The ACIT, Circle-2(2), Baroda V. M/s. Shree Gopinathji Agencies Enterprises, Baroda

ITA 865/AHD/2013

• Counselvise Citation: 86520514 RSA 2013
• Duration Of Justice: 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 28-10-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 28-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DK MISHR A
• Assessee Lawyers: M J SHAH
• Keywords: Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 148; 143(3)

Judgement Text

, , , , C, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, C BENCH . .. . . . . . , , , , ! ! ! ! ' #$ ' #$ ' #$ ' #$ , , , , % % % % BEFORE S/SHRI N.S. SAINI, ACCOUNTANT MEMBER AND KUL BHARAT, JUDICIAL MEMBER) ITA NO.865/AHD/2013 [ASSTT.YEAR : 2005-2006] ACIT, CIR.2(4) BARODA. /VS. M/S.SHREE GOPINATHJI AGENCIES ENTERPRISES 3-A, SAHAJANAND INDL. ESTATE MUNJMAHUDA, AKOTA BARODA 390007. PAN : AAQFS 5570 F ( (( ('( '( '( '( / APPELLANT) ( (( ()*'( )*'( )*'( )*'( / RESPONDENT) + , - / REVENUE BY : SHRI D.K. MISHRA, SR.DR /$ , - / ASSESSEE BY : SHRI M.J. SHAH '0 , $1/ DATE OF HEARING : 28 TH OCTOBER, 2013 234 , $1/ DATE OF PRONOUNCEMENT : 31.10.2013 5 / O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A )-II, BARODA DATED 7.12.2012. 2. THE GROUND NO.1 OF THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A) IN TREATING THE PROCEEDINGS U/S.147 OF THE ACT AS INVALID. ITA NO.865/AHD/2013 -2- 3. BRIEF FACTS OF THE CASE ARE THAT THE ORIGINAL AS SESSMENT UNDER SECTION 143(3) WAS MADE ON 28.12.2007 WHEREBY THE R EQUIRED INFORMATION AND DETAILS OF INVESTMENT OF ` 1,24,00,000/- IN SHARES OF BAKUL DEVELOPERS P. LTD. AND SAPANA INFRASTRUCTU RE P. LTD. WERE FURNISHED BY THE ASSESSEE. THE ASSESSEE EXPLA INED THAT PURPOSE OF ACQUIRING SHARES WAS INDIRECTLY ACQUIRIN G LAND WHICH ENABLED THE ASSESSEE TO CONSTRUCT SHOW ROOM AND SER VICE STATION OF THE PRODUCTS IN WHICH THE ASSESSEE WAS DEALING. IT WAS EXPLAINED THAT THE INVESTMENT IN SUCH SHARES WAS MA DE IN PAST YEARS. THE ASSESSEE ALSO FURNISHED THE DETAILS OF BANK INTEREST AND INTEREST TO OTHERS. ALL THE DETAILS AND EXPLANATIO N WERE CONSIDERED BY THE AO IN THE ORIGINAL ASSESSMENT PRO CEEDINGS ITSELF, IN RESPECT OF IMPUGNED AMOUNT OF ESCAPEMENT OF INCOME. 4. FURTHER, THE LEARNED CIT(A) HAS MENTIONED THAT A UDIT PARTY RAISED AN ISSUE THAT THE REAL ESTATE LOAN OF ` 1,35,16,666/- TAKEN FROM M/S.GMAC FINANCIAL SERVICES INDIA LTD. HAD NOT BEEN UTILIZED FOR THE PURPOSE OF ASSESSEES BUSINESS, BU T UTILIZED FOR ACQUIRING SHARES OF TWO PRIVATE LIMITED COMPANIES C OSTING ` 1,24,00,000/- I.E. FOR INVESTMENT AND NOT FOR ADVAN CING ANY BUSINESS PURPOSE OF THE ASSESSEE. THUS, ACCORDING TO THE AUDIT PARTY, BORROWED INTEREST BEARING FUNDS HAVE BEEN DI VERTED FOR NON-BUSINESS PURPOSES AND HENCE INTEREST OF ` 14,15,150/- PAID ON THE SAID REAL ESTATE LOAN WAS NOT ALLOWABLE UNDE R THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. THUS, FOR THIS