DCIT 2(3), MUMBAI V. TATA MOTORS, MUMBAI

ITA 969/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75598 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 17-02-2014
• Assessment Year: 2000-2001
• Appeal Filed On: 03-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBA DAS
• Assessee Lawyers: DINESH VYASTEJAS SHAH
• Keywords: Reopening of assessment; Retrospective amendment; Revised return; Reassessment proceedings
• Section: 143(3); 115JB; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI . . , . . , BEFORE SHRI B R MITTAL, JM & SHRI B R BASKARAN , AM ./I.T.A. NO.969/MUM/2011 ( ' ' ' ' ' '' ' / ASSESSMENT YEAR : 2000-01) THE DY COMMR OF INCOME TAX MUMBAI / VS. TATA MOTORS BOMBAY HOUSE 24 HOMI MODI STREET FORT, MUMBAI ./PAN : AAACT2727Q ( % /APPELLANT ) ( &'% / RESPONDENT ) % ( / APPELLANT BY : SHRI PITAMBA DAS &'% ( / RESPONDENT BY : SHRI DINESH VYAS/TEJAS SHAH ( + /DATE OF HEARING : 17.02.2014 ( + / DATE OF PRONOUNCEMENT :19 TH FEB 2014 / O R D E R PER B R BASKARAN, AM : THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 24.11.2010 PASSED BY THE LD CIT(A)-6, MUMBAI AND IT RELATES TO THE AY 2000- 01. THE REVENUE IS AGGRIEVED BY THE DECISION OF TH E LD CIT(A) IN DELETING THE FOLLOWING ADDITIONS MADE BY THE AO TO THE BOOK PRO FIT COMPUTED U/S 115JA OF THE ACT: I) PROVISION FOR TAX - RS. 4.00 CRORES II) PROVISION FOR DIMINUTION IN VALUE OF INVESTMENTS - RS. 5.20 CRORES. TATA MOTORS 2 2 THE FACTS RELATING TO THE ABOVE SAID ADDITIONS AR E STATED IN BRIEF: THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UN DER CONSIDERATION ON 31.10.2001 DECLARING A LOSS OF RS.723.56 CRORES, WH ICH WAS LATER REVISED BY FILING A REVISED RETURN ON 28.3.2001. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 25.3.2003. IN THIS ORIGINAL ASSESSMENT, T HE BOOK PROFIT UNDER THE PROVISIONS OF SEC. 115JA WAS DETERMINED AT RS.40.47 CRORES AND THE INCOME U/S 115JA WAS ASSESSED AT 30% OF BOOK PROFIT, I.E., AT RS. 12.14 CRRES. 2.1 SUBSEQUENTLY, THE AO REOPENED THE ASSESSMENT B Y ISSUING NOTICE U/S 148 OF THE ACT ON 25.10.2004 AND IT WAS SERVED ON THE A SSESSEE ON 2.11.2004. THE AO REOPENED THE ASSESSMENT FOR THE REASONS THAT; A) THE ASSESSEE DID NOT ADD BACK THE PROVISION FOR TAX AMOUNTING TO RS.4.00 CRORES; B) THE ASSESSEE ALSO DID NOT ADD BACK THE PROVISION MADE FOR DIMINUTION IN THE VALUE OF INVESTMENT AMOUNTING TO RS.5.20 CRORES . 2.2 THE AO COMPLETED THE REOPENED ASSESSMENT BY ADD ING BOTH THE AMOUNTS STATED ABOVE TO THE BOOK PROFIT AND ACCORDINGLY DET ERMINED THE BOOK PROFIT AT RS.49.67 CRORES. ACCORDINGLY, THE INCOME U/S 115JA WAS DETERMINED AT RS.14.90 CRORES. THE ASSESSEE CHALLENGED BOTH THE ADDITIONS BEFORE LD CIT(A), BESIDES CHALLENGING THE VALIDITY OF REOPENING OF THE ASSESS MENT. TATA MOTORS 3 3. THE LD CIT(A) NOTICED THAT THE PROVISION FOR T AX OF RS.4.00 CRORES HAS ALREADY BEEN INCLUDED IN THE BOOK PROFIT ASSESSED IN THE ORIGINAL ASSESSMENT PROCEEDINGS. ACCORDINGLY, THE LD CIT(A) HELD THAT THE DISALLOWANCE OF RS.4.00 CRORES AGAIN MADE IN THE REASSESSMENT PROCEEDINGS I S AN ERROR. ACCORDINGLY, HE DELETED THE SAID ADDITION. IN RESPECT OF THIS ADDI TION, THE LD CIT(A) DID NOT EXAMINE THE VALIDITY OF RE-OPENING, SINCE HE HAD GR ANTED RELIEF ON MERITS. 3.1 WITH REGARD TO THE NEXT ADDITION RELATING TO DI MINUTION IN THE VALUE OF INVESTMENT OF RS.5.20CRORES, THE LD CIT(A) CONSIDER ED THE ISSUE OF VALIDITY OF REOPENING. THE LD CIT(A) NOTICED THAT THE FACTS PR EVAILING IN THE INSTANT CASE IS IDENTICAL WITH THE FACTS THAT PREVAILED IN THE CASE OF RALLIS INDIA LTD VS ACIT (2010) (323 ITR 54), IN WHICH THE HONBLE JURISDICT IONAL BOMBAY HIGH COURT HELD THAT THE RE-OPENING IS NOT VALID. HENCE THE LD CIT (A), BY FOLLOWING THE DECISION OF JURISDICTIONAL HIGH COURT, REFERRED ABOVE, HELD THAT THE REOPENING OF THE ASSESSMENT WITH REGARD TO THE DIMINUTION IN THE VAL UE OF INVESTMENT IS BAD IN LAW. AGGRIEVED BY THE ORDER OF THE LD CIT(A), THE REVENUE HAS FILED THIS APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE RECORDS. THE FIRST ISSUE RELATES TO THE ADDITION OF PROVISI ON FOR TAX TO THE BOOK PROFIT COMPUTED U/S 115JA OF THE ACT. THE ASSESSEE HAS FI LED ; (A) COPY OF THE P&L ACCOUNT RELATING TO THE YEAR UN DER CONSIDERATION. TATA MOTORS 4 (B) COPY OF COMPUTATION OF INCOME U/S 115JA OF THE ACT FILED ALONG WITH THE RETURN OF INCOME AND (C) COPY OF ORIGINAL ASSESSMENT ORDER DATED 25.3.20 03. FROM THE PROFIT & LOSS ACCOUNT, WE NOTICE THAT THE PROFIT BEFORE THE TAX WAS SHOWN AT RS.75.20 CRORES, FROM WHICH THE TAX FOR TH E YEAR AMOUNTING TO RS.4.00 CRORES WAS DEDUCTED. ACCORDINGLY, THE PROFIT AFTER THE TAX WAS ARRIVED AT RS. 71.20 CRORES. IN THE STATEMENT OF COMPUTATION OF INCOME U/S 115JA OF THE ACT FILED BY THE ASSESSEE, WE NOTICE THAT THE PROFI T AS PER THE P&L ACCOUNT WAS TAKEN AT RS. 75.20 CRORES I.E. THE ASSESSEE HAS PRO CEEDED TO COMPUTE THE BOOK PROFIT U/S 115JA BY TAKING THE PROFIT BEFORE TAX OF RS.75.20 CRORES, I.E., THE AMOUNT OF PROFIT BEFORE DEDUCTING THE TAX PROVISION OF RS.4.00 CRORES. IN THE ORIGINAL ASSESSMENT ORDER ALSO, THE AO HAS PROCEEDE D TO COMPUTE THE BOOK PROFIT U/S 115JA OF THE ACT BY TAKING THE PROFIT BEFORE T AX OF RS.75.20 CRORES. THESE FACTUAL POSITION SHOWS THAT THE TAX PROVISION OF RS . 4 CRORES HAS ALREADY BEEN INCLUDED IN THE PROFIT OF RS. 75.20 CRORES AND HENC E, THERE IS NO NECESSITY TO MAKE THE ADDITION OF RS. 4.00 CRORES AGAIN. THE Q UESTION OF MAKING ADDITION OF RS. 4.00 CRORES WOULD HAVE ARISEN, HAD THE ASSESSEE / AO PROCEEDED TO COMPUTE THE BOOK PROFIT BY TAKING PROFIT AFTER TAX OF RS. 71.20 CRORES. THIS FACTUAL POSITION, IN OUR VIEW, HAS BEEN CORRECTLY APPRECIAT ED BY THE LD CIT(A) AND ACCORDINGLY, HE HAS GIVEN A FINDING THAT THE AO HAS COMMITTED AN ERROR BY DISALLOWING SOMETHING WHICH WAS NOT REDUCED FROM TH E PROFITS. IN VIEW OF THE TATA MOTORS 5 ABOVE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION TAKEN BY THE LD CIT(A) ON THIS ISSUE. WE HAVE NOTICED THAT THE LD CIT(A) HAS NOT RENDERED HIS DECISION ON THE QUESTION OF VALIDITY OF RE-OPENING OF ASSESSMENT ON THIS ISSUE. HOWEVER, THE FACTS DISCUSSED ABOVE WOULD SHOW THAT THE AO HAS RE-OPENED THE ASSESSMENT ON THIS ISSUE WITH INCORRECT APPRECIATIO N OF FACTS PREVAILING ON THIS ISSUE. CONSEQUENTLY, THE REASON ENTERTAINING BY TH E AO ABOUT ESCAPEMENT OF INCOME ON THIS ISSUE IS ALSO INCORRECT AND HENCE LI ABLE TO BE SET ASIDE. 5. THE NEXT ISSUE RELATES TO THE ISSUE RELATING TO PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENTS. THE LD CIT(A) HAS EXAMI NED THE VALIDITY OF REOPENING OF ASSESSMENT ON THIS ISSUE. IN THIS REGARD, IT IS PERTINENT TO TAKE NOTE OF CERTAIN DEVELOPMENT THAT TOOK PLACE IN THIS REGARD. AS PER THE PROVISIONS OF SEC. 115JA, THAT EXISTED AT THE RELEVANT POINT OF TIME, THE AM OUNT OR AMOUNTS SET ASIDE TO PROVISIONS MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES IS REQUIRED TO BE ADDED TO THE BOOK PROFIT. THE QUEST ION THAT AROSE BEFORE VARIOUS JUDICIAL FORUMS AT THE RELEVANT POINT OF TIME WAS - WHETHER THE PROVISION MADE FOR DIMINUTION IN THE VALUE OF ASSETS WOULD FALL I N THE CATEGORY OF PROVISION MADE FOR MEETING THE LIABILITIES OTHER THAN ASCERTA INED LIABILITIES. THE MATTER WAS SETTLED AT REST BY THE HONBLE SUPREME COURT IN THE CASE OF HCL COMNET SYSTEMS AND SERVICES LTD (2008) 305 ITR 409, WHEREI N THE HONBLE SUPREME COURT HELD THAT THE PROVISION MADE FOR DIMINUTION I N THE VALUE OF ASSET CANNOT BE REGARDED AS PROVISION MADE FOR MEETING LIABILITY. SUBSEQUENT TO THE DECISION OF TATA MOTORS 6 THE HONBLE SUPREME COURT, THE LEGISLATURE BROUGHT IN AMENDMENT IN THE PROVISIONS OF SEC. 115JA THROUGH THE FINANCE (NO.2) ACT 2009 WITH RETROSPECTIVE EFFECT FROM 1.4.1998 BY INSERTING CLAUSE (G) IN EXP LANATION TO SEC. 115JA. THE NEWLY INSERTED CLAUSE (G) PROVIDED THAT THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET IS REQUIRED TO BE ADDED TO THE BOOK PROFIT. 5.1 NOW WE SHALL EXAMINE THE FACTS PREVAILING IN T HE INSTANT CASE. WE NOTICE THAT THE AO HAS ISSUED NOTICE U/S 148 ON 25.10.2004 . WE HAVE ALREADY NOTICED THAT THE PROVISIONS OF SEC. 115JA WERE AMENDED IN 2 009 TO RETROSPECTIVE EFFECT FROM 1.4.1998 BY INCLUDING THE PROVISION MADE FOR DIMINUTION IN THE VALUE OF ASSETS AS ONE OF THE ITEMS TO BE ADDED TO THE BOOK PROFIT, IF IT HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT. HENCE, ON THE DATE ON WHICH THE AO ISSUED NOTICE U/S 148, THE PROVISIONS OF SEC. 115JA DID NO T CONTAIN CLAUSE (G) INSERTED BY THE LEGISLATIVE AMENDMENT. 