Income Tax Appellate Tribunal - Chennai
Siva Industries And Holdings Limited ... vs Assessee on 30 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH "C" CHENNAI
Before Shri ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND
SHRI S.S. GODARA, JUDICIAL MEMBER
I.T.A. No. 1158/Mds/2012
Asst. Year : 2002-03
The Asst. Commissioner of Income M/s. STERLING INFOTECH LTD.,
Tax, Company Circle - VI(4), v. No.327, Anna Salai,
CHENNAI - 600 034. CHENNAI - 600 006.
PAN : AAACS4406M
(Appellant) (Respondent)
AND
C.O No.129/Mds/2012 in
(I.T.A. No. 1158/Mds/2012)
Asst. Year : 2002-03
M/s. STERLING INFOTECH LTD., The Asst. Commissioner of Income
No.327, Anna Salai, v. Tax, Company Circle - VI(4),
CHENNAI - 600 006. CHENNAI - 600 034.
PAN : AAACS4406M
(Cross Objector) (Respondent)
Appellant by : Shri S. Dasgupta, JCIT
Respondent by : Shri Sririam Seshadri CA
Date of hearing : 30 July 2012
Date of Pronouncement : 30 July 2012
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I.T.A. No1158 & CO 129/Mds/12
O R D E R
PER S.S. GODARA, JUDICIAL MEMBER :
This Revenue's appeal and Assessee's Cross Objection emanate from the order of the CIT(Appeals)-V, dated 29.2.2012 in case No.CIT(A)-V/ITA No.491/2009-10 for Asst. Year 2009-10 in proceedings under sec.143(3) read with sec.147 of the Income Tax Act 1961, in short 'the Act'.
2. The Revenue before us has stated that the CIT(Appeals) has erred in restricting disallowance u/s 14A of the Act made by Assessing Officer from 21,61,600/- to .7,23,719/- and in deleting Assessing Officer's calculation under Rule 8D of I.T. Rules. The assessee on the other hand has supported CIT(Appeals)'s findings on merits. On the other hand, it has pressed its cross objections questioning of legality of reopening which has been rejected by CIT(Appeals). Since the outcome of Revenue's appeals depends on our decision on assessee's cross objections, therefore, we frame following issues for adjudication of the case in the right perspective:-
i) Whether the of reopening in question taken recourse to by the Assessing Officer vide notice dated 7.5.2008 under sec.148 of the Act and upheld by CIT(Appeals), is liable to be confirmed or modified per respective stands of the parties?3
I.T.A. No1158 & CO 129/Mds/12
ii) If first issue is decided against the assesse, then, whether the order of CIT(Appeals) on merits limiting the disallowance u/s.14A of the Act made by Assessing Officer from 21,61,600/- to .7,23,719/- is to be upheld or not?
3. The relevant facts qua both the inter connected issues are that the assessee (a company engaged in the business of finance, property development and software) filed its return on 31.10.2002 for Asst. Year 2003-04, declaring loss of .3,73,69,044/-. The Assessing Officer, vide order dated 31.3.2005 completed assessment u/s.143(3) of the Act and assessed the loss as .3,02,01,092/-.
4. Thereafter, on 7.5.2008, the Assessing Officer issued reopening notice u/s.148 read with sec.147 of the Act stating therein that assessee's income had escaped assessment. On the asking of the assessee, the reasons for re- opening (as supplied to assessee) read as follow:-
"On the opening date of the balance sheet for the financial year 2001-02, the loans constitute 5.8% of the balance sheet total and investments constitute 25.28%. On the closing date of the balance sheet the loans constitute 0.11% and investments constitute 18.32%.
On both the opening and closing dates of the balance sheet, the amount/quantum of loans is less than the investments made. It clearly suggests that the loans were taken and continued only for the purpose of making and 4 I.T.A. No1158 & CO 129/Mds/12 sustaining the investments, the income arising from which is exempt. Hence, the expenditure incurred in relation to such investments is to be disallowed as required u/s.14A of the IT Act. The assessee incurred interest expenses of .22,11,420/- on the loans, which were used solely for investments."
5. In re-assessment proceedings, the assessee adhered to its earlier return and opted not to file a fresh one. The Assessing Officer went through the assessee's income schedule showing receipt of 1.55 crores as dividend income which was claimed as 'exempt' income under sec.10(33) of the Act and observed that in the computation, proportionate expenditure attributable in earning the same had not been disallowed. Per Assessing Officer as on 31.3.2002, the investments in quoted and unquoted shares investments were of 36,11,23,180/- and the assessee's financial charges shown to have been incurred stood at . 22,59,992/-. Therefore, the Assessing Officer formed a prima facie opinion that the assessee might also have incurred some routine expenditure for maintaining its establishments and administration a portion of which could have been attributable towards investments in question. Hence, the Assessing Officer asked the assessee to produce details of expenditure.
6. The assessee in reply stated that it had not incurred any expenditure qua earning exempt income. Along with the same it also contested the validity of re-opening by terming it as 'time barred' ie. after expiry of four years from relevant Asst. Years and not covered by the specific circumstances postulated under sec.147 of the Act.
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I.T.A. No1158 & CO 129/Mds/12
7. The Assessing Officer in re-assessment order dated 30.12.2009 negated the assessee's contention qua legality of re-opening as well as its plea on merits by observing that the assessee's disclosure of income was full but not true and there were reasons to believe that its income had escaped assessment.
8. Further, by placing reliance on a catena of case laws namely ITAT(SB) Mumbai in CIT V. Daga Capital Management Mexopp Investments Ltd. V. ACIT (ITA No.183/Del/2005) and M/s. Cheminvest Ltd. V. DCIT (ITAT No.2048/Del/2005), the Assessing Officer held that assessee had failed to justify the correctness of claim. Therefore, Assessing Officer invoked sec.14A of the Act and re-computed the assessee's income as under:-
"Amount of expenditure attributable to exempt income Nil (1) Interest payments (A) 22,59,992 (2) Average value of investment Opening balance 371549403 Closing balance 361123180 (B) 36,63,36,291 (3) Average value of total assets Opening balance 2311724795 Closing balance 2707187521 (C) 250,94,56,158 A X B/C 3,29,919 0.5% of Average Investments (0.5% of 36,63,36,291/-) 18,31,681/-
Total 21,61,600/-
6. As per the above working, the disallowance to be made u/s.14A comes to 21,61,600/- which is disallowed and brought to tax.
Loss assessed u/s.143(3) of the I.T. Act dated 31.03.2005 (-) 3,02,01,092/- Less : Disallowance u/s.14A as discussed above 21,61,600/-
6 I.T.A. No1158 & CO 129/Mds/12 Loss assessed (-) 2,80,39,492/- Tax thereon Nil Less : TDS 35,84,172/- Excess Paid 35,84,172/- Add : Interest u/s.244A 1,59,812/- 37,43,984/- Less : Refund already determined and issued 37,43,984/- Balance refundable/payable Nil_____ "
8. Aggrieved, the assessee preferred appeal before CIT(Appeals) challenging re-assessment order on legality as well as on merits. We find from CIT(Appeals)'s order that the re-assessment on issue of validity has been upheld whereas on merits only disallowance of 7,23,719/- ( 4,13,719 in the shape of admitted direct expenses + 3,10,000/- @ 2% of the assessee's dividend income of 1,55,00,000/-) has been confirmed instead of 21,61,000/- made by Assessing Officer) thereby allowing assessee's appeal in part.
9. It is in this backdrop of facts that on the one hand, Revenue is impugning restrictions of disallowance (supra), on the other hand, the assessee has questioned the very legality of re-assessment. As already clarified, now we proceed to examine the cross objections hereunder.
10. Opening his arguments, the Authorised Representative has submitted as under:-
(a) Firstly, by drawing our attention to re-opening u/s.148 of the Act notice dated 7.5.2008, it has been submitted that the bottom line of the same reads as under :-7
I.T.A. No1158 & CO 129/Mds/12 "This notice is being issued after obtaining the necessary satisfaction of Addl. Commissioner of Income Tax".
Thereafter, the Authorised Representative has made us to go through 1st provisio of sec.151 of the Act which reads as follows :-
"151. (1) In a case where an assessment under sub-section (3) of section 143 or section 147 has been made for the relevant Asst. Year, no notice shall be issued under section 148[by an Assessing Officer, who is below the rank of Assistant Commissioner [or Deputy Commissioner], unless the [Joint] Commissioner or Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice] :
Provided that, after the expiry of four years from the end of the relevant Asst. Year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice.
In the light thereof, principle contention of the Authorised Representative is that in the instant case, the Asst. Year is 2002-03.
The period of 4 years from the end of relevant Asst. Year is upto 31.3.2007 whereas in the present case, the re-opening notice is time barred since it was issued on 7.5.2008. His further submission is that the notice is invalid because as per proviso, it has to be either after satisfaction of Chief Commissioner or Commissioner only which has not been done in the instant case. The case relied upon by 8 I.T.A. No1158 & CO 129/Mds/12 Authorised Representative in support of this argument are 60 TTJ 748 Shanti Vijay & Co. v. ITO (Delhi High Court) and 252 ITR 1 CIT v.
Anjum M Ghaswala and 335 ITR 234 (Gujarat) AayojAn Developers v. ITO.
(b) The 2nd line of A.R's argument is that u/s.147 (1st Proviso) of the Act which reads as under:-
[Income escaping assessment.
147. If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment15 for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess15 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 proceedings15 under this section, or recompute 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 failure16 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 facts16 necessary for his assessment, for that assessment year:
It has been submitted that the Assessing Officer has got jurisdiction to re-open an assessment only if there has been failure on part of the assesse in disclosing full particulars of income 9 I.T.A. No1158 & CO 129/Mds/12 which could lead to an opinion that any income chargeable to tax has escaped assessment. Therefore, per Authorised Representative, the reasons forming basis of re-opening are vague as there has not been any fault of the assesse stated in disclosing full particulars of its income. To buttress his plea, he has cited case law of 286 ITR 674 in the case of CIT v. Elgi Finance Ltd. (Madras High Court) and 286 ITR 39 Arunkumar v. Union of India.
(C) The next argument of the Authorised Representative is on merits. He argued that in assessment, the assessee had duly enclosed its balance sheet and other relevant material. By referring to the reasons of re-opening it has been emphasized that in Asst. Year 2001-02, loans constituted 5.8% of balance sheet total and investments stood @ 25.28%. On closing date of the balance sheet, loans were @ 0.11% and investment stood @ 18.32%. Per A.R, this factual position leads to only one inference that the assessee had its own funds which were utilized in investments in question. He has also referred to the details of total expenditure admitted as 22,59,992/- (supra) as under :-
Expense Head Amount Purpose
Bank Charges 48,572/- Expenses incurred during the
course of business
Interest AMEX Bonds 11,22,888/- Loan was taken in FY 1999-00
Repayment of loan is out of
internal accruals
Interest on Hire 3,67,056/- Vehicle Hire Purchase Interest
Purchase
OD Interest 1,15,921/- Expenses incurred during the
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I.T.A. No1158 & CO 129/Mds/12
course of business
IL&FS Loan 4,13,719/-
Interest on Sales Tax 34,362/- Expenses incurred during the
course of business
Interest on TDS 1,55,065/- On belated payment of TDS.
Disallowed in computation.
Total 22,59,992/-
In the light thereof, his argument is that there was no occasion based on any evidence/material so as to support the findings of A.O. In view of these arguments, the Authorised Representative has prayed for acceptance of the cross objections and rejection of appeal.
11. The Departmental Representative representing Revenue has submitted that plea challenging jurisdiction of Assessing Officer qua re- opening has not been specifically raised in grounds. and prayed for rejection of Cross Objections filed by assessee. Further, he has also placed reliance on CIT(Appeals)'s order.
12. We have heard both representatives in detail and also gone through the relevant findings, contents of Paper Book and case law cited. So far as maintainability of Cross Objections in hand is concerned, we are unable to agree with Revenue's plea that the same are not maintainable only because the assessee has not raised the plea of jurisdiction in reopening Assessment before A.O. as well as CIT(Appeals). We are not convinced with this stand of Revenue because under the law, the Cross objections are 11 I.T.A. No1158 & CO 129/Mds/12 a remedy available to a respondent to defend the impugned order as well as to prefer Cross objection alike a separate appeal In the instant case, the assesse has questioned the very validity of reopening on the ground of jurisdiction of A.O., being violative of provisions of the Act. In our opinion, the assesse, is duly entitled to raise this plea as the same goes to the root of the matter. So, we entertain the assessee's Cross Objections.
13. Further, it transpires from the record that the Assessing Officer had finalized assessment under sec.143(3) of the Act on 31.3.2005 wherein amount of loss claimed in return of 3,73,69,044/- was modified to 3,02,01,092/-. No doubt, in the assessment order, the issue of disallowance u/s.14A of the Act was not considered. However, the assessment was completed after considering assessee's claim of 1.55 crores as exempt u/s.10(33) of the Act. The assessment finalized on 31.3.2005 was reopened by notice under sec.148 dated 7.5.2008 ie. after more than five years from the end of relevant Asst. Year. It is also evident that in the notice of reopening there is not even an iota of allegation that any income had escaped assessment attributable to failure on the part of the assessee in not disclosing full particulars. The Hon'ble Supreme Court of India in case law CIT v. Kelvinator of India (320 ITR 561) has held that reopening is not review or mere change in opinion. The operative part is reproduced as follows :-
"On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfillment of the said conditions alone 12 I.T.A. No1158 & CO 129/Mds/12 conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from 1st April, 1989), they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has the power to reassess. But reassessment has to be based on fulfilment of certain preconditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in section 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament reintroduced the said expression and deleted the word "opinion"
on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No. 549 dated October 31, 1989 ([1990] 182 ITR (St.) 1,
29), which reads as follows :
"7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression `reason to believe' in section 147.-A number of representations were received against the omission of the words `reason to believe' from section 147 and their substitution by the `opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, `reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary 13 I.T.A. No1158 & CO 129/Mds/12 powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression `has reason to believe' in place of the words `for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same."
For the aforestated reasons, we see no merit in these civil appeals filed by the Department ; hence, dismissed with no order as to costs."
Not only this, in the case of CIT v. Elgi Finance (supra), the Hon'ble Jurisdictional High Court has also been pleased to hold regarding principles of re-opening as under :-
"In the present case, the question is whether the assessee- company had disclosed fully and truly all the material facts necessary for the assessments and with particular reference to computation of depreciation allowance. The assessee company had filed a full set of accounts before the Assessing Officer comprising profit and loss account, balance sheet and schedules thereto. The assessee-company had furnished the details regarding the acquisition of various machinery and assets and the details regarding the leasing out of those machinery and items to other parties. The assessee had also furnished the details of lease rent received out of those lease agreements. The assessee had also furnished the detailed computation of depreciation mentioning therein the written down value of machinery and assets before and after claiming the depreciation allowance for the impugned assessment years. It is a factual finding by the Tribunal that the assesse company had fully and truly disclosed all material facts necessary for working out the quantum of depreciation allowance and completed the assessment accordingly. The Tribunal is right in following the judgment of the learned single judge of this court reported in Fenner (India) Ltd. v. Deputy CIT [2000] 241 ITR 672. In the said judgment, the learned single judge considered the scope of the proviso to section 147 of the Income-tax Act in detail and held as follows (page 677) :14
I.T.A. No1158 & CO 129/Mds/12 "The pre-condition for the exercise of the power under section 147 in cases where power is exercised within a period of four years from the end of the relevant assessment year is the belief reasonably entertained by the Assessing Officer that any income chargeable to tax has escaped assessment for that assessment year. However, when the power is invoked after the expiry of the period of four years from the end of the assessment year, a further pre-condition for such exercise is imposed by the proviso namely, that there has been a failure on the part of the assessee to make a return under section 139 or in response to a notice issued under section 142 or section 148 or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. Unless, the condition in the proviso is satisfied, the Assessing Officer does not acquire jurisdiction to initiate any proceeding under section 147 of the Act after the expiry of four years from the end of the assessment year.
Thus, in cases where the initiation of the proceedings is beyond the period of four years from the end of the assessment year, the Assessing Officer must necessarily record not only his reasonable belief that income has escaped assessment but also the default or failure committed by the assessee. Failure to do so would vitiate the notice and the entire proceedings. The relevant words in the proviso are, ' . . . unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee . . . ' Mere escape of income is insufficient to justify the initiation of action after the expiry of four years from the end of the assessment year. Such escapement must be by reason of the failure on the part of the assessee either to file a return referred to in the proviso or to truly and fully disclose the material facts necessary for the assessment.
Whenever a notice is issued by the Assessing Officer beyond a period of four years from the end of the relevant assessment year, such notice being issued without recording the reasons for his belief that income escaped assessment, it cannot be presumed in law that there is also a failure on the part of the assessee to file the returns referred to in the proviso or a failure to fully and truly 15 I.T.A. No1158 & CO 129/Mds/12 disclose the material facts. The reasons referred to in the main paragraph of section 147 would, in cases where the proviso is attracted, include reasons referred to in the proviso and it is necessary for the Assessing Officer to record that any one or all the circumstances referred to in the proviso existed before the issue of notice under section 147.
After an assessment has been made, in the normal circumstances, there would be no reason for anyone to doubt that the assessment has been made on the basis of all relevant facts. If the Assessing Officer chooses to entertain the belief that the assessment has been made in the background of the assessee's failure to disclose truly and fully all material facts, it is necessary for him to record that fact, and in the absence of a record to that effect, it cannot be held that a notice issued without recording such a fact is capable of being regarded as a valid notice. As to whether the material facts disclosed by the assessee are full and true is always a question of fact and unless the facts disclosed had been examined in relation to the extent of failure if any on the part of the assessee, it is not possible to form the opinion that there had been a failure on the assessee's part to truly and fully disclose the material facts. A notice issued without a record of the Assessing Officer's reasonable belief that there was such failure on the part of the assessee would be indicative of a failure on the part of the Assessing Officer to apply his mind to material facts, and on that ground also the notice issued would be vitiated." So, when the factual finding is that the assessee-company had fully and truly disclosed all material facts necessary for computing the depreciation allowance in the course of the original assessments completed under section 143(3) itself, the period of limitation applicable to the reopening for these two years would be a period of four years prescribed in the proviso to section 147 of the Income-tax Act, 1961. For the said two years, notice under section 148 had been issued after the expiry of four years from the end of the assessment years, 1992-93 and 1993-94. In respect of the assessment year 1992-93, notice if at all necessary, should have been issued on or before March 31, 1997, whereas in fact the notice was issued only on July 17, 1998. For the assessment year 1993-94, notice under section 148 should have been issued on or before March 31, 1998, whereas in fact, the notice was issued only on July 17, 1998. So, notice under section 148 for both the assessment years was issued after the expiry of four years from the respective assessment years. Therefore, any 16 I.T.A. No1158 & CO 129/Mds/12 notice issued after the expiry of four years from the end of the relevant assessment year, is illegal and is without jurisdiction. Hence the assessment years completed, are barred by limitation and they are liable to be set aside.
In view of the above reasoning, the reassessments for the assessment years 1992-93 and 1993-94 are clearly barred by limitation and in view of the same, we answer the question in favour of the assessee. Accordingly, the tax cases are dismissed. No costs.
14. Taking cue from above case law, we also hold that the Assessing Officer is of course empowered to reopen any assessment already finalized but subject to provisions of the Act. Instead of there being mere change of opinion already formed, it should be based on some material available on record leading to conclusion that the assessee had not disclosed particulars of the income escaped(supra). In the instant appeal, we notice that except bald reference, there are no such reasons forthcoming in reopening notice.
15. Even on merits as far as reasons leading to 'reopening' are concerned, it emerges from perusing the notice that it was based on the assumption that on the opening and closing dates of balance sheet, since amount/quantum of loans turned out to be less than the investments made per A.O. it suggested that loans were obtained for purpose of meeting and sustaining investments leading to exempt income. We are not in agreement with this conclusion because it can be easily implied in such circumstances that the assesse had its own funds available for investment. We observe that there is no material cited in support either which was already available 17 I.T.A. No1158 & CO 129/Mds/12 at the time of assessment or any new evidence which the Assessing Officer came across thereafter.
16. In view of our discussions hereinabove, we accept the assessee's arguments No. (b) & (c) as above impugning re-assessment on validity and merits. So far as argument '(a)' above is concerned, in view of our specific findings on (b) & (c), we hold that the same is only of academic significance. The necessary corollary of our above conclusion is that assessee's C.O. succeeds and Revenue's appeal stands dismissed.
17. The Order was pronounced after hearing on Monday, the 30th day of July 2012 at Chennai.
Sd/- sd/-
(ABRAHAM P. GEORGE) (S.S. GODARA )
ACCOUNTAT MEMBER JUDICIAL MEMBER
Chennai,
Dated : 30 July 2012
Jls.
Copy to:-
(1) Appellant
(2) Respondent
(3) CIT-II, Coimbatore
(4) CIT-III, Coimbatore
(5) D.R., (6) Guard file