Income Tax Appellate Tribunal - Jaipur
Ito vs Ratnesh Enterprises (P) Ltd. on 29 July, 2002
Equivalent citations: (2004)87TTJ(JP)618
ORDER
Dinesh K. Agarwal, J.M. These two appeals, preferred by the revenue against the separate orders passed by the Commissioner (Appeals), dated 18-8-1993 and 24-6-1997, for the assessment year 1091-92 are taken up together and disposed of by a common order for the sake of convenience.
2. In these two appeals the revenue has taken following grounds of appeal ITA No. 1399/Jp/1993: "On the facts and, in the circumstances of the case, the Commissioner (Appeals), has erred in deleting the addition of Rs. 5,92,840 on account of interest payment to M/s ANZ Grindlays Bank Plc. Bombay, despite the fact that the assessee could not prove of taking the loan from the Bank and its utilisation for business purpose."
ITA No. 1299/Jp/1993"On the facts and in the circumstances of the case, the learned Commissioner (Appeals), Raj. I, Jaipur, has erred in cancelling the assessment on the ground that the reasons recorded by the assessing officer for initiation of reassessment proceedings did not indicate that income chargeable to tax had escaped assessment."
3. The brief facts of the case are that the assessee- company was one of the contenders before the Board for Industrial and Financial Reconstruction (BIFR) who, vide its order dated 15-5-1990, approved the controlling interest and management of the sick industry, namely, M/s Mewar Sugar Mills Ltd., in favour of the assessee- company with a condition that the assessee-company should provide equity share capital/interest-free loan of Rs. 118 lacs towards financing the requirement of funds under the rehabilitation scheme. Consequently, for taking the controlling interest and management in M/s Mewar Sugar Mills Ltd., the assessee- company has taken a loan from ANZ Grindlays Bank Plc., Bombay, for Rs. 1,14,00,000 on 26-6-1990 and out of it, a sum of Rs. 1,08,00,000 was directly transferred by ANZ Grindlays Bank Plc., Bombay to M/s Mewar Sugar Mills Ltd. Rs. 5,42,868 was the amount of interest chargeable by the said Bank and balance Rs. 57,132 was deposited by the assessee- company in The Bank of Rajasthan Ltd., Bombay. Later on, for repayment of the said loan, to ANZ Grindlays Bank Plc., Bombay, the assessee- company on 5-10-1990, obtained an interest free loan from Relico (India) Ltd., subsequently known as Essar Properties Ltd., of Rs. 1, 14,49,972.60 and the entire amount of loan was utilised for making the repayment of loan along with interest of Rs. 49,972.60 to ANZ Grindlays Bank Plc., Bombay, on 8-10-1990, and thus during the year itself the account of the Bank was squared-up by the assessee- company in its books of accounts. The assessee- company has claimed interest of Rs. 5,92,840 (5,42,868 + 49,972.60) which was disallowed by the assessing officer on the ground that from the balance sheet and the copy of account, it transpired that the assessee- company never took loan from the aforesaid Bank vide assessment order dated 24-11-1992, passed under section 143(3).
4. On first appeal, the Commissioner (Appeals), vide his order dated 18-8-1993, has deleted the disallowance and his findings recorded. at para 3.2 of his order are reproduced as below:
"After due consideration of the entries made in the books of account which indicates that the finance made available to M/s Mewar Sugar Mills Ltd., was on account of the loan availed of from M/s ANZ Grindlays Bank , Bombay and also the fact that the payment was made by the other concern, namely, M/s Relico (India) Ltd., on behalf of the appellant towards the said loan, it appears that there was no justification in making the disallowance in question, Hence, the addition, being unjust, is deleted. (Relief Rs. 5,92,840).