REASON, REASSESSMENT PROCEEDINGS WERE INITIATED AND SERVED NOTICE UNDER SECTION 148 DATED 4.8.2009 ON THE ASSESSEE. THE AS SESSEE FILED ITA NO.865/AHD/2013 -3- SUBMISSION AGAINST THE REASONS RECORDED IN RESPECT OF ALLEGED ESCAPEMENT OF INCOME. THE AO DID NOT PASS ANY SPEA KING ORDER IN RESPECT OF THE OBJECTIONS RAISED BY THE ASSESSEE . THE AO DID NOT MENTION ANYTHING REGARDING OBJECTIONS AND SUBMI SSIONS MADE BY THE ASSESSEE IN RESPECT OF QUESTIONING THE VALID ITY OF THE REASSESSMENT PROCEEDINGS ITSELF. THE REASSESSMENT ORDER WAS PASSED ON 25.10.2010 AND DISALLOWED INTEREST EXPEND ITURE OF ` 14,14,150/- AND MADE ADDITION TO THE INCOME OF THE ASSESSEE. 5. THE LEARNED CIT(A), AFTER RELYING ON THE DECISIO N OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GE NERAL MOTORS INDIA P. LTD., (2012) 25 TAXMANN.COM 364 (GUJ) HAS HELD THAT THE AO SHOULD DISPOSE OF THE OBJECTIONS OF THE ASSESSEE BY WAY OF A SPEAKING ORDER BEFORE PASSING THE REASSESSMENT ORDE R. THE AO HAS FAILED TO DO SO, AND THEREFORE, THE CONTENTION OF THE ASSESSEE THAT THE REASSESSMENT WAS DONE ON MERE CHANGE OF OP INION, WAS CORRECT AND UNDER THE CIRCUMSTANCES, THE REOPENING CANNOT BE HELD AS VALID. THE LEARNED DR FULLY JUSTIFIED THE REOPENING OF THE ASSESSMENT BY THE AO. 6. THE LEARNED AR OF THE ASSESSEE POINTED OUT FROM THE PAGE NO.9 OF THE PAPER BOOK, WHEREIN, THE DETAILS REQUIR ED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IS FIL ED. FROM THIS, HE POINTED OUT THAT THE ASSESSEE SUBMITTED THE DETA ILS WITH REGARD TO THE INTEREST, BUT ALSO WITH REGARD TO THE REASON ABLENESS OF PAYMENT TO PERSONS SPECIFIED UNDER SECTION 40A(2)(B ) OF THE ACT. FURTHER, THE ASSESSEE HAS ALSO SUBMITTED DETAILS WI TH REGARD TO THE ITA NO.865/AHD/2013 -4- INVESTMENT. HE FURTHER POINTED OUT FROM PAGE NOS. 10 TO 11 OF THE PAPER BOOK, WHEREIN THE REASONS FOR REOPENING OF TH E ASSESSMENT ARE PLACED, AND SUBMITTED THAT THE REASONS RECORDED BY THE AO HIMSELF TALKS ABOUT OF MAKING INVESTMENT BY THE ASS ESSEE IN THE SHARES OF BAKUL DEVELOPERS P. LTD. OF ` 55.00 LAKHS AND SAPANA INFRASTRUCTURE P. LTD. OF ` 69.00 LAKHS, AND FURTHER RECORDED THE FINDING THAT BY VIRTUE OF ABOVE INVESTMENT, THE ENT IRE SHAREHOLDING OF THE AFORESAID COMPANIES WERE BOUGHT OUT AND THEREBY HAD INDIRECTLY ACQUIRED THE LAND, ON WHICH A SHOW ROOM AND SERVICE CENTRE WAS BEING CONSTRUCTED. HE, THER EFORE, SUBMITTED THAT THE ENTIRE FACTS AND FIGURES WERE BE FORE THE AO AT THE TIME OF ORIGINAL ASSESSMENT HEARING, AND AFTER EXAMINING THE SAME, THE AO HAS ALLOWED THE DEDUCTION OF INTEREST TO THE ASSESSEE, AND THEREFORE, REOPENING OF THE ASSESSMEN T WAS MERELY BASED ON THE CHANGE OF OPINION. HE FULLY JUSTIFIED THE ORDER OF THE LEARNED CIT(A) IN HOLDING THAT NOTICE ISSUED UN DER SECTION 148 OF THE ACT WAS BAD IN LAW. 7. WE HAVE CONSIDERED RIVAL SUBMISSION AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM THE DETAILS, AS POINTED OUT FROM