5.2 IN THE ORIGINAL ASSESSMENT ORDER, THE AO DI D NOT ADD THE PROVISION MADE FOR DIMINUTION IN THE VALUE OF INVESTMENTS TO THE BOOK PROFIT COMPUTED UNDER SEC. 115JA OF THE ACT. HOWEVER, THE SAID VIEW WAS PROVED TO BE RIGHT BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF HC L COMNET SYSTEMS AND SERVICES LTD (SUPRA). IT IS ALSO TO BE NOTED THAT, BY THE TIME THE AO ISSUED NOTICE U/S 148 OF THE ACT, I.E., ON 25.10.2004, THE JURISD ICTIONAL BOMBAY HIGH COURT HAD ALREADY RENDERED ITS DECISION IN THE CASE OF CIT VS ECHJAY FORGINGS PVT LTD TATA MOTORS 7 (2001) 251 ITR 15; WHEREIN THE HIGH COURT HAD TAKEN THE VIEW IDENTICAL TO THAT TAKEN BY THE AO IN THE ORIGINAL ASSESSMENT PROCEEDI NGS. THERE SHOULD NOT BE ANY DISPUTE THAT THE DECISION OF JURISDICTIONAL HIG H COURT IS BINDING ON THE ASSESSING OFFICER. HENCE, THE BELIEF ENTERTAINED B Y THE AO ABOUT THE ESCAPEMENT OF INCOME ON THE ISSUE OF DIMINUTION IN THE VALUE O F ASSETS IS NOT IN ACCORDANCE WITH THE BINDING DECISION OF HONBLE JURISDICTIONAL HIGH COURT. 5.3 WE NOTICE THAT THE LD CIT(A) HAS PLACED STR ONG RELIANCE ON THE DECISION RENDERED BY HONBLE JURISDICTIONAL BOMBAY HIGH COUR T IN THE CASE OF RALLIS INDIA LTD (SUPRA). THE LD CIT(A) HAS ALSO EXTRACTED THE RELEVANT OBSERVATIONS MADE BY THE HIGH COURT IN THE ABOVE CITED CASE. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT PORTIONS OF THE ORDER PA SSED BY LD CIT(A) ON THIS ISSUE. 6.4 THE AR ALSO DREW ATTENTION TO A RECENT DECISIO N OF THE BOMBAY HIGH COURT IN THE CASE OF RALLIS INDIA LTD. (WP NO. 2514 OF 2009) WHEREIN THE BOMBAY HIGH COURT IN THE SIMILAR CIRCUMSTANCES (ASS ESSMENT WAS REOPENED WITHIN FOUR YEARS FOR INTER-ALIA MAKING AN ADDITION TO BOOK PROFITS FOR PROVISION FOR DIMINUTION IN VALUE OF IN VESTMENTS FOR THE PURPOSES OF SECTION 115JB OF THE INCOME-TAX ACT, 19 61) HAD STRUCK DOWN THE RE-ASSESSMENT PROCEEDINGS. THE RELEVANT PORTION OF THE DECISION OF THE HONBLE HIGH COURT IS EXTRACTED AS FOLLOWS: IN THE PRESENT CASE, THE PRINCIPLE OF LAW WHICH HA S BEEN LAID DOWN BY THE SUPREME COURT IN MAX INDIA (SUPRA) WOULD BE ATTRACTED. ON THE DATE ON WHICH THE AO PURPORTED TO EXERCISE HIS POWER TO RE- OPEN THE ASSESSMENT U/S 147, THE LEGISLATIVE AMENDM ENT BY THE INSERTION OF CLAUSE (I) TO EXPLANATION (1) TO SECTIO N 115JB HAD NOT BEEN BROUGHT INTO FORCE ON THE STATUTE BOOK. OBVIOU SLY, THEREFORE, THE SUBSEQUENT AMENDMENT COULD NOT HAVE BEEN AND IS NOT A GROUND WHICH HAS BEEN TAKEN BY THE AO, WHILE RE-OPE NING THE ASSESSMENT. THE VALIDITY OF THE NOTICE ISSUED BY TH E AO IN SEEKING TATA MOTORS 8 TO REOPEN THE ASSESSMENT MUST BE DETERMINED WITH RE FERENCE TO THE REASONS WHICH ARE FOUND IN SUPPORT OF THE REOPE NING OF THE ASSESSMENT. THESE REASONS CANNOT BE ALLOWED TO BE S UPPLEMENTED ON A BASIS WHICH WAS NOT PRESENT TO THE MIND OF THE OFFICER AND COULD NOT HAVE BEEN SO PRESENT ON THE DATE ON WHICH THE POWER TO REOPEN THE ASSESSMENT WAS EXERCISED. WE, THEREFORE, HOLD THAT THE PRINCIPLE LAID DOWN BY THE SUPREME COURT IN MAX IND IA (SUPRA) WOULD BE ATTRACTED TO TINE PRESENT CASE. CONSEQUENT LY, IT IS EVIDENT THAT THE ORDER OF THE AO WITH REFERENCE TO THE COMP UTATION OF BOOK PROFITS U/S. 115JB WAS NOT AT LEAST A PROBABLE VIEW AND AS A MATTER OF FACT THE CORRECT VIEW TO TAKE IN VIEW OF THE DEC ISION OF THE SUPREME COURT IN HCL (SUPRA). IT IS WELL SETTLED TH AT THE LAW LAID DOWN BY THE SUPREME COURT IN DECLARATORY OF THE POS ITION AS IT ALWAYS STOOD. IN ANY EVENT, AS WE HAVE NOTED, THE V IEW OF THE AO WAS SUPPORTED BY THE INTERPRETATION PLACED EVEN CONTEMPORANEOUSLY IN THE JUDGMENT OF THIS COURT I N ECHJAY (SUPRA) AND IN THE JUDGMENTS OF THE DELHI HIGH COUR T EICHER AND HCL(SUPRA) . IN. THE CIRCUMSTANCES, THERE WAS NO WARRANT FOR REOPENING THE ASSESSMENT IN EXERCISE OF THE POWER C ONFERRED U/S 147. THE AR ALSO RELIED ON THE BOMBAY HIGH COURT JUDGME NT IN THE CASE OF IOT INFRASTRUCTURE AND ENERGY SERVICES LTD. . 6.6 1 HAVE CONSIDERED THE FACTS OF THE ISSUE AND T HE SUBMISSION MADE BY THE AR AND FIND MERIT IN THEM. THE FACTS OF THE PRE SENT CASE ARE ON ALL FOURS WITH THE FACTS OF THE CASE OF RALLIS INDIA LT D. (WP NO. 2514 OF 2009) QUOTED ABOVE, IN SO FAR AS THIS GROUND IS CONCERNED . IN THE PRESENT CASE ALSO, ON THE DATE OF THE REOPENING OF ASSESSMENT, THE LAW AS DECLARED BY THE BOMBAY HIGH COURT IN THE CASE OF CIT VS ECHJAY F ORGINGS PVT LTD (2001) 251 ITR 15 AND THE JUDGMENTS OF THE DELHI HI GH COURT IN THE CASE OF EICHER AND HCL(SUPRA) WERE APPLICABLE. HENCE, IN VIEW OF THE PREPONDERANT LEGAL DECISIONS HOLDING GROUND IN FAVO UR OF THE APPELLANT, THE AO COULD NOT HAVE REOPENED THE CASE ON THIS GRO UND. IT IS AN ADMITTED FACT THAT THE LAW LAID DOWN BY THE COURTS IS DECLARATORY FT THE POSITION AS IT ALWAYS STOOD. HENCE, AS ON THE DATE OF REOPENING, THE PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENT S COULD NOT BE ADDED TO THE BOOK PROFITS U/S 115JA. HENCE, THE REOPENING OF THIS CASE WITH REFERENCE TO THIS GROUND IS HELD TO BE NOT IN ORDER . THIS GROUND OF THE APPELLANT IS ALLOWED. TATA MOTORS 9 5.4 SINCE THE LD CIT(A) HAS FOLLOWED THE BINDIN G DECISION RENDERED BY HONBLE JURISDICTIONAL BOMBAY HIGH COURT, WE DO NOT FIND AN Y REASON TO INTERFERE WITH HIS DECISION ON THIS ISSUE. 6 IN THE RESULT, THE APPEAL OF REVENUE IS DISMI SSED. / ( / ( ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH FEB 2014 . ( 5 19 FEB 2014 ( SD/- SD/- ( B R MITTAL ) ( B R BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 5 DATED 19 TH , EB 2014 .../ RAJ , SR. PS ( &; <; ( &; <; ( &; <; ( &; <;/ COPY OF THE ORDER FORWARDED TO : 1. % / THE APPELLANT 2. &'% / THE RESPONDENT. 3. =() / THE CIT(A)- 4. = / CIT 5. ; &, , / DR, ITAT, MUMBAI 6. ' / GUARD FILE. / BY ORDER, '; & //TRUE COPY// / // / ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI