M/s. Siva Industries and Holdings Limited (formerly known as Sterling Infotech Limited), CHENNAI v. ACIT,, CHENNAI

CO 129/CHNY/2012 | 2002-2003
Pronouncement Date: 30-07-2012 | Result: Dismissed

Appeal Details

RSA Number 12921723 RSA 2012
Assessee PAN AAACS4406M
Bench Chennai
Appeal Number CO 129/CHNY/2012
Duration Of Justice 28 day(s)
Appellant M/s. Siva Industries and Holdings Limited (formerly known as Sterling Infotech Limited), CHENNAI
Respondent ACIT,, CHENNAI
Appeal Type Cross Objection
Pronouncement Date 30-07-2012
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 30-07-2012
Assessment Year 2002-2003
Appeal Filed On 02-07-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C CHENNAI BEFORE SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER AN D SHRI S.S. GODARA JUDICIAL MEMBER I.T.A. NO. 1158/MDS/2012 ASST. YEAR : 2002-03 THE ASST. COMMISSIONER OF INCOME TAX COMPANY CIRCLE VI(4) CHENNAI 600 034. (APPELLANT) V. M/S. STERLING INFOTECH LTD. NO.327 ANNA SALAI CHENNAI 600 006. PAN : AAACS4406M (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. NO.327 ANNA SALAI CHENNAI 600 006. PAN : AAACS4406M (CROSS OBJECTOR) V. THE ASST. COMMISSIONER OF INCOME TAX COMPANY CIRCLE VI(4) CHENNAI 600 034. (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 I.T.A. NO1158 & CO 129/MDS/12 2 O R D E R PER S.S. GODARA JUDICIAL MEMBER : THIS REVENUES APPEAL AND ASSESSEES CROSS OBJECT ION EMANATE FROM THE ORDER OF THE CIT(APPEALS)-V DATED 29.2.20 12 IN CASE NO.CIT(A)-V/ITA NO.491/2009-10 FOR ASST. YEAR 2009-10 IN PROCEEDING S 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(A PPEALS) HAS ERRED IN RESTRICTING DISALLOWANCE U/S 14A OF THE ACT MADE BY ASSESSING OFFICER FROM E21 61 600/- TO E.7 23 719/- AND IN DELETING ASSES SING OFFICERS CALCULATION UNDER RULE 8D OF I.T. RULES. THE ASSESSEE ON THE OTHER H AND HAS SUPPORTED CIT(APPEALS)S FINDINGS ON MERITS. ON THE OTHER HA ND IT HAS PRESSED ITS CROSS OBJECTIONS QUESTIONING OF LEGALITY OF REOPENING WHI CH HAS BEEN REJECTED BY CIT(APPEALS). SINCE THE OUTCOME OF REVENUES AP PEALS DEPENDS ON OUR DECISION ON ASSESSEES CROSS OBJECTIONS THEREFORE WE FRAME FOLLOWING ISSUES FOR ADJUDICATION OF THE CASE IN THE RIGHT PERSPECTIVE:- I) WHETHER THE OF REOPENING IN QUESTION TAKEN RECOU RSE 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 CON FIRMED OR MODIFIED PER RESPECTIVE STANDS OF THE PARTIES? I.T.A. NO1158 & CO 129/MDS/12 3 II) IF FIRST ISSUE IS DECIDED AGAINST THE ASSESSE THEN WHETHER THE ORDER OF CIT(APPEALS) ON MERITS LIMITING THE DISALL OWANCE U/S.14A OF THE ACT MADE BY ASSESSING OFFICER FROM E 21 61 6 00/- TO E.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 FINA NCE PROPERTY DEVELOPMENT AND SOFTWARE) FILED ITS RETURN ON 31.10.2002 FOR AS ST. YEAR 2003-04 DECLARING LOSS OF E.3 73 69 044/-. THE ASSESSING OFFICER VIDE OR DER DATED 31.3.2005 COMPLETED ASSESSMENT U/S.143(3) OF THE ACT AND ASSESSED THE L OSS AS E.