Income Tax Appellate Tribunal - Chennai
Ndf Engineering Pvt Ltd., Coimbatore vs Department Of Income Tax on 29 September, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
'C' BENCH, CHENNAI
[BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER
AND SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER]
I.T.A.No.1726/Mds/2010
Assessment year : 2004-05
M/s NDF Engineering Pvt. Ltd vs The ACIT
C/o Shri T.N.Seetharaman, Company Circle IV(1)
Advocate Coimbatore
# 384(Old No.196) Lloyds Road
Chennai 600 086
[PAN - AABCN3966C]
(Appellant) (Respondent)
I.T.A.No.1744/Mds/2010
Assessment year : 2004-05
The ACIT vs M/s NDF Engineering Pvt. Ltd
Company Circle IV(1) C/o Shri T.N.Seetharaman,
Coimbatore Advocate
Chennai 600 086
(Appellant) (Respondent)
Assessee by : Shri T.N.Seetharaman, Advocate
Department by : S/Shri P.R.Ravikumar, CIT &
M.N.Murthy, JCIT
Date of Hearing : 29.9.2011
Date of Pronouncement : 07-10-2011
:- 2 -: ITA 1726 & 1744/10
ORDER
PER HARI OM MARATHA, JUDICIAL MEMBER:
These cross appeals, pertaining to assessment year 2004-05, are directed against the order of the ld. CIT(A), Coimbatore, dated 9.8.2010.
2. Briefly stated, the facts of the case are that the assessee- company filed its return of income on 1.11.2004 admitting loss under normal computation and declared book profit of ` 77,64,690/- u/s 115JB, which was processed and subsequently taken up for scrutiny and thereafter assessment was completed u/s 143(3) on 23.12.2009. Taxable income was determined at ` 1,29,99,753/-. Subsequently, it was noticed that inter-corporate loans of ` 1,20,60,000/- was returned back as the same was not payable by the assessee. While computing the tax u/s 115JB, the written off amount of inter-corporate loans/deposits was added back to the book profit, however, the same was not considered under the normal computation of tax. Accordingly, written off of loans/deposits was treated as benefit received by the assessee-company in the exercise of its business as envisaged u/s 28(iv) of the Act. Based on this reasoning, the Assessing Officer formed his opinion that income has escaped assessment and therefore, after recording such a reason, he issued notice u/s 148 :- 3 -: ITA 1726 & 1744/10 dated 1.5.2008 for reopening of the assessment . In compliance thereof, the assessee filed written submission vide letter dated 3.11.2009. But the Assessing Officer found that the assessee had taken loan from corporate for its business purposes during the course of its business and it is the liability of the assessee to repay the same. In case the company has not paid the same because of losses or some other reasons, if the creditors write off the loan amount, naturally, it is a benefit to the assessee. If the liability is related to the business, thereafter if any benefit arises due to write off of that liability, it is a benefit arising during the course of business only. The Assessing Officer has accepted that the loan amount received by the assessee is capital in nature at the time of receipt. But once it is written off, the money would become the assessee's own money and the same has to be treated as income from business. Consequently, in re-assessment proceedings, the assessee's income fro the assessment year 2004-05 was recomputed. Aggrieved, the assessee challenged the reopening of the assessment as well as addition on merits. The ld. CIT(A) has allowed the appeal in part. Both the parties are aggrieved.
:- 4 -: ITA 1726 & 1744/10
3. At the time of hearing, we have found that the assessee has challenged the legality of re-assessment proceedings in this case vide Ground Nos. 1 to 4 of its appeal, which read as under:
"1. The order of the Commissioner of Income tax(Appeals) is opposed to law and the facts and circumstances of the case.
2. The Commissioner(Appeals) erred in holding that the reopening of the assessment was valid, rejecting the appellant company's contention that the reopening was based on mere change of opinion and is invalid.
3. The Commissioner (Appeals) erred in not seeing that in the Profit and Loss account accompanying the company's original return "Excess provision written back - Loans written off"- has been explicitly shown as a separate item and in the Notes on account (schedule 18) under item (3) there is specific mention that "Inter Corporate Loans of ` 1,20,60,000/- is written back during the year as the amount is not payable". Moreover, in its return of income, under computation of Book Profit u/s 115JB, the appellant had added "Inter corporate loans written back ` 1,20,60,000/-" Thus information regarding the sum of ` 1,20,60,000/- was available to the assessing officer while making the original assessment u/s143(3) on 29.12.2006 and no new facts had come to light subsequently nor was there any change in the settled law for the assessing officer to believe that there was escapement of income to invoke Section 147 of the Act.
4.The appellant submits and urges that there was no 'tangible material' for the assessing officer to come to the conclusion tat there was escapement of income warranting reopening of the assessment and as such the reassessment order under section 143 (3) r. w. section 147 dated 23.12.,2009 deserves to be struck down as without jurisdiction and invalid. The appellant prays that the Hon'ble Tribunal be pleased to do so. "
4. We have heard both sides on this issue. The facts mentioned in the grounds that in the Profit & Loss Account accompanying the company's original return "Excess provision written back - Loans :- 5 -: ITA 1726 & 1744/10 written off" has been explicitly shown as a separate item and in the Notes on account (Schedule 18) under item (3) there is specific mention that "Inter Corporate Loans of ` 1,20,60,000/- is written back during the year as the amount is not payable". Under computation of book profit u/s 115JB, the assessee has added "Inter-corporate loans written back - ` 1,20,60,000/-". Thus, the information regarding the sum of ` 1,20,60,000/- was available to the Assessing Officer while making the original assessment u/s 143(3) on 29.12.2006 and no new facts had come to light subsequently nor there was any change in the settled law for the Assessing Officer to believe that there was escapement of income to invoke section 147 of the Act . We have found that in the original assessment order, the Assessing Officer has examined this issue in detail vide his letter dated 31.10.2006. A copy of this letter is enclosed at page 19 of the assessee's paper book. Contents of this letter is incorporated herein below for ready reference:
"No.AABCN3966G Dated: 31st Oct.2006
M/s. NDF Engineering Pvt Ltd.
C/o Mohan & Venkatramanan
Chartered Accountants
9, Bharathi Park Cross Road NO.3
Saibaba Mission Post
Coimbatore - 641 011
:- 6 -: ITA 1726 & 1744/10
Sir,
Sub: Income tax - assessment -
Assessment year 2004-05 -
your own - regarding
Your case is posted for hearing on 10/11/2006 at 11.45 AM in my office at Coimbatore.
You are, therefore, requested to appear before me on that date and please furnish the following :
1) Working of Book Profit u/s 115JB
2) Party wise, item wise, month wise break up of sales made in
respect of items mentioned in Schedule 12
3) Details of raw materials and stores - itemwise
4) Purchase - monthwise, item wise and party wise
5) Monthwise break up of purchase of packing materials
6) Month wise break up of sale of finished goods
7) Monthwsie break up of salaries and wages and bonus paid
with evidence for payment of labour charges paid
8) Copy of Sales Tax order if any
9) Details of loss on sale of Scrap of assets
10) Details of interest paid
11) Note:
a) Excess provision written back
b) Bad debts written off
c) Unsecured Loans
12) Details of parties balance written off
13) Details of repairs and maintenance with bills and vouchers
14) Details of loss on sale of depreciable assets (Short Term Capital Loss) . In case no convincing reply received, the loss claimed as Short Term Capital Loss will be disallowed.
15) Name and address of fixed deposit holders with the amount received and settlement details and the person to whom brokerage paid.
It is proposed to disallow the claims of tangible assets written off and R R&D Expenses claimed since no business activity."
5. The assessee's letter dated 9.11.2006 which is placed at pages 21 to 24 of the paper book further shows that the assessee had clearly replied to the query regarding excess provision written back and also :- 7 -: ITA 1726 & 1744/10 mentioned the reasons. Para 7 of this letter is relevant and we extract below the same from page 21 of assessee's paper book:
"7. (a) Excess provision written back is related to written back of intercorporate loan borrowed by the Company and not paid due to losses and written off by the lender.
(b) Bad debts written off during the year is `` NIL
(c) Details of unsecured loans is given vide our letter dated ... "
6. The existence of these letters could not be denied by the ld.DR. We are convinced that the Assessing Officer, while making his original assessment, has really examined this issue from all angles and had taken a plausible view in the given facts and circumstances of the case. Subsequently, on the basis of same reasons, it is not permissible to reopen the assessment by taking recourse to section 147 because it would amount to change of opinion and a change of opinion cannot be made a ground for reopening of an already settled assessment . At page 31 of the paper book, the reasons recorded by the Assessing Officer for reopening of the assessment is placed. We reproduce herein below the letter written by the Assessing Officer to the assessee in toto:
:- 8 -: ITA 1726 & 1744/10
"AABCN3966G Dated: 25.8.2009
To
M/s NDF Engineering (P) Ltd / M/s NDF Engineering (P) Ltd
31, Bharathiar Road 9, Bharathi Park 3rd cross
Pappanaickenpalayam Saibaba Mission Post
Coimbatore 641 037 Coimbatore 11
Sirs,
Sub: Income-tax assessment u/s 148 - assessment
year 2004-05-your own - reg.
Reference: Your letter dated 24.8.2009
.........
Please refer to the above.
2. During the previous year ended 31-3.2004, it is seen from Notes on Accounts Schedule 18 No.3 (Accounting practices) that intercorporate loans/deposits of ` l.20,60,.000/- is written back as the same was not payable by the assessee. Further, while computing tax u/s 115JB, the write off amount of intercorporate loans/deposits was added back to book profit. However, the same was not considered under the normal computation of tax. As such the write off of repayment of loans/deposits is a benefit received by the assessee company in the exercise of its business as envisaged u/s 28(iv) of the Income-tax Act. Hence, the Assessing Officer has reason to believe that income has escaped the assessment.
Yours faithfully, Sd/-
(P.RENUGA DEVI) Assistant Commissioner of Income-tax Company Circle IV(1), Coimbatore"
7. After comparing the relevant portions of the investigation/enquiry made during the original assessment proceedings with the reasons recorded for reopening, any prudent man will come :- 9 -: ITA 1726 & 1744/10 to an irresistible conclusion that the Assessing Officer is trying to take a 'U' turn by making re-assessment on the basis of a changed opinion about the same item of income. The law is very much settled and clear on this issue. Even after the amendment in the provisions of section 147, which has been succinctly explained by the Hon'ble Supreme Court in the cases of ACIT vs Rajesh Jhaveri Stock Brokers Pvt. LTd, 291 ITR 500, and CIT vs Kelvinator of India Ltd, 256 ITR 1, that opinion and reason to believe that income has escaped assessment cannot be based on change of opinion on the part of the Assessing Officer to reopen an assessment and this provision still survives. In this case, there is no tangible material which has come in the possession of the Assessing Officer, admittedly, after the original assessment and within the date of initiation of reopening proceedings and of-course until today. In the case of CIT vs Kelvinator of India Ltd (supra), the Hon'ble Supreme Court has held as under:
"The concept of "change of opinion" all the part of the Assessing Officer to reopen an assessment does not stand obliterated after the substitution of section 147 of the Income- tax Act, 1961, by the Direct Tax Laws (Amendment) Acts, 1987 and 1989. After the amendment, the Assessing Officer has to have reason to believe that income has escaped assessment, but this does not imply that the Assessing Officer can reopen an assessment on mere change of opinion. The concept of "change of opinion" must be treated as all in-built test to check the abuse of power. Hence after April 1, 1989, the Assessing Officer has power to reopen all assessment, :- 10 -: ITA 1726 & 1744/10 provided there is "tangible material" to come to the conclusion that there was escapement of income from assessment. Reason must have a link with the formation of the belief."
8. This issue has been very succinctly and neatly described by Hon'ble Bombay High Court while deciding the case of Asian Paints ltd vs Dy. CIT, 308 ITR 195, in which it has been held as under:
"When a regular order of assessment is passed in terms of section 143(3) of the Income-tax Act, 1961, a presumption can be raised that such an order has been passed on application of mind. If non-application of mind by the Assessing Officer in passing an order would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, it would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong. The Legislature has not conferred power on the Assessing Officer to review his own order.
The assessee, a company, filed its returns of income, inter alia, disclosing provision for estimated liability for arrears of wages payable to workmen at its plant and contribution by way of reimbursement of capital loss incurred by provident, gratuity and superannuation funds. Pursuant to the notice issued during the course of assessment proceedings, the assessee furnished further information relating to wages payable to workmen and capital loss incurred on account of contribution by way of provident, gratuity and superannuation funds. An assessment order was passed allowing deduction in respect of expenditure incurred due to wages payable to workmen and contribution by way of provident, gratuity and superannuation funds. On issue of notice under section 148 of the Act, the assessee contested the notice on the ground that reassessment proceedings could not be initiated merely because there was a change of opinion. The Deputy Commissioner of Income-tax rejected the objection of the assessee on the ground that all the information on record was not taken into account while framing the assessment order and therefore income had escaped assessment. On a writ petition::- 11 -: ITA 1726 & 1744/10
Held, allowing the petition, that initiation of reassessment proceedings would amount to change of opinion of the Assessing Officer as it was merely a fresh application of mind by the Assessing Officer to the same set of facts. Since the Assessing Officer had failed to apply his mind to the relevant material while framing the assessment order, he could not take advantage of his own wrong and reopen the assessment under section 147 of the Act. "
9. Incidentally, we may mention that the ld. CIT(A) has held that the amount utilized for acquisition of capital asset in such circumstances cannot be held to be a benefit u/s 28(iv) of the Act, Be that as it may, as per the provision of section 147 r.w.s 148, no assessment u/s 143(3) can be reopened as per the expiry of four years from the end of relevant assessment year unless any income chargeable to tax has escaped assessment 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. We are not concerned with the period of four years, but we are concerned with the fact that the assessee has fully and truly disclosed all the material facts before the Assessing Officer and this fact stands proved on record. This is not a case of validity of the re-assessment with respect to time for four years but the assessee's objection is regarding change of opinion which was earlier taken in one way and later on it was being decided in diagonally opposite manner. Such change of opinion as per :- 12 -: ITA 1726 & 1744/10 the settled law mentioned above, cannot be made a basis for reopening of the assessment . Accordingly, assessment order dated 23.12.2009 becomes a nullity and therefore, declared as void ab initio being based on invalid reasons. Or to say, a change of opinion which is not permitted. We declare the re-assessment order null and void and quash the same.
10. In view of our above finding, the appeal of the Revenue becomes infructuous and appeal of the assessee stands allowed.
11. In the result, appeal of the Revenue stands dismissed whereas that of the assessee stands allowed.
The order pronounced in the open court on 07-10-2011.
Sd/- Sd/-
(ABRAHAM P GEORGE) ( HARI OM MARATHA )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 07th October, 2011
RD
Copy to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR