Tikaula Sugar Mills Ltd., V. DCIT, Circle-1,

ITA 86/DEL/2006

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7283 (ITAT-DELHI)
• Duration Of Justice: 10 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2000-2001
• Appeal Filed On: 09-01-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AASISH MOHANTY
• Assessee Lawyers: AKHELESH KUAMR
• Keywords: Business expenditure; Valuation report; Capital receipt; Reason to believe; Reassessment proceedings
• Section: 143(3); 147; 148; 12; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : H : NEW DELHI BEFORE SHRI R.S. SYAL, AM & SMT. BEENA A. PILLAI, JM ITA NO.86/DEL/2006 ASSESSMENT YEAR : 2000-01 M/S TIKAULA SUGAR MILLS LTD., 118-B, NEW MANDI, MUZAFFARNAGAR, PAN: AAAFT9423F VS. DCIT, CIRCLE 1, MUZAFFARNAGAR. ITA NO.442/DEL/2006 ASSESSMENT YEAR : 2000-01 DCIT, CIRCLE 1, MUZAFFARNAGAR VS. M/S TIKAULA SUGAR MILLS LTD., 118-B, NEW MANDI, MUZAFFARNAGAR, PAN: AAAFT9423F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AKHELESH KUAMR, ADVOCATE DEPARTMENT BY : SHRI AASISH MOHANTY, SR. DR DATE OF HEARING : 19.01.2016 DATE OF PRONOUNCEMENT : 21.01.2016 ITA NO.86/DEL/2006 ITA NO.442/DEL/2006 2 ORDER PER R.S. SYAL, AM: THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE ARISE OUT OF THE ORDER PASSED BY THE CIT( A) ON 30.11.2005 IN RELATION TO THE ASSESSMENT YEAR 2000-01. 2. THE FIRST GROUND OF THE ASSESSEES APPEAL IS AGA INST UPHOLDING OF THE ACTION TAKEN BY THE AO U/S 147 OF THE INCOME-TA X ACT, 1961 (HEREINAFTER ALSO CALLED `THE ACT). 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE COMPANY IS RUNNING SUGAR MILL AND FILED ITS RETURN ON 30.11.20 00 DECLARING LOSS OF RS.7.87 CRORE AND ODD. THE RETURN WAS PROCESSED U/ S 143(1)(A) ON THE DECLARED LOSS. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS FOR THE AY 1998-99, THE ISSUE OF VALUATION OF PROPERTY WAS REF ERRED TO THE DVO FOR DETERMINATION OF THE CORRECT VALUATION OF THE PROPE RTY. THE ASSESSEE DISCLOSED INVESTMENT OF RS.55,77,582/- IN THE SITE DEVELOPMENT DURING THE YEAR UNDER CONSIDERATION. THE VALUATION OFFICE R GAVE PRELIMINARY REPORT. THOUGH IT HAS BEEN MENTIONED IN THE ASSESS MENT ORDER THAT THE ITA NO.86/DEL/2006 ITA NO.442/DEL/2006 3 AO INITIATED PROCEEDINGS U/S 147 ON THE BASIS OF SU CH VALUATION REPORT AND OTHER ISSUES, BUT FACTUALLY REASSESSMENT WAS IN ITIATED ON THE BASIS OF OTHER REASONS AS REPRODUCED INFRA . THE ASSESSMENT ORDER WAS PASSED CONVERTING DECLARED LOSS OF RS.7.87 CRORE INTO A LO SS OF RS.83,71,101/-. THE ASSESSEE REMAINED UNSUCCESSFUL BEFORE THE LD. C IT(A) AGAINST THE INITIATION OF REASSESSMENT PROCEEDINGS. CERTAIN ADD ITIONS MADE BY THE AO ON MERITS WERE SUSTAINED WHILE OTHERS WERE DELET ED, AGAINST WHICH BOTH THE SIDES HAVE COME UP IN APPEAL BEFORE US ON THEIR RESPECTIVE STANDS. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL. THE FIRST ISSUE BEFORE US IS CHALLENGE T O THE RE-ASSESSMENT PROCEEDINGS. IN ORDER TO PROPERLY EVALUATE THE SUB MISSIONS MADE BY BOTH THE SIDES ON THIS ISSUE, IT WOULD BE RELEVANT TO NOTE THE REASONS RECORDED BY THE AO ON 7.12.2001 BEFORE ISSUING NOTI CE U/S 148, A COPY OF WHICH IS AVAILABLE ON PAGE 47 OF THE PAPER BOOK, READING AS UNDER:- 1. ON GOING THROUGH THE CASE RECORDS IT IS NOTICED TH AT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE EARNED AN AM OUNT OF RS.35,11,976/- ON SALE OF ADDITIONAL QUOTA OF SUGAR IN FREE MARKET. THE ASSESSEE HAS TREATED THIS AMOUNT AS CAPITAL REC EIPT IN VIEW OF ITA NO.86/DEL/2006 ITA NO.442/DEL/2006 4 CASE DECIDED OF BALRAMPUR CHINI MILLS LTD. AND SEKK ARI BISWAR SUGAR LTD. AND HAS NOT OFFERED THIS AMOUNT FOR TAXA TION. BUT THE HON'BLE SUPREME COURT HAS HELD IN THE CASE OF KCP L TD., 245 ITR 421 THAT SUCH RECEIPTS ARE TRADING RECEIPTS AND ARE LIABLE TO TAX. SINCE THE ASSESSEE HAS NOT INCLUDED THE ABOVE AMOUNT IN I TS REVENUE, THIS AMOUNT SHOULD BE INCLUDED IN THE INCOME OF THE ASSE SSEE IN VIEW OF THE ABOVE DECISION OF THE HON'BLE SUPREME COURT. 2. THE ASSESSEE COMPANY CREDITED RESERVE FUND (SCH EDULE- 2) FOR CONSTRUCTION OF MOLASSES STORAGE TANK DURING THE YE AR AT RS, 1,30,625/-. THIS AMOUNT HAS NOT BEEN CREDITED AFTER DEBITED PROFIT & LOSS APPROPRIATION ACCOUNT. IT MEANS THAT SUCH AMOU NT OF RESERVE HAS BEEN CREDITED ONLY AFTER DEBITING THE PROFIT & LOSS ACCOUNT. HENCE IT IS NOT AN ALLOWABLE EXPENDITURE AND LIABLE TO BE ADDED IN THE INCOME OF THE COMPANY. 3. ON PERUSAL OF DETAILS FILED DURING THE COURSE O F ASSESSMENT PROCEEDINGS OF ASSESSMENT YEAR 1998 -99, IT IS NOTI CED THAT THE ASSESSEE COMPANY INCURRED EXPENSES TO DEFEND THE CA SE IN CONNECTION WITH GRANT OF LICENCE TO INSTALL THE FAC TORY AND ALL THESE EXPENSES BEFORE THE COMMENCEMENT OF BUSINESS HAVE B EEN CAPITALISED AND BIFURCATED UNDER THE HEAD OF BUILDI NG AND PLANT & MACHINERY WHICH IS INCORRECT AND THIS SHOULD BE DON E IN THE ASSESSMENT YEAR 2000-01 I.E. ASSESSMENT YEAR UNDER CONSIDERATION. 