5. Subsequently, reassessment proceedings were initiated by the assessing officer after recording the reasons on 12-12-1994, that the assessee- company advanced a loan of Rs. 1,08,00,000 to M/s Mewar Sugar Mills Ltd., on which no interest has been charged. The amount of interest per annum calculated @ 18 per cent p.a. Rs. 19,44,000 for the year which, according to the assessing officer, has escaped assessment for the assessment year 1991-92.
6. The initiation of reassessment proceedings was objected by the assessee on the ground that it is a change of opinion for which reopening of the assessment is not valid. However, the assessing officer has rejected the assessee's plea and justified the reopening of the assessment and accordingly completed the assessment after disallowing the payment of interest to ANZ Grindlays Bank of Rs. 5,92,840 and addition of unexplained deposit in the name of Smt. Neena Dhandhania of Rs. 1,00,000 and thus completed the assessment at a total loss of Rs. 1,286 vide order dated 11-12-1996, passed under section 147/143(3).
7. Against the above assessment, the assessee has preferred appeal before, the Commissioner (Appeals) objecting the reopening of assessment under section 148. The Commissioner (Appeals), vide his order dated 24-6-1997, has allowed the assessee's appeal by cancelling the assessment order. His findings recorded at para 2.3 are reproduced as below :
"The claimof the appellant is acceptable. The Assistant Commissioner did not appreciate the facts of the case correctly. Firstly, the appellant did not disclose any interest income by way of providing finance to sick units. Further, the assessment should not have been reopened to charge tax on the income which was neither earned nor received by the appellant. There is no provision of law which empowers the assessing officer to tax notional interest income where a taxpayer has advanced interest-free loans. The Assistant Commissioner did not bring any material on record to show that the appellant, after charging the interest, did not declare it in the return of income. The reasons recorded by the Assistant Commissioner do not indicate that income chargeable to tax had escaped assessment. In these circumstances, the reassessment proceedings initiated on 12-12-1994, cannot be sustained. The assessment order is cancelled."
8. Against both the orders of the Commissioner (Appeals), dated 18-8-1993 and 24-6-1997, the revenue has come in appeal before us.
9. At the time of hearing, the learned departmental Representative submits that in view of the reasons mentioned in the assessment orders and in the grounds of appeal, the action of the assessing officer in reopening the assessment under section 148 is according to law and hence the addition made by the assessing officer should be restored.
10. On the other hand, the learned authorised representative contends that the law requires the assessing officer to have "reason to believe that any income chargeable to tax has escaped assessment". Under section 147 the words are "reason to believe" and not "reason to suspect". The word believe has to be understood in contradistinction of satisfaction, opinion or pretence. Belief indicates something concrete or reliable. The belief of the officer is to escapement of income and the belief should not be a product of imagination or speculation. There must be reason to induce the belief. Further, the belief must be of an honest and reasonable person based upon reasonable grounds. The officer may act on direct or circumstantial evidence but his belief must not be based on mere suspicion, gossip or rumour. The assessing officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the Court. He relied on the various judgments in ITO & Ors. v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC). Sheo Nath Singh v. Appellate Assistant Commissioner (1971) 82 NR 147 (SC) Etc., Asoke Kumar Sen v. Income Tax Officer & Anr. (1961) 132 ITR 707, (Del), Sri Krishna (P) Ltdi Etc. v. Income Tax Officer (1996) 221 ITR 538 (SC). ASA John Devinathan & Anr. v. Addl. OT (1980) 126 ITR 270, 284 (Mad), Murarka Paints & Varnish Works Ltd. & Anr. v. Income Tax Officer (1978) 114 ITR 480 (Cal), Chunnilal Surajmal v., CIT (1986) 160 ITR 141 (Pat), VXL India Ltd. v. Assistant Commissioner (1995) 215 ITR 295, 297 (Guj), Birla VXL Ltd. v. Asstt. CIT (1996) 217 ITR 1 (Guj) and the commentary of Chaturvedi & Pithisaria's Income-tax Law, Fifth Edition, Vol. 3, pp. 5102 and 5195-6.
11. The learned authorised representative further submits that the factual back ground of the case was very well known to the assessing officer that the assessee- company was a contender before the Board of Industrial Finance and Reconstruction (BIFR for short) which decided vide their order dated 15-5-1990, that the controlling interest and management of the one sick industry, namely, M/s Mewar Sugar Mills Ltd., should be taken over by the assessee and a condition was put that the assessee should provide an interest-free sum of Rs. 1.18 crores to the said company. The fact of taking over of controlling interest and management in the sugar mill is apparent from the director's report of the assessee- company. The assessee is a private limited company being governed by the provisions, of the Companies Act, 1956. It had to follow accrual system of accounting necessarily. Despite this, in its audited P&L a/c, no interest income has been shown from the said company. The statutory auditor, an independent authority appointed under the Companies Act, 1956, has examined the accounts of the assessee in detail and accorded its consent that the same gives a true and fair view of the balance sheet and P&L a/c for the relevant year. In other words, the auditor also did not find a case that despite accrual of income it was not accounted for by the assessee. The order of the BIFR dated 15-5-1990, has directed the assessee to introduce Rs. 1.18 crores as interest-free advance/deposit in the company. Thus, no interest absolutely could have been charged as desired by the BIFR by the order of which the assessee was bound. The predecessor assessing officer had the knowledge of the facts that the assessee did advance Rs. 1.08 crore to the company without interest, however, at the same time the assessee had also enjoyed Rs. 1.14 crores interest-free from one M/s Relico India Ltd. and, therefore, no interest was chargeable by the assessee company. It is absolutely wrong to say that the assessee has been charging interest on providing finance to sick units, which is a pure presumption of facts by the assessing officer, inasmuch as the assessee has never charged and declared such interest either in the past or in this year. The Commissioner (Appeals) recorded a finding at p. 3, paras 2-3 of his order Which has not been assailed by the revenue. Therefore, on the basis of, these materials, the successor assessing officer could not have had entertained even a reason to suspect what to talk of a reason to believe. Remotely, there was no clue so as to give the successor assessing officer any flight of imagination that some interest income did accrue but not disclosed. Thus, the so-called reasons to believe are in fact based on mere suspicion, imagination and are not bona fide.
12. He also submits that (for) any income chargeable to tax has escaped assessment the assessing officer must show that he had a reasonable ground in the reasons recorded that some income though chargeable to tax yet escaped assessment. Until the reasons recorded are to this effect, it cannot be said to be the reasons recorded as required by section 147. Since no such reasons existed, therefore, the reopening was without jurisdiction. The reasons recorded have been reproduced verbatim at p. 2 of the. Order of Commissioner (Appeals) and a perusal thereof clearly shows that the assessing officer did agree that no interest was charged on the loan of 1.08 crore from M/s Mewar Sugar Mills. However, in his view the "interest @ 18 per cent per annum should have reasonably been charged from the company". The question which arises is whether from the reasons so recorded it can be said that the reasons to believe recorded were to the effect that (a) any income chargeable to tax (b) escaped assessment. It is a settled law that income-tax is a tax on real income and not on the notional income as was held by Hon'ble Supreme Court at the earliest in the case of CIT v. Shooili Vallabh Das & Co. (1962) 46 ITR 144 (SC) and followed by various other judgments and in a recent judgment in the case of Godhara Electlicals v. CIT (1997) 225 ITR 746 (SC). Admittedly, no interest has been charged nor the assessing officer has shown that it was really charged but not disclosed. In fact, he himself recorded a finding clearly in the reasons itself that no interest was charged. Keeping the legal and factual position in view the assessing officer could not have had a reason to say that some chargeable income was there. As a matter of fact no income chargeable to tax was there. Secondly, once there was no income chargeable to tax there was no question of escaping the assessment. The escapement can be there only and only when income chargeable to tax has not been assessed or remained to be assessed. Once there was no income at all neither received nor accrued it could not have escaped assessment in view of NRK Ramkumar Raja v. Income Tax Officer (2001) 249 ITR 385 (Mad) and CIT v. Shnivas & Co. (1996) 219 ITR 636 (Mad).
13. The learned authorised representative vehemently argued that no reopening is permissible in the case of change of opinion. In this case the assessing officer while completing the original assessment had duly applied her mind on the facts relating to the payment of interest and did form an opinion. The details of the interest of Rs. 6,02,370 were called for and filed. It was also observed that the assessee obtained an interest-free loan of Rs. 1.14 crore from one M/s Relico (India) Ltd. After having obtained the details and scanning the same, the assessing officer reached to a conclusion that part of the interest which was paid to the Grindlays Bank is to be disallowed inasmuch as the loan is not appearing in the balance sheet. The reasons of disallowance may be various, however, if the assessing officer has chosen to make the disallowance on a particular point only and her order is silent on the other point that does not mean that there has been no application of mind and consequently no opinion formed. Therefore, now to take an altogether different view on the same set of facts already available by the successor assessing officer is not permissible. It has been held that even in the amended law, reopening is not permissible on change of opinion. He refers latest decisions in the cases reported in Jindal Photo Films Ltd. v. Dy. CIT (1998) 234 ITR 170-177, 179 (Del) also Birla VXL Ltd. v. Assistant Commissioner (supra), VXL India Ltd. v. Asst. CIT (1995) 127 CTR (Guj) 204 : (1995) 215 ITR 295, (Gui), Garden Silk Mills Ltd. v. Dy CIT (1996) 222 ITR 68 (Guj). The formation of opinion and application of mind by assessing officer is also clear from the finding record by the assessing officer in the order under section 143(3) at p. 1, para I that the assessee is engaged in financing sick unit and during this year Rs. 1.08 crores were financed to one M/s Mewar Sugar Mills Ltd. Her other finding at the end of the assessment that Rs. 1. 14 crores obtained from one Relico (India) Ltd., interest-free. Therefore, 'there is no reason to say that no opinion was formed.
14. In ITA No. 1399/Jp/1993 he states that since the entire amount was taken from the Bank in the mid of the year and was also paid back during the year itself, therefore, it was not appearing in the balance sheet. He, therefore, submits that keeping in view his earlier pleas, the addition is un-called for. He further states that the other part of the ground that the utilisation of the funds was not established, is purely contrary on the face of the record itself, inasmuch as the assessing officer himself mentioned at p. 1, para 2 that the company provided finance to M/s Mewar Sugar Mills Ltd. of Rs. 1.08 crore. Otherwise also, this was not at all a basis for disallowance by assessing officer. She was never of the view that the funds were not utilised for business purpose. This is further evidenced by assessing officer's findings in the reassessment order. Again, it is pertinent to note that the assessing officer himself made the position clear in the reassessment on this issue. The revenue, therefore, has totally made out a new case in their appeal now, which does not arise out of the order of the assessing officer or the Commissioner (Appals) and cannot be permitted now to be raised. The reliance was placed on the cases cited as Indian Steel & Wire Products Ltd. v. CIT (1994) 208 ITR 740 (Cal) and Aravali Arts in ITA Nos. 2259 & 2260/Jd/1994 dated 16-4-2001 (Jodhpur Bench). Alternatively, it was submitted that this part of grounds of appeal is academic only as again considered by assessing officer in reassessment order. It was, therefore, submitted that the orders of the Commissioner (Appeals) should be upheld and revenue's appeals should be dismissed.
15. We have carefully considered the rival submissions of both the parties, perused the material available on record and the decisions relied upon by the learned authorised representative. We find that for taking over the controlling interest and management of the sick industry M/s Mewar Sugar Mills Ltd., the assessee- company, as per the order of the BIFR dated 15-5-1990, has provided Rs. 1,08 crores to the said sick industry after taking loan from ANZ Grindlays Bank Plc., Bombay. The said loan of the Bank was repaid along with interest of Rs. 5,92,840.60 by the assessee- company after taking an interest-free loan from M/s Relico (India) Ltd. of Rs. 1, 14,49,972.60 in the same accounting year itself and hence the account of the said Bank was not appearing in the balance sheet. Since the amount was invested in M/s Mewar Sugar Mills Ltd. as per order of BIFR dated 15-5-1990, for acquiring controlling interest and management of the said sick industry with a condition that the assessee should provide equity share capital/interest-free loan to the said company, therefore, the said investment cannot be held for business purposes. The interest paid on borrowings for making investment in the said unit is for capital investment, not relatable to the business of the assessee, the same is, therefore, not deductible as revenue expenditure wholly and exclusively incurred for the purpose of business of assessee. Accordingly, we reverse the finding of the Commissioner (Appeals) and restore the addition made by the assessing officer at Rs. 5,92,840.
16. In ITA No. 1299/Jp/1997, the dispute before us is with regard to the action of the assessing officer for initiation of reassessment proceedings.
17. After carefully examining the material available on record, the submissions of the parties and the decisions relied upon by the learned authorised representative, we find that the assessee has disclosed complete facts to the assessing officer at the time of original assessment proceedings and from the original assessment order it transpires that the assessing officer has also examined the issue of taking loan and advance to sick industry, M/s Mewar Sugar Mills Ltd., and also payment of interest while making the original assessment. No new material has come on record, no information has been received and there is no change of law. The assessing officer has initiated reassessment proceedings by merely saying that the assessee- company advanced an interest-free loan to M/s Mewar Sugar Mills Ltd. and, therefore, the amount of interest calculated @ 18 per cent per annum of Rs. 19,44,000 has escaped assessment without disclosing the reasons which led the assessing officer to hold such belief. The law does not confer jurisdiction on the assessing officer to take such as an action under section 147/148. The reviewing of the earlier order suo moto irrespective, of there being any material to come to a different conclusion apart from just having second thought about the inferences drawn earlier is not permissible under the scheme of section 147/148. This view finds support from the decision of Hon'ble Delhi High Court in the case of Jindal Photo Films Ltd. v.Dy. CIT (supra), relying on CIT v. Rao Thakur Narayan Singh (1965) 56 ITR 234, 239 (SC). It is not the case of the revenue that the interest had actually been collected and the collection of such interest was not reflected in the accounts. The finding of the assessing officer that the interest should have reasonably been charged from the company, M/s Mewar Sugar Mills Ltd., and owing to assessee's failure to disclose or declare the income on such loans has escaped assessment cannot be a ground for reopening of the assessment. If the assessee has not charged the interest or collected such interest, the assessing officer cannot fix a notional interest as due or collected by the assessee. This view finds support from the recent decision of Hon'ble Gauhati High Court in the case of B&A Plantations & Industries Ltd. v. CIT (2000) 242 ITR 22 (Gau), wherein it was held at page No. 23 (short note) as under :
"Held, that there was no provision in the Income Tax Act empowering the IT authorities to include in the income interest which was not due or not collected. If the assessee had not bargained for interest, or had not collected interest, it was not open to the IT authorities to fix a notional interest and assess it."
Under these circumstances and keeping in view the various decisions relied upon by the learned authorised representative, we are of the view that the reopening of the assessment is merely a fresh application of mind by the assessing officer to the same facts which were already on record and hence it is a case of mere change of opinion, which does not provide jurisdiction to the assessing officer to initiate proceedings under section 147 and, accordingly, we uphold the order passed by the Commissioner (Appeals) on this account and, accordingly, the ground taken by the revenue is rejected.
18. In the result, the revenue's appeal in ITA No. 1399/Jp/1993 is allowed, whereas the appeal in ITA No. 1299/Jp/1997 is dismissed.