Income Tax Appellate Tribunal - Kolkata
Dcit, Circle-8(1), Kolkata, Kolkata vs M/S Eih Ltd., Kolkata on 2 February, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH : KOLKATA
[Before Hon'ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM]
I.T.A No. 1707/Kol/2016
Assessment Year : 2006-07
D.C.I.T., Circle-8(1) -vs.- M/s EIH Ltd.
Kolkata Kolkata
[PAN : AAACE 6898 B]
(Appellant) (Respondent)
C.O.No.62/Kol/2016
(A/o I.T.A No. 1707/Kol/2016 )
Assessment Year : 2006-07
M/s EIH Ltd. -vs- D.C.I.T., Circle-8(1)
Kolkata Kolkata
[PAN : AAACE 6898 B]
(Cross Objector) (Respondent)
For the Department : Md. Usman, CIT(DR)
For the Assessee : Shri A.K.Gupta, FCA
Date of Hearing : 17.01.2018.
Date of Pronouncement : 02.02.2018.
ORDER
Per N.V.Vasudevan, JM
I.T.A.No.1707/Kol/2016 is an appeal by the Revenue against the order dated 27.06.2016 of C.I.T.(A)-16, Kolkata relating to A.Y.2006-07. C.O.No.62/Kol/2016 is a cross objection filed by the assessee against the very same order of CIT(A).
2. First we shall take up for consideration the grounds raised by the assessee in the cross objection with regard to the validity of initiation of re-assessment proceedings u/s 147 of the Income Tax Act, 1961 (Act). These grounds read as follows :-
" 1. For that the Commissioner of Income Tax (Appeals) in short (CIT(A) ) erred in dismissing the ground regarding validity of reopening of assessment under section 147 of the Act without any discussion and/or giving any reasons whatsoever.
2. For that the CIT(A) should have held that the appellant had disclosed and filed all materials relevant for the assessment and there was no omission or failure on 2 ITA NO.1707/Kol/2016 & C.O.No.62/Kol/2016 M/s EIH Ltd.
A.Yr.2006-07 its part in this behalf and none pointed out in the reasons recorded for reopening and as such the notice issued under Section 148 of the Act beyond the period of 4 years was not valid and was liable to be cancelled.
3. For that the CIT(A) should have held that the notice under section 148 was issued on a mere change of opinion as all the materials and facts were available with the A.O. while framing the assessment under Section 143(3) of the Act.
4. For that the CIT(A) should have dismissed the re-opening of the assessment in as much as the objections filed by the appellant against the reasons recorded for re-opening of a assessment was not disposed of by the A.O. and the reassessment order was passed without disposing of the objections filed by the appellant."
3. The facts with regard to the initiation of re-assessment proceedings are as follows :-
The Assessee is a company engaged in the business of running Hotels. For A.Y.2006-07 an order of assessment u/s 143(3) of the Income Tax Act, 1961 (Act) was passed by the AO in the case of the Assessee on 26.12.2008. The AO issued a notice u/s 148 of the Act dated 01.03.2013 for making assessment u/s 147 of the Act viz.
reassessment proceedings to bring to tax income that has escaped assessment. The reasons recorded by the AO before issuing notice u/s 148 of the Act are as follows :-
" Scrutiny of assessment records revealed that the assessee debited a sum of Rs. 3,52,05,258 towards loss on exchange (net) in the profit and. loss account. It is further stated in clause 10 of Notes to the accounts that the loss on exchange included loss amounting to Rs. 2,67,46,608 on account of currency swap transaction.
It is noticed from the submission of the assessee that the assessee had entered into interest rate (coupon) swap transaction with different banks to take on interest rate risks for its rupee loan from SBI. UBI. CITI Bank, and UTI Bank and interest rate swap transaction with various banks namely Barclays, Standard' Chartered Bank and City Bank to manage its fixed interest rate risk against floating interest under respective underlying contract.
As per CBDT Circular forex derivative transaction entered into through NSE, BSE after 25.1.2006 would not be treated as speculative transaction. As the above transactions included transaction entered into with various foreign banks, the same does not appear-to have fallen under the purview of the transaction to be treated as 2 3 ITA NO.1707/Kol/2016 & C.O.No.62/Kol/2016 M/s EIH Ltd.
A.Yr.2006-07 business transaction. Therefore loss on account of currency swap transaction amounting to Rs. 2,67,46.608 is required to be added back as loss not pertaining to business and omission to do so resulted in under assessment of income by Rs.2,67,46,608/-.
Therefore, I have reason to believe that assessee has escaped assessment of income of Rs.2,67,46,608/-. Hence notice under section 148 is issued."
4. Even before the AO the assessee challenged the validity of initiation of reassessment proceedings u/s 147 of the Act. In this regard the assessee submitted that as per first proviso to section 147 of the Act which provides that where an assessment has been made under sub-section (3) of section 143 of the Income-tax Act, 1961, for the relevant assessment year no action can be taken after the expiry of four years from the end of the relevant assessment year unless, inter alia, there has been a failure of the assessee to disclose fully and truly all material facts for his assessment for that assessment year. This is a condition precedent. The relevant proviso reads as follows :
"Provided that where as assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year"
It was pointed out that for the year under reference, the assessment was undertaken under scrutiny assessment u/s 143(3) of the Act. The said assessment was completed on 26.12.2008. It was pointed out that clause 10 of notes referred to in the recorded reason were readily available with the assessing officer while framing order under section 143(3) of the Act and there was absolutely no failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year.
3 4 ITA NO.1707/Kol/2016 & C.O.No.62/Kol/2016M/s EIH Ltd.
A.Yr.2006-07 It was submitted that no new material or information has come on record and thus, on the facts of the present case, it can be said that it is merely a fresh application of mind and change of opinion to the same set of facts which were available on record while the assessment was made. In fact the issuance of the reassessment notice was only to start fishing and roving enquiry, not allowed under the law.
The notice u/s 148 has been served on the assessee on 05.03.2013 which is beyond the time limit of four years for the captioned assessment year. Initiation of reassessment on the basis of same set of facts is nothing but a 'change of opinion' which is not allowed in the law. Hence the reassessment initiated u/s 147 is bad in law.
5. The AO did not deal with the aforesaid objections raised by the assessee. He proceeded to frame an order of assessment u/s 147 r.w.s. 143(3) of the Act making an addition of Rs.2,67,46,608/- which is a loss on account of swap transactions by treating the same as notional loss not allowable as a deduction. Apart from the above the AO also disallowed depreciation on aircraft and principal components of the lease rent on vehicles. Both the aforesaid items of disallowance were claimed as deduction by the assessee in computation of total income.
6. Aggrieved by the aforesaid order of the A O the assessee preferred appeal before CIT(A). In ground no.1 raised before CIT(A) the assessee specifically challenged the validity of initiation of re-assessment proceedings. The submissions made before the AO was reiterated before CIT(A).
7. The CIT(A) without considering any of its submissions dismissed the relevant grounds of appeal of the assessee by observing as follows :-
" I have gone through the submission and the case laws supplied by the A.R. I do not find merit in it and hence, reopening u/s 148 of the I T Act is sustained and ground No.1 is dismissed. "
8. Aggrieved by the aforesaid part of the order of the CIT(A), the Assessee has filed Cross Objection before the Tribunal raising grounds which are already set out in paragraph 2 of this order.
4 5 ITA NO.1707/Kol/2016 & C.O.No.62/Kol/2016M/s EIH Ltd.
A.Yr.2006-07
9. The ld. Counsel for the assessee reiterated the submissions as were made before the AO and CIT(A) and further placed reliance on the following judicial pronouncements :
i) Rangal Bagaria HUF vs ACIT [2016] 70 taxmann. Com 341 (Cal)
ii) CIT vs Sonitpur Solvex Ltd [2013] 352 ITR 305 (Gauhati)
iii) India Steamship Co.Ltd. vs JCIT 275 ITR 155 (Cal)
iv) Sabharwal Properties Industries P.Ltd vs ITO 382 ITR 547 (Del)
10. In the decisions cited at sl. Nos.(ii) to (iv) the Courts have taken a view that when an assessment is reopened by issue of a notice u/s 148 of the Act in the case of an assesse whose assessment has already completed u/s 143(3) of the Act for the relevant assessment year and if notice is issued beyond the period of four years from the end of the relevant assessment year then the reasons recorded should explain as to how the escapement of income is on account of the failure of the assessee to disclose fully and truly of material facts necessary for assessment of the income of that year. The Ld.DR relied on the order of the CIT(A).
11. We have considered the rival submissions. As far as the validity of initiation of reassessment proceedings are concerned, it is noticed that the case of the assesse is that there was no fresh tangible material in the possession of AO at the time of recording of reasons for initiating proceedings u/s.147 of the Act. A perusal of the 'Reasons' recorded by the AO in this case reveals that at the time of recording of these 'Reasons' the AO had examined original assessment records only and no fresh material had come in the possession of the AO. In response to our specific query also, Ld DR could not point out any fresh material available with the AO at the time of reopening of the case of the assessee. Thus, assertion of the assessee that there was no fresh material with AO for reopening of this case, remained uncontroverted.
5 6 ITA NO.1707/Kol/2016 & C.O.No.62/Kol/2016M/s EIH Ltd.
A.Yr.2006-07
12. In the light of the above facts with regard to recording of reasons, let us examine settled position of law on this issue. The Hon'ble Supreme Court in the case of CIT vs. Kelvinator India Ltd. 320 ITR 561 (SC), has held that for reopening of the assessment, the AO should have in its possession 'tangible material'. The term 'tangible material' has been understood and explained by various courts subsequently. There has been unanimity of the courts on this issue that in absence of fresh material indicating escaped income, the AO cannot assume jurisdiction to reopen already concluded assessment. The Hon'ble Delhi High Court in the case of Pr. CIT vs Tupperware India Pvt. Ltd., in its order dt 10-8-15 (ITA no 415/2015 ) has taken the view that that even in the case of original assessment order having been passed u/s 143(1), it is mandatory for the AO to have in its possession, fresh tangible material before reopening of the case. In the case of CIT vs. Orient Craft Ltd. 354 ITR 536, it was held by Hon'ble Delhi High Court that reasons for reassessment disclosed that AO reached belief that there was escapement of income "on going through the return of income" filed by assessee after he accepted return u/s. 143(1) without scrutiny, and nothing more. In these facts, it was held by the Hon'ble High Court that it was nothing but review of earlier proceedings and abuse of power by AO. It was further held that since there was no whisper in reasons recorded, of any tangible material which came to possession of AO subsequent to issue of intimation, therefore, it was an arbitrary exercise of power conferred u/s 147. Thus, reopening was held to be invalid on this ground itself.
13. The next argument of the ld. Counsel for the assessee was that the reasons recorded by the AO does not spell out that the escapement of income was due to any failure on the part of the assessee to truly and fully disclose material facts and therefore the reopening of assessment is barred by time under the proviso to Sec. 147 of the Act. On this aspect the reasons recorded by the AO before issuing notice u/s.148 of the Act are set out in the earlier part of this order and the contention of the assessee in this regard is correct. Under the proviso to sec.147 of the Act, where an assessment has been completed u/s 143(3) of the Act, and thereafter the AO seeks to take an action u/s 6 7 ITA NO.1707/Kol/2016 & C.O.No.62/Kol/2016 M/s EIH Ltd.
A.Yr.2006-07 147 of the Act for re-assessment of income escaping assessment after the period of 4 years from the end of the relevant assessment year, than such proceedings can be initiated only where income chargeable to tax has escaped assessment for that assessment by reasons of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Admittedly the assessment in the present case was sought to be re-opened, after expiry of 4 years from the end of the relevant assessment year and an order of assessment u/s 143(3) has already been passed. The proceedings u/s 147 of the Act are therefore barred by time. In this regard, we also notice that even in the reasons recorded there is no reference to the failure on the part of the assessee to fully and truly disclose the material facts.
14. We are also of the view that admittedly, the proviso to sec.147 of the Act referred to in the earlier part of this order is applicable in the present case since assessment for AY 2006-07 had been completed by the AO originally u/s.143(3) of the Act and the reassessment proceedings were sought to be initiated on 01.03.2013 beyond a period of 4 years from the end of the relevant assessment year. The AO for initiating the re-opening of the assessment proceedings beyond the period of 4 years from the end of the relevant assessment year has to establish that there was escapement of income chargeable to tax because of the failure of the assessee to disclose fully and truly the material facts necessary for the assessment. Neither in the reasons recorded for re- opening the assessment nor in the order of re-assessment u/s147 of the Act. The AO has not brought out facts to show any omission on the part of the assessee to disclose fully and truly the material facts when the original assessment was completed. We are of the view that the re-opening of the completed assessment u/s 143(3) of the Act beyond the period of 4 years cannot be justified. We hold that the re-opening of the assessment is beyond the time contemplated by the proviso to sec.147 of the Act and therefore, initiation of re-assessment proceedings is held to be bad. The decisions cited by the ld. Counsel for the assessee referred to in paragraph 9 and 10 support the conclusions that reassessment proceedings are not valid in law.
7 8 ITA NO.1707/Kol/2016 & C.O.No.62/Kol/2016M/s EIH Ltd.
A.Yr.2006-07
15. For the reasons given above, we allow the grounds raised in the cross objection and hold that the reassessment proceedings are not validly initiated . Therefore order of the reassessment is liable to be annulled. Since the re-assessment order has been annulled, the grounds raised by the revenue in its appeal does not require any adjudication.
16. In the result the cross objection is allowed and the appeal by the revenue is dismissed.
Order pronounced in the Court on 02.02.2018.
Sd/- Sd/-
[Waseem Ahmed] [ N.V.Vasudevan ]
Accountant Member Judicial Member
Dated : 02.02.2018.
[RG Sr.PS]
Copy of the order forwarded to:
1. M/s. EIH Ltd., 4, Mangoe Lane, Kolkata-700001.
2. D.C.I.T., Circle-8 (1), Kolkata.
3. CIT(A)-16, Kolkata 4. C.I.T.-3, Kolkata.
5. CIT(DR), Kolkata Benches, Kolkata.
True copy
By Order
Senior Private Secretary
Head of Office/ D.D.O., ITAT, Kolkata Benches
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9 ITA NO.1707/Kol/2016 & C.O.No.62/Kol/2016
M/s EIH Ltd.
A.Yr.2006-07
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