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 ASSESSEES INCOME HAD ESCAPED ASSESSMENT. ON THE ASKING OF THE ASSES SEE 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 BALA NCE SHEET TOTAL AND INVESTMENTS CONSTITUTE 25.28%. ON THE CLO SING DATE OF THE BALANCE SHEET THE LOANS CONSTITUTE 0.11% AND INVESTMENTS CONSTITUTE 18.32%. ON BOTH THE OPENING AND CLOSING DATES OF THE BALAN CE SHEET THE AMOUNT/QUANTUM OF LOANS IS LESS THAN THE INVESTMENTS MADE. IT CLEARLY SUGGESTS THAT THE LOA NS WERE TAKEN AND CONTINUED ONLY FOR THE PURPOSE OF MAKING AND I.T.A. NO1158 & CO 129/MDS/12 4 SUSTAINING THE INVESTMENTS THE INCOME ARISING FROM WHICH IS EXEMPT. HENCE THE EXPENDITURE INCURRED IN RELATIO N TO SUCH INVESTMENTS IS TO BE DISALLOWED AS REQUIRED U/S.14A OF THE IT ACT. THE ASSESSEE INCURRED INTEREST EXPENSES OF E. 22 11 420/- ON THE LOANS WHICH WERE USED SOLELY FOR INVESTMENT S. 5. IN RE-ASSESSMENT PROCEEDINGS THE ASSESSEE ADHE RED TO ITS EARLIER RETURN AND OPTED NOT TO FILE A FRESH ONE. THE ASS ESSING OFFICER WENT THROUGH THE ASSESSEES INCOME SCHEDULE SHOWING RECEIPT OF E 1. 55 CRORES AS DIVIDEND INCOME WHICH WAS CLAIMED AS EXEMPT INCOME UNDER SEC.10(3 3) OF THE ACT AND OBSERVED THAT IN THE COMPUTATION PROPORTIONATE EXPENDITURE ATTRIBUTABLE IN EARNING THE SAME HAD NOT BEEN DISALLOWED. PER ASSESSING OFFICE R AS ON 31.3.2002 THE INVESTMENTS IN QUOTED AND UNQUOTED SHARES INVESTMEN TS WERE OF E 36 11 23 180/- AND THE ASSESSEES FINANCIAL CHARGES SHOWN TO HAVE BEEN INCURRED STOOD AT E. 22 59 992/-. THEREFORE THE ASSESSING OFFICER FORM ED 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. HENC E THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE DETAILS OF EXPENDITURE. 6. THE ASSESSEE IN REPLY STATED THAT IT HAD NOT IN CURRED ANY EXPENDITURE QUA EARNING EXEMPT INCOME. ALONG WITH THE SAME IT ALSO CONTESTED THE VALIDITY OF RE-OPENING BY TERMING IT AS TIME B ARRED IE. AFTER EXPIRY OF FOUR YEARS FROM RELEVANT ASST. YEARS AND NOT COVERED BY THE SPECIFIC CIRCUMSTANCES POSTULATED UNDER SEC.147 OF THE ACT. I.T.A. NO1158 & CO 129/MDS/12 5 7. THE ASSESSING OFFICER IN RE-ASSESSMENT ORDER DA TED 30.12.2009 NEGATED THE ASSESSEES CONTENTION QUA LEGALITY OF R E-OPENING AS WELL AS ITS PLEA ON MERITS BY OBSERVING THAT THE ASSESSEES DISCLOSURE OF INCOME WAS FULL BUT NOT TRUE AND THERE WERE REASONS TO BELIEVE THAT ITS INCOME H AD ESCAPED ASSESSMENT. 8. FURTHER BY PLACING RELIANCE ON A CATENA OF CAS E LAWS NAMELY ITAT(SB) MUMBAI IN CIT V. DAGA CAPITAL MANAGEMENT M EXOPP INVESTMENTS LTD. V. ACIT (ITA NO.183/DEL/2005) AND M/S. CHEMINV EST LTD. V. DCIT (ITAT NO.2048/DEL/2005) THE ASSESSING OFFICER HELD THAT ASSESSEE HAD FAILED TO JUSTIFY THE CORRECTNESS OF CLAIM. THEREFORE ASSE SSING OFFICER INVOKED SEC.14A OF THE ACT AND RE-COMPUTED THE ASSESSEES INCOME AS UNDER:- AMOUNT OF EXPENDITURE ATTRIBUTABLE TO EXEMPT INCOM E 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 E 3 29 919 0.5% OF AVERAGE INVESTMENTS (0.5% OF E 36 63 36 291/ -) E18 31 681/- TOTAL E 21 61 600/- 6. AS PER THE ABOVE WORKING THE DISALLOWANCE TO B E MADE U/S.14A COMES TO E21 61 600/- WHICH IS DISALLOWED AND BROUGHT TO TAX . LOSS ASSESSED U/S.143(3) OF THE I.T. ACT DATED 31.0 3.2005 (-) E 3 02 01 092/- LESS : DISALLOWANCE U/S.14A AS DISCUSSED ABOVE E 21 61 600/- I.T.A. NO1158 & CO 129/MDS/12 6 LOSS ASSESSED (-) E 2 80 39 492/- TAX THEREON NIL LESS : TDS E 35 84 172/- EXCESS PAID E 35 84 172/- ADD : INTEREST U/S.244A E 1 59 812/- E 37 43 984/- LESS : REFUND ALREADY DETERMINED AND ISSUED E 37 4 3 984/- 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 ISSU E OF VALIDITY HAS BEEN UPHELD WHEREAS ON MERITS ONLY DISALLOWANCE OF E 7 23 719/- ( E 4 13 719 IN THE SHAPE OF ADMITTED DIRECT EXPENSES + E 3 10 000/- @ 2% OF THE ASSESSEES DIVIDEND INCOME OF E 1 55 00 000/-) HAS BEEN CONFIRMED INSTEAD OF E 21 61 000/- MADE BY ASSESSING OFFICER) THEREBY ALLOWING ASSESSEES APPE AL 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 REPRESEN TATIVE 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 BOTT OM LINE OF THE SAME READS AS UNDER :- I.T.A. NO1158 & CO 129/MDS/12 7 THIS NOTICE IS BEING ISSUED AFTER OBTAININ G THE NECESSARY SATISFACTION OF ADDL. COMMISSIONER OF INCOME T AX. THEREAFTER THE AUTHORISED REPRESENTATIVE HAS MADE US TO GO THROUGH 1 ST PROVISIO OF SEC.151 OF THE ACT WHICH READS AS FOLLOWS :- 151. (1) IN A CASE WHERE AN ASSESSMENT UNDER SUB-S ECTION (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 ASSISTA NT COMMISSIONER [OR DEPUTY COMMISSIONER] UNLESS THE [ JOINT] COMMISSIONER OR COMMISSIONER IS SATISFIED ON THE RE ASONS 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 IS SUED UNLESS THE CHIEF COMMISSIONER OR COMMISSIONER IS SATISFIED ON THE REASONS RECORDED BY THE ASSESSING OFFICER AFORESAID THAT I T IS A FIT CASE FOR THE ISSUE OF SUCH NOTICE. IN THE LIGHT THEREOF PRINCIPLE CONTENTION OF THE A UTHORISED REPRESENTATIVE IS THAT IN THE INSTANT CASE THE ASS T. 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-OPENI NG NOTICE IS TIME BARRED SINCE IT WAS ISSUED ON 7.5.2008. HIS FURTH ER SUBMISSION IS THAT THE NOTICE IS INVALID BECAUSE AS PER PROVISO IT HA S 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 I.T.A. NO1158 & CO 129/MDS/12 8 AUTHORISED REPRESENTATIVE IN SUPPORT OF THIS ARGUME NT ARE 60 TTJ 748 SHANTI VIJAY & CO. V. ITO (DELHI HIGH COURT) AND 25 2 ITR 1 CIT V. ANJUM M GHASWALA AND 335 ITR 234 (GUJARAT) AAYOJAN DEVELOPERS V. ITO. (B) THE 2 ND LINE OF A.RS ARGUMENT IS THAT U/S.147 (1 ST 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 ASSESSMENT 15 FOR ANY ASSESSMENT YEAR HE MAY SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153 ASSESS OR REASSESS 15 SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSME NT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURS E OF THE PROCEEDINGS 15 UNDER THIS SECTION OR RECOMPUTE THE LOSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE AS T HE CASE MAY BE FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTER IN THIS SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEV ANT ASSESSMENT YEAR) : PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB-SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE R ELEVANT ASSESSMENT YEAR NO ACTION SHALL BE TAKEN UNDER THI S SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVA NT ASSESSMENT YEAR UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAP ED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE 16 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 14 2 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS 16 NECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR: IT HAS BEEN SUBMITTED THAT THE ASSESSING OFFICE R HAS GOT JURISDICTION TO RE-OPEN AN ASSESSMENT ONLY IF THERE HAS BEEN FAILURE ON PART OF THE ASSESSE IN DISCLOSING FUL L PARTICULARS OF INCOME I.T.A. NO1158 & CO 129/MDS/12 9 WHICH COULD LEAD TO AN OPINION THAT ANY INCOME CHAR GEABLE TO TAX HAS ESCAPED ASSESSMENT. THEREFORE PER AUTHORISED REPR ESENTATIVE THE REASONS FORMING BASIS OF RE-OPENING ARE VAGUE AS TH ERE HAS NOT BEEN ANY FAULT OF THE ASSESSE STATED IN DISCLOSING FULL PARTICULARS OF ITS INCOME. TO BUTTRESS HIS PLEA HE HAS CITED CASE LA W OF 286 ITR 674 IN THE CASE OF CIT V. ELGI FINANCE LTD. (MADRAS HIGH C OURT) AND 286 ITR 39 ARUNKUMAR V. UNION OF INDIA. (C) THE NEXT ARGUMENT OF THE AUTHORISED REPRESENTA TIVE IS ON MERITS. HE ARGUED THAT IN ASSESSMENT THE ASSESSEE HAD DULY ENCLOSED ITS BALANCE SHEET AND OTHER RELEVANT MATERIAL. BY REFE RRING 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 IN VESTMENTS STOOD @ 25.28%. ON CLOSING DATE OF THE BALANCE SHEET LOA NS WERE @ 0.11% AND INVESTMENT STOOD @ 18.32%. PER A.R THIS FACTUAL POSITION LEADS TO ONLY ONE INFERENCE THAT THE ASSESSEE HAD I TS OWN FUNDS WHICH WERE UTILIZED IN INVESTMENTS IN QUESTION. HE HAS ALSO REFERRED TO THE DETAILS OF TOTAL EXPENDITURE ADMITTED AS E 22 59 99 2/- (SUPRA) AS UNDER :- EXPENSE HEAD AMOUNT PURPOSE BANK CHARGES E 4 8 572/ - EXPENSES INCURRED DURING THE COURSE OF BUSINESS INTEREST AMEX BONDS E 11 22 888/ - LOAN WAS TAKEN IN FY 1999 - 00 REPAYMENT OF LOAN IS OUT OF INTERNAL ACCRUALS INTERE ST ON HIRE PURCHASE E 3 67 056/ - VEHICLE HIRE PURCHASE INTEREST OD INTEREST E 1 15 921/ - EXPENSES INCURRED DURING THE I.T.A. NO1158 & CO 129/MDS/12 10 COURSE OF BUSINESS IL&FS LOAN E 4 13 719/ - INTEREST ON SALES TAX E 34 362/ - EXPENSES INCURRED DURING THE COURSE OF BUSINESS INTEREST ON TDS E 1 55 065/ - ON BELATED PAYMENT OF TDS. DISALLOWED IN COMPUTATION. TOTAL E 22 59 992/ - IN THE LIGHT THEREOF HIS ARGUMENT IS THAT THERE WA S NO OCCASION BASED ON ANY EVIDENCE/MATERIAL SO AS TO SUPPORT THE FINDI NGS OF A.O. IN VIEW OF THESE ARGUMENTS THE AUTHORISE D REPRESENTATIVE HAS PRAYED FOR ACCEPTANCE OF THE CROSS OBJECTIONS AND R EJECTION OF APPEAL. 11. THE DEPARTMENTAL REPRESENTATIVE REPRESENTING R EVENUE HAS SUBMITTED THAT PLEA CHALLENGING JURISDICTION OF ASS ESSING 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 A ND ALSO GONE THROUGH THE RELEVANT FINDINGS CONTENTS OF PAPER BO OK AND CASE LAW CITED. SO FAR AS MAINTAINABILITY OF CROSS OBJECTIONS IN HAND IS CONCERNED WE ARE UNABLE TO AGREE WITH REVENUES PLEA THAT THE SAME A RE NOT MAINTAINABLE ONLY BECAUSE THE ASSESSEE HAS NOT RAISED THE PLEA OF JUR ISDICTION 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 I.T.A. NO1158 & CO 129/MDS/12 11 A REMEDY AVAILABLE TO A RESPONDENT TO DEFEND THE I MPUGNED ORDER AS WELL AS TO PREFER CROSS OBJECTION ALIKE A SEPARATE APPEAL IN THE INSTANT CASE THE ASSESSE HAS QUESTIONED THE VERY VALIDITY OF REOPENI NG ON THE GROUND OF JURISDICTION OF A.O. BEING VIOLATIVE OF PROVISION S 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 ASSESSEES CROS S OBJECTIONS. 13. FURTHER IT TRANSPIRES FROM THE RECORD THAT THE ASSESSING OFFICER HAD FINALIZED ASSESSMENT UNDER SEC.143(3) O F THE ACT ON 31.3.2005 WHEREIN AMOUNT OF LOSS CLAIMED IN RETURN OF E 3 73 69 044/- WAS MODIFIED TO E 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 E 1.55 CRORES AS EXEMPT U/S.10(33) OF THE ACT. THE ASSESSM ENT FINALIZED ON 31.3.2005 WAS REOPENED BY NOTICE UNDER SEC.148 DATE D 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 A N IOTA OF ALLEGATION THAT ANY INCOME HAD ESCAPED ASSESSMENT ATTRIBUTABLE TO FAILU RE ON THE PART OF THE ASSESSEE IN NOT DISCLOSING FULL PARTICULARS. THE HO NBLE SUPREME COURT OF INDIA IN CASE LAW CIT V. KELVINATOR OF INDIA (320 I TR 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 T O SECTION 147 OF THE ACT WE FIND THAT PRIOR TO THE DIRECT TAX LAWS (AMENDMENT) ACT 1987 REOPENING COULD BE DONE UND ER THE ABOVE TWO CONDITIONS AND FULFILLMENT OF THE SAID C ONDITIONS ALONE I.T.A. NO1158 & CO 129/MDS/12 12 CONFERRED JURISDICTION ON THE ASSESSING OFFICER TO MAKE A BACK ASSESSMENT BUT IN SECTION 147 OF THE ACT (WITH EFF ECT FROM 1ST APRIL 1989) THEY ARE GIVEN A GO-BY AND ONLY ONE C ONDITION HAS REMAINED VIZ. THAT WHERE THE ASSESSING OFFICER H AS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT CONFER S JURISDICTION TO REOPEN THE ASSESSMENT. THEREFORE POST-1ST APRIL 1989 POWER TO REOPEN IS MUCH WIDER. HOWEVER ONE NEEDS TO GIV E A SCHEMATIC INTERPRETATION TO THE WORDS 'REASON TO BE LIEVE' FAILING WHICH WE ARE AFRAID SECTION 147 WOULD GIVE ARBITR ARY POWERS TO THE ASSESSING OFFICER TO REOPEN ASSESSMENTS ON THE BASIS OF 'MERE CHANGE OF OPINION' WHICH CANNOT BE PER SE R EASON TO REOPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL D IFFERENCE 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 C ERTAIN PRECONDITIONS AND IF THE CONCEPT OF 'CHANGE OF OPIN ION' IS REMOVED AS CONTENDED ON BEHALF OF THE DEPARTMENT THEN IN THE GARB OF REOPENING THE ASSESSMENT REVIEW WOULD TAK E PLACE. ONE MUST TREAT THE CONCEPT OF 'CHANGE OF OPINION' AS A N IN-BUILT TEST TO CHECK ABUSE OF POWER BY THE ASSESSING OFFICER. HENCE AFTER 1ST APRIL 1989 THE ASSESSING OFFICER HAS POWER T O REOPEN PROVIDED THERE IS 'TANGIBLE MATERIAL' TO COME TO TH E CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LIVE LINK WITH THE FORMATION OF THE BE LIEF. OUR VIEW GETS SUPPORT FROM THE CHANGES MADE TO SECTION 147 OF THE ACT AS QUOTED HEREINABOVE. UNDER THE DIRECT TAX LAWS (AME NDMENT) ACT 1987 PARLIAMENT NOT ONLY DELETED THE WORDS ' REASON TO BELIEVE' BUT ALSO INSERTED THE WORD 'OPINION' IN S ECTION 147 OF THE ACT. HOWEVER ON RECEIPT OF REPRESENTATIONS FROM TH E COMPANIES AGAINST OMISSION OF THE WORDS 'REASON TO BELIEVE' PARLIAMENT REINTRODUCED THE SAID EXPRESSION AND DELETED THE WO RD 'OPINION' ON THE GROUND THAT IT WOULD VEST ARBITRARY POWERS IN THE ASSESSING OFFICER. WE QUOTE HEREINBELOW THE RELEVA NT PORTION OF CIRCULAR NO. 549 DATED OCTOBER 31 1989 ([1990] 18 2 ITR (ST.) 1 29) WHICH READS AS FOLLOWS : '7.2 AMENDMENT MADE BY THE AMENDING ACT 1989 TO R EINTRODUCE 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 SUBS TITUTION 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 GIV E ARBITRARY I.T.A. NO1158 & CO 129/MDS/12 13 POWERS TO THE ASSESSING OFFICER TO REOPEN PAST ASS ESSMENTS 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 THE SE 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 PL EASED TO HOLD REGARDING PRINCIPLES OF RE-OPENING AS UNDER :- IN THE PRESENT CASE THE QUESTION IS WHETHER THE A SSESSEE- COMPANY HAD DISCLOSED FULLY AND TRULY ALL THE MATE RIAL FACTS NECESSARY FOR THE ASSESSMENTS AND WITH PARTICULAR REFERENCE TO COMPUTATION OF DEPRECIATION ALLOWANCE. THE ASSESSE E COMPANY HAD FILED A FULL SET OF ACCOUNTS BEFORE THE ASSESSI NG OFFICER COMPRISING PROFIT AND LOSS ACCOUNT BALANCE SHEET A ND SCHEDULES THERETO. THE ASSESSEE-COMPANY HAD FURNISHED THE DET AILS REGARDING THE ACQUISITION OF VARIOUS MACHINERY AND ASSETS AND THE DETAILS REGARDING THE LEASING OUT OF THOSE MACHINE RY AND ITEMS TO OTHER PARTIES. THE ASSESSEE HAD ALSO FURNISHED THE DETAILS OF LEASE RENT RECEIVED OUT OF THOSE LEASE AGREEMENTS. THE AS SESSEE HAD ALSO FURNISHED THE DETAILED COMPUTATION OF DEPRECIA TION MENTIONING THEREIN THE WRITTEN DOWN VALUE OF MACHIN ERY AND ASSETS BEFORE AND AFTER CLAIMING THE DEPRECIATION ALLOWANCE FOR THE IMPUGNED ASSESSMENT YEARS. IT IS A FACTUAL FIN DING BY THE TRIBUNAL THAT THE ASSESSE COMPANY HAD FULLY AND TRU LY DISCLOSED ALL MATERIAL FACTS NECESSARY FOR WORKING OUT THE QUANTU M 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 FENN ER (INDIA) LTD. V. DEPUTY CIT [2000] 241 ITR 672. IN THE SAID JUDG MENT THE LEARNED SINGLE JUDGE CONSIDERED THE SCOPE OF THE P ROVISO TO SECTION 147 OF THE INCOME-TAX ACT IN DETAIL AND HE LD AS FOLLOWS (PAGE 677) : I.T.A. NO1158 & CO 129/MDS/12 14 THE PRE-CONDITION FOR THE EXERCISE OF THE POWER UN DER SECTION 147 IN CASES WHERE POWER IS EXERCISED WITHIN A PER IOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR IS THE BELIEF REASONABLY ENTERTAINED BY THE ASSESSING OFFICER THA T 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 ASSESSMEN T 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 MATERI AL FACTS NECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR. UNLESS THE CONDITION IN THE PROVISO IS SATISFIED THE ASSESSIN G OFFICER DOES NOT ACQUIRE JURISDICTION TO INITIATE ANY PROCEEDING UND ER SECTION 147 OF THE ACT AFTER THE EXPIRY OF FOUR YEARS FROM THE EN D OF THE ASSESSMENT YEAR. THUS IN CASES WHERE THE INITIATION OF THE PROCEEDI NGS IS BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF THE ASSES SMENT 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 ESC APED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF T HE FAILURE ON THE PART OF THE ASSESSEE . . . MERE ESCAPE OF INCOME IS INSUFFICIENT TO JUSTIFY T HE 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 T HE MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. WHENEVER A NOTICE IS ISSUED BY THE ASSESSING OFFICE R BEYOND A PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT A SSESSMENT YEAR SUCH NOTICE BEING ISSUED WITHOUT RECORDING THE REAS ONS FOR HIS BELIEF THAT INCOME ESCAPED ASSESSMENT IT CANNOT B E PRESUMED IN LAW THAT THERE IS ALSO A FAILURE ON THE PART OF TH E ASSESSEE TO FILE THE RETURNS REFERRED TO IN THE PROVISO OR A FAILUR E TO FULLY AND TRULY I.T.A. NO1158 & CO 129/MDS/12 15 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 PROV ISO AND IT IS NECESSARY FOR THE ASSESSING OFFICER TO RECORD THAT ANY ONE OR ALL THE CIRCUMSTANCES REFERRED TO IN THE PROVISO EXIST ED BEFORE THE ISSUE OF NOTICE UNDER SECTION 147. AFTER AN ASSESSMENT HAS BEEN MADE IN THE NORMAL CI RCUMSTANCES THERE WOULD BE NO REASON FOR ANYONE TO DOUBT THAT T HE ASSESSMENT HAS BEEN MADE ON THE BASIS OF ALL RELEV ANT FACTS. IF THE ASSESSING OFFICER CHOOSES TO ENTERTAIN THE BEL IEF THAT THE ASSESSMENT HAS BEEN MADE IN THE BACKGROUND OF THE ASSESSEE'S FAILURE TO DISCLOSE TRULY AND FULLY ALL MATERIAL F ACTS 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 WIT HOUT RECORDING SUCH A FACT IS CAPABLE OF BEING REGARDED AS A VALI D NOTICE. AS TO WHETHER THE MATERIAL FACTS DISCLOSED BY THE ASSESSE E ARE FULL AND TRUE IS ALWAYS A QUESTION OF FACT AND UNLESS THE FA CTS DISCLOSED HAD BEEN EXAMINED IN RELATION TO THE EXTENT OF FAIL URE IF ANY ON THE PART OF THE ASSESSEE IT IS NOT POSSIBLE TO FOR M THE OPINION THAT THERE HAD BEEN A FAILURE ON THE ASSESSEE'S PART TO TRULY AND FULLY DISCLOSE THE MATERIAL FACTS. A NOTICE ISSUED WITHOU T A RECORD OF THE ASSESSING OFFICER'S REASONABLE BELIEF THAT THERE WA S SUCH FAILURE ON THE PART OF THE ASSESSEE WOULD BE INDICATIVE OF A F AILURE 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-C OMPANY HAD FULLY AND TRULY DISCLOSED ALL MATERIAL FACTS NECES SARY FOR COMPUTING THE DEPRECIATION ALLOWANCE IN THE COURSE OF THE OR IGINAL ASSESSMENTS COMPLETED UNDER SECTION 143(3) ITSELF THE PERIOD OF LIMITATION APPLICABLE TO THE REOPENING FOR THESE T WO 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 FOU R YEARS FROM THE END OF THE ASSESSMENT YEARS 1992-93 AND 1993- 94. IN RESPECT OF THE ASSESSMENT YEAR 1992-93 NOTICE IF A T ALL NECESSARY SHOULD HAVE BEEN ISSUED ON OR BEFORE MARCH 31 1997 WHEREAS IN FACT THE NOTICE WAS ISSUED ONLY ON JULY 17 1998. F OR THE ASSESSMENT YEAR 1993-94 NOTICE UNDER SECTION 148 S HOULD HAVE BEEN ISSUED ON OR BEFORE MARCH 31 1998 WHEREAS IN FACT THE NOTICE WAS ISSUED ONLY ON JULY 17 1998. SO NOTIC E UNDER SECTION 148 FOR BOTH THE ASSESSMENT YEARS WAS ISSUED AFTER THE EXPIRY OF FOUR YEARS FROM THE RESPECTIVE ASSESSMENT YEARS. TH EREFORE ANY I.T.A. NO1158 & CO 129/MDS/12 16 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 F OR THE ASSESSMENT YEARS 1992-93 AND 1993-94 ARE CLEARLY B ARRED 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 T HAT THE ASSESSING OFFICER IS OF COURSE EMPOWERED TO REOPEN ANY ASSESSMENT ALREADY FINALIZED BUT SUBJECT TO PROVISIONS OF THE ACT. IN STEAD OF THERE BEING MERE CHANGE OF OPINION ALREADY FORMED IT SHOULD BE BASE D ON SOME MATERIAL AVAILABLE ON RECORD LEADING TO CONCLUSION THAT THE ASSESSEE HAD NOT DISCLOSED PARTICULARS OF THE INCOME ESCAPED(SUPRA). IN THE I NSTANT APPEAL WE NOTICE THAT EXCEPT BALD REFERENCE THERE ARE NO SUCH REASO NS FORTHCOMING IN REOPENING NOTICE. 15. EVEN ON MERITS AS FAR AS REASONS LEADING TO R EOPENING 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. W E ARE NOT IN AGREEMENT WITH THIS CONCLUSION BECAUSE IT CAN BE EASILY IMPLI ED IN SUCH CIRCUMSTANCES THAT THE ASSESSE HAD ITS OWN FUNDS AVAILABLE FOR IN VESTMENT. WE OBSERVE THAT THERE IS NO MATERIAL CITED IN SUPPORT EITHER W HICH WAS ALREADY AVAILABLE I.T.A. NO1158 & CO 129/MDS/12 17 AT THE TIME OF ASSESSMENT OR ANY NEW EVIDENCE WHICH THE ASSESSING OFFICER CAME ACROSS THEREAFTER. 16. IN VIEW OF OUR DISCUSSIONS HEREINABOVE WE AC CEPT THE ASSESSEES ARGUMENTS NO. (B) & (C) AS ABOVE IMPUGNI NG RE-ASSESSMENT ON VALIDITY AND MERITS. SO FAR AS ARGUMENT (A) ABOV E IS CONCERNED IN VIEW OF OUR SPECIFIC FINDINGS ON (B) & (C) WE HOLD THAT TH E SAME IS ONLY OF ACADEMIC SIGNIFICANCE. THE NECESSARY COROLLARY OF OUR ABOVE CONCLUSION IS THAT ASSESSEES C.O. SUCCEEDS AND REVENUES APPEAL STAN DS DISMISSED. 17. THE ORDER WAS PRONOUNCED AFTER HEARING ON MO NDAY THE 30 TH 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