Income Tax Appellate Tribunal - Bangalore
Shriram Chits (Karnataka) Pvt. Ltd.,, ... vs Assessee on 6 August, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT
AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
ITA Nos.1314 & 1315/Bang/2012
Assessment years : 2003-04 & 2008-09
The Assistant Commissioner of Vs. M/s. Shriram Chits (Karnataka)
Income Tax, Pvt. Ltd.,
Circle 12(3), No.259/31, I Floor, 10th Cross,
Bangalore. Wilson Garden,
Bangalore - 560 027.
PAN: AACCS 2078R
APPELLANT RESPONDENT
ITA Nos.1281 & 1282/Bang/2012
Assessment years : 2003-04 & 2008-09
M/s. Shriram Chits (Karnataka) Vs. The Assistant Commissioner of
Pvt. Ltd., Income Tax,
No.259/31, I Floor, 10th Cross, Circle 12(3),
Wilson Garden, Bangalore.
Bangalore - 560 027.
PAN: AACCS 2078R
APPELLANT RESPONDENT
Revenue by : Shri Farahat Hussain Qureshi, CIT-II(DR)
Assessee by : Shri S. Ananthan, C.A.
ITA No.1315/Bang/2012
Page 2 of 12
Date of hearing : 06.08.2013
Date of Pronouncement : 14.08.2013
ORDER
Per Bench ITA Nos.1315 & 1282/Bang/2012 ITA No.1315/Bang/2012 is an appeal by the revenue and ITA No.1282/Bang/2012 is an appeal by the assessee. Both these appeals are directed against the order dated 30.07.2012 of the CIT(Appeals)-III, Bangalore relating to A.Y. 2008-09.
ITA No.1315/Bang/2012
2. The grounds of appeal by the revenue reads thus:-
"1. The order of the learned CIT(A) is opposed to law and facts of the case.
2. On the facts and in the circumstances of the case the learned CIT(A) erred in allowing the deduction towards Bid Loss without appreciating the fact that such Bid Loss pertains to period beyond the accounting period relevant to the assessment year under consideration and the same should not have been allowed for the sake of consistency.
3. The CIT(A) erred in allowing the claim of Bid Loss relying on the order of the Hon'ble ITAT in ITA No. 1 547/B/2010 without appreciating the fact that the issue has not reached finality and the appeal of the Department on the same issue in the case of the assessee for the AY 2005-06 is pending before the Hon'ble High Court of Karnataka.
4. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it ITA No.1315/Bang/2012 Page 3 of 12 relates to the above grounds may be reversed and that of the Assessing Officer may be restored.
5. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above."
3. The assessee is a company which is engaged in the business of conducting chits. While completing the assessment for the A.Y. 2008-09, the AO held that the bid loss claimed in the memo of income cannot be allowed as a deduction. The Assessee is in the business of conducting chits. The Assessee on its own bids at the auction. When the Assessee succeeds in his bid, the difference between the value of the chit and the amount at which the Assessee bids at the auction is booked as a loss. The remaining tenure of the chit in respect of which the assessee is a successful bidder might extend beyond the previous year. The Assessee books the loss and spreads it over the remaining period of the chit group. In the books of accounts the Assessee books only the loss that is apportioned for the period relevant to the previous year. In the return of income however the loss from own bidding for the whole tenure of the chit group is claimed as a deduction. In the present A.Y. the manner in which the Assessee claimed loss on bidding was as follows:
Profit as per P & L Account Rs.3,24,197 Less: Bid loss accrued during the year Rs.6,47,16,536 Less: Bid loss debited to P & L A/C. Rs.5,96,73,493 Rs.50,43,043 ITA No.1315/Bang/2012 Page 4 of 12
4. The AO allowed the bid loss to the extent debited in the profit and loss account and refused to allow the claim for deduction of the sum of Rs.50,43,043/- which is the bid loss referable to the period beyond the previous year. On appeal by the assessee, the CIT(Appeals) after taking note of the submissions of the assessee on the bid loss and the decision of the Tribunal in assessee's own case in A.Y. 2005-06, deleted the addition made by the AO observing as follows:-
"4.3. I have considered the submissions of the learned counsel for the appellant and the reasons given by the AO in his order for rejecting the claim of Bid Loss. The AO has disallowed the additional bid loss claimed in the computation of income on the grounds that accounting standards 1 & 2 are violated by the practice followed by the appellant, and that the "matching principle" of accounting is ignored. The dispute is with regard to the period to which this loss relates. The appellant insists that the claim amount pertains fully to the financial year relevant to this appeal itself, and that the AO is incorrect in understanding the same to pertain to a future period involving the remaining period of the chit.
4.4. I find that the issue has been decided in the appellant's favour for the AY: 2005-06 by my predecessor CIT(A) after due examination of the accounting process involved. This order has been upheld by the ITAT Bangalore in ITA No.1547/B/2010. I see that the issue involved in the present appeal is identical to the one raised for that AY 2005-06. I also note that no addition was made on this point by the AO for AY 2006-07. With respect to AY: 07-08, the addition made by the AO was deleted by the CIT(A), against which order the department did not file any second appeal before the ITAT. In view of the written submissions of the appellant on this issue, and on a review of the facts of the case, I find that the appellant's claim has merit. The treatment given to the bid loss over the years has been consistent. In the circumstances, I hold that the appellant is entitled to succeed in this point and the AO is directed to allow the sum of ITA No.1315/Bang/2012 Page 5 of 12 Rs.50,43,043/- as Bid Loss as a deduction in computing the total income."
5. As can be seen from the grounds of appeal, the only grievance of the revenue is that the decision of the Tribunal has not been accepted and an appeal has been preferred by the revenue before the Hon'ble High Court. We are of the view that the decision of the coordinate Bench of the Tribunal on an identical issue has to be followed. In the event of any decision by the Hon'ble High Court supporting the view taken by the revenue, the revenue is at liberty to take appropriate steps. Pendency of an appeal before the High Court cannot be a ground not to following the earlier order of the Tribunal. Accordingly, we do not find any merits in the appeal by the revenue and the same is dismissed.
ITA No.1282/Bang/2012
6. As far as this appeal is concerned, the grounds of appeal raised by the assessee reads as follows:-
"1. The order of the learned Commissioner (Appeals) is bad in law and against the facts of the case.
2. The learned Commissioner of Income tax (Appeals) erred in sustaining the addition on account of Foreman's dividend amounting to Rs.52,09,740/-.
3. The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the Foreman's dividend is not taxable on grounds of mutuality.ITA No.1315/Bang/2012 Page 6 of 12
For all these and other grounds which may be urged at the time of the hearing of this appeal, the appellant prays that its appeal be allowed."
7. It was fairly submitted by the parties before us that in view of the decision of the coordinate Bench in assessee's own case on an identical issue in ITA No.601/Bang/07 for AY 03-04 order dated 23.5.2008, wherein similar was decided issue against the assessee, there are no grounds to interfere with the order of the CIT(Appeals). As a result, the appeal by the assessee is also dismissed.
ITA Nos.1281 & 1314/Bang/2012
8. ITA No.1281/B/12 is an appeal by the assessee, while ITA No.1314/Bang/2012 is an appeal by the revenue. Both these appeals are directed against the order dated 30.07.2012 of the CIT(Appeals)-III, Bangalore relating to A.Y. 2003-04.
ITA No.1314/Bang/2012
9. As far as this appeal by the revenue is concerned, it is identical to the issue raised by the revenue in ITA No.1315/Bang/2012 for the A.Y. 2008-09. For the reasons stated while deciding that appeal for the A.Y. 2008-09, the appeal of the revenue for the A.Y. 2003-04 is dismissed. ITA No.1315/Bang/2012 Page 7 of 12 ITA No.1281/Bang/2012
10. As far as this appeal of the assessee is concerned, the grounds of appeal read as follows:-
"1. The order of the learned Commissioner of Income Tax (Appeals) is bad in law and against the facts of the case
2. (a) The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the re-opening of the assessment u/s 147 of the Income Tax Act, 1961 is bad in law.
(b) The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the first proviso to Sec 147 is applicable in this case and as such the re-opening is bad in law.
For all these and other grounds which may be urged at the time of the hearing of this appeal, the appellant prays that its appeal be allowed."
11. It can be seen that the assessee has challenged the validity of initiation of reassessment proceedings u/s. 147 of the Act. The facts which are material for deciding the issue raised by the assessee in its appeal are as follows:
12. The assessee filed return of income for the A.Y. 2003-04 on 28.11.2003 and an order was passed on 28.02.2006 u/s. 143(3) of the Act. This order of assessment was sought to be reopened by issue of a notice u/s. 148 of the Act dated 22.03.2010. It can be seen that the assessment is sought to be reopened after a period of four years from the end of the ITA No.1315/Bang/2012 Page 8 of 12 relevant assessment year. As per the proviso to section 147 of the Act, where an assessment has already been made u/s. 143(3) of the Act and such assessment is sought to be reopened by issue of a notice u/s. 148 of the Act, then the further condition to be satisfied is that escapement of income should have arisen by the reason of assessee's failure to disclose fully and truly all material facts for its assessment for that assessment year. In this regard, it is necessary to reproduce the reasons recorded by the AO before issue of notice u/s. 148 of the Act. The same reads thus:-
"On perusal of accounts enclosed to the return filed and statement of computation of income, it was observed that loss on own bidding i.e., Bid Loss amounting to Rs.7,20,32,155/- was debited to P & L Account and Rs.7,14,76,l02/- was separately claimed in the statement of computation income filed along with return of income. The AO in the page 9 of the assessment order dated 28- 2-2006 added back Rs.7,14,76,102/-, whereas it is observed that an amount of Rs.7,20,32,155/- has been added back while computing the income in the assessment order dated 28-2-2006. But, in its submissions, before the CIT(A), the assessee submitted that both the figures are same and by mistake they were shown as separate. In other words, it is understood that the same amount was claimed twice resulting in increase of loss and to that extent the income has escaped assessment.
Besides, the bid loss arises from discounting the chit value on bidding the auction as a member of the chit group, when the regular members leave/default in paying regular chit amount. The assessee's contention has been that such bid loss is to be allowed in the same financial year of bidding against the commission earned by it during that year and the assessee debited a portion of such bid loss of the relevant financial year to the P & L account, and the balance was reduced in Memo of computation of income. Whereas the department, all along is holding that such loss should be spread over the term of the chit and claimed in respective assessment years. For the instant year, even if the bid loss is allowable as per the order of the ITAT, if it is already ITA No.1315/Bang/2012 Page 9 of 12 debited to P & L, the same cannot be further claimed in the Memo of computation. Hence, on this reasoning Rs.7,14,76,102/- is not allowable.
This assumes importance because of the order of High Court of Karnataka dated 17-11-2009. Because, for the instant assessment year, the AO added back Rs.7,20,32,155/-. The CIT(A) confirmed the disallowance but the ITAT had given relief to the assessee. Besides, the assessee has been relying on the decision of Apex Court in the case M/s Bilahari Investments and claiming the bid loss in both P & L a/c and the memo of computation of income. In the appeal of the Department u/s 260A, the Hon'ble High Court of Karnataka, vide order dated 17.11.2009 for A.Y. 1998-99, differed from the decision of Apex Court in M/s Bilahari Investments and set aside the matter to the file of the Assessing Officer. The Hon'ble High Court of Karnataka accepted the arguments of the revenue, that Notification No.69E dated 25-1-1996 and S.145(2) had not been brought to the notice of the Hon'ble Supreme Court and there was no occasion for the Supreme Court to consider the effect of the notification and amendment to S 145(2) and stated that the Hon'ble Supreme Court confined its decisions to assessment years in appeal. Because of this decision of High Court of Karnataka, the judgement of Bilahari case is not applicable. Hence, the action of the assessee of debiting the bid loss in P & L a/c and claiming again in the computation statement, results in excess claim.
For these reasons, I have reasons to believe that the mistake in computation of income has resulted in escapement of income from assessment to the extent to the extent of Rs.7,1476,103 (Bid Loss ) and Rs.20,632/- (Income from House Property omitted to be included."
13. It can be seen that in the reasons recorded, the AO has not specifically alleged that escapement of income was due to the assessee's failure to disclose fully and truly all material facts necessary for his ITA No.1315/Bang/2012 Page 10 of 12 assessment for the relevant assessment year. It is not in dispute before us that the proviso to section 147 is applicable in the present case.
14. In this regard, the ld. counsel for the assessee has drawn our attention to a decision of the ITAT, Bangalore Bench in the case of M/s.
DHFL Vysya Housing Finance Ltd. v. ACIT, ITA No.1416/Bang/2010 for the A.Y. 1996-97, order dated 11.01.2013 wherein this Tribunal on an identical issue has held that initiation of reassessment proceedings is not valid.
15. The ld. DR, on the other hand, submitted that there was escapement of income and reassessment proceedings were validly initiated.
16. We have considered the rival submissions. We find that this Tribunal in the case of DHFL Vysya Housing Finance Ltd. (supra) has held as follows:-
"14. We have considered the rival submissions. From a perusal of the reasons recorded by the AO before issuing notice u/s. 148 of the Act, it is clear that the AO has not, in the reasons recorded, made an allegation that income chargeable to tax has escaped assessment by reason of the assessee's failure to disclose fully and truly all material facts necessary for his assessment for the relevant assessment year. It is not in dispute that for A.Y. 1996- 97, an assessment u/s. 143(3) had already been made in the case of the assessee by an order of assessment dated 31.03.1998. Admittedly notice u/s. 148 of the Act was issued on 17.03.2003 which is beyond the period of four years from the end of the relevant assessment year (1996-97). The proviso to section 147 was therefore clearly attracted. It is clear from the decision of the Hon'ble Bombay High Court as well as the Hon'ble Karnataka ITA No.1315/Bang/2012 Page 11 of 12 High Court, referred to by the ld. counsel for the assessee before us, that there should be a specific averment in the reasons recorded that escapement of income chargeable to tax was by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. Such an allegation is admittedly absent in the reasons recorded. The ld. CIT(A) has in his order has attempted to give different reasons for resorting to reassessment proceedings. The law is well settled that validity of initiation of reassessment proceedings have to be judged on the basis of reasons recorded by the AO and it is not possible to substitute, delete or add anything to such reasons recorded by the AO. It is also not possible to draw any inference based on the reasons not recorded. In the light of the law as laid down in the aforesaid decisions, we are of the view that initiation of reassessment proceedings by the AO in the present case is not in accordance with the law. The order of reassessment is therefore liable to be annulled and the same is hereby annulled.
15. In view of the decision on the validity of initiation of reassessment proceedings, the other issues raised by the assessee on merits do not require any consideration. Consequently, the appeal of the assessee is allowed.
16. In the result, the appeal of the assessee is allowed."
17. The above reasoning adopted by the Tribunal will apply to the present case. In the reasons recorded, no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for the relevant assessment year has been alleged. In such circumstances, we are of the view that initiation of reassessment proceeding is not valid. Accordingly, the order of reassessment is annulled and the appeal of the assessee is allowed. ITA No.1315/Bang/2012 Page 12 of 12
18. In the result, ITA No.1281/Bang/2012 is allowed, while all the other three appeals are dismissed.
Pronounced in the open court on this 14th day of August, 2013.
Sd/- Sd/-
( N. BARATHVAJA SANKAR ) ( N.V. VASUDEVAN )
Vice President Judicial Member
Bangalore,
Dated, the 14th August, 2013.
/D S/
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Assistant Registrar /
Senior Private Secretary
ITAT, Bangalore.