ORBITECH LTD ( FORMERLY CITICORP OVERSEAS SOFTWARE LTD), MUMBAI v. DCIT 8(2), MUMBAI

ITA 1736/MUM/2009 | 2000-2001
Pronouncement Date: 21-05-2010 | Result: Allowed

Appeal Details

RSA Number 173619914 RSA 2009
Assessee PAN AAACC5736G
Bench Mumbai
Appeal Number ITA 1736/MUM/2009
Duration Of Justice 1 year(s) 2 month(s) 4 day(s)
Appellant ORBITECH LTD ( FORMERLY CITICORP OVERSEAS SOFTWARE LTD), MUMBAI
Respondent DCIT 8(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 21-05-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 21-05-2010
Date Of Final Hearing 30-04-2010
Next Hearing Date 30-04-2010
Assessment Year 2000-2001
Appeal Filed On 17-03-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI D.K. AGARWAL JM AND SHRI T.R. SOOD AM I.T.A.NO. 1736/MUM/2009 ASSESSMENT YEAR : 2000-01 M/S. ORBITECH LTD. (FORMERLY CITICORP OVERSEAS SOFTWARE LTD.) C/O. K.K. LALKAKA & CO. 507 CHURCHGATE CHAMBERS 5 NEW MARINE LINES MUMBAI 400 020. PAN: AAACC 5736 G VS. THE DEPUTY COMMISSIONER OF INCOME- TAX -8(2) AAYAKAR BHAVAN MUMBI 400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.K. LALKAKA RESPONDENT BY : SHRI SUMEET KUMAR O R D E R PER T.R. SOOD AM: IN THIS APPEAL THE ASSESSEE HAS RAISED VARIOUS GROU NDS. THE FIRST GROUND IS RELATING TO REOPENING OF THE ASSESSMENT. 2. AFTER HEARING BOTH THE PARTIES WE FIND THAT IN THIS CASE ORIGINAL ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 31 .3.2003. LATER ON NOTICE UNDER SECTION 148 WAS ISSUED ON 30.3.2007. THE ASSE SSMENT WAS MAINLY REOPENED BECAUSE THE ASSESSEE HAD CLAIMED SOME PRIOR PERIOD EXPENDITURE IN THE FORM OF PERFORMANCE AWARD AND THE ASSESSING OFFICER HAD NOT ICED THAT THERE WAS NO PROOF REGARDING PAYMENT OF THE SAME AND THEREFORE THE IN COME WAS ESCAPED TAX. 3. ON APPEAL THE LEARNED CIT(A) WAS OF THE VIEW TH AT SINCE EXCESSIVE DEDUCTION HAD BEEN ALLOWED TO THE ASSESSEE IN TERMS OF CLAUSE (III) OF EXPLANATION 2(C) TO SECTION 147 AND THEREFORE ACTION OF THE AO IN REOPENING OF THE ASSESSMENT WAS HELD TO BE VALID. 4. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO PAGE 40 OF THE PAPER BOOK WHICH CONTAINED THE REASONS FOR REOPENIN G OF THE ASSESSMENT AND POINTED OUT THAT ASSESSMENT WAS REOPENED BECAUSE NO PROOF FOR PAYMENT OF PERFORMANCE AWARD WAS SUBMITTED BY THE ASSESSEE. HO WEVER DURING THE ITA NO.1736/M/09 M/S.ORBITECH LTD. 2 REASSESSMENT PROCEEDINGS IT WAS HELD THAT IT WAS IN THE NATURE OF PRIOR PERIOD EXPENDITURE AND THEREFORE THE SAME WAS DISALLOWED. THIS MEANS THAT REASONS FOR REOPENING WERE DIFFERENT FROM REASONS FOR ASSESSMEN T AND THEREFORE THE ACTION OF THE A.O. REGARDING REOPENING WAS INVALID AND IN THI S REGARD HE RELIED ON THE DECISION OF THE CIT V. GARDHARA SINGH (173 TAXMAN 46) AND CIT V. GUJARAT FLORO CHEMICALS LTD. (319 ITR 282). 5. HE FURTHER SUBMITTED THAT IN THIS CASE NOTICE UN DER SECTION 148 HAS BEEN ISSUED ON 31.3.2007 I.E. BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR AND THEREFORE PROVISO TO SECTION 147 WOULD BE ATTRACTED. SINCE THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ANY RELEVANT MATERIAL THE ASSESSMENT COULD NOT HAVE BEE N REOPENED AFTER A GAP OF FOUR YEARS. THEN HE REFERRED TO PAGE 1 OF THE PAPER BOOK WHICH IS COPY OF THE STATEMENT OF INCOME AND POINTED OUT THAT PROVISION FOR PERFORMANCE ALLOWANCE AMOUNTING TO RS. 1 25 00 000/- WAS ADDED TO THE INC OME AND A SUM OF RS. 91 50 000/- WAS DEDUCTED BECAUSE THIS WAS THE ONLY AMOUNT PAID DURING THE YEAR. HE ALSO REFERRED TO PAGE 3 OF THE PAPER BOOK WHICH COPY OF THE PROFIT & LOSS ACCOUNT WHERE THE SUM OF RS. 91 50 000/- HAS BEEN CLEARLY REDUCED FROM THE TOTAL PROFIT. THIS FACT HAS BEEN MENTIONED IN THE TAX AUD IT REPORT ALSO COPY OF WHICH IS AVAILABLE AT PAGE 25 OF THE PAPER BOOK. ALL THESE DOCUMENTS CLEARLY SHOW THAT ALL RELEVANT FACTS WERE DISCLOSED BY THE ASSESSEE AND T HEREFORE THE ASSESSMENT COULD NOT HAVE BEEN REOPENED FOR A GAP OF FOUR YEARS. IN THIS REGARD HE RELIED ON THE DECISION IN THE CASE OF HINDUSTAN LEVER LTD. V. DC IT (268 ITR 332) AND GERMAN REMEDIES V. DCIT (287 ITR 494). 6. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REP RESENTATIVE STRONGLY RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. ITA NO.1736/M/09 M/S.ORBITECH LTD. 3 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. WE FIND THAT REASONS FOR REOPENING HAVE BEEN GIVEN BY THE AO VIDE LETTER DATED 6 TH JULY 2007 COPY OF WHICH IS PLACED AT PAGE 40 OF THE PAPER BOOK AND RE ADS AS UNDER: NO.DY.CIT-8(2)/REOPEN/ORBITECH/2007-08 JULY 6 2007. THE PRINCIPAL OFFICER M/S. ORBITECH LIMITED 133 SDF V. SEEPZ ANDHERI (E) MUMMBAI 400 096. SUB: REASONS FOR REOPENING OF ASSESSMENT IN YOUR CA SE FOR A.Y. 2000-01 REGARDING PLEASE REFER TO YOUR LETTER ON THE CAPTIONED SUBJE CT. IN RESPONSE YOUR REQUEST THE REASONS FOR REOPENIN G THE ASSESSMENT FOR A.Y. 2000-01 ARE GIVEN HEREINBELOW: ON GOING THROUGH THE RECORDS I T IS NOTICED THAT AN AMOUNT OF RS. 91 50 000/- HAS BEEN ALLOWED AS DEDUCTION ON ACCOUN T OF PROVISION FOR PERFORMANCE ALLOWANCE. THE ASSESSEE HAS SUBMITTED T HAT THIS IS A PRIOR PERIOD EXPENDITURE REPRESENTS PERFORMANCE AWARD TO EMPLOYE ES PAID BY THE COMPANY DURING THE FINANCIAL YEAR 1999-2000 THAT PERTAINS T O THE PERIOD JANUARY 1999 TO MARCH 1999 THEREFORE THE SAID EXPENDITURE IS A DED UCTIBLE EXPENDITURE ON PAYMENT BASIS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 43B(B) R.W. SECTION 36(1)(II) OF IT ACT. HOWEVER ON GOING THROUGH THE RECORDS IT HAS BEEN NOTICED THAT NO PROOF HAS BEEN SUBMITTED BY THE ASSESSEE IN SUPPORT OF THE PAYMENT MADE IN THIS REGARD. FROM THE FACTS NARRATED ABOVE IT IS CLEAR THAT ASS ESSEE HAS CLAIMED AN AMOUNT OF RS. 91 50 000/- AS A PROVISION FOR PERFORMANCE ALLO WANCE WHICH IS NOT ALLOWABLE AS PER PROVISIONS OF IT ACT SINCE ASSESSEE HAS NOT SUBMITTED ANY SUPPORTING DOCUMENTS TO PROVE THAT THIS AMOUNT HAS BEEN PAID B EFORE FILING THE RETURN OF INCOME. 8. FROM THE ABOVE IT IS CLEAR THAT ASSESSMENT WAS REOPENED MAINLY BECAUSE NO PROOF FOR DEDUCTION ON ACCOUNT OF PERFORMANCE A LLOWANCE AMOUNTING TO RS. 91 50 000/- WAS FILED. HOWEVER COPY OF THE STATEME NT OF INCOME CLEARLY SHOWS THAT PROVISION ON ACCOUNT OF PERFORMANCE ALLOWANCE AMOUNTING TO RS. 1 25 00 000/- WAS ADDED TO THE INCOME AND ONLY A SU M OF RS.90 50 000/- WAS REDUCED ON ACCOUNT OF PROVISION FOR PERFORMANCE ALL OWANCE (PRIOR YEARS). THIS CLEARLY SHOWS THAT ASSESSEE HAD SPECIFICALLY DISCLO SED WHAT WAS BEING CLAIMED WAS THE PAYMENT ON ACCOUNT OF PERFORMANCE ALLOWANCE FOR PRIOR YEAR. THE PROFIT & LOSS ACCOUNT (COPY OF WHICH IS PLACED AT PAGE 3) ALSO CL EARLY SHOWS THAT WHAT IS REDUCED IS PRIOR PERIOD EXPENDITURE AND THIS FACT O F DISCLOSURE IS ALSO MENTIONED AT ITA NO.1736/M/09 M/S.ORBITECH LTD. 4 ITEM NO.22 OF THE TAX AUDIT REPORT. ALL THESE FACT S CLEARLY SHOW THAT ASSESSEE HAD ALREADY DISCLOSED THE RELEVANT MATERIAL ON FACTS. 9. PROVISO TO SECTION 147 READS AS UNDER: IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THA T ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY AS SESSMENT YEAR HE MAY SUBJECT TO THE PROVISIONS OF SECTION 148 TO 153 ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHAR GEABLE 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 O R ANY OTHER ALLOWANCE AS THE CASE MAY BE FOR THE ASSESSMENT Y EAR CONCERNED (HEREINAFTER IN THIS SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR) 10. THE ABOVE CLEARLY SHOWS THAT ASSESSMENT WHICH I S ORIGINALLY COMPLETED UNDER SECTION 143(3) CANNOT BE REOPENED AFTER EXPIR Y OF FOUR YEARS UNLESS AND UNTIL THERE IS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. THE H ONBLE BOMBAY HIGH COURT HAS HELD IN THE CASE OF HINDUSTAN LEVER LTD. (SUPRA) AS UNDER: HELD THAT THE NOTICE WAS CLEARLY BEYOND THE PERIO D OF FOUR YEARS. THE REASONS RECORDED BY THE ASSESSING OFFICER NOWHE RE STATED THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DI SCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT F OR THAT ASSESSMENT YEAR. HENCE THE ASSESSING OFFICER HAD NO JURISDICT ION TO REOPEN THE ASSESSMENT PROCEEDINGS. THE NOTICE WAS NOT VALID AN D WAS LIABLE TO BE QUASHED. SIMILARLY IN THE CASE OF GERMAN REMEDIES LTD. (SU PRA) IT WAS HELD AS UNDER: HELD (I) THAT IT WAS NOT IN DISPUTE THAT THE RETU RN OF INCOME FILED BY THE ASSESSEE WAS ACCOMPANIED BY THE AUDIT REPORT P ROFIT AND LOSS ACCOUNT AND TAX AUDIT REPORT UNDER SECTION 44AB OF THE ACT. THE RECORD REVEALED THAT TRUE AND FULL INFORMATION WITH RESPECT TO DEDUCTION OF TAX AT SOURCE FROM THE PAYMENTS MADE T O VARIOUS PARTIES TOWARDS EXPENDITURE WAS DISCLOSED. WITH RES PECT TO VALUATION OF CLOSING STOCK WITH MODVAT (EXCISE AND CUSTOMS DU TY PAID) THE INVENTORY WAS RE3QUIRED TO BE VALUED EITHER AT COST OR MARKET PRICE WHICHEVER WAS LOWER. ACCORDING TO THIS PRINCIPLE THE ASSESSEE HAD VALUED ITS CLOSING STOCK AT COST. THE REASONS FOR I SSUE OF NOTICE WERE UNSUSTAINABLE. (II) THAT FAILURE ON THE PART OF THE ASSESSEE TO DI SCLOSE FULL AND TRUE MATERIAL HAD NOT BEEN ALLEGED. IN THE CIRCUMSTANCES THE NOTICE HAVING BEEN ISSUED BEYOND FOUR YEARS FROM THE LAST DATE OF THE RELEVANT ASSESSMENT YEAR WITHOUT ALLEGING ANY FAILU RE TO DISCLOSE FULL AND TRUE MATERIAL FACTS WAS LIABLE TO BE SET ASIDE. WHILE GRANTING ITA NO.1736/M/09 M/S.ORBITECH LTD. 5 APPROVAL TO THE NOTICE IT WAS OBLIGATORY ON THE PAR T OF THE COMMISSIONER TO VERIFY WHETHER THERE WAS ANY FAILUR E ON THE PART OF THE ASSESSEE TO DISCLOSE FULL AND TRUE RELEVANT FAC TS IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT OF INCOME OF THAT A SSESSMENT YEAR. IT WAS ALSO OBLIGATORY ON THE PART OF THE COMMISSIO NER TO CONSIDER WHETHER OR NOT POWER TO REOPEN WAS BEING INVOKED WI THIN A PERIOD OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR T O WHICH THE PROCEEDINGS RELATED. NONE OF THESE ASPECTS HAD BEEN CONSIDERED BY HIM. THE NOTICES AND CONSEQUENTLY THE ORDER JUSTIF YING REASONS RECORDED WERE UNSUSTAINABLE. 11. AS WE HAVE ALREADY OBSERVED THAT ASSESSEE HAD DISCLOSED ALL THE RELEVANT MATERIAL NECESSARY FOR ASSESSMENT AND THE ORIGINA L ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) THE PROVISO TO SECTION 147 WO ULD BE ATTRACTED AND THE ASSESSMENT COULD NOT HAVE BEEN REOPENED BEYOND THE PERIOD OF FOUR YEARS. IN THIS CASE THE NOTICE U/S.148 HAS BEEN ISSUED ON 30.3.200 7 WHICH IS CLEARLY AFTER FOUR YEARS IS NOT VALID IN LAW. THEREFORE WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND ANNUL THE RE-ASSESSMENT PROCEEDINGS. 12. SINCE WE HAVE ANNULLED THE RE-ASSESSMENT PROCEE DINGS WE ARE NOT ADJUDICATING THE OTHER GROUNDS. 13. IN THE RESULT THE ASSESSEES APPEAL IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF MAY 2010. SD. SD. (D.K. AGARWAL) (T. R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED THE 21ST MAY 2010. KN COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT-VIII MUMBAI 4. THE CIT(A)-VIII MUMBAI 5. THE DR C BENCH MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR ITAT MUMBAI