Income Tax Appellate Tribunal - Mumbai
Deputy Commissioner Of Income Tax ... vs Idbi Federal Life Insurance Company ... on 15 January, 2019
आयकर अपीलीय अिधकरण "सी" यायपीठ,
यायपीठ, मुब
ं ई
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, MUMBAI
BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER
&
SHRI RAM LAL NEGI, JUDICIAL MEMBER
आयकर अपील सं./ITA No.5290/MUM/2017
( िनधा रण वष / Assessment Year :2008-2009)
DCIT, 6(3)(1), Mumbai Vs. IDBI Federal Life
Insurance Company
Private Limited, 1 s t Floor,
Tradevie w, Oasis
Complex, Kamala City,
P.B.Marg, Lower
Parel(W est), Mumbai-
400013
थायी ले खा सं . /PAN No. : AABCI 6227 M
(अपीलाथ /Appellant) .. ( यथ / Respondent)
AND
Cross Objection No.334/MUM/2018
(Arising out of ITA No.5290/Mum/2017)
( िनधा रण वष / Assessment Year :2008-2009)
IDBI Federal Life Insurance Vs. DCIT, 6(3)(1), Mumbai
Company Private Limited,
1 s t Floor, Tradeview, Oasis
Complex, Kamala City,
P.B.Marg, Lower
Parel(W est), Mumbai-
400013
थायी ले खा सं . /PAN No. : AABCI 6227 M
(अपीलाथ /Appellant) .. ( थ / Respondent)
राज की ओर से /Revenue by : Shri Awungshi Gimson, DR
िनधा रती की ओर से /Assessee by : Ms. Aarti Vissanji, AR
सुनवाई क तारीख / Date of Hearing : 09/01/2019
घोषणा क तारीख/Date of Pronouncement 15/01/2019
आदेश / O R D E R
Per Rajesh Kumar, AM:
This appeal by Revenue arises out of the order of the CIT(A) -12, Mumbai, dated 05.05.2017, which in turn has arisen out of the order 2 ITA No.5290/17 & CO No.334/18 passed by the Assessing Officer u/s. 143(3)/147 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") relating to A.Y. 2008-2009. The assessee has also filed cross objection.
2. First, we shall decide the cross objection of the assessee i.e. CO No.334/Mum/2018, wherein the assessee has raised the following grounds :-
The Respondent submits the following cross-objections are independent, separate / alternative and without prejudice to one another:
1. Reopening of the assessment is bad in law On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income-tax (Appeals)-12, Mumbai ['CIT(A)'] erred in holding that all the pre-conditions necessary for assuming jurisdiction under section 147 of the Income-tax Act, 1961, had been satisfied.
2. Reopening of the assessment based on an audit objection Without prejudice to Ground 1 above, on the facts and in the circumstances of the case and in law, the Learned CIT(A) ought to have held that the reopening of the assessment based on an audit objection is bad in law.
3. Reopening of the assessment based on a change of opinion Without prejudice to Ground 1 above, on the facts and in the circumstances of the case and in law, the Learned CIT(A) ought to have held that the reopening of the assessment based on a mere change of opinion is bad in law.
The Respondent craves leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of cross- objections at or before the hearing of the appeal.
3. In the cross objection the assessee has challenged the order of CIT(A) on the ground that the CIT(A) has erred in holding that reopening has rightly been done u/s.147 of the Act. The assessee has also taken 3 ITA No.5290/17 & CO No.334/18 without prejudice ground that the case of the assessee was reopened on the basis of audit objection which is bad in law and, therefore, the reassessment proceedings are bad in law and second without prejudice ground taken by the assessee is that the reopening is mere change of opinion which is not sustainable under law.
4. Facts in brief are that the assessee filed return of income on 30.09.2008 declaring loss of Rs.25,58,76,750/-. The assessment u/s.143(3) of the Act was completed on 28.12.2010 assessing the loss at Rs.13,70,06,276/-. Thereafter the case of the assessee was reopened u/s.147 of the Act by issuing the notice u/s.148 of the Act dated 28.02.2013 The assessee in the return of income filed before the authorities appended Note-4 in which it is stated that the deficit of Rs.25,56,77,300/- was determined in accordance with Section 44 read with Rule 2 of First Schedule to the Act after considering the expenses of Rs.12,77,50,343/- incurred prior to date of registration i.e. December 19, 2007 with IRDA. The AO on the basis of said Note recorded the reasons which are reproduced as under :-
Reason for Reopening IDBI Federal Life Insurance Co. Ltd.
A.Y.2008-09 "In the instant case, the assessee has offered the total income as income from insurance business only. However, while assessment, the assessing officer had mentioned in point no. 18 of the assessment order, that the income from policy holder account shall be computed as insurance income u/s 44 of IT Act and income from Share Holder account is computed as per normal provision of the Act. Further, it was noticed that the Assessee had mentioned against the point 4 of ntoes to computation that the income has been computed after the considering expenses amount of Rs.12,77,50,343/- incurred prior to date of registration (i. e.4 ITA No.5290/17 & CO No.334/18
December 19,2007) with IRDA. Since, the expenditure was incurred prior to the commencement of business, the same should have been amortized and aIlowed Rs. 2,55,50,068/- as deduction of an amount equal to one-fifth of Rs.12,77,50,343/- for each of the five successive previous years as per section 350 of the IT Act. However, during the assessment the assessing officer had not amortized and allowed the whole expenditure. This had resulted in under assessment of income of Rs.10,22,00,275/- and consequent allowance of carry forward of loss to that extent. The notional tax effect on this account works out to Rs.3,47,37,873/- "
In view of the above facts case is reopened u / s 147 of the Act.
Sd/-
(Saravana Kumaran), DCIT Cir.6(1), Mumbai Thereafter the AO completed the assessment vide order dated
29.12.2013 passed u/s.143(3) r.w.s.147 of the Act by disallowing the expenses u/s.35D of the Act to the tune of Rs.10,22,00,275/-, besides making other allowance by allowing only 1/5th of the said expenses.
5. The assessee challenged the reopening proceedings before the CIT(A), who dismissed the technical issue raised by the assessee in a very cryptic manner by observing and holding as under :-
"5. Ground of Appeal 05.1 to 5 Reopening of assessment is not bad in law since all the necessary preconditions tor issuing notice u/s.148 have been satisfied. Notice was issued by the A.O. on the fact that apparently there was concealment of income by the appellant company. Ground of Appeal Nos.1 to 5 are dismissed."
6. Ld. AR vehemently submitted before us that the assessment was reopened on the basis of audit objection which is not permissible under law. Ld.AR drew our attention to the audit objection, a copy of which is filed at page 1 titled as "Incorrect computation of business income" and submitted that in para no.3 of the said audit objection it is stated that it was noticed from the point No.4 of Notes in the computation of income 5 ITA No.5290/17 & CO No.334/18 that income has been computed after taking into consideration the amount of Rs.12,77,50,343/- incurred prior to date of registration after December, 19, 2007 with IRDA and since the expenditure was incurred prior to the commencement of business same should be amortized to the tune of Rs.2,55,50,068/- as deduction equal to 1/5th of Rs.12,77,50,343/- for each of the successive five previous years as per Section 35Dof the Act. It is also stated in the said objection during the assessment proceedings the AO have not amortized and allowed the whole expenditure which has resulted into under assessment of income of Rs.10,22,00,275/- and consequent allowance of carry forward of loss to that extent on which a tax effect worked out to Rs.3,47,37,873/-. Ld. AR also submitted that on perusal of the reasons recorded by the AO clearly shows that there is verbatim repetition of audit objection in the reasons recorded and there is no application of mind on the part of AO but in fact the AO has borrowed satisfaction and the ld. AR further argued that the AO has nowhere recorded or stated in the reason recorded that he has reason to believe that income has escaped assessment and, therefore, reopening on the basis of audit objection is without application of mind as issuing notice u/s.148 of the Act in a mechanical manner is bad in law and, therefore, reassessment proceedings should be annulled and quashed.
7. In defence of her argument, ld. AR relied on the decision of Hon'ble Delhi High Court in the case of Xerox Modicorp Ltd. Vs. DCIT, [2013] 350 ITR 308 (Delhi). Ld.AR also submitted that the facts of claim of expenses 6 ITA No.5290/17 & CO No.334/18 against the income has duly been stated in para 4 of the computation of total income and it was also before the AO at the time of assessment proceedings which culminated u/s.143(3) of the Act, and, thus, the AO has accepted the claim of assessee after due application of mind. Even on this count, the reassessment proceedings are bad in law as the same are based upon the change of opinion which is not permissible under law. Finally, ld. AR submitted that the reassessment proceedings may kindly be quashed in view of the above stated facts and position of law.
9. Per Contra, Ld. DR before the bench submitted that the case of the assessee was reopened within four years from the end of relevant assessment year and, therefore, if the income has escaped assessment even otherwise than at the mistake of the assessee the same is validly reopened by the AO. Ld.DR while vehemently countering the arguments of the ld. AR, submitted that the reopening cannot be stated to be bad just for the reason that reopening is done on the basis of audit objection of the audit party. Ld.DR relied on the decisions of Hon'ble Supreme Court in the case of CIT Vs. P.V.S.Beedies (P) Ltd. (1999) 103 Taxman 294 (SC). Ld.DR further submitted that in the instant case the reopening of assessment proceedings u/s.147(b) of the Act on the basis of factual information given by the internal audit party was held to be right and, therefore, the cross objection filed by the assessee on this ground deserves to be dismissed. On the issue of reopening on the basis of material already available before the AO, ld. DR submitted that the said information was clearly overlooked by the AO while framing the 7 ITA No.5290/17 & CO No.334/18 assessment u/s.143(3) of the Act and, therefore, reassessment was rightly reopened as income has escaped assessment due to excessive claim of preoperative expenses to the extent of Rs.4/5th which approximately comes to Rs.10,22,00,275/-.
10. We have heard the rival submissions of both the parties and perused the material on record including the decisions cited by the rival parties. In order to adjudicate the whole issue, we would like to reiterate the facts of the case in the following paragraphs.
11. The undisputed facts are that there was an audit objection by the audit party in which it has been clearly stated that the assessee has claimed excess deduction to the tune of Rs.10,22,00,275/-. The verbatim of audit objection is reproduced as under :-
In the instant case, the assessee had offered the total income as income from insurance business only. However, while assessment, the assessing officer had mentioned in point no. 18 of the assessment order, that the income from policy holder account shall be computed as insurance income u/s 44 of IT Act and income from Share Holder account is computed as per normal provision of the Act. Further, it was noticed that the Assessee had mentioned against the point 4 of ntoes to computation that the income has been computed after the considering expenses amount of Rs.12,77,50,343/- incurred prior to date of registration (i. e. December 19,2007) with IRDA. Since, the expenditure was incurred prior to the commencement of business, the same should have been amortized and aIlowed Rs. 2,55,50,068/- as deduction of an amount equal to one-fifth of Rs.12,77,50,343/- for each of the five successive previous years as per section 350 of the IT Act. However, during the assessment the assessing officer had not amortized and allowed the whole expenditure. This had resulted in under assessment of income of Rs.10,22,00,275/- and consequent allowance of carry forward of loss to that extent. The notional tax effect on this account works out to Rs.3,47,37,873/- "
It is clear from the reasons recorded by the audit party that para 3 has been reproduced verbatim and based on that the assessment has 8 ITA No.5290/17 & CO No.334/18 been reopened u/s.147 of the Act as is clear from the conjoint reading of audit objection and reasoning recorded for reopening of the assessment in the foregoing paras. Thus, it is abundantly clear that the assessment was reopened on the basis of audit objection by audit party and there is no application of mind by the AO on this issue. We find merit in the arguments of ld. AR that the there is no satisfaction by the AO and there is no application of mind and the notice has been issued in a mechanical manner, taking the audit objection verbatim in the reasons recorded by the AO for reopening the assessment. The AO has acted upon the borrowed satisfaction of the audit party, The case of the assessee is supported by the decision of Hon'ble Delhi High Court in the case of Xerox Modicorp Ltd.(supra) in which it has been held that opinion by the audit party cannot constitute a tangible material and reassessment was held to be not valid. The held portion of the Hon'ble High Court is reproduced as under :-
"Held, allowing the petitions, (0 that the assessing authority cannot keep improving his case from time to time and that the reassessment proceedings have to stand or fall on the basis of what was stated in the reasons recorded under section 148(2) of the Income-tax Act, 1961, and nothing more. No failure to furnish full and true particulars relating to the royalty payments, including the failure to file the relevant agreements, had been alleged in the reasons recorded. If anything, the reasons are an admission that it was the Assessing Officer who did not draw the inference that the royalty payments were capital in nature. It was for him to draw the appropriate inference and not for the assessee to tell him what inference of fact or law should be drawn from the primary facts furnished. Therefore, the reassessment notices after four years from the end of the assessment years 2002-03 and 2003-04 were quashed as also the consequent proceedings."9 ITA No.5290/17 & CO No.334/18
In the case of CIT Vs. P.V.S.Beedies (P) Ltd. (supra), the Hon'ble Supreme Court held that the reopening on the basis of factual information by the audit party was valid whereas in the present case before us the issue involved is a legal issue and not a factual mistake. We are, therefore, not in agreement with the conclusion drawn by the CIT(A) and the order passed by the CIT(A) cannot be sustained on this issue. Finally, after considering the facts of the case and factual matrix, we are of the view that the reopening of the assessment is not valid as per law and is hereby quashed.
12. Since we have decided the cross objection of the assessee in favour of the assessee, therefore, the appeal of the Revenue is rendered infructuous and the same is dismissed.
13. In the result, appeal of the revenue is dismissed, whereas the cross objection of the assessee is allowed.
Order pronounced in the open court on 15/01/2019.
Sd/- Sd/-
(RAM LAL NEGI) (RAJESH KUMAR)
लेखा सद य / ACCOUNTANT MEMBER
मुंबई Mumbai;
याियक सद य / JUDICIAL MEMBER
दनांक Dated 15/01/2019
कु .िम/Prakash Kumar Mishra, Sr.PS.
.
आदेश क ितिलिप अ ेिषत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant-
2. थ / The Respondent-
3. आयकर आयु (अपील) / The CIT(A), Mumbai
4. आयकर आयु / CIT
5. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, मुं बई / DR, ITAT, Mumbai
6. गाड फाईल / Guard file.
स यािपत ित //True Copy//
आदेशानुसार/ BY ORDER,
10
ITA No.5290/17
& CO No.334/18
(Assistant Registrar)
आयकर अपीलीय अिधकरण, मुबं ई / ITAT, Mumbai