Income Tax Appellate Tribunal - Mumbai
Mahindra Engineering & Chemicals ... vs Department Of Income Tax on 27 June, 2013
आयकर अपील य अ धकरण,
धकरण मंुबई
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES 'B' MUMBAI
सव ी आय.पी. बंसल, या यक सद य एवं
/एवं
BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND
ी डी. क णाकर रावु, लेखा सद य
SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER
आयकर अपील सं. / ITA No.978/MUM/2012
नधारण वष /Assessment Year 2003-04
The ACIT, Cir. 2(2), बनाम Mahindra Engineering &
बनाम/
Aaykar Bhavan, Room No.577, Chemical Products Ltd.,
Vs.
5th Floor, MK Road, Gateway Building, Apollo
Mumbai - 400 020 Bunder, Mumbai - 01.
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACM 5764A
(अपीलाथ /Appellant) .. ( यथ / Respondent)
अपीलाथ ओर से/ Appellant by: Shri Pravin Verma
यथ क ओर से/Respondent by : Shri Rajesh Athavale
सनवाई
ु क तार ख / Date of Hearing : 27/06/2013
घोषणा क तार ख /Date of Pronouncement : 27/06/2013
आदे श / O R D E R
PER I.P.BANSAL, J.M:
This is an appeal filed by the revenue. It is directed against the order dated 30/11/2011 passed by Ld. CIT(A)-5, Mumbai for the assessment year 2003-04. The grounds of appeal read as under:
"On the facts and in the circumstances of the case and in law, the Ld. CIT(A), erred in allowing relief to the assessee to the extent impugned in the ground enumerated below:
2 आयकर अपील सं. / ITA No.8548/MUM/2010 नधारण वष /Assessment Year 2005-06
1. The order of the CJT(A) is opposed to law and facts of the case.
2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in annulling assessment order saying that mere change of opinion gives no jurisdiction to A.O. to assume jurisdiction u/s. 147 of the I.T Act ignoring the fact that amendment has been made in section 11 5JB by introducing clause (i) to Explanation(1) to second proviso of sub section (2) off section 115JB with retrospective effect from 01.04.2001."
2. Originally the assessment was framed vide order dated 29/11/2005 passed under section 143(3) of the Income Tax Act, 1961(the Act) assesseeing the loss at Rs. 75,05,516/- against the returned loss of Rs. 1,16,41,737/-. Subsequently, notice under section 148 was issued on 22/3/2010. The reason as recorded in the assessment order are as under:
"1. The return of income for A. 1'. 2003-04 was filed on 2Z 11.2002 declaring total loss of (-) Rs. 1,16,41,737/-. Assessment was made u/s. 143(3) on 29.11.2005 determining the total loss at (-) Rs. 75,05,516/-.
It is noticed from records that the assessee had not included the provision for doubtful debts (Rs. 14,38,371) and provision for diminution in the value of long term investments (Rs. 1,25,00,000) in the book profit computed u/s. JJ5JB. An amount of Rs. 2,09,67,205/- not credited to the P&L account was also not reckoned with.
In view of the above, I have reason to believe that income chargeable to lax which has escaped assessment for A. V. 2 003-04, owing to incorrect computation of book profit u/s. 115JB. The relevant provisions of section 115JB since stand amended with retrospective effect from 1.4.2001. Hence, issue of notice u/s. 148, read with the proviso to section 151 (1), is warranted in this case.
Therefore, the assessment is hereby reopened as per the provisions of section 147 by issuing notice u/s.148"
Accordingly, the assessee has been assessed at loss of Rs.27,31,760/-vide impugned assessment order dated 23/12/2010 passed under section 143(3) r.w.s. 147 of the Act.
3 आयकर अपील सं. / ITA No.8548/MUM/2010 नधारण वष /Assessment Year 2005-06
3. Initiation of re-assessment proceedings were challenged in appeal before Ld. CIT(A). It was the main contention of the assessee that according to first proviso to section 147 assessment could be re-opened only when assessee has not been found to have disclosed fully and truly all material facts necessary for the assessment. On these submissions Ld. CIT(A) has found that all the facts were before the A.O while passing the order under section 143(3). There is no question of any omission on the part of the assessee. The reasons do not contain whisper about what "material facts" the assessee has allegedly failed to fully and truly disclosed. No material facts have been brought on record but only a fresh appreciation of the same material has been done by the AO. Ld. CIT(A) has also held that there was conscious mind application by the AO in framing of assessment under section 143(3) which cannot be reviewed by the successor AO on the same set of facts as law does not provide for such change of opinion especially in a case involving assessment under section 143(3) made originally on the issue involved and duly adjudicated. Thus Ld. CIT(A) has struck down the validity of re- assessment proceedings on two reasons. Firstly, according to first proviso to section 147 there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. Secondly, there was change of opinion as the issue on which re-assessment proceedings are initiated was duly considered by the AO during the course of assessment proceedings carried out under section 143(3). The department is aggrieved with such order passed by Ld. CIT(A).
4. As it can be seen from the grounds of appeal, the revenue is not agitating the order of Ld. CIT(A) on the ground that there is no failure on the part of the assessee as mentioned in first proviso to section 147 but department is challenging the second limb of order of Ld. CIT(A) vide which it has been held that there was change of opinion, therefore, also the re- assessment proceedings were invalid.
4 आयकर अपील सं. / ITA No.8548/MUM/2010 नधारण वष /Assessment Year 2005-06
5. During the course of hearing, though Ld. DR has placed reliance on the following two decisions but Ld. D.R could not controvert the findings recorded by Ld. CIT(A) that there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment before the A.O during the course of original assessment proceedings.
(1) CIT vs. Bai Navajbai N. Gamadia, 35 ITR 793(Bom) (2) ACIT vs. Central Warehousing Corporation, (2012) 27 taxmann.com 108 (Del) It is the contention of Ld. D.R that A.O is authorized to re-open if there is subsequent amendment and for such contention he has relied on the decision of Hon'ble Bombay High Court in the case of Bai Navajbai N. Gamadia (supra). It was found that the said decision has been rendered under the old Act and the provision considered therein are not similar to the provisions contained in the first proviso to section 147. The second decision relied upon by Ld. DR in the case of ACIT vs. Central Warehousing Corporation (supra) also does not support the case of the revenue as the said decision also has not been rendered under first proviso to section 147
6. On the other hand, it is the case of Ld. AR that this issue is squarely covered by the decision of Hon'ble Bombay High Court in the case of DIL Ltd. vs. ACIT, 343 ITR 296(Bom), wherein while considering similar provisions which have been invoked in the case of the assessee for initiation of re- assessment proceedings, Hon'ble High Court has held that to validly re-open an assessment beyond a period of four years, there must be a failure on the part of the assessee to fully and truly disclose all the material facts necessary for assessment.
5 आयकर अपील सं. / ITA No.8548/MUM/2010 नधारण वष /Assessment Year 2005-06
7. We have heard both the parties and their contentions have carefully been considered. In our opinion the controversy in the present case is squarely covered by the aforementioned decision of Hon'ble Bombay High Court in the case of DIL Ltd.(supra). The same provisions were considered by their Lordships with similar facts and circumstances and it was held that reassessment proceedings were not validly carried out. Reference can be made to the following observations of their Lordships from the aforementioned decision.
"As per provisions of the Act any amount set aside as provisions made for meeting liabilities other than ascertained liabilities and provisions for diminution in the value of any asset are to be added back to book profit. I, therefore, have reason to believe that income (Book profit) chargeable to tax to the extent of Rs. 1,80,30,110/ has escaped assessment. Issue notice u/s. 148 for A.Y. 2004-05."
Counsel appearing on behalf of the Assessee submitted that (i) Ex facie the reasons which have been supplied to the assessee do not contain any statement to the effect that the assessee has failed to disclose fully and truly all material facts necessary for the assessment. Hence, the basic requirement in the proviso to section 147 for reopening the assessment beyond the period of four years has not been fulfilled; (ii) As regards the amount representing a diminution in the value of investment (Rs. 1.28 crores), Explanation (1)(i) to section 115JB was introduced by the Finance (No.2) Act, 2009 with retrospective effect from 1 April 2001. Hence, while, in view of the amended provisions, there may be reason to believe that income has escaped assessment, that in itself cannot sustain the order of reopening in the present case beyond the period of four years since a retrospective amendment of law by Parliament cannot give rise to an inference that there was a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment; (iii) As regards gratuity and superannuation, the claim of the assessee for deduction has been allowed and no disallowance of the expenditure was made on the footing that the liability was neither incurred nor ascertained; (iv) As regards the business development expenditure (Rs.10.79 lakhs) the Assessing Officer had, as a matter of fact, disallowed the claim of the assessee and the amount was added back in computing the total income. Thus, it is urged that even on merits, there is absolutely no ground for reopening the assessment.
4. On the other hand, Counsel appearing on behalf of the Revenue has relied on the order of the Assessing Officer dated 5 December 2011, disposing of objections to the reopening of the assessment. Reliance was placed particularly on the provisions of Explanation (1) to section 147 and it was urged that a mere production of books of account by the assessee cannot give rise to an inference that material facts have been disclosed.
6 आयकर अपील सं. / ITA No.8548/MUM/2010 नधारण वष /Assessment Year 2005-06
5. Admittedly the position is that the reopening in the present case, by a notice dated 8 March 2011 for Assessment Year 2004-05 is beyond the period of four years from the end of the assessment year. The reasons for reopening contain absolutely no reference to there being any failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. We, therefore, find merit in the contention of Counsel appearing on behalf of the Assessee that the primary requirement set out in the proviso to section 147 has not been fulfilled. That apart, it is evident that in so far as the diminution in the value of investment of Rs. 1.28 crores is concerned, Explanation (1 )(i) was inserted into the provisions of section 115JB by the Finance (No.2) Act, 2009 with retrospective effect from 1 April 2001. Clause (i) of Explanation (1) was introduced to include the amount or amounts set aside as provision for diminution in the value of investment. In view of the retrospective amendment of law by Parliament, the Assessing Officer may have reason to believe that income has escaped assessment. But that in itself is not sufficient for reopening an assessment beyond the period of four years. Beyond the period of four years when an assessment is sought to be reopened, there must be a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. In fact, the retrospective amendment of law by Parliament would negate the inference which is sought to be drawn of the failure to disclose material facts. In so far as the business development expenditure of Rs. 10.79 lakhs is concerned, here again it is evident from the order of assessment that the claim of the assessee was disallowed by the Assessing Officer and the amount was added back to the income. Similarly, in regard to the gratuity and superannuation as well, there is merit in the contention of Learned Counsel that there is exfacie no failure on the part of the assessee to disclose the material facts. The reasons disclosed to the assessee on 11 July 2011, in fact, merely indicate a reason to believe that income has escaped assessment. There is no reference whatsoever to the formation of an opinion that there was a failure on the part of the assessee to fully and truly disclose all material facts. In these circumstances, the basis on which the reopening is sought to be effected is contrary to law. Rule is accordingly made absolute by quashing and setting aside the impugned notice dated 8 March 2011. There shall be no order as to costs".
Once it is held that upon application of first proviso to section 147, reassessment proceedings were not validly carried out then the initiation of re-assessment proceedings itself becomes bad in law and there is no need to go into the other question that reassessment proceedings are also invalid as there was a change of opinion. It has already been pointed out that revenue even as per its ground of appeal did not challenge the applicability of first proviso to section 147. Therefore, we do not find any infirmity in the order of Ld. CIT(A) vide which re-assessment proceedings initiated in the present case 7 आयकर अपील सं. / ITA No.8548/MUM/2010 नधारण वष /Assessment Year 2005-06 are held invalid. We decline to interfere and appeal filed by the revenue is dismissed.
8. In the result, appeal of the revenue is dismissed.
Order pronounced in the open court on 27/06/2013
आदे श क घोषणा खले
ु यायालय म दनांकः 27 /06/2013 को क गई ।
(डी. क णाकर रावु / D.KARUNAKARA RAO) (आय.पी. बंसल / I.P. BANSAL)
लेखा सद य / ACCOUNTANT MEMBER या यक सद य / JUDICIAL MEMBER
मंुबई Mumbai; दनांक Dated 27/06/2013
आदे श क त ल प अ े षत/Copy
षत of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु (अपील) / The CIT(A)-
4. आयकर आयु / CIT
5. वभागीय त न ध, आयकर अपील य अ धकरण, मंुबई / DR, ITAT,
Mumbai
6. गाड फाईल / Guard file.
आदे शानसार
ु / BY ORDER,
स या पत त //True Copy//
उप/सहायक
उप सहायक पंजीकार (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण,
धकरण मंब
ु ई / ITAT, Mumbai
व. न.स./Vm, Sr. PS