSING STOCK OF THE CARS, WHICH THE ASSESSEE DEALS IN, WHICH WERE V ALUED AT LESS THAN THE COST PRICE, THEREFORE, WAS RIGHTLY CONSIDERED FOR TAXATION BY E NHANCING THE VALUE WHEN THE ASSESSEE CHOSE TO ADOPT THE MARKET VALUE WITHOUT BRINGING ON RECORD ANY DOCUMENTARY EVIDENCE IN SUPPORT THEREOF. THE LD. C.I.T.(A) ALSO CONSIDE RED THE ASSESSEE-APPELLANTS SUBMISSION BEFORE HIM TO HOLD THAT THE A.O. HAD RIG HT TO EXAMINE THE OTHER ISSUES WHICH CAME TO HIS NOTICE WITH REGARD TO ESCAPEMENT OF INC OME. HE, THEREFORE, SUBMITTED THAT THE SUM OF RS.1,74,000/- WAS RIGHTLY CONSIDERED FOR SUSTENANCE BY THE LD. C.I.T.(A) HAVING NO BEARING TO THE LTCG WHICH THE A.O. AND TH E LD. C.I.T.(A) FOUND IN ORDER. HE FULLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW IN ADDITION TO HIS SUBMISSIONS. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACTS AND CIRCU MSTANCES OF THE CASE, WE FIND FORCE IN THE CONTENTION OF THE LEARNED COUNSEL THAT THE VERY GENESIS FOR INITIATING THE PROCEEDING U/S. 147/148 HAD BEEN DEMOLISHED BY THE ASSESSEE ON APPEARANCE BEFORE THE A.O. IN PURSUANCE TO THE NOTICE U/S. 147/ 148. THEREFORE, I N OUR CONSIDERED VIEW, THE A.O. SHOULD NOT HAVE PROCEEDED TO ASSESS THE VALUE OF CL OSING STOCK WITHOUT BRINGING ON RECORD THE VIOLATION OF PROVISIONS OF SEC. 145(3A) . THE LEARNED COUNSEL IN HIS PAPER BOOK HAS SUBMITTED THE DETAILS IN REGARD TO VALUATI ON OF CLOSING STOCK, WHICH HAS BEEN CONSISTENTLY VALUED AT THE LOWER OF COST OR MARKET VALUE AND, THEREFORE, THE SAME DOES NOT REQUIRE FURTHER VERIFICATION WITH REGARD TO THE SUBSEQUENT SALE THEREOF IN THE SUCCEEDING ASSESSMENT YEAR WHEN THE VERY MARGIN OF SALE PROCEEDS HAS BEEN LESS THAN THE COST PRICE. THE VERY FACT THAT THE ASSESSEE HA D HELD THE SAME IN STOCK AND VALUED IT IN ACCORDANCE WITH THE CONSISTENT SYSTEM OF ACCOUNT ING AT LOWER OF COST OR MARKET VALUE HAD TO VALUE IT AT MARKET PRICE LATER ON REDUCED AF TER THE COST PAID, THEREFORE, DID NOT 5 REQUIRE ANY FURTHER COLLABORATION TO A SUBSEQUENT S ALE IN THE SUCCEEDING ASSESSMENT YEAR. IN ANY CASE, WE FIND NO INFIRMITY IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ISSUE OF INITIATING PROCEEDING U/ S. 147/148 IS CLEARLY COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F AVENTIS PHARMA LTD. (SUPRA). THEREFORE, AS WE HAVE HELD THAT ON MERIT ALSO THE S OLE ADDITION SUSTAINED BY THE LD. C.I.T.(A) HAS NO LEG TO STAND ON, WE ARE OF THE CON SIDERED VIEW THAT THE A.O. COULD NOT JUSTIFY HIS ASSUMING JURISDICTION U/S. 147/148 IN T HE CASE OF THE ASSESSEE. THE A.O. OUGHT NOT TO HAVE PROCEEDED U/S. 147 ON OBSERVING O NLY A MISTAKE APPARENT FROM RECORD, WHICH HE WOULD HAVE FOUND IN ORDER LATER IN ANY WAY . WE HAVE NO HESITATION IN ALLOWING THE ASSESSEES APPEAL AND QUASHING THE ORDER PASSED U/S. 147/148 OF THE ACT. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 4 3 #! 5 !& 46 THIS ORDER IS PRONOUNCED IN OPEN COURT ON 09-7-10. SD/- SD/- ( (( ( . . . . . . . . ) )) ), , , , ( . . . . . . . . !' !' !' !' ), # (D.K.TYAGI), JUDICIAL MEMBER (K.K.GUPTA), ACCOUNTANT MEMBER ( (( (# # # #) )) ) DATE: 09 -07-2010 3 1 0%%7 87(9- COPY OF THE ORDER FORWARDED TO : 1. ,- / THE APPELLANT : TOP GEAR SALES P. LTD., C/O. SANJAY BAJORIA & ASSOCIATES, 7-A, BENTINCK STREET, 2 ND FLR., SUITE-2301, KOLKATA-700 001 2 0,- / THE RESPONDENT : I.T.O., WARD-6(2), KOLKATA. 3. %3& () : THE CIT(A)-VI, KOLKATA. 4. %3&/ THE CIT, KOL- 4. >% 0%& / DR, ITAT, KOLKATA BENCHES, KOLKATA 5. GUARD FILE . 7 0%/ TRUE COPY, 3&!/ BY ORDER, (DKP) @ A / DEPUTY REGISTRAR .