THE PAPER BOOK OF THE ASSESSEE BY THE LD.AR OF THE ASSESSEE SHOWS THAT IT IS AMBLE CLEAR THAT DURING THE COURSE OF ORIGINAL ASSESSMENT HEARING, THE AO ENQUIRED ABOUT THE DETAI LS ABOUT THE INTEREST EXPENDITURE TO OTHERS BY THE ASSESSEE. HE ALSO ENQUIRED ABOUT THE INVESTMENT IN SHARES MADE BY THE ASSESSEE . THE ASSESSEE HAD EXPLAINED THAT THE INVESTMENT WAS MADE IN THE SHARE HOLDING OF TWO PRIVATE LIMITED COMPANY AGGREGATING TO ` ITA NO.865/AHD/2013 -5- 1,24,00,000/- TO ACQUIRE INDIRECTLY THE LAND FOR CO NSTRUCTION OF A SHOW ROOM AND SERVICE CENTRE FOR THE PRODUCTS OF TH E ASSESSEE- COMPANY. THE AO AFTER EXAMINING THE DETAILS AND BEING SATISFIED, HAD ACCEPTED AND ALLOWED THE DEDUCTION F OR THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE. THEREAFTER, T HE AO HAS REOPENED THE ASSESSMENT ON THE VERY SAME SET OF FAC TS FOR DISALLOWING THE CLAIM FOR DEDUCTION OF INTEREST EXP ENDITURE OF ` 14,14,150/-. THE LEARNED DR COULD NOT PRODUCE ANY MATERIAL, WHICH HAS COME TO THE KNOWLEDGE OF THE AO AFTER COM PLETION OF THE ORIGINAL ASSESSMENT ON 28.12.2007, WHICH LEAD T O FORMATION OF BELIEF BY THE AO THAT INCOME CHARGEABLE TO TAX H AS ESCAPED ASSESSMENT. THE LEARNED AR OF THE ASSESSEE BEFORE US, HAS RELIED ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT I N THE CASE OF CLIANTHA RESEARCH LTD. VS. DCIT, (2013) 35 TAXMANN. COM 61 (GUJARAT), WHEREIN IT WAS HELD BY THE HONBLE HIGH COURT THAT EVEN FOR REOPENING OF THE ASSESSMENT WITHIN A PERIO D OF FOUR YEARS, MERELY ON THE FAILURE OF THE AO TO RAISE SPE CIFIC QUERY TO ALLOWABILITY OF THE CLAIM ON THE PREMISE THAT THE A SSESSEE WAS DOING SCIENTIFIC RESEARCH FOR AN ON BEHALF OF THE C OMPANIES, WOULD NOT AUTHORIZE TO REOPEN THE ASSESSMENT. SUCH AN ATTEMPT ON HIS PART WOULD BE BASED ON MERE CHANGE OF OPINIO N. IN THE INSTANT CASE ALSO, IN THE ABSENCE OF ANY MATERIAL B EING BROUGHT ON RECORD BY THE DEPARTMENT TO SHOW THAT THE SAME HAD COME TO THE KNOWLEDGE OF THE AO AFTER COMPLETION OF THE ORIGINA L ASSESSMENT THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSES SMENT, IN OUR OPINION, THE REASSESSMENT WAS BAD IN LAW. WE, THER EFORE, CONFIRM ITA NO.865/AHD/2013 -6- THE ORDER OF THE LEARNED CIT(A) AND DISMISS THE GRO UND OF THE APPEAL OF THE REVENUE. 8. THE SECOND GROUND OF THE APPEAL OF THE REVENUE I S AGAINST THE DELETION OF DISALLOWANCE OF ` 14,14,150/- UNDER SECTION 36(1)(III) OF THE ACT. 9. THE FACTS OF THE CASE ARE THAT THE LEARNED CIT(A ) HAS HELD THAT THE CLAIM OF THE ASSESSEE IN RESPECT OF INTERE ST EXPENSES OF ` 14,14,1250/- CANNOT BE DENIED MERELY BECAUSE IT HAS INVESTED THE SAME FOR ACQUISITION OF LAND EITHER BY DIRECT P URCHASE OR INDIRECTLY ACQUIRING SHARES OF COMPANIES OWNING THE LAND FOR ESTABLISHING CONTROL OVER IT FOR CONSTRUCTION OF SH OW ROOM FOR THE BUSINESS. THE AMOUNT HAS, IN FACT BEEN INVESTED F OR GENUINE BUSINESS PURPOSE. THE INTEREST EXPENSES HAS TO BE ALLOWED U/S.36(1)(III) IN VIEW OF APEX COURT DECISION IN TH E CASE OF DCIT VS. CORE HEALTH CARE LTD. (2008) 298 ITR 194(SC). 