Income Tax Appellate Tribunal - Pune
Khandesh Builders Ltd, Jalgaon vs Department Of Income Tax on 7 March, 2012
1
ITA No. 748 PN/2010
CO No. 37/PN/11
(Asstt.Year : 2003-04)
Khandesh Builders Ltd.,
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH " A", PUNE
Before Shri Shailendra Kumar Yadav, Judicial Member
and Shri R.K. Panda Accountant Member
ITA No. 748 PN/2010
(Asstt.Year : 2003-04)
DCIT, Circle 2 Jalgaon. .. Appellant
Vs.
Khandesh Builders Ltd., .. Respondent
303, Shivajinagar
Jalgaon - 425001
PAN No.AAACK8222H
CO No. 37/PN/11
( In ITA No. 748 PN/2010)
Khandesh Builders Ltd., .. Cross Objector
303, Shivajinagar
Jalgaon - 425001
PAN No.AAACK8222H
DCIT, Circle 2 Jalgaon. .. Respondent
Assessee by : Shri Sunil Ganoo
Revenue by : Ms. Kapthuama
Date of Hearing : 07-03-2012
Date of Pronouncement : 04-05-2012
ORDER
Per R.K. Panda, AM
This appeal filed by the Revenue and the CO filed by the Assessee are directed against the order dated 19-02-2010 of the CIT(A)-II, Nashik relating to Assessment Year 2003-04.
2. Facts of the case in brief are that the assessee company is engaged in the business of building construction contract and trading in shares and securities. 2
ITA No. 748 PN/2010 CO No. 37/PN/11 (Asstt.Year : 2003-04) Khandesh Builders Ltd., It filed the return of income originally showing a total loss of Rs. 5,71,09,080/-. The total loss comprises of the following items :
i) Depreciation allowance (-) Rs. 3,13,403.00
ii) Speculation loss (-) Rs. 6,29,17,221.00
iii) Business profit, i.e., interest (+) Rs. 6,21,544.00 Accrued on units of UTI -MIP-99
------------------------
Total loss Rs. 5,71,09,080.00
------------------------
3. The original assessment was completed u/s. 143(3) of the Act on 30-12- 2005 making disallowances of some office expenses amounting to Rs. 50,000/- and the total loss was determined at Rs. 5,70,59,080/-. The Assessing Officer subsequently reopened the assessment for the following reasons :
".... the assessee company had claimed speculation loss of Rs. 6,29,17,221/- and depreciation of Rs. 3,13,403/-. The P & L Account has been credited, inter alia, by a sum of Rs. 61,21,544/- as interest on MIP-
99. This interest of Rs. Rs. 61,21,544/- has, thus, been shown by the assessee as business income. The investment in MIP-99 units has been shown by the assessee under the head 'investment' in the Balance sheet. This interest on MIP units thus, constitutes income from other sources, instead of business income as shown by the assessee. There have also been various judicial pronouncements on this issue where such interest has been treated as income from other sources. Further, provisions of section 115JB would be applicable to the assessee and assessee is liable to pay taxes on this income of Rs. 61,21,544/- @ 10% plus surcharge at 5%. Therefore, income from other sources to the tune of Rs. 61,21,544/- has escaped assessment within the meaning of section 147 of the I.T. Act.
4. Subsequently, rejecting the various explanations given by the assessee the AO completed the assessment treating the interest income on UTI - MIP-99 amounting to Rs. 61,21,544/- as income from other sources and also determined the income u/s. 115JB at Rs. 61,21,544/-.
5. Before CIT(A), the assessee challenged the re-opening of the assessment on the ground that :
3
ITA No. 748 PN/2010 CO No. 37/PN/11 (Asstt.Year : 2003-04) Khandesh Builders Ltd.,
i) Notice issued under section 148 of the Act, dated 26-02-2009 is barred by limitation.
ii) Reasons recorded for issue of notice under section 148 of the Act do not record a finding that company had failed to disclose fully and truly material facts necessary for assessment.
iii) No fresh information is brought on record by the Assessing Officer before issue of notice under section 148 of the Act.
iv) Sanction given by the Commissioner of Income Tax for issue of notice under section 148, i.e., satisfaction of the CIT, is not on the basis of reasons recorded for issue of notice under section 148 of the Act.
v) Notice under section 148 of the Act is issued on the basis that interest accrued on MIP-99 constitutes income from other sources as against the view that it was business income by mere change of opinion as there was some contradictory view about the assessibility of the said receipts.
vi) Notice under section 148 of the Act was issued when the proceedings under section 154 on the same subject matter were pending.
vii) Notice under section 148 of the Act was issued on the basis of Revenue Audit Objection raised by the A.G. party.
6. Based on the arguments advanced by the assessee, the Ld CIT(A) held that the issue of notice under section 148 of the Act was not in accordance with the provisions of section 147 and he accordingly cancelled the re-assessment proceedings initiated by the Assessing Officer. While doing so, he observed that the in the original assessment order passed by the AO on 30-12-2005 the AO had called for the necessary details, applied his mind and completed the assessment. The assessee had given the break up of the total loss computed in the memo of computation of income attached to the return of income wherein it has been clearly mentioned that the amount of Rs. 61,21,544/- was a "business profit, i.e., interest accrued on MIP-99 kept out of advances received being business income." The balance sheet and the profit and loss account for the 4 ITA No. 748 PN/2010 CO No. 37/PN/11 (Asstt.Year : 2003-04) Khandesh Builders Ltd., F.Y. 2002-03 filed along with the return of income clearly show about the investment and interest earnings. Thus, the assessee had disclosed fully and truly all material facts while filing the return of income and also at the time of assessment. The AO had not brought out any new material facts or fresh information on record to show that there was failure on the part of the assessee before issue of notice under section 148 of the I.T. Act. Accordingly, he held that notice u/s. 148 of the I.T. Act issued by the AO is not in accordance with the provisions of section 147 of the I.T.Act.
7. So far as the arguments of the assessee that notice issued under section 148 of the Act was a mere change of opinion and therefore is not correct even as per the amended provisions w.e.f., 01-04-1989 he held that in view of the decision of Hon'ble Supreme Court in the case of Kelvinator of India Ltd. (320 ITR 561) the AO has now the powers to re-open the assessment provided there is tangible material to come to the conclusion that there is escapement of income from assessment and the reasons must have a live link with the furnishing of belief. The past assessment cannot be re-opened on mere change of opinion. It has further been held by the Hon'ble Apex court that the AO has no power to review and has only powers to re-open. The learned CIT(A) observed that the AO has examined the complete details at the time of original assessment and treated the said interest receipts on account of MIP-99 as business income. He observed that the AO in his reasons has pointed out that there are several decisions regarding the taxability of the interest income as income from other sources or otherwise. Therefore, according to the CIT(A), when there are two opinions possible on the same issue, the AO cannot review 5 ITA No. 748 PN/2010 CO No. 37/PN/11 (Asstt.Year : 2003-04) Khandesh Builders Ltd., the same at a later point of time to reassess under a different head on the ground that income had escaped the assessment.
8. The Learned CIT(A) further noted that the Revenue Audit party has given an opinion and in absence of any new or fresh material the AO cannot re-open the assessment based on such Audit objection. For this proposition, he relied on the decision of Hon'ble Delhi High Court in the case of Carlton Overseas Pvt. Ltd., reported in 318 ITR 295. He accordingly, cancelled the re-assessment proceedings. Since the re-assessment was quashed, he did not adjudicate various other grounds raised by the assessee.
9. Aggrieved with such order of the CIT(A), the Revenue has filed the following grounds :
1. On the facts and in the circumstances of the case, the CIT(A) has erred in cancelling the re-assessment holding that the issue of notice u/s.148 by the A.O. is not in accordance with the provisions of section 147 and notice u/s. 148 was issued merely on change of opinion and there was no failure on part of the assessee to disclose necessary information for computation.
2. On the facts and in the circumstances of the case, the CIT(A) has failed to appreciate the fact that the assessee has shown the asset of MIP-99 under the head of 'investment' in its balance sheet. The main business of the assessee is of trading shares and naturally the income of trading of shares is only business income in the hands of the assessee and not the income of MIP-99 which are held as investment. The interest on MIP-99 is income of the assessee under head of 'income from other sources', which is wrongly claimed by the assessee under the head of 'income and business'.
3. On the facts and in the circumstances of the case, the CIT(A) has failed to appreciate that by claiming this income under wrong head, i.e., 'income from business', the assessee has failed to disclose the material fact necessary for computation of income. The fact of the case proves clearly the failure on part of the assessee in respect of disclosure of material fact in the return of income, hence the issue and service of notice u/s. 142(1) is not barred by limitation and in order.6
ITA No. 748 PN/2010 CO No. 37/PN/11 (Asstt.Year : 2003-04) Khandesh Builders Ltd.,
4. On the facts and in the circumstances of the case, the CIT(A) has failed to appreciate that there are details supplied to the AO in respect of interest paid to bank and Emco Ltd., by the assessee but no where the details pertaining to interest income received/receivable from MIP-99 are furnished to the AO. It means that there was no disclosure of income from MIP-99 which is important and material fact in question which is not disclosed by the assessee as observed by Ld. CIT(A) in his order.
5. The appellant, therefore, prays that the order of the CIT(A)-II, Nashik be vacated and that of the AO be restored.
6. The appellant craves to leave, alter, amend, modify any ground of appeal at the time of hearing.
10. The assessee has also filed CO No. 37 by raising the following grounds :
1. Learned Commissioner of Income Tax (Appeals-II), Nashik erred in not annulling the assessment on the ground that reasons recorded for issue of notice u/s. 148 of the I.T. Act, 1961 do not record a finding that company had failed to disclose fully and truly all material facts necessary for assessment
2. Learned Commissioner of Income Tax (Appeals-II) Nashik erred in not annulling the assessment on the ground that notice issued under section 148 of the Act, dated 26-02-2009 being barred by limitation.
3. Learned Commissioner of Income Tax (Appeals-II) Nashik erred in not annulling the assessment being based on noticed issued under section 148 when the proceedings under section 154 of the I.T. Act, 1961 on the same subject matter was pending.
4. Learned Commissioner of Income Tax (Appeals-II) Nashik erred in not annulling the assessment on the ground that notice under section 148 of the Act being issued on the basis of the revenue audit objection raised by the A.G. party.
5. Learned Commissioner of Income Tax (Appeals-II) Nashik erred in not annulling the assessment on the ground that sanction given by the Commissioner of Income Tax for issue of notice u/s. 148, i.e., satisfaction of the CIT is not on the basis of reasons recorded for issue of notice u/s. 148.
6. Learned Commissioner of Income Tax (Appeals-II) Nashik erred in not annulling the assessment being based on the notice issued /s. 148 for levy of MAT u/s. 115JB even though there is no profit as per Profit & Loss A/c. Prepared as per provisions of Part-II & III of Schedule-VI to the Companies Act, 1959, i.e., when provisions of section 115JB were not applicable.7
ITA No. 748 PN/2010 CO No. 37/PN/11 (Asstt.Year : 2003-04) Khandesh Builders Ltd.,
11. The learned DR relied on the order of the AO and filed certain case decisions. The learned counsel for the assessee on the other hand while supporting the order of the learned CIT(A) to the extent it is decided in favour of the assessee submitted that the various other grounds raised in the CO have not been decided by the learned CIT(A). Referring to the decision of Hon'ble Gauhati High Court in the case of CIT vs. Purbanchal Paribahan Goshti reported in 234 ITR 663 he submitted that there is absolutely no difference between an appeal and Cross Objection. Upon filing of such Cross Objection it is obligatory on the part of the Tribunal to decide such memorandum of CO as if it was an appeal. Since the Ld. CIT(A) has not adjudicated the grounds in the Cross-Objection, he submitted that the same should be decided.
12. Referring to the grounds in the CO he submitted that he is not pressing the grounds of CO No. 2 and 5. So far as the ground of CO No. 1 is concerned, learned counsel for the assessee referred to the decision of Hon'ble Bombay High Court in the case of CIT Vs. Lok holdings reported in 308 ITR 356 and submitted that interest earned by assessee, a property developer, by making temporary deposits of surplus money out of advances received by it from intending purchasers is "business income" and cannot be assessed as "income from other sources." Referring to Page No. 49 of the Paper Book, which is the reasons for issue of notice under section 148 he submitted that there is no allegation that the assessee has failed to disclose fully and truly all material facts necessary for the purpose of completion of assessment. Referring to the decision of Hon'ble Bombay High Court at Goa in the case of Titanor Components Ltd. Vs. ACIT reported in 243 CTR 520 he submitted that the 8 ITA No. 748 PN/2010 CO No. 37/PN/11 (Asstt.Year : 2003-04) Khandesh Builders Ltd., Hon'ble court in the said decision has held that AO having issued notice u/s. 148 stating that the assessee has wrongly claimed certain deductions which he was not entitled to without recording that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of the relevant assessment year, the impugned notice issued after four years was not sustainable. He submitted that facts being similar in the case of the assessee, the learned CIT should have held that the notice issued under section 148 is invalid for non recording of the finding that the company has failed to disclose fully and truly all material facts necessary for assessment.
13. So far as Ground No. 3 of the CO is concerned, he submitted that the AO issued notice under section 154 vide notice dated 26-03-2008 to rectify the incorrect computation of total income since speculation loss has wrongly been adjusted against "income from other sources", i.e., accrued interest on MIP-99 of Rs. 61,21,544/-, Miscellaneous expenses of Rs. 23,502/- and Dividend income of Rs. 69,192. He submitted that the assessee vide letter dated 05-06- 2008, (a copy of which has been placed at Paper Book Page 77 to 86) had replied to such rectification proceedings. However, during the pendency of 154 proceedings notice under section 148 was issued. Referring to the decision of Mumbai Bench of the Tribunal in the case of Jethalal K. Morbia Vs. ACIT reported in 109 TTJ Page 1, he submitted that initiation of re-assessment proceedings during pendency of rectification proceedings on the same issue is invalid.
14. So far as Ground No. 4 of the CO is concerned, he submitted that at the instance of Audit party notice was issued under section 148. Referring to the 9 ITA No. 748 PN/2010 CO No. 37/PN/11 (Asstt.Year : 2003-04) Khandesh Builders Ltd., letter addressed by the Audit party to the Dy.CIT, ( a copy of which is placed at Paper Book Pages 87 to 94), he submitted that Audit party had raised certain objections. The AO has mentioned that he has gone through the submissions of the assessee and found the same to be convincing and therefore, Audit objection is not acceptable. Referring to the decision of Hon'ble Gujarat High Court in the case of Cadila Healthcare Ltd. Vs. ACIT (OSD) reported in 2011 TMI 29771 he submitted that the Hon'ble High court in the said decision has held that when the AO had categorically come to the conclusion that the objection of the Audit party is not valid and the assessment of the assessee has been completed then mere opinion of the audit party cannot form the basis for the Assessing Officer to reopen the closed assessment that too beyond four years from the end of the relevant assessment year. Accordingly the reassessment proceedings initiated by the Assessing Officer was cancelled. Since the facts in the instant case are identical to the facts in the case cited above, therefore the CIT(A) should have quashed the reassessment proceedings on this ground also.
15. So far as CO No. 6 is concerned, he submitted that since the assessee has computed its loss as per the Companies Act, therefore, provisions of section 115JB are not applicable. He submitted that when the provisions of section 115JB are not applicable to the facts of the present case, learned CIT(A) should have annulled the assessment being based on the notice issued under section 148 for levy of MAT u/s.115 JB since there was no profit as per Profit and Loss account prepared on the basis of provisions of the Companies Act. Referring to the decision of the Co-ordinate Bench of the Tribunal in the case of ACIT Vs. Janhavi Investements (P) Ltd. vide ITA No.418 /PN/2003 order 10 ITA No. 748 PN/2010 CO No. 37/PN/11 (Asstt.Year : 2003-04) Khandesh Builders Ltd., dated 29.09.2006 he submitted that the Tribunal under similar circumstances had quashed the re-assessment proceedings. He accordingly submitted that since the CIT(A) has not adjudicated the various legal grounds raised before him, therefore, the grounds in the CO should be adjudicated independently. Referring to the various decisions relied on by the Ld.DR he submitted that these decisions are not at all applicable to the facts of the present case and are distinguishable.
16. We have considered the rival submissions made by both the sides, perused the orders of the AO, and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. So far as grounds raised by the Revenue are concerned, we find the learned CIT(A) cancelled the re-assessment proceedings holding that the issue of notice under section 148 by the AO was not in accordance with the provisions of section 147 since the same was issued merely on change of opinion and there was no failure on the part of the assessee to disclose necessary information for computation of income. Perusal of the copy of the profit and loss account for the year ending 31-03-2003 placed at Paper Book Page 25 clearly shows the accrued interest on MIP-99 at Rs. 61,29,544/-. The schedule of investment as on 31-03-2003, a copy of which is place at Paper Book 30 shows the investment in UTI MIP-99 and the interest accrued there on. The nature of business or profession mentioned in the audit report shows the business of the assessee company as building construction contractor and share trading and investment in securities. The computation of income, a copy of which is placed at Page Nos. 44 to 45 clearly shows an amount of Rs. 61,21,544/- as "business profit, i.e. ,interest accrued on UTI MIP-99 kept out of 11 ITA No. 748 PN/2010 CO No. 37/PN/11 (Asstt.Year : 2003-04) Khandesh Builders Ltd., advances received being business income." On the basis of the details available in the Audited account as well as computation statement and on the basis of the various details verified by the AO from time to time along with Books of Account, the AO completed the assessment and passed the order.
17. We find the Hon'ble Bombay High Court in the case of Lok Holdings (Supra) has held that the interest earned by assessee, a property dealer, by making temporary deposits of surplus money out of advances received by it from intending purchasers as business income and cannot be assessed as income from other sources. The Hon'ble High court in the said decision has relied upon the decision of Hon'ble Bombay High court in the case of CIT Vs. Paramount Premises Pvt. Lt., reported in 190 ITR 259. Therefore, the Assessing Officer while passing the order has taken a view which is in consonance with the view taken by the Jurisdictional High Court. Under these circumstances, the re-opening of the assessment in our opinion is based merely on change of opinion and therefore, the same is not sustainable in law. Since the learned CIT(A) has elaborately discussed the issue and has cancelled the reassessment proceedings, therefore, the same in our opinion does not suffer from any infirmity. Accordingly, the same is upheld. The grounds raised by the Revenue that assessee has not disclosed the material facts necessary for computation of income is also incorrect in view of the clear cut disclosure by the assessee in the computation statement. In this view of the matter, we do not find any infirmity in the order of CIT(A) cancelling the re- assessment proceedings. Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed.
12
ITA No. 748 PN/2010 CO No. 37/PN/11 (Asstt.Year : 2003-04) Khandesh Builders Ltd.,
18. So far as the Ground No. 1 of the CO is concerned, we have already held that the company has disclosed all the material facts necessary for assessment. We find from the notice issued under section 148 that the same does not mention that the assessee has failed to disclose fully and truly all material facts necessary for the purpose of completion of assessment. The Hon'ble Bombay High Court in the case of Titanor Component Ltd., Vs. ACIT reported in 243 CTR 520 has held as under (short notes) "Having regard to the purpose of Section 147, the power conferred by section 147 does not provide a fresh opportunity to the AO to correct an incorrect assessment made earlier unless the mistake in the assessment so made is the result of a failure of the assessee to fully and truly disclose all material facts necessary for assessment. Indeed, where the assessee has fully disclosed all the material facts, it is not open for the AO to reopen the assessment on the ground that there is a mistake in assessment. Moreover, it is necessary for the AO first observe whenever there is a failure to disclose fully and truly all material facts necessary for assessment and having observed that there is such a failure to proceed under section 147. It must follow that where the AO does not record such a failure he would not be entitled to proceed u/s. 147. The AO has not recorded the failure on the part of the petitioner to fully and truly disclose all material facts necessary for the Asst. Year 1997-98. What is recorded is that the petitioner has wrongly claimed certain deductions which he was not entitled to. There is a well known difference between a wrong claim made by an assessee after disclosing all the true and material facts as a wrong claim made by the assessee by 13 ITA No. 748 PN/2010 CO No. 37/PN/11 (Asstt.Year : 2003-04) Khandesh Builders Ltd., withholding the material facts fully and truly. It is only in the latter case that the AO would be entitled to proceed under section 147. In the circumstances the impugned notice is not sustainable and is liable to be quashed and set aside".
19. Since the AO in the instant case has not alleged in the notice issued under section 148 that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, therefore, respectfully following the above decision of the jurisdictional High Court we are of the considered opinion that the learned CIT(A) should have annulled the assessment on the ground that the reasons recorded for issue of notice under section 148 of the Act do not record a finding that assessee had failed to disclose fully and truly all material facts necessary for assessment. Accordingly, the ground No. 1 of the CO is allowed.
20. So far as Ground No. 3 of the CO is concerned, it is an admitted fact by the Revenue that notice under section 154 was issued on 26-03-2008 which was served upon the assessee on 28-03-2008 on the same subject matter i.e. as per notice u/s.148. The DCIT in his para-wise comments has also mentioned that neither any rectification order nor an order dropping proceedings under section 154 was passed. It has been held by the Mumbai Bench of the Tribunal in the case of Mahinder Freight Carriers Vs. Dy. CIT reported in 129 ITD 278 that when proceedings under section 154 were pending on the same issue and not concluded, parallel proceedings under section 147 initiated by the AO are invalid and void ab-initio, especially when except the return and its enclosures no other material or information was in possession of the AO. Since in the 14 ITA No. 748 PN/2010 CO No. 37/PN/11 (Asstt.Year : 2003-04) Khandesh Builders Ltd., instant case admittedly the rectification proceedings under section 154 were pending therefore in view of the decision cited supra, the notice issued under section 148 on the same issue is invalid. Therefore, the CIT(A) should have annulled the assessment on this ground also. Accordingly, the Ground No. 3 of the CO is allowed.
21. In Ground No. 4 of the CO, the assessee has challenged the order of the CIT(A) in not annulling the assessment since notice under section 148 of the Act has been issued on the basis of Revenue Audit objection raised by the A.G. party.
21.1. After hearing both the sides, we find the learned CIT(A) in fact had also mentioned in his order that the AO cannot re-open the assessment based on Audit objection as held by the Hon'ble Delhi High Court in the case of Carlton overseas Pvt. Ltd., (Supra). Since the learned CIT(A) has already adjudicated on this issue and has allowed the claim of the assessee on this ground therefore, the Ground No. 4 of the CO becomes infructuous and is accordingly dismissed.
22. So far as Ground No. 6 of the CO is concerned, we find merit in the same. Admittedly there is no profit as per profit and loss account prepared as per provisions of Part II and III of schedule VI to the Companies Act, 1956. Therefore, provisions of section 115JB in our opinion are not applicable. The decision of the co-ordinate Bench of the Tribunal in the case of ACIT Vs. Janhavi Investements (P) Ltd. (Supra) also supports the case of the assessee. Therefore, the learned CIT(A) should have held the reassessment proceedings to be invalid on this issue also. Accordingly, Ground of CO 6 is allowed. 15
ITA No. 748 PN/2010 CO No. 37/PN/11 (Asstt.Year : 2003-04) Khandesh Builders Ltd.,
23. In the result, the appeal filed by the Revenue is dismissed and the CO filed by the assessee is partly-allowed.
Pronounced in the open court on 04/05/2012
Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) ( R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune, dated the 4th May 2012
Satish/Ashwini
Copy of the order is forwarded to :
1. The Assessee
2. The CIT(A)-II, Nashik
3. The Addl.CIT, Range-2, Jalgaon
4. The CIT concerned
5. D.R. "A" Bench, Pune
6. Guard File
By order
Private Secretary,
Income Tax Appellate Tribunal, Pune