4. IN THE COLUMN NO.21(B) OF THE TAX AUDIT REPORT THE AUDITORS HAVE MENTIONED IN THE REMARKS COL. THAT THE AMOUNT UNPAID ON THE DUE DATE OF FILING THE RETURN HAS BEEN ADJUSTED. TH ESE AMOUNTS ARE EXCISE DUTY(SUGAR) RS. 76,47,126/-, CESS DUTY (SUGA R) RS. 15,07,884/- AND PURCHASE TAX AT RS.10,61,560/-. IN THE TAX AUDI T REPORT IT IS MENTIONED THAT THE AMOUNTS ARE UNPAID BUT IN THE RE MARKS COL. IT IS WRITTEN AS ADJUSTED. HENCE IT IS NOT CLEAR WHETHER THESE EXPENSES HAVE BEEN PAID WITHIN TIME OR NOT. THEREFORE, I HAVE REASON TO BELIEVE THAT THE ASSESS EE HAS INCOME WHICH ESCAPED FROM ASSESSMENT. ACTION U/S 147 OF TH E INCOME-TAX ITA NO.86/DEL/2006 ITA NO.442/DEL/2006 5 ACT, 1961 IS TAKEN. ISSUE NOTICE U/S 148 OF THE INC OME-TAX ACT, 1961. 5. THE FIRST REASON TAKEN BY THE AO FOR INITIATING REASSESSMENT IS TREATING THE SALE OF ADDITIONAL QUOTA OF SUGAR IN F REE MARKET AMOUNTING TO RS.35,11,976/- AS REVENUE RECEIPT AGAINST THE ASSES SEES CLAIM OF CAPITAL RECEIPT. THE ASSESSEE EARNED PROFIT OF RS.35.11 LAC FROM THE SALE OF ADDITIONAL FREE SUGAR UNDER INCENTIVE SCHEME OF THE GOVERNMENT OF INDIA, WHICH AMOUNT WAS NOT OFFERED FOR TAXATION ON THE GROUND THAT IT WAS A RECEIPT OF CAPITAL NATURE. THE ASSESSEE WAS CALLED UPON TO SHOW CAUSE AS TO WHY THIS AMOUNT BE NOT TREATED AS A REV ENUE RECEIPT IN THE LIGHT OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF KCP LTD. 245 ITR 421 (SC). THE ASSESSEE SUBMITTED THAT THE FACTS OF THE CASE OF KCP LTD. (SUPRA) WERE DISTINGUISHABLE. IT WAS FURTHER EXPLAINED TH AT THE SAID AMOUNT OF RS.35.11 LAC WAS IN THE NATURE O F INCENTIVE GIVEN BY THE GOVERNMENT FOR REPAYMENT OF TERM LOANS. THE AS SESSEE RELIED ON CERTAIN JUDGMENTS IN SUPPORT OF ITS CONTENTION THAT THE AMOUNT WAS NOT A REVENUE RECEIPT. NOT CONVINCED WITH THE ASSESSEES CONTENTIONS, THE AO CAME TO HOLD THAT SINCE THE SAID RECEIPT WAS TO BE USED FOR THE RUNNING OF ITA NO.86/DEL/2006 ITA NO.442/DEL/2006 6 BUSINESS AND, HENCE, CONSTITUTED A TRADING RECEIPT. THE LD. CIT(A) UPHELD THE ACTION OF THE AO BY NOTICING THAT THE AS SESSEE DID NOT PRODUCE ANY EVIDENCE TO SHOW THAT THE AMOUNT OF RS.35.11 LA C WAS UTILIZED FOR REPAYMENT OF LOAN DURING THE YEAR. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTICED THAT THE GOVERNM ENT OF INDIA CAME OUT WITH AN INCENTIVE SCHEME FOR SETTING UP OF NEW SUGA R FACTORIES AND EXPANSION PROJECTS LICENSED/TO BE LICENSED DURING T HE PERIOD 7.9.1990 TO 31.3.1994, A COPY OF WHICH HAS BEEN PLACED AT PAGE 22 OF THE PAPER BOOK. THE OBJECT OF THIS SCHEME IS `AUGMENTING IND IGENOUS SUGAR PRODUCTION AND PROVIDING ASSISTANCE TO THE ENTREPR ENEURS IN SETTING UP SUGAR FACTORIES THROUGH HIGHER FREE SALE QUOTA FOR REPAYMENT OF TERM LOANS ADVANCED BY THE CENTRAL FINANCIAL INSTITUTION S. CLAUSE 12 OF THIS SCHEME PROVIDES THAT THE BENEFICIARIES OF THE INCEN TIVE SCHEME SHALL ENSURE THAT THE SURPLUS FUNDS GENERATED THROUGH SAL E OF THE INCENTIVE SUGAR ARE UTILIZED FOR THE REPAYMENT OF TERM LOANS, IF ANY, OUTSTANDING FROM THE CENTRAL FINANCIAL INSTITUTIONS/SUGAR DEVEL OPMENT FUND. IT ITA NO.86/DEL/2006 ITA NO.442/DEL/2006 7 FURTHER PROVIDES THAT THE SUGAR FACTORIES SHALL SUB MIT UTILIZATION CERTIFICATE ANNUALLY FROM A CHARTERED/COST ACCOUNTA NT. THE ABOVE CLAUSE OF THE SCHEME FAIRLY INDICATES THAT HIGHER F REE SALE QUOTA WAS GRANTED TO NEW SUGAR FACTORIES LICENSED BETWEEN 7.9 .1990 TO 31.3.1994 FOR ENABLING THEM TO REPAY THE TERM LOANS ADVANCED BY THE CENTRAL FINANCIAL INSTITUTIONS FOR THEIR SETTING UP. THIS SHOWS THAT THE OBJECT OF THIS SCHEME IS TO ENCOURAGE THE SETTING UP OF NEW S UGAR FACTORIES AND HIGHER FREE SALE QUOTA IS A MODE OF GIVING INCENTIV E FOR REPAYMENT OF TERM LOANS UTILIZED FOR THEIR SETTING UP. IT IS A SETTLED LEGAL POSITION THAT IF SUBSIDY OR INCENTIVE IS GIVEN FOR SETTING UP NEW UN ITS, THEN, IT IS A CAPITAL RECEIPT. THE DECISIVE FACTOR IN THIS REGARD IS TO SEE THE `OBJECT OF THE INCENTIVE AND NOT THE SOURCE OR MODE OF PAYMENT. S O LONG AS THE OBJECT OF AN INCENTIVE SCHEME REMAINS TO ENCOURAGE THE SET TING UP OF NEW UNITS, THE INCENTIVE GIVEN IN ANY SHAPE OR AT ANY TIME, WH ETHER BEFORE OR AFTER THE COMMENCEMENT OF BUSINESS, RETAINS ITS CAPITAL NATURE. IF, ON THE OTHER HAND, SUBSIDY IS GIVEN TO INCENTIVIZE THE RUN NING OF BUSINESS MORE APPROPRIATELY, WHOSE OBJECT IS NOT TO ENCOURAGE THE SETTING UP OF UNITS, BUT, TO FACILITATE THE CARRYING ON OF BUSINESS, IT ASSUMES THE CHARACTER OF A ITA NO.86/DEL/2006 ITA NO.442/DEL/2006 8 REVENUE RECEIPT. THE HONBLE SUPREME COURT IN CIT VS. PONNI SUGAR AND CHEMICALS LTD. AND ORS. (2008) 306 ITR 392 (SC) HAS HELD THAT THE SUBSIDY FOR SETTING UP SUGAR MILLS, TO BE UTILIZED FOR REPAYMENT OF TERM LOANS UNDERTAKEN FOR SETTING UP NEW UNITS/EXPANSION OF EXISTING BUSINESS, IS A CAPITAL RECEIPT AND NOT CHARGEABLE TO TAX. ADV ERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE ASSESSEE IS COVE RED UNDER THE INCENTIVE SCHEME DATED 10.3.1993 AS IT WAS SET UP IN 7.3.1994 . IT IS SO BORNE OUT FROM THE LETTER DATED 10.7.2000 ISSUED TO THE ASSE SSEE BY THE GOVERNMENT OF INDIA, MINISTRY OF FOOD, DIRECTORATE OF SUGAR, A COPY OF WHICH IS PLACED AT PAGE 175 OF THE PAPER BOOK, GIVI NG LICENCE AND COVERING IT UNDER THE INCENTIVE SCHEME DATED 10.3.1 993. PURSUANT TO THE REQUIREMENT OF SUBMISSION OF UTILIZATION CERTIFICAT E FROM A CHARTERED ACCOUNTANT, THE ASSESSEE SUBMITTED SUCH CERTIFICATE , A COPY OF WHICH IS AVAILABLE AT PAGES 38 AND 39 OF THE PAPER BOOK. SU CH CERTIFICATE INDICATES REPAYMENT OF INTEREST ON LOAN TO THE FINA NCIAL INSTITUTIONS TO THE TUNE OF RS.2.65 CRORE AGAINST WHICH THE AMOUNT OF S UBSIDY IS ONLY A SUM OF RS.35.11 LAC. THIS EXHIBITS THAT THE OBJECT OF SUBSIDY GIVEN TO THE ASSESSEE IS SETTING UP OF SUGAR MILL AND THE MODE O F DISCHARGE OF SUBSIDY ITA NO.86/DEL/2006 ITA NO.442/DEL/2006 9 IS FREE SALE OF ADDITIONAL QUOTA, WHICH IS MEANT TO BE UTILIZED FOR THE REPAYMENT OF TERM LOANS TAKEN FROM THE FINANCIAL IN STITUTIONS ETC. 7. THE RELIANCE OF THE AO ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN KCP LTD. VS. CIT (2000) 245 ITR 421 (SC) IS MISCONCEIVED. IN THAT CASE, THE EXCESS AMOUNT WAS REALIZED AND RETAI NED THOUGH THE RIGHT TO REALIZE THE AMOUNT WAS SUBJECT OF DISPUTE. INTE RIM ORDER WAS PASSED BY THE HONBLE HIGH COURT PURSUANT TO WHICH THE EXC ESS REALIZATION WAS MADE. IT WAS UNDER THOSE CIRCUMSTANCES THAT THE HO NBLE SUPREME COURT HELD THAT THE PRICE OF SUGAR REALIZED BY THE SUGAR MANUFACTURER IN EXCESS OF LEVY PRICE FIXED BY THE GOVERNMENT AND RETAINED AS SUCH WAS TRADING RECEIPT LIABLE TO TAX. IN CONTRAST TO THE FACTUAL POSITION PREVAILING IN KCP LTD. (SUPRA), WE FIND THAT IN THE INSTANT CASE, THE ASSESSEE HAS SIMPLY REALIZED EXCESS PRICE IN TERMS OF INCENTIVE SCHEME DATED 10.3.1992 AND THERE IS NO EXCESS REALIZATION OVER AND ABOVE THE S ANCTIONED REALIZABLE AMOUNT. THUS, IT IS MANIFEST THAT THE FACTS OF THE INSTANT CASE ARE STRICTLY GOVERNED BY THE JUDGMENT IN THE CASE OF PONNI SUGAR RATHER THAN KCP LTD. WE, THEREFORE, OVERTURN THE IMPUGNED ORDER ON THI S ISSUE. ITA NO.86/DEL/2006 ITA NO.442/DEL/2006 10 8. THE SECOND REASON TAKEN BY THE AO FOR ISSUING NO TICE U/S 148 IS THAT THE ASSESSEE CREATED A RESERVE FUND FOR CONSTR UCTION OF MOLASSES STORAGE TANK DURING THE YEAR AT RS.1,30,625/- WHICH WAS CREDITED TO RESERVE ACCOUNT AFTER DEBITING THE SAME TO THE PROF IT & LOSS ACCOUNT. IN THE OPINION OF THE AO, THIS WAS NOT AN ALLOWABLE EXPENDITURE. THE ASSESSEES CONTENTION THAT THE SAID AMOUNT WAS AN A LLOWABLE DEDUCTION IN TERMS OF SEVERAL DECISIONS CITED BEFORE HIM, DID NO T CONVINCE THE AO IN GRANTING DEDUCTION. HE, THEREFORE, DISALLOWED A SU M OF RS.1,30,625/-. THE LD. CIT(A), AFTER CONSIDERING THE ASSESSEES CO NTENTIONS AND THE CASE LAW RELIED BEFORE HIM, ALLOWED DEDUCTION. THE REVE NUE IS AGGRIEVED AGAINST THE GRANT OF DEDUCTION. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE CREATED MOLASSES RESERVE FUND FOR CONSTRUCTION OF MOLASSES STORAGE TANK BY CREDITING A SUM OF RS.1,30,625/- TO THIS ACCOUNT IN ACCORDANCE WITH UP SHEERA NIYANTRAN NIYAMAVALI . THE HONBLE CALCUTTA HIGH COURT IN CIT VS. UPPER GANGES SUGAR MILLS LTD. (1994) 206 ITR 21 5 (CAL) HAS HELD ITA NO.86/DEL/2006 ITA NO.442/DEL/2006 11 THAT CONTRIBUTION TOWARDS MOLASSES STORAGE FUND IS ELIGIBLE FOR DEDUCTION AS BUSINESS EXPENDITURE. SIMILAR VIEW HA S BEEN TAKEN BY THE HONBLE MADRAS HIGH COURT IN CERTAIN DECISIONS INCL UDING CIT VS. SALEM COOPERATIVE SUGAR MILLS LTD., 229 ITR 285 (MAD). IN VIEW OF SEVERAL DECISIONS TAKEN NOTE OF BY THE LD. CIT(A) IN THE IM PUGNED ORDER SUPPORTING THE ASSESSEES CONTENTION, WHICH HAVE NO T BEEN CONTROVERTED BY THE LD. DR WITH ANY CONTRARY DECISION, WE ARE OF THE CONSIDERED OPINION THAT THE LD. FIRST APPELLATE AUTHORITY HAS TAKEN AN UNIMPEACHABLE VIEW ON THIS ISSUE. WE, THEREFORE, UPHOLD THE IMPU GNED ORDER ON THIS SCORE. 10. THE THIRD REASON TAKEN BY THE AO FOR INITIATING RE-ASSESSMENT IS THAT THE ASSESSEE INCURRED CERTAIN EXPENSES TO DEFE ND THE CASE IN CONNECTION WITH GRANT OF LICENCE TO INSTALL THE FAC TORY AND ALL THESE EXPENSES BEFORE THE COMMENCEMENT OF BUSINESS WERE C APITALIZED AND BIFURCATED UNDER THE HEAD OF BUILDING AND PLANT & MACHINERY WHICH WAS INCORRECT AS THE SAME SHOULD HAVE BEEN DONE IN THE ASSESSMENT YEAR 2000-01. TAKING COGNIZANCE OF THIS REASON, THE AO D ISCUSSED ON PAGE 32 ITA NO.86/DEL/2006 ITA NO.442/DEL/2006 12 OF HIS ORDER ABOUT CERTAIN PRE-OPERATIVE EXPENSES W HICH WERE CAPITALIZED BY THE ASSESSEE FOR WHICH DISALLOWANCE OF RS.4,98,1 7,057/- WAS MADE. THE LD. CIT(A) DELETED THIS ADDITION ON THE GROUND THAT THESE EXPENSES WERE NOT CLAIMED AS DEDUCTION IN THE PROFIT & LOSS ACCOUNT. 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE DISALLOWANCE O F RS.4.98 CRORE MADE BY THE AO HAS AN INDIRECT LINK WITH THIRD REASON FO R REOPENING THE ASSESSMENT. ON A SPECIFIC QUERY, THE LD. DR COULD NOT POINT OUT ANY DIRECT ADDITION MADE BY THE AO ON ACCOUNT OF THE TH IRD REASON AND SUBMITTED THAT THE DISALLOWANCE OF RS.4.98 CRORE WA S IN SUPPORT OF SUCH THIRD REASON. WE ARE UNABLE TO FIND ANY RATIONALE IN MAKING ANY DISALLOWANCE FOR AN EXPENDITURE WHICH WAS ADMITTEDL Y CAPITALIZED BY THE ASSESSEE AND NO DEDUCTION WAS CLAIMED BY WAY OF A D EBIT TO ITS PROFIT & LOSS ACCOUNT. THE AO HIMSELF HAS CATEGORICALLY NOT ED IN THE ASSESSMENT ORDER THAT THE PRE-OPERATIVE EXPENSES WE RE CAPITALIZED. ONCE THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION FOR A PA RTICULAR AMOUNT AND CAPITALIZED THE SAME, THERE CAN BE NO REASON FOR MA KING ANY ITA NO.86/DEL/2006 ITA NO.442/DEL/2006 13 DISALLOWANCE OF THE SUCH AMOUNT. IN OUR CONSIDERED OPINION, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THIS ADDITION. 12. THE LAST REASON RECORDED BY THE AO FOR INITIATI NG THE RE-ASSESSMENT PROCEEDINGS IS THAT IN THE TAX AUDIT REPORT, THE AU DITORS MENTIONED THAT CERTAIN AMOUNT WAS UNPAID ON DUE DATE OF FILING THE RETURN. HE NOTICED THAT IN THE TAX AUDIT REPORT IT WAS MENTIONED THAT THESE AMOUNTS, NAMELY, EXCISE DUTY (SUGAR) RS.76.47 LAC, CESS DUTY (SUGAR) RS.15.07 LAC AND PURCHASE TAX OF RS.10.61 LAC WERE UNPAID, BUT, IN T HE REMARKS COLUMN, IT WAS WRITTEN AS ADJUSTED. WE OBSERVE THAT IN THE FINAL COMPUTATION OF INCOME MADE BY THE AO AT THE END OF THE ASSESSMENT ORDER, THERE IS NO SUCH ADDITION. THE LD. AR HAS POINTED OUT THAT THE ASSESSEE HAD ITSELF MADE DISALLOWANCE OF THESE THREE AMOUNTS IN THE COM PUTATION OF INCOME, WHICH WAS THE REASON FOR THE AO IN NOT MAKING SUCH ADDITION. 13. IT CAN BE SEEN FROM THE DISCUSSION MADE SUPRA THAT THE AO RESORTED TO THE RE-ASSESSMENT ON ACCOUNT OF FOUR REASONS. W HILE DISCUSSING EACH OF THEM SEPARATELY, WE HAVE HELD THAT NO ADDITION I S SUSTAINABLE ON ACCOUNT OF ANY OF THESE REASONS. SECTION 147 PROVI DES THAT: IF THE ITA NO.86/DEL/2006 ITA NO.442/DEL/2006 14 ASSESSING OFFICER HAS REASON TO BELIEVE THAT ANY IN COME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153, ASSESS OR RE ASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAP ED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE C OURSE OF THE PROCEEDINGS UNDER THIS SECTION. A BARE PERUSAL O F THE ABOVE PROVISION MANIFESTS THAT THE AO IS FULLY EMPOWERED TO BRING TO TAX ANY OTHER INCOME WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF PROCEEDINGS U/ S 147, APART FROM THE INCOME ESCAPING ASSESSMENT ON WHICH THE AO FORMED R EASON TO BELIEVE ABOUT THE ESCAPEMENT OF INCOME AND ISSUED NOTICE U/ S 148. THE USE OF WORDS AND BETWEEN THE INCOME ESCAPING ASSESSMENT FORMING RE ASONS TO BELIEVE FOR ISSUING NOTICE U/S 148 AND OTHER INC OME CHARGEABLE TO TAX WHICH ESCAPED ASSESSMENT AND COMES TO THE NOTICE OF THE AO IN THE COURSE OF THE PROCEEDING, AMPLY SHOWS THAT THE EXI STENCE OF THE FORMER IS A PRE-CONDITION FOR TAXING THE LATTER. TO PUT I T SIMPLY, IF THE GROUNDS SET OUT IN THE RE-ASSESSMENT NOTICE ARE NON-EXISTEN T, I.E., EITHER NO ADDITION IS MADE ON SUCH GROUNDS OR THE ADDITION SO MADE DOES NOT PASS ITA NO.86/DEL/2006 ITA NO.442/DEL/2006 15 THE SCRUTINY BY THE APPELLATE FORUMS, THEN, OBVIOUS LY, NO FURTHER ADDITION CAN BE MADE FOR INCOME WHICH COMES TO HIS NOTICE DU RING THE COURSE OF PROCEEDINGS U/S 147. WITHOUT THERE BEING SUCH A DE TERRENT, THE AO COULD HAVE GOT UNHINDERED POWERS TO INITIATE RE-ASSESSMEN T AT THE DROP OF A HAT WITHOUT ANY LEGALLY SUSTAINABLE REASONS AND THEN MA DE OTHER ADDITIONS RESULTING IN MULTIPLICITY OF PROCEEDINGS, WHICH TH E LEGISLATURE HAS SOUGHT TO CURB. ANY LAWFUL JURISDICTION TO MAKE ADDITION ON ACCOUNT OF OTHER INCOMES COMING TO THE NOTICE OF THE AO DURING THE C OURSE OF PROCEEDINGS U/S 147 CAN BE ACQUIRED ONLY ON THE FOU NDATION OF A VALIDLY ACQUIRED JURISDICTION ON LEGALLY SUSTAINABLE ITEMS OF INCOME ESCAPING ASSESSMENT FORMING REASONS FOR ISSUING NOTICE U/S 1 48. IN OTHER WORDS, IF THE AO FAILS TO ACQUIRE A VALID JURISDICTION TO MAK E RE-ASSESSMENT ON THE BASIS OF HIS REASONS, THEN, HE IS ALSO DEBARRED FOR MAKING ADDITIONS FOR OTHER INCOMES CHARGEABLE TO TAX WHICH ESCAPED ASSES SMENT AND COME TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF PROCEEDING S U/S 147. THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. CHIEL COMMUNICATIONS INDIA PVT. LTD. (2013) 354 ITR 549 (DEL), HAS HELD TO THIS EXTENT. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE BOMBAY HIGH COUR T IN CIT VS. JET ITA NO.86/DEL/2006 ITA NO.442/DEL/2006 16 AIRWAYS (I) LTD. (2011) 331 ITR 236 (BOM) . WHEN WE TEST THE FACTS OF THE INSTANT CASE ON THE TOUCHSTONE OF THE PRINCIPLE AS DISCUSSED HEREINABOVE, IT TURNS OUT THAT ALL THE FOUR REASONS TAKEN NOTE OF BY THE AO BEFORE ISSUING NOTICE U/S 148 ARE NON-EXISTENT AND, RESULTANTLY, THERE IS NO QUESTION OF MAKING ANY OTHER ADDITION. WE, THEREFO RE, SET ASIDE THE ASSESSMENT ORDER PASSED BY THE AO U/S 147 READ WITH SECTION 143(3) OF THE ACT. AS SUCH, THERE IS NO NEED TO DISCUSS OTHE R ADDITIONS MADE BY THE AO WHICH HAVE BEEN UPHELD OR DELETED IN THE FIRST A PPEAL. AS THE AO IS NOT COMPETENT TO MAKE ANY OTHER ADDITION IN THE INS TANT CASE, ALL THE ADDITIONS SO MADE ARE LIABLE TO BE DELETED. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND THAT OF THE REVENUE IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 21.01.201 6. SD/- SD/- [BEENA A. PILLAI] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 21 ST JANUARY, 2016. DK ITA NO.86/DEL/2006 ITA NO.442/DEL/2006 17 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.