Kenersys India Pvt.Ltd, Pune V. Assistant Commissioner of Income Tax, Pune

ITA 943/PUN/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8744 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 17-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N ASHOK BABU
• Keywords: Reopening of assessment; Earning of tax free income; Tangible material; Difference of opinion; Change of opinion; Reassessment proceedings; TDS; Rule 8D
• Section: 143(3); 142(1); 14A; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 943 /PUN/201 7 / ASSESSMENT YEAR : 20 09 - 10 KGEPL ENGINEERING SOLUTIONS PVT. LTD., (FORMERLY KNOWN AS KENERSYS INDIA PVT. LTD.), S. NO. 49, INDUSTRY HOUSE, MUNDHWA, PUNE 411036 PAN : AADCK2089H ....... / APPELLANT / V/S. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 14, PUNE / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI N. ASHOK BABU / DATE OF HEARING : 09 - 07 - 2019 / DATE OF PRONOUNCEMENT : 12 - 0 7 - 2019 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 7, PUNE DATED 20 - 01 - 2017 FOR THE ASSESSMENT YEAR 20 09 - 10. 2 ITA NO . 943/PUN/2017, A.Y. 2009 - 10 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM THE RECORDS ARE : THE ASSESSEE COMPANY IS ENGAGED IN ERECTION AND INSTALLATION OF WIND TURBINE GENERATORS AND DEVELOPMENT OF WIND FARM. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 28 - 10 - 2 009 DECLARING LOSS OF RS.5,56,10,237/ - . IN SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER MADE ADDITIONS/DISALLOWANCES IN RESPECT OF SHARE ISSUE EXPENDITURE RS.16,70,595/ - AND INTEREST PAID ON TDS RS.8,823/ - . THEREAFTER, THE ASSESSING OFFICER ISS UED NOTICE U/S. 148 ON 28 - 03 - 2014 TO REOPEN THE ASSESSMENT FOR ASSESSMENT YEAR 2009 - 10. IN REASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER MADE ADDITION/DISALLOWANCE OF RS.7,20,179/ - U/S. 14A R.W. RULE 8D. AGGRIEVED AGAINST THE ASSESSMENT ORDER DATED 23 - 02 - 2015 PASSED U/S. 143(3) R.W.S. 147 OF THE ACT, THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) CHALLENGING REOPENING OF ASSESSMENT AS WELL AS , ASSAILING ADDITION U/S. 14A R.W. RULE 8D ON MERITS. THE FIRST APPELLATE AUTHORITY D ISMISSED THE APPEAL OF ASSESSEE IN TOTO AND UPHELD THE VALIDITY OF REASSESSMENT PROCEEDINGS AND ADDITION ON MERITS. HENCE, THE PRESENT APPEAL BY THE ASSESSEE. 3. SHRI NIKHIL PATHAK APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IN GROUND NOS. 1 AND 2 OF THE APPEAL HAS ASSAILED REOPENING OF ASSESSMENT. THE LD. AR SUBMITTED THAT IN COMPUTATION OF INCOME ANNEXED TO RETURN OF INCOME , T HE ASSESSEE HAD DECLARED EXEMPT DIVIDEND INCOME EARNED ON MUTUAL FUNDS. THEREAFTER, DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE IN REPLY TO QUERY RAISED BY ASSESSING OFFICER HAD SPECIFICALLY SUBMITTED THAT THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE U/S. 14A DURING THE YEAR UNDER ASSESSMENT. THE LD. AR REFERRED TO THE REPLY OF ASSESSEE AT PAGES 34 AND 35 OF THE PAPER BOOK. THE 3 ITA NO . 943/PUN/2017, A.Y. 2009 - 10 LD. AR FURTHER POINTED THAT THE ASSESSEE VIDE ANOTHER REPLY ON THE QUERY RAISED BY ASSESSING OFFICER HAD GIVEN THE DETAILS OF INVESTMENTS MADE IN MUTUAL FUNDS DURING THE YEAR. THE LD. AR REFERRED TO THE REPLY OF ASSESSEE AT PAGES 36 AND 37 OF THE PAPER BOOK. THE LD. AR POINTED THAT THE ASSESSEE ALONG WITH THE AFORESAID REPLY HAD ENCLOSED COPIES OF MUTUAL FUND STATEMENTS GIVING THE DETAILS OF DA TES OF PURCHASE OF MUTUAL FUND UNITS AND DIVIDEND RECEIVED ON VARIOUS DATES DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THE LD. AR SUBMITTED THAT THE SOLE REASON GIVEN BY THE ASSESSING OFFICER IN REASONS FOR REOPENING THE ASSESSMENT IS INVESTMENT MADE BY ASSESSEE FOR PURCHASING THE MUTUAL FUNDS AND CONSEQUENT DIVIDEND INCOME EARNED ON SUCH INVESTMENTS. THE ASSESSING OFFICER INITIATED REASSESSMENT PROCEEDINGS MERELY FOR MAKING DISALLOWANCE U/S. 14A R.W. RULE 8D. THE REASONS RECORDED FO R REOPENING CLEARLY INDICATE THAT THERE WAS NO FRESH TANGIBLE MATERIAL AVAILABLE WITH THE ASSESSING OFFICER FOR REOPENING THE ASSESSMENT. THE REASONS GIVEN BY THE ASSESSING OFFICER FOR REOPENING THE ASSESSMENT WAS MERELY BASED ON CHANGE OF OPINION. THE A SSESSING OFFICER IN ORIGINAL ASSESSMENT PROCEEDINGS WAS MADE AWARE OF INVESTMENTS MADE BY ASSESSEE IN MUTUAL FUND . THE ASSESSING OFFICER AFTER APPLYING HIS MIND DID NOT MAKE ANY DISALLOWANCE U/S. 14A IN ASSESSMENT PROCEEDINGS U/S. 143(3) OF THE ACT. THE LD. AR SUBMITTED THAT CHANGE OF OPINION CANNOT BE A GROUND FOR REOPENING THE ASSESSMENT. IN SUPPORT OF HIS CONTENTIONS, THE LD. AR PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF STATE BANK OF INDIA VS. ASSISTANT COMMISSIONER O F INCOME TAX IN WRIT PETITION NOS. 271 & 278 OF 2018 DECIDED ON 15 - 06 - 2018. THE LD. AR FURTHER SUBMITTED THAT THE CO - ORDINATE BENCH OF TRIBUNAL IN THE CASE OF AYOKI FABRICATION PVT. LTD. VS. DCIT IN ITA NO. 2155/PUN/2016 FOR ASSESSMENT YEAR 2009 - 10 DECIDE D 4 ITA NO . 943/PUN/2017, A.Y. 2009 - 10 ON 31 - 12 - 2019 HAS HELD REOPENING OF ASSESSMENT AS INVALID IN THE ABSENCE OF FRESH TANGIBLE MATERIAL. 3.1 IN RESPECT OF GROUND NOS. 3 TO 6 CHALLENGING THE DISALLOWANCE MADE U/S. 14A R.W. RULE 8D , THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER HAS ERRE D IN INVOKING THE PROVISIONS OF RULE 8D(2)(III). THE ASSESSEE MADE INVESTMENTS IN MUTUAL FUNDS DURING THE RELEVANT PERIOD AND SOLD THE MUTUAL FUNDS DURING THE SAME FINANCIAL YEAR. THUS, THERE WAS NO OPENING BALANCE OF INVESTMENT AS ON 1 ST APRIL, 2008 AND CLOSING BALANCE OF INVESTMENT AS ON 31 ST MARCH, 2009. IN THE ABSENCE OF ANY OPENING AND CLOSING BALANCE IN THE BEGINNING AND END OF FINANCIAL YEAR NO DISALLOWANCE UNDER RULE 8D(2)(III) COULD HAVE BEEN MADE BY ASSESSING OFFICER. 4. ON THE OTHER HAND SH RI N. ASHOK BABU REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE IMPUGNED ORDER. THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER ISSUED NOTICE U/S. 148 FOR REOPENING THE ASSESSMENT AFTER RECORDING THE REASONS. A PERUSAL OF REASONS RECORDED WOULD SHOW THAT THE ASSESSMENT HAS BEEN REOPENED ON THE BASIS OF AIR INFORMATION RECEIVED BY THE ASSESSING OFFICER REGARDING HUGE INVESTMENTS MADE BY ASSESSEE IN MUTUAL FUNDS AND DIVIDEND INCOME AMOUNTING TO RS.14,41,367/ - RECEIVED BY THE ASSESSEE. THE ASSESSEE IN THE RETURN OF INCOME HAS NOT MADE ANY SUO - MOTO DISALLOWANCE FOR EARNING EXEMPT INCOME. THE ASSESSING OFFICER IN REASSESSMENT PROCEEDINGS AFTER CONSIDERING THE ENTIRE TRANSACTION OF INVESTMENTS IN MUTUAL FUNDS AND DIVIDEND RECEIVED ON MUTUAL FUNDS DURING T HE RELEVANT PERIOD HAS MADE STATUTORY DISALLOWANCE U/S. 14A R.W. RULE 8D. 5 ITA NO . 943/PUN/2017, A.Y. 2009 - 10 5. W E HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW . THE ASSESSEE IN APPEAL HAS CHALLENGED REOPENING OF ASSESSMENT AND ALSO THE DISALLOWANCE U/S. 14A R.W. RULE 8D. 6. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS MADE INVESTMENT TO THE TUNE OF RS.10 CRORES IN MUTUAL FUNDS AND HAS EARNED DIVIDEND INCOME OF RS.14,41,367/ - ON THE AFORESAID INVESTMENT IN MUT UAL FUNDS. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT IN THE CASE OF ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR ON 24 - 01 - 2013 U/S. 143(3) R.W.S. 92CA OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE IN REPLY TO QUESTIONNAIRE ISSUED ALONG WI TH THE NOTICE U/S. 142(1) DATED 07 - 12 - 2012 HAD SUBMITTED THAT THE ASSESSEE HAD NOT MADE ANY DISALLOWANCE U/S. 14A DURING THE YEAR UNDER ASSESSMENT. THEREAFTER, IN ANOTHER REPLY FILED TO THE ASSESSING OFFICER ON THE SAME DATE I.E. 01 - 01 - 2013 (PAGE 36 TO 43 OF THE PAPER BOOK), THE ASSESSEE FURNISHED DETAILS OF THE INVESTMENT MADE IN MUTUAL FUNDS. THE RELEVANT EXTRACT OF THE SAID REPLY WHICH HAS BEEN DULY ACKNOWLEDGED BY THE OFFICE OF ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 11(1), PUNE ON 01 - 01 - 2013 IS REPRODUCED HERE - IN - BELOW : 1. THE ITS DETAILS REFLECT THAT OUR COMPANY HAS PAID RS.2,00,000/ - OR MORE FOR PURCHASE OF UNITS OF MUTUAL FUNDS REPORTED UNDER THE HEAD AIR TRANSACTIONS DURING THE YEAR UNDER ASSESSMENT. IT IS SUBMITTED THAT OUR COMPANY HAS SUBSCRIBED RS.5,00,00,000/ - EACH TO KOTAK MUTUAL FUND AND HDFC MUTUAL FUND ON 14 TH AUGUST, 2008 AND THE COPIES OF THE ABOVE MUTUAL FUNDS ARE ENCLOSED HEREWITH AS ANNEXURE 1 AND 2 RESPECTIVELY. FURTHER IT IS SUBMITTED THAT DIVIDEND RECEIVED ON ABOVE MUTUAL FUNDS HAD BEEN REFLECTED IN SCHEDULE 11 OTHER INCOME OF THE AUDITED ANNUAL ACCOUNTS FOR THE YEAR ENDED 31 ST MARCH, 2009. 2. THE ITS DETAILS REFLECT THAT OUR COMPANY HAS RECEIVED / PAID RS.10,08,97, 462/ - FROM / TO HDFC BANK MUTUAL FUND UNDER THE HEAD CIB OLD CODE TRANSACTION DURING THE YEAR UNDER ASSESSMENT. IT IS SUBMITTED THAT OUR COMPANY HAD RECEIVED RS.5,08,97,462/ - ON 06.11.2008 FROM HDFC MUTUAL FUND AND HAD PAID R S.5,00,00,000/ - ON 14 TH AUGUST, 2008 TO HDFC MUTUAL FUND. THE COPY OF HDFC MUTUAL FUND STATEMENT IS ENCLOSED HEREWITH AS ANNEXURE 2 . FURTHER IT IS SUBMITTED THAT DIVIDEND RECEIVED ON ABOVE MUTUAL FUNDS HAD BEEN REFLECTED I.E. SCHEDULE 11 OTHER INCOM E OF THE AUDITED 6 ITA NO . 943/PUN/2017, A.Y. 2009 - 10 ANNUAL ACCOUNTS FOR THE YEAR ENDED 31 ST MARCH 2009 AND OUR COMPANY HAS NOT EARNED ANY PROFIT ON REDEMPTION OF ABOVE MUTUAL FUND AS THE PURCHASE & REINVESTMENT OF DIVIDEND AS WELL AS THE REDEMPTION ARE AT IDENTICAL NAVS. 7. A PERUSAL OF COMMUNICATION FROM THE ASSESSEE CLEARLY SHOWS THAT DURING SCRUTINY ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER HAD MADE ENQUIRIES REGARDING THE INVESTMENTS MADE BY ASSESSEE IN MUTUAL FUNDS AND DISALLOWANCE IF ANY , MADE FOR EARNING EXEMPT INCOME DURING TH E PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THE ASSESSING OFFICER AFTER APPLYING HIS MIND ON THE DETAILS/INFORMATION REGARDING INVESTMENT FURNISHED BY THE ASSESSEE MUST HAVE MADE CONSCIOUS DECISION IN PROCEEDINGS U/S. 143(3) NOT TO MAKE ANY DISALLOWANCE U/S. 14A R.W. RULE 8D. IT IS EXPECTED THAT WHEN ASSESSMENT IS OPEN BEFORE ASSESSING OFFICER, THE ASSESSING OFFICER AFTER SEEKING NECESSARY DETAILS FROM ASSESSEE, SCRUTINIZES THE SAME AND THEREAFTER PASSES THE ASSESSMENT ORDER. 8. IN THE RE ASONS RECORDED FOR REOPENING , THE ASSESSING OFFICER HAS MERELY MENTIONED THAT ON PERUSAL OF AIR DETAILS IN ITR FOR FINANCIAL YEAR 2008 - 09 , IT IS SEEN THAT THE ASSESSEE HAS PURCHASED MUTUAL FUNDS AND HAS EARNED DIVIDEND INCOME. THIS INFORMATION WAS AVAILAB LE TO THE ASSESSING OFFICER EVEN AT THE TIME OF ASSESSMENT PROCEEDINGS U/S. 143(3) OF THE ACT. THERE IS NO REFERENCE OF ANY FRESH TANGIBLE MATERIAL THAT HAD COME TO THE POSSESSION OF ASSESSING OFFICER AFTER THE COMPLETION OF ASSESSMENT THAT WOULD HAVE GIV EN HANDLE TO THE ASSESSING OFFICER FOR INVOKING THE PROVISIONS OF SECTION 147 R.W.S. 148 OF THE ACT. IT IS A WELL SETTLED LAW THAT THE ASSESSING OFFICER DOES NOT HAVE UNFETTERED POWER S TO INVOKE THE PROVISIONS OF SECTION 148 TO REOPEN THE ASSESSMENT . THE ASSESSING OFFICER HAS NO POWER TO REVIEW HIS ASSESSMENT ORDER AFTER HAVING EXAMINED THOROUGHLY THE CLAIM OF ASSESSEE IN SCRUTINY ASSESSMENT PROCEEDINGS. THE 7 ITA NO . 943/PUN/2017, A.Y. 2009 - 10 ASSESSING OFFICER CANNOT INITIATE REASSESSMENT PROCEEDINGS ON CHANGE OF OPINION BY REAPPRECIATING THE INFORMATION/MATERIAL ALREADY ON RECORD. IN THE ABSENCE OF ANY FRESH COGENT MATERIAL THE ASSESSING OFFICER HAS NO JURISDICTION TO INVOKE THE PROVISIONS OF SECTION 148/147 OF THE ACT. 9. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF STATE BAN K OF INDIA VS. ASSISTANT COMMISSIONER OF INCOME TAX (SUPRA) IN A SIMILAR SITUATION WHERE THE ISSUE WAS EXAMINED BY THE ASSESSING OFFICER IN PROCEEDINGS U/S. 143(3) AND SUBSEQUENTLY ON THE SAME ISSUE THE ASSESSING OFFICER REOPENED THE ASSESSMENT PROCEEDINGS , T HE HONBLE HIGH COURT HELD , THAT THE NOTICE ISSUED FOR REOPENING PRIMA - FACIE AMOUNTS TO CHANGE OF OPINION. 10. THE FULL BENCH OF HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. KALVINATOR OF INDIA LTD. REPORTED AS 256 ITR 1 HAS HELD THAT SECTION 147 OF THE ACT DOES NOT POSTULATE CONFERMENT OF POWER UPON THE ASSESSING OFFICER TO INITIATE REASSESSMENT PROCEEDING UPON HIS MERE CHANGE OF OPINION. 11. THUS, IN VIEW OF THE FACTS OF THE CASE AND JUDGMENTS REFERRED ABOVE, WE ARE OF CONSIDERED VIEW THAT IT IS A CASE OF CHANGE OF OPINION BY THE ASSESSING OFFICER ON REAPPRECIATION OF DOCUMENTS /INFORMATION AVAILABLE EVEN AT THE TIME OF ASSESSMENT U/S. 143(3) OF THE ACT. THE ASSESSING OFFICER HAS NO POWER TO REVIEW OR SU BSTITUTE HIS FRESH OPINION UNDER THE PROVISIONS OF SECTION 148 OF THE ACT. CONSEQUENTLY, REOPENING IS BAD IN LAW AND HENCE, ANY PROCEEDINGS ARISING THEREFROM ARE LIABLE TO BE QUASHED. WE HOLD AND DIRECT ACCORDINGLY. CONSEQUENTLY, THE ASSESSEE SUCCEEDS O N GROUND NOS. 1 AND 2 OF THE APPEAL. 8 ITA NO . 943/PUN/2017, A.Y. 2009 - 10 12. SINCE, WE HAVE HELD REOPENING OF ASSESSMENT AS BAD IN LAW, CHALLENGE TO THE ADDITIONS/DISALLOWANCES MADE IN REASSESSMENT PROCEEDINGS HAVE BECOME ACADEMIC. THEREFORE, WE ARE NOT DWELLING ON GROUND NOS. 3 TO 6 OF T HE APPEAL. 13. THE GROUND NO. 7 IS GENERAL IN NATURE, HENCE, REQUIRES NO ADJUDICATION. 14. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED IN THE TERMS AFORESAID. ORDER PRONOUNCED ON FRIDAY, THE 12 TH DAY OF JU LY, 2019. SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 12 TH JU LY, 2019 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 7, PUNE 4. THE PR. COMMISSIONER OF INCOME TAX - 6, PUNE 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. // // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE