Income Tax Appellate Tribunal - Jaipur
Shri Ashok Kumar Goyal, Beawar vs Ito, Ward-1, Beawar on 15 October, 2020
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCH VC 'SMC', JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JUDICIAL MEMBER
vk;dj vihy la-@ITA No. 1219/JP/2019
fu/kZkj.k o"kZ@Assessment Year : 2013-14.
Shri Ashok Kumar Goyal, cuke The Income Tax Officer,
34, Laxmi Market, Vs.
Ward 1,
Beawar, Ajmer. Beawar.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. ABDPG 9626 J
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri PC Parwal (CA)
jktLo dh vksj ls@ Revenue by: Smt. Chanchal Meena (Addl. CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 14.10.2020.
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 15/10/2020.
vkns'k@ ORDER
PER VIJAY PAL RAO, JM :
This appeal by the assessee is directed against the order dated 13.11.2018 of ld. CIT (A)-2, Jaipur arising from the order passed under section 154 of the IT Act for the assessment year 2012-13. The assessee has raised the following grounds :-
" 1. The ld. CIT (A) has erred on facts and in law in upholding the validity of the order passed by AO u/s 147 of IT Act, 1961.
2. The ld. CIT (A) has erred on facts and in law in confirming the disallowance of interest expenses of Rs. 2,62,636/- claimed by the assessee against the business income by incorrectly holding that assessee could not prove that interest bearing borrowed funds was utilized for business purpose.2 ITA No. 1219/JP/2019
Shri Ashok Kumar Goyal, Beawar.
3. The appellant craves to alter, amend and modify any ground of appeal.
4. Necessary cost be awarded to the assessee."
The hearing of the appeal is concluded through Video Conference due to prevailing condition of COVID 19 pandemic.
Ground No. 1 is regarding validity of reassessment order passed under section 147 of the IT Act.
2. The assessee filed his return of income under section 139(1) on 27.08.2013 declaring total income of Rs. 7,47,850/-. The assessment was completed under section 143(3) at a total income of Rs. 8,23,430/- on 30th January, 2016. Thereafter, the AO reopened the assessment by issuing a notice under section 148 on 23rd February, 2018 to assess the income on account of excess deduction of interest paid under section 57(3) of the IT Act. The reassessment was completed on 26th November, 2018 whereby the AO has disallowed interest of rs. 2,64,318/- being an excess amount claimed against the income from other sources. The assessee challenged the action of the AO before the ld. CIT (A) and also challenged the validity of reopening as well as reassessment order passed under section 147. The ld. CIT (A) has dismissed the ground raised by the assessee against the validity of reopening of the assessment. However, no finding is given in respect of the objections raised by the assessee against the validity of the reassessment order passed by the AO.
3ITA No. 1219/JP/2019
Shri Ashok Kumar Goyal, Beawar.
3. Before the Tribunal, the ld. A/R of the assessee has submitted that the assessee filed the objections against the notice issued under section 148 vide letter dated 14th March, 2018 placed at pages 23 and 24 of the Paper Book. However, the AO has not disposed off the objections raised by the assessee before passing the reassessment order. Thus the ld. A/R has submitted that the order passed by tye AO without disposing off the objections is bad in law and liable to be quashed. In support of his contention, he has relied upon the following decisions :-
M/s. K.C. Mercantile Ltd. vs. DCIT DB IT Appeal No. 292/2016 (Raj. HC) Shri Manoj Dubey vs. ITO ITA No. 332 to 334/JP/2019 Order dated 26.02.2020 (Jaipur Trib.)
4. On the other hand, the ld. D/R has submitted that the assessee has not raised any objection before the AO regarding non disposal of the objections and only after completion of the reassessment, the assessee has raised this issue. Further, non complying the law as laid down by the Hon'ble Supreme Court in the case of GKN Driveshaft, 259 ITR 19 (SC) is only a procedural irregularity which would not render the assessment null and void but the same can be rectified. She has relied upon the decision of Hon'ble Madras High Court in case of Home Finders Housing Ltd. vs. ITO, 404 ITR 611 (Madras) and the SLP filed by the assessee against the said decision was also dismissed by the Hon'ble Supreme Court in 256 Taxman 59 (SC). She has relied upon the order of the ld. CIT (A).
5. I have considered the rival submissions as well as the relevant material on record. The ld. CIT (A) though reproduced the objections raised by the assessee 4 ITA No. 1219/JP/2019 Shri Ashok Kumar Goyal, Beawar.
against the validity of the reopening of the assessment as well as validity of the assessment order passed by the AO. The summary of the contentions and the finding of the ld. CIT (A) at page 9 of the impugned order are as under :-
" Summary :
1. (a) We submit that regular assessment was completed after thorough examination of all books of Accounts, Voucher details, Papers and evidence and specific queries were replied and evidences given and after application of mind, the regular assessment was completed.
Therefore, re-opening of assessment U/Sec. 147/148 is bad in law and change of opinion is not valid and bad in law based on various judicial decisions as summarized above.
Hence re-opened Assessment is bad in law and deserves to be quashed.
(b) That the assessment was re-opened on the basis of Audit objection by Audit Party as clear from record of the assessee.
(c) That the interest paid in nexus with interest income earned and interest is fully allowable and the addition deserves to be deleted.
(d) That the objection of re-assessment was not rejected by speaking order then the order U/sec 147 is not a valid order and deserves to be rejected.
Therefore, it is clear that re-opened assessment is bad in law, illegal, unjustified and deserves to be cancelled.
So the interest paid is fully allowed and no disallowances to be made of the same."
4.3 I have gone through the assessment order, statement of facts, grounds of appeal and written submission carefully. It is seen that AO had in his possession, the information that the excess interest of Rs. 2,64,318/- was allowed by the AO while completing the assessment u/s 143(3) on 30.01.2016. It is not a case of change of opinion. Therefore, it is held that the AO had sufficient material with him to form the belief that excess deduction of the interest of Rs. 2,64,318/- was allowed by the AO while completing the assessment u/s 143(3) on 30.01.2016. Accordingly, the reopening of assessment u/s 147 and 5 ITA No. 1219/JP/2019 Shri Ashok Kumar Goyal, Beawar.
issue of notice u/s 148 for the A.Y. 2013-14 by the AO are held to be valid and in accordance with the provisions of law. Hence, this ground of appeal is dismissed."
Thus the assessee has raised a specific objection that when the objections of the assessee was not rejected by a speaking order, then the order passed under section 147 is not valid and deserves to be quashed. The ld. CIT (A) though given a brief finding on the issue of validity of reopening, however, he has not dealt with the specific objection raised by the assessee against the reassessment order for want of disposing off the objections against the notice under section 148 prior to the reassessment order passed by the AO. At the outset, I note that this Tribunal in case of Manoj Dubey vs. ITO (supra) has considered an identical issue in para 8 to 11 as under :-
"8. We have heard the rival contentions and perused the material available on record. In this case, notice U/s 148 of the Act was issued by the Assessing officer on 03.03.2017 which was duly served on the assessee on 04.03.2017. In response, the assessee submitted that return of income filed by the assessee on 19.05.2017 may be treated as return of income filed in response to the notice U/s 148 of the Act. The assessee further requested for the reasons on the basis of which the matter has been reopened by the AO. Thereafter the reasons were supplied to the assessee and thereafter the assessee filed a letter dated 24.08.2017 with the Assessing officer objecting to the reasons so recorded by him and the contents of the said letter reads as under:-
"The assessee is dealing in the business of purchase and sale of fish aquariums & allied products.6 ITA No. 1219/JP/2019
Shri Ashok Kumar Goyal, Beawar.
The assessee filed its return of income for assessment year 2010-2011 on 30/07/2011 declaring an income of Rs. 1,06,435/- along with its return of income. The assessee also filed a statement of computation of income.
The assesseee received a notice dt. 04/03/2017 issued under section 148 of the Act. Inter alia, stating that the AO had reason to believe that income chargeable to tax for the assessment year 2010-11 had escaped assessment within the meaning of Section 147 of the Act and consequently, he proposed to reassess the assessee's income for the said year.
The assessee filed a return on dt. 19/05/2017 acknowledgment number 777637460190517 in response to your above referred notice u/s 148.
The assessee requested for the reasons for reopening and pursuant to its request, your honour provided the reasons as recorded.
The assessee wants to object the reasons which were recorded for re- opening of assessment. The reason are as under :-
"The assessee has filed his return of income for the year under consideration on 30/07/2011 declaring total income of Rs. 106440/-. The ITO, Jaipur conducted enquiry in this case. It is gathered that the assessee has deposited cash in his bank account amounting to Rs. 297000/-.
Source of which was found unverifiable. In view of the above and on the basis of material available on record I have reason to believe that, income of Rs. 2,97,000/- has escaped assessment within the meaning of section 147 of the IT Act 1961".7 ITA No. 1219/JP/2019
Shri Ashok Kumar Goyal, Beawar.
In the present case, the petitioner questions the assumption of jurisdiction to reopen the assessment principally on the ground that there has been no failure on the part of the petitioner to fully and truly disclose all material facts necessary for its assessment. The petitioner has not failed to disclose fully and truly all material facts necessary for its assessment and that the reopening of assessment has been occasioned by change in opinion, which is impermissible. The assessee has deposited cash in bank account amounting to Rs. 2,97,000/. Source of which was sale proceeds of 22 Kt plain gold jewellery amounting of Rs. 3,49,000/-.
The source of bank deposited is verifiable and fully explained. In view above facts your honour is requested to drop reassessment proceeding and decide objection by speaking order."
9. We therefore find that the undisputed facts which are emerging from the records are that in response to notice u/s 148, the assessee filed his return of income, the reasons were requested to be supplied to him which were duly supplied by the Assessing officer and thereafter, the assessee filed his objections on 24.08.2017 to the said reasons giving detail justification of source of cash deposits in his bank account. On the same date, the notice U/s 143(2) was issued and the matter was fixed for hearing on 12.09.2017, thereafter after consideration of the submissions of the assessee, the assessment was completed U/s 143(3) r.w.s. 147 of the Act vide order dated 22.12.2017. Further, from perusal of the records as well as the assessment order, we find that the Assessing Officer has proceeded with the assessment proceedings and passed the order U/s 143(3) r.w.s. 147 without disposing off the objections so raised by the assessee through a separate order. Further, there is no narration even in the assessment order that before completing the assessment proceedings, the 8 ITA No. 1219/JP/2019 Shri Ashok Kumar Goyal, Beawar.
objections were disposed off. Disposing off the objections raised by the assessee against the reasons recorded before issuance of notice u/s 148 though not part of statutory requirement as prescribed under the Income Tax Act, however, the same is guided by the directions issued by the Hon'ble Supreme Court in case of GKN Driveshafts (India) Ltd (supra). There is thus a clear violation of the directions issued by the Hon'ble Supreme Court. The question that arises for consideration is whether such violation of the directions issued by the Hon'ble Supreme Court is a mere technicality and breach of such technicality can be made good by remanding the matter back to the file of the Assessing officer. Alternatively, whether the same is in nature of an illegality which has prejudiced the interest of the assessee to challenge the same before the Courts as the Assessing officer has already passed the reassessment order and thus cannot be cured and will result in quashing of the reassessment order. In this regard, we find that similar issue has come up for consideration before the Hon'ble Rajasthan High Court in case of M/s K.C. Mercantile vs. CIT (supra) wherein the Tribunal has remanded the matter back to the file of the Assessing officer for disposing off the objections and in that context, the following substantial question of law was framed by the Hon'ble High Court which reads as under:
"whether under the facts and circumstances of the case, the ld Tribunal was justified in not declaring the reassessment proceedings and consequential assessment order passed thereto as nullity?"
And the relevant facts and findings are contained in Para 4, 4.1 and 8 which reads as under:-
"4. Counsel for the appellant has contended that the present appeal is arising out of the judgment and order of the tribunal whereby 9 ITA No. 1219/JP/2019 Shri Ashok Kumar Goyal, Beawar.
tribunal has upheld the contention of the appellant and remitted back the matter for reassessment which will give a second inning to the Assessing Officer who has to do reassessment within a period of 9 months and he will get extended time of limitation which is not the object of the Income Tax Act. When the Court has already fixed the period, it is to be construed in a very strict sense and has to be applied.
4.1 In support of his contention, he has relied upon the following decisions:
1. KSS Petron Private ltd. vs. ACIT, ITA No. 227/2014, 03.10.2016 holding as under:-
"7. On further Appeal, the Tribunal passed the impugned order. By the impugned order it held that the Assessing Officer was not justified in finalizing the Assessment, without having first disposed of the objections of the appellant. This impugned order holds the Assessing Officer is obliged to do in terms of the Apex Court's decision in GKN Driveshafts (India) Ltd., v/s ITO 259 ITR 19. In the aforesaid circumstances, the order of the CIT(A) and the Assessing Officer were quashed and set aside. However, after having set aside the orders, it restored the Assessment to the Assessing Officer to pass fresh order after disposing of the objections to reopening notice dated 28th March, 2008, in accordance with law.
8. We note that once the impugned order finds the Assessment Order is without jurisdiction as the law laid down by the Apex Court in GKN Driveshafts (supra) has not been followed, then there is no reason to restore the issue to the Assessing Officer to pass a further/fresh order.
If this is permitted, it would give a licence to the Assessing Officer to 10 ITA No. 1219/JP/2019 Shri Ashok Kumar Goyal, Beawar.
pass orders on reopening notice, without jurisdiction (without compliance of the law in accordance with the procedure), yet the only consequence, would be that in appeal, it would be restored to the Assessing Officer for fresh adjudication after following the due procedure. This would lead to unnecessary harassment of the Assessee by reviving stale/ old matters. 9 In fact, to ensure that reopening notices are disposed of, expeditiously the parliament itself has provided in Section 153(2) of the Act a period of limitation within which the Assessing Officer must pass an order on the notice of reopening i.e. within one year from the end of the financial year in which the notice was issued. In fact, Section 153 (2A) of the Act as in force at the relevant time itself provides that an order of fresh assessment, consequent to the order of Tribunal under Section 254 of the Act, would have to be passed within one year from the end of the financial year in which the order under section 254 of the Act, was passed by the Tribunal and received by the Commissioner of Income tax."
The Hon'ble Rajasthan High Court, thereafter, has given its findings as under:
"8. Before proceeding with the matter, it is not out of place to mention that the law declared by the Supreme Court in GKM Driveshafts (supra) clearly held that the preliminary objection is to be decided as the first, it cannot be decided subsequently. The argument which has been canvassed by the assessee is required to be considered very seriously more particularly in view of the observations made by the Supreme Court in the case of KS Petron Private Ltd. (supra) which is followed in Hotel Blue Moon (supra), the law declared by the Supreme Court is taken in true spirit whether it will open a second inning in how own. Section 153(3) is to be read very cautiously as 153 powers are given to the Department, the Court has to look into whether the law declared by the Supreme Court is given away or protected. In the present case, as the Assessing Officer has clearly ignored the law declared by the Supreme Court, in that view of the matter, the issues which are raised in the matter, the Tribunal ought not to have remitted back for 11 ITA No. 1219/JP/2019 Shri Ashok Kumar Goyal, Beawar.
reassessment since period of limitation has already expired as the authority will get extended time of limitation beyond 9 months which is not the object of Income Tax Act.
9. In that view of the matter, on issue No. 1 and 2, the order of reassessment passed by the Tribunal is declared null and void. The questions are answered in favour of assessee and against the Department.
10. The appeal of the assessee is allowed."
10. We find that in the aforesaid decision, the Hon'ble High Court has considered the decision of Hon'ble Madras High Court in case of Home Finders Housing limited vs ITO(supra) as relied upon by the ld DR and has followed the decision of the Hon'ble Supreme Court in case of KSS Petron Private ltd. vs. ACIT (supra). In light of above and respectfully following the decision of the Hon'ble Jurisdictional High Court which is binding on this Tribunal, the reassessment proceedings completed without disposing off the objection raised by the assessee cannot be sustained and consequent reassessment order u/s 147 r/w 143(3) is hereby quashed and set aside.
11. Therefore, the other contentions advanced by both parties as well as grounds on merit have become academic, are not adjudicated upon and are left open. In the result, the appeal of the assessee is allowed."
Though there are divergent views of different High Courts on the issue whether non disposal of the objections before passing the reassessment order would render the reassessment order invalid or it is only a procedural irregularity. Since the decision of the Hon'ble Jurisdictional High Court is binding on the Tribunal, therefore, this 12 ITA No. 1219/JP/2019 Shri Ashok Kumar Goyal, Beawar.
Tribunal in the said case of Shri Manoj Dubey (supra) has followed the decision of Hon'ble Jurisdictional High Court being a binding precedent. Accordingly following the earlier order as well as the decision of Hon'ble Jurisdictional High court, I decide this issue in favour of the assessee and consequently the assessment order is quashed for want of disposal of the objections raised by the assessee against the notice issued under section 148 before passing the reassessment order.
Ground No. 2 is regarding disallowance of addition of Rs.2,64,318/-.
6. The ld. A/R of the assessee has submitted that the assessee claimed the interest payment of Rs. 4,50,147/- against the income from other sources being the interest income of Rs. 1,85,829/-. The AO has disallowed the proportionate interest on the ground that the excess interest paid of Rs. 2,64,318/- cannot be allowed under section 57(3) as this is not incurred for earning the interest income. The ld. A/R has submitted that the borrowed fund has been utilized by the assessee towards capital contribution in proprietorship concern as well as partnership firm from which the assessee has declared business profit of Rs. 14,96,823/-. Therefore, the interest expenditure is an allowable business expenditure against the business income. The assessee has committed an error by claiming the entire interest expenditure against the income from other sources instead of bifurcating the same and claiming proportionate amount against the business income as well as income from other sources. Thus the ld. A/R has submitted that an error of claiming the deduction under one head instead of two separate heads would not have any revenue effect but the net outcome will remain the same. In support of his contention he has relied upon the decision of Hon'ble Supreme Court in case of Rajasthan State 13 ITA No. 1219/JP/2019 Shri Ashok Kumar Goyal, Beawar.
Warehousing Corporation vs. CIT, 242 ITR 450 (SC) as well as the decision of this Tribunal dated 13th January, 2020 in case of Govind Sharan Gupta vs. ACIT in ITA No. 58/JP/2019.
7. On the other hand, the ld. D/R has relied upon the orders of the authorities below and submitted that the AO has taken up this issue of excess claim of interest against the income from other sources in the reassessment proceedings and, therefore, the allowability of the claim as business expenditure was neither the subject matter of reassessment nor was raised by the assessee.
8. Having considered the rival submissions as well as the relevant material on record, it is noted that the interest expenditure claimed by the assessee against the income from other sources is towards the borrowed fund taken by the assessee in the preceding year and not in the year under consideration. The AO has not made any disallowance in respect of the interest expenditure in the preceding year. Further, the order of the AO itself reveals the fact that the borrowed fund was not fully utilized for giving the loans on which the assessee has earned the interest income under section 56 of the IT Act and claimed the interest deduction under section 57(3) of the Act. Once the part of the borrowed fund is utilized for the purpose of business being introduction of capital in the proprietorship concern and partnership firm from where the assessee has earned the business income and offered to tax then the proportionate interest expenditure is an allowable business expenditure. Thus it is only an error of claiming the deduction under correct head but the entire interest was claimed against the income from other sources. The 14 ITA No. 1219/JP/2019 Shri Ashok Kumar Goyal, Beawar.
Coordinate Bench of this Tribunal in case of Govind Sharan Gupta (supra) has considered this issue in para 6 as under :-
"6. We have heard the rival contentions and perused the material available on record. The case of the assessee is that the borrowed funds have been utilized for advancing to the partnership firm and for advancing to the other parties and on such borrowed funds, it has incurred interest expenditure of Rs 663,196 and has earned interest income of Rs 13,64,848 and therefore, only the net interest income can be brought to tax after allowance of whole of the interest expenditure. The case of the Revenue is that the interest on partnership firm has been shown under the head "Business Income" against which no expenses have been claimed and interest from other parties have been shown under the head "Income from other sources" against which the whole of interest expense has been claimed. No doubt, there appears to be mistake on part of the assessee in terms of claiming the whole of the interest expenditure against income from other sources rather than claiming it proportionally against interest from partnership firm and other parties, however, the substance of the matter is that where there is a nexus established between the borrowed funds and lending thereof, as in the instant case, a principle which is relevant both in context of business income and income from other sources, therefore, in such circumstances, there is no basis for disallowance of interest expenditure. The fact that the assessee has wrongly claimed the same in the return of income under one head instead of both the heads proportionally is not a bar against allowance of such claim of expenditure under respective heads when the substance of the transaction that the borrowed funds have been utlised for subsequent lending has not been disputed by the Revenue and a specific contention ITA No. 58/JP/2019 Sh. Govind Sharan Gupta vs. ACIT 5 was raised before the lower authorities. In the result, the ground of appeal is allowed."15 ITA No. 1219/JP/2019
Shri Ashok Kumar Goyal, Beawar.
Accordingly, in the facts and circumstances of the case and following the decisions of Hon'ble Jurisdictional High Court as well as the Coordinate Bench of this Tribunal, the disallowance made by the AO in respect of interest expenditure is deleted.
9. In the result, appeal of the assessee is allowed.
Order is pronounced in the open court on 15/10/2020.
Sd/-
(fot; iky jkWo ½
(VIJAY PAL RAO)
U;kf;d lnL;@Judicial Member
Jaipur
Dated:- 15/10/2020.
Das/
vkns'k dh izfrfyfi vxzfs "kr@Copy of the order forwarded to:
1. The Appellant- Shri Ashok Kumar Goyal, Ajmer.
2. The Respondent - The ITO Ward 1, Beawar.
3. The CIT(A).
4. The CIT,
5. The DR, ITAT, Jaipur
6. Guard File (ITA No. 1219/JP/2019) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar