Income Tax Appellate Tribunal - Ahmedabad
Neptune Textile Mills Pvt. Ltd.,, ... vs Dy.Cit, Circle-5,, Ahmedabad on 28 March, 2017
आयकर अपीलीय अिधकरण,
अिधकरण अहमदाबाद यायपीठ 'सी' अहमदाबाद।
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH, AHMEDABAD
BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER
AND SHRI MANISH BORAD, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No. 2681/Ahd/2013
नधारण वष/Assessment Year: 2003-04
Neptune Textile Mills Pvt Ltd, Vs. DCIT,
375, GIDC Industrial Estate, Circle -5,
B/h Water Tank, Odhav, Ahmedabad
Ahmedabad-382415
PAN : AAACN 5339 G
[
अपीलाथ / (Appellant) यथ / (Respondent)
Assessee by : Shri C.N. Shah, AR
Revenue by : Shri Sanjeev Kumar, Sr DR
सु न वाई क ता र ख / Date
of Hearing : 23/03/2017
घोषणा क तार ख / Date of Pronouncement: 28/03/2017
आदे श/O R D E R
PER MANISH BORAD, ACCOUNTANT MEMBER:
This appeal of the assessee for Assessment Year 2003-04 is directed against the order of the CIT(A)-XI, Ahmedabad vide appeal No.CIT(A)- XI/157/Cir-5/10-11 dated 10.09.2013, arising out of order under Section 143(3) r.w.s. 147 of the Income-tax Act, 1961 (hereinafter referred to as "the Act") dated 15.09.2010 framed by the DCIT, Circle-5, Ahmedabad.
2. Assessee has raised following grounds of appeal:-
"1. The C.I.T. (Appeals) ought to have held that section 147/148 notice dated 30/03/2010 is bad in law as also on facts and so also the assessment order dated 15/09/2010 because the assessee had fully and truly disclosed all material facts necessary for assessment vide para 8 of his letter dated 03/10/2005 in respect of details of loans & advances above Rs.1 lakh given by the company and interest charged thereon and which was allowed by the Assessing Officer in Assessment Order u/s. 143(3) dated 20/02/2006 by mentioning that "the assessee furnished the details called for. The case was discussed with him."ITA No. 2681/Ahd/2013
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2. The CIT(Appeals) ought to have followed the decision of Income-Tax Appellate Tribunal, Ahmedabad Bench "B" In ITA No. 2195/Ahd/2009 for Asst. Year 2001-02 in appellant's own case.
3. With prejudice to the above, the CIT(Appeals) erred in disallowing interest of Rs.52,22,886/-ignoring the reply to notice u/s.148 dated 30/04/2010."
3. From going through the above grounds, we find that assessee has raised two issues; firstly, challenging the reassessment proceedings u/s 147 of the Act and secondly, relating to addition on merits for disallowance of interest of Rs.55,22,886/-.
4. We will first take up Ground No.1, challenging the reassessment proceedings.
5. Briefly stated facts relating to this ground are that the assessee being a limited company filed its return of income on 30.11.2003 declaring total loss of Rs.1,37,56,622/-. The case was selected for scrutiny assessment and the necessary details, as called for, were duly furnished and the assessment u/s 143(3) of the Act was completed on 20.02.2006 determining total loss at Rs.1,37,56,622/-. Thereafter, on 10.06.2009, ld. DCIT, Circle-5, Ahmedabad called for certain clarifications with regard to assessment proceedings for the assessment year 2003-04, wherein interest of Rs.79,45,188/- was paid on the funds borrowed for business purposes and loans and advances given by the assessee included loan of Rs.2,07,29,272/- to a company under the same management and, on this alleged advance, no interest was charged by the assessee-company. On the basis of this information, it was alleged that the assessee has diverted its interest bearing funds for the purposes other than business and therefore, the interest paid should be disallowed proportionately. Necessary reply against this letter was filed by assessee submitting that information relating to loans and advances given and interest paid were duly called for by the Assessing Officer and necessary information was supplied to him. Subsequently on 30.03.2010 notice u/s 148 was issued for reopening of ITA No. 2681/Ahd/2013 Neptune Textile Mills Pvt Ltd vs. DCIT AY : 2003-04 -3- assessment and reassessment proceedings under Section 147 of the Act were commenced. Assessee challenged this reopening of assessment before the CIT(A) but could not succeed as ld. CIT(A) was of the view that appellant failed to fully disclosure all necessary facts for assessment and therefore, assessee's case was a fit case for attracting provisions of Section 147. Ld. CIT(A) further held that, in absence of complete details on the part of the assessee, the plea relating to change of opinion cannot be considered acceptable.
6. Aggrieved, the assessee is now in appeal before the Tribunal.
7. Ld. Counsel for the assessee vehemently argued supporting the submissions made before the lower authorities and further, relying on the decision of Co-ordinate Bench in assessee's own case in ITA No.2195/Ahd/2009 dated 05.05.2011 relating to AY 2001-02, submitted that the reopening proceedings were bad in law. Ld. AR also added that during the course of assessment u/s 143(3) of the Act, information were called for vide notice u/s 142(1) of the Act dated 02.09.2005, raising 25 questions which, inter alia, included question No.8, seeking details of loans and advances of Rs.1 lakh and above given by the company alongwith names and address of the parties and also party-wise details of interest received and interest paid including rate of interest. Assessee replied to the notice u/s 142(1) of the Act dated 02.09.2005 vide letter dated 03.10.2005 placed at page 6-9 of the paper-book and in para 8 of this letter, reply was furnished along with Annexures F & G showing loans and advances given above Rs.1 lakh and details of interest charged. It was also submitted that all these details were duly examined by ld. Assessing Officer and full application of mind was made on the alleged issue. Ld. AR, referring to the decision of Co-ordinate Bench in assessee's own case for AY 2001-02, added that similar issue was adjudicated and reopening of the assessment was held to be bad in law.
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8. On the other hand, ld. Departmental Representative supported the orders of the lower authorities.
9. We have heard the rival contentions and perused the record placed before us. Through this ground, assessee has challenged the reassessment proceedings taken up by Revenue on the basis of information of the ld. Assessing Officer that the assessment proceedings under Section 143(3) of the Act were completed without examining the details of diversion of interest bearing funds towards interest free loans and advances to other companies under same management and further alleged that assessee has claimed excess interest expenditure and it need to be disallowed proportionately to the extent of funds given to companies without charging any interest.
10. On perusal of records, we observe that ld. Counsel has laid emphasis on the fact that during the course of assessment proceedings u/s 143(3) of the Act, specific information were called for by ld. Assessing Officer relating to loans and advances given during the year and details were also called for towards interest paid and interest received. Ld. Assessing Officer has completed the assessment after going through all necessary details and made application of mind before finalizing the assessment. Ld. Counsel also submitted that assessment was reopened after completion of four years as for reopening assessment u/s 143(3) for AY 2003-04 notice u/s 148 was issued on 30.03.2010, which is almost six years from the end of the assessment year 2003-04.
11. We further observe that Co-ordinate Bench, adjudicating similar issue in assessee's own case for AY 2001-02 in ITA No.2195/Ahd/2009, has quashed the re-assessment proceedings and held in favour of the assessee, by observing as follows:-
"7. We have considered the rival submissions and perused the material on record. In our considered view the reopening of the assessment is bad in law. For the sake of convenience we reproduce section 147 and proviso thereto:-ITA No. 2681/Ahd/2013
Neptune Textile Mills Pvt Ltd vs. DCIT AY : 2003-04 -5-
147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of sections 148 to 153 assess or re-assess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):
Provided that where an 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;
[Provided further that the AO may assess or reassess such income other than the income involving matters which are the subject matters of any appeal, reference or revision which is chargeable to tax and has escaped assessment].
The requirements of the section are as under :-
(1) The AO has reason to believe; (2) That an income chargeable to tax has escaped assessment; (3) If four years have expired from the end of the relevant Asst.
Year then such escapement was due to failure on the part of the assessee -
(i) to file a return u/s 139;
(ii) to file a return in response to notice u/s 142(1) or section 148;
(iii) to disclose fully and truly all material facts necessary for the assessment.
All these aspects must come in the reasonings recorded by the AO. The reasons recorded by the AO should reflect -
(i) assessee in respect of whom assessment is sought to be reopened;
(ii) assessment year as sought to be reopened;
(iii) amount of income which has escaped assessment;
(iv) how the original assessment has been done whether u/s 143(1) or u/s 143(3) or sec.147/148;
(v) what is the reason of escapement of assessment;
(vi) whether there is any failure as mentioned in the proviso if assessment is sought to be reopened after four years from the end of the relevant Asst.
Year;
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(vii) in particular, whether there is any the failure of the assessee to disclose material facts fully and truly necessary for the assessment for that assessment year.
(viii) if assessment is done u/s 143(1), then whether the provision of section 149 are applicable.
8. If reasons recorded did not reflect these ingredients then reopening cannot be sustained. On the aspect of necessity to mention the failure of the assessee to disclose truly and fully all material facts necessary for assessment Hon. Allahabad High Court in CIT vs. Pradeshiya Industrial and Investment Corporation of Uttar Pradesh Ltd (2011) 332 ITR 324(All) has observed as under :-
"Admittedly, notice under section 148 of the Act was issued after the expiry of four years. The notice under the proviso of section 147 of the Act can be issued after the expiry of four years only in case where income chargeable to tax has escaped assessment by reason of the failure on the par! of the assesses 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. From the perusal of the reason recorded it is apparent that no case has been made out that the assesses had failed to disclose fully and truly all material facts necessary for his assessment and no observation has been made in this regard, On the basis of the same material which was available on record, the assessing authority was of the view that the deduction had been wrongly allowed under section 36(1)(viii) of the Act. The Tribunal observed that the assessee had furnished the requisite details in respect of leasing income and upfront fee as received in the assessment year under consideration and the same was duly disclosed in the audited profit and loss account, as is evident from pages 4 and 5 of the paper book read with page 23 of the paper book and also computation of income filed along with return, a copy of which is placed at pages 33 to 35 of the paper book. This finding of the Tribunal has not been disputed by raising any question and during the course of the argument by the learned counsel for the appellant. Therefore, we are of the view that on the facts and circumstances, no substantial question of law arises for consideration by this court.
Learned counsel for the appellant cited a decision of the Bombay High Court in the ease of Dr. Amin's Pathology Laboratory v. P. M. Prosad, Joint CIT [2001] 252 ITR 673 ; [2002] 172 CTR 696. We have gone through the decision of the Bombay High Court. We are of the view that the said decision is not applicable to the facts of the present case. In the said case, the Bombay High Court has held that the assessing authority has overlooked the disputed item which he has noticed subsequently and at the time of passing the original order of assessment, he could not be ITA No. 2681/Ahd/2013 Neptune Textile Mills Pvt Ltd vs. DCIT AY : 2003-04 -7- said to have opined on the above item. Therefore, there was no change of opinion. While in the present case, complete details were furnished along with the return and during the course of the assessment proceedings and after an application of mind, the deduction under section 36(1)(viii) of the Act was allowed. In the reason recorded no case has been made out that there was failure to disclose any material particular on the part of the assessee. Therefore, limitation beyond the period of four years was not available to the assessing authority. Admittedly, the notice was issued after four years, therefore, the proceeding was barred by time and the Tribunal has rightly held so.
For the reasons stated above, the appeal fails and is dismissed."
Hon. Bombay High Court, in the case of Bhavesh Developers vs. A.O. & Others (2010) 329 ITR 249 (Bom), noted that the recorded reasons did not show finding that there was a failure to disclose necessary facts. In that case assessee has claimed deduction u/s 80IB(10) for Rs.3.85 crores which was allowed by the AO vide order u/s 143(3) and assessment was sought to be reopened after expiry of four years on the ground that the claim of deduction u/s 80IB(10) included ineligible items of other income such as society deposits, street parking charges, sundry balances, etc. Hon. Bombay High Court in the case of Bhavesh Developers vs. A.O. & Others (supra) observed as under :-
"Held, allowing the petition, that ex facie, the reasons which had been disclosed to the assessee would show that the inference that the income had escaped assessment was based on the disclosure made by the assessee itself. The reasons showed that the finding was based on the details filed by the assessee and from the profits and loss account. Therefore, it was impossible for the Assessing Officer to even draw the inference that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for assessment year 2002-03. Significantly, the reasons that had been disclosed to the assessee did not contain a finding to the effect that there was a failure to fully and truly disclose all necessary facts, necessary for the purpose of assessment. In these circumstances, the condition precedent to a valid exercise of the power to reopen the assessment, after a lapse of four years from the relevant assessment year, was absent in the present case. The notice was not valid and was liable to be quashed."
Hon. Supreme Court in the case of ITO vs. Lakhmani Mewal Das (1976) 103 ITR 437 (SC) held that where assessment is sought to be reopened after expiry of four years reasons for belief must show live link between the material and belief. There should be a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of the belief that there is an escapement of income of the assessee for ITA No. 2681/Ahd/2013 Neptune Textile Mills Pvt Ltd vs. DCIT AY : 2003-04 -8- that particular year because of his failure to disclose fully and truly all material facts. Even though Court cannot go into sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening of the assessment, but at the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment.
Hon. Supreme Court in the case of CIT vs. Kelvinator India Ltd. (2010) 320 ITR 561(SC), while dismissing the legislation of section 147, held that expression "reasons to believe" needs to be given schematic interpretation in order to ensure against an arbitrary exercise of power by the AO. The power to reopen the assessment is not akin to power to review the assessment and mere change of opinion would not justify the course of action u/s 147. Unless the AO has tangible material fact to reopen the assessment, power u/s 147 cannot be validly exercised.
9. In the present case there is a clear case of change of opinion. Even though reliance has been placed on the decision of Hon. Supreme Court in Ballimal Navalkishore and others vs. CIT (supra), that judgment existed at the time when the AO took the decision u/s 143(3) and held the expenditure as current repairs allowable in the profit and loss account under section 143(3). Without there being material on record and an allegation of failure on the part of the assessee to disclose any material which could have made the AO to believe that expenditure so incurred was capital in nature, new view so taken for reopening of assessment would be only a change of opinion. Earlier same expenditure was held as revenue in nature and now considered as capital would be akin to reviewing his own decision on the subject. Hon. Bombay High Court in the case of ICICI Prudencial Life Insurance Co. Ltd. vs. ACIT (2010) 325 ITR 471 (Bom) also held that when there is no material on record and without there being any allegation of failure of the assessee to disclose such material fact, assessment cannot be reopened after four years. Hon. Gujarat High Court in Inducto Ispat Alloys Ltd. vs. ACIT (2010) 320 ITR 458 (Guj) and Nikhil K. Kotak vs. Mahesh Kumar (2009) 319 ITR 445 (Guj) also held that where the period of four years has expired from the end of relevant Asst. Year the proviso to section 147 would come into play. It stipulates three conditions and one of those conditions is showing omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. When we go through the reasons recorded and as mentioned above we do not find any reference to such failure on the part of the assessee to disclose any material fact necessary for assessment and in fact narration given in the reasons do not show any such failure which could be inferred even if not so mentioned specifically in the reasons. In our considered view when neither there is any allegation of failure nor the AO has brought any material on record to suggest escapement of income then it is only a change of opinion and therefore assessment cannot be reopened after expiry of four years.
ITA No. 2681/Ahd/2013Neptune Textile Mills Pvt Ltd vs. DCIT AY : 2003-04 -9- Under these circumstances, we allow the ground Nos.1 & 2 of the assessee and accordingly quash the assessment. Other grounds became infructuous and hence not separately discussed. As a result, the appeal filed by the assessee is allowed."
12. Now, in order to adjudicate the facts in the light of decision of Co- ordinate Bench referred above, we find that on 02.09.2005 notice under Section 142(1) was issued calling as many as 25 information from the assessee and in this notice, at question no. 8, following information was called for by the ld. Assessing Officer, which reads as under:-
"8. With reference to loans and advances above Rs. 1 lac given by the company, give details regarding the name and address of the parties to whom the same has been advanced. Give party-wise details of interest received and interest paid including rate of interest. In case, interest has not been charged or charged at lower rate by you on certain loans and advances explain why corresponding interest on borrowed funds should not be disallowed u/s 36(1)(iii). Please furnish the copies of accounts in respect of outstanding loans and advances given indicating business purpose."
13. In reply to the above question, assessee vide its reply dated 03.10.2005 submitted the details of loans and advances given above Rs.1 lac vide Annexure-F and also furnished details of interest charged. Copies of interest accounts vide Annexure-G were also placed on record. Thereafter, on 20.02.2006, assessment under Section 143(3) of the Act was completed at the returned income and ld. Assessing Officer has mentioned that all details were furnished as called for. All these series of facts clearly show that ld. Assessing Officer has made full application of mind on the details of loans and advances given and interest paid before finalizing the assessment under Section 143(3) of the Act and the alleged action of reopening under Section 147 of the Act cannot be held to be correct in this case wherein reopening has taken place after expiry of four years and there is no new material available with the Revenue to show that income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.
ITA No. 2681/Ahd/2013Neptune Textile Mills Pvt Ltd vs. DCIT AY : 2003-04
- 10 -
14. We, therefore, respectfully following the decision of Co-ordinate Bench, in view of our discussion above and totality of facts, are of the considered view that reassessment proceedings under Section 147 are bad in law and liable to be quashed. In the result, Ground Nos. 1 & 2 of the assessee are allowed.
15. Second issue relating to merits raised by the assessee in Ground No.3 becomes infructuous as we have already quashed the reassessment proceedings under Section 147 of the Act.
16. In the result, appeal of the assessee is allowed.
Order pronounced in the Court on 28th March 2017 at Ahmedabad.
Sd/- Sd/-
(S.S. GODARA) (MANISH BORAD)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated, 28/03/2017
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं$धत आयकर आय&
ु त / Concerned CIT
4. आयकर आय&
ु त (अपील)/ The CIT(A)-
5. वभागीय त न$ध,आयकर अपील य अ$धकरण ,राजोकट/DR,ITAT, Ahmedabad,
6. गाड0 फाईल /Guard file.
आदे शानस
ु ार/ BY ORDER,
TRUE COPY
सहायक पंजीकार (Asstt.Registrar)
आयकर अपील य अ$धकरण
ITAT, Ahmedabad