10. THE LEARNED DR HAS JUSTIFIED THE ORDER OF THE A O, WHEREAS, THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE I NVESTMENT IN PURCHASE OF SHARES WAS MADE IN THE EARLIER YEARS, W HICH FACT WAS ALSO STATED BEFORE THE AO VIDE LETTER IN REPLY TO L ETTER DATED 6.8.2007 OF THE AO IN THE ORIGINAL ASSESSMENT PROCE EDINGS. HE, THEREFORE, SUBMITTED THAT AS NO INVESTMENTS WERE MA DE DURING THE YEAR BY THE ASSESSEE, AND THE ASSESSEE INVESTMENT W AS MADE IN THE EARLIER YEARS, AND ACCEPTED BY THE DEPARTMENT, THEN NO DISALLOWANCE OF INTEREST EXPENDITURE COULD BE MADE IN THE YEAR ITA NO.865/AHD/2013 -7- UNDER CONSIDERATION. HE SUBMITTED THAT THERE SHOUL D BE A NEXUS BETWEEN THE INVESTMENT BY THE ASSESSEE AND BORROWED FUNDS OF THE ASSESSEE AND WITHOUT BRING THIS VITAL LINK, DIS ALLOWANCE OF INTEREST EXPENDITURE CANNOT BE MADE BY THE AO. 11. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. IN THE INSTANT CASE, THE DISAL LOWANCE OF INTEREST EXPENDITURE OF ` 14,14,150/- WAS MADE BY THE AO ON THE GROUND THAT THE ASSESSEE HAS UTILIZED THE BORROWED FUNDS OF ` 1,25,00,000/- NOT FOR THE BUSINESS PURPOSE OF THE ASSESSEE. THE EXPLANATION OF THE ASSESSEE IS THAT THE FUNDS WERE UTILISED FOR PURCHASE OF SHARES OF TWO PRIVATE LIMITED COMPANIES VIZ. BAKUL DEVELOPERS P. LTD. OF ` 55.00 LAKHS AND SAPANA INFRASTRUTURE P. LTD. OF ` 69.00 LAKHS TO INDIRECTLY ACQUIRE THE LAND TO CONS TRUCT SHOW ROOM AND SERVICE CENTRE FOR THE PRODUCTS OF TH E ASSESSEE- COMPANY. THE CONTENTION OF THE ASSESSEE IS ALSO TH AT THE FUNDS WERE INVESTED IN THE EARLIER YEARS AND NOT IN THE Y EAR UNDER APPEAL, WHICH WAS ACCEPTED BY THE DEPARTMENT, AND T HEREFORE, NO DISALLOWANCE OF EXPENDITURE CAN BE MADE IN THE YEAR UNDER CONSIDERATION ON THE GROUND THAT THE BORROWED FUNDS DURING THE YEAR WERE UTILIZED FOR NON-BUSINESS PURPOSE OF THE ASSESSEE BY MAKING INVESTMENT IN THE SHARES OF TWO PRIVATE LIMI TED COMPANIES. THE LEARNED DR COULD NOT CONTROVERT THE SUBMISSIONS OF THE LEARNED AR BY BRING ANY COGENT AND RELEVANT MATERIAL ON RECORD. FURTHER, WE FIND THAT THE LEARNED CIT(A) H AS HELD THAT THE INVESTMENT WAS MADE BY THE ASSESSEE FOR GENUINE BUS INESS PURPOSE. THIS FINDING OF THE LEARNED CIT(A)HAS ALS O NOT BEEN ITA NO.865/AHD/2013 -8- CONTROVERTED BY THE LEARNED DR BY BRINGING ANY POSI TIVE OR COGENT MATERIAL ON RECORD. IN THESE FACTS AND CIRC UMSTANCES OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) IN DELETING THE DISALLOWANCE OF INTEREST EXPENDITUR E OF ` 14,14,150/-. WE, THEREFORE, CONFIRM THE ORDER OF T HE LEARNED CIT(A) AND DISMISS, THE GROUND OF THE APPEAL OF THE REVENUE. 12. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( ' #$ ' #$ ' #$ ' #$ /KUL BHARAT /JUDICIAL MEMBER . .. . . . . . /N.S. SAINI /ACCOUNTANT MEMBER C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD