M/S. KMG JEWELLERY,, MUMBAI v. THE DY CIT 20(2), MUMBAI

ITA 275/MUM/2008 | 2001-2002
Pronouncement Date: 31-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 27519914 RSA 2008
Bench Mumbai
Appeal Number ITA 275/MUM/2008
Duration Of Justice 3 year(s) 2 month(s) 20 day(s)
Appellant M/S. KMG JEWELLERY,, MUMBAI
Respondent THE DY CIT 20(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted H
Tribunal Order Date 31-03-2011
Date Of Final Hearing 21-03-2011
Next Hearing Date 21-03-2011
Assessment Year 2001-2002
Appeal Filed On 11-01-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H MUMBAI BEFORE SHRI S V MEHROTRA ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO JUDICIAL MEMBER ITA NO. 275/MUM/2008 (ASSESSMENT YEAR 2001-02) KMG JEWELLERY G-23 GEM AND JEWELLERY COMPLEX III SEEPZ ANDHERI(E) MUMBAI-400096 PAN:AAAFM0480A . APPELLANT VS DCIT 20(2) R.NO.609 6 TH FL PIRAMAL CHAMBERS PAREL LALBLAUG MUMBAI-400012 RESPONDENT APPELLANT BY : SHRI B V JHAVERI RESPONDENT BY : SHRI T T JACOB O R D E R PER VIJAY PAL RAO JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 29.10.2007 OF THE CIT(A)- FOR THE ASSES SMENT YEAR 2001-02. 2. THE ASSESSEE HAS RAISED VARIOUS GROUNDS IN THIS APPEAL HOWEVER THE FOLLOWING ISSUES ARISE FROM THE GROUND S OF APPEAL : ITA NO. 275/MUM/2008 (ASSESSMENT YEAR 2001-02) 2 I. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) IS JUSTIFIED IN CONFIRMING THE UPHOLDING THE VALIDITY OF THE REOPENING OF THE ASSESSMENT AFTER FOUR YEARS; II. WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) IS JUSTIFIED IN THAT THE PROVISIONS OF SUB-SECTION 9 OF SECTION 10A ARE APPLICABLE IN THE CASE OF THE ASSESSEE IS UNDERTAKI NG IS PRE-EXISTING INTRODUCTION OF THE SUB-SECTION 9 T O SECTION 10A. 3. GROUNDS OF APPEAL NO.1 IS REGARDING VALIDITY OF THE REOPENING OF THE ASSESSMENT. THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 30.3.2004. SUBSEQUENTLY THE AO ISSUED NOTICE U/S 148 OF THE ACT ON 29.3.2006 TO RE OPEN THE ASSESSMENT. IN RESPONSE TO THE NOTICE THE ASSESSEE ASKED THE REASONS FOR REOPENING OF THE ASSESSMENT WHICH WAS P ROVIDED BY THE AO TO THE ASSESSEE VIDE LETTER DATED 2.5.20 06. THE ASSESSEE OBJECTED TO THE RE-OPENING OF THE ASSESSM ENT BEFORE THE AO AND MAINLY CONTENDED THAT THE ASSESS MENT WAS COMPLETED U/S 143(3) AND AT THE TIME OF ASSESSMENT ALL THE DETAILS WERE AVAILABLE WITH THE AO INCLUDING THE FACTS OF THE CHANGE IN THE PARTNERS OF THE ASSESSEE FIRM. SINC E THE ASSESSMENT WAS REOPENED AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEARS UNDER CONSIDERATION TH EREFORE THE ASESEEE CONTENDED THAT THE AO HAS NO JURISDICT ION TO REOPEN THE ASSESSMENT WHEN THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL THE RE LEVANT MATERIAL REQUIRED FOR THE ASSESSMENT.. THE AO DID NOT ACCEPT ITA NO. 275/MUM/2008 (ASSESSMENT YEAR 2001-02) 3 THE CONTENTION OF THE ASSESSEE AND FRAMED THE FRAME D THE REASSESSMENT VIDE ORDER DATED 15.12.2006 WHEREBY I NTER ALIA DISALLOWED THE DEDUCTION OF SECTION 10A ON ACCOUNT OF CHANGE IN THE CONSTITUTION OF THE ASSESSEE FIRM AS PER SEC TION 10A (9). 4.. ON APPEAL THE CIT(A) HAS CONFIRMED THE VALIDI TY OF THE REOPENING OF THE ASSESSMENT AFTER FOUR YEARS. 5. BEFORE US THE LEARNED AR OF THE ASSESSEE SUBMIT TED THAT FROM THE REASONS RECORDED BY THE AO FOR REOPE NING OF THE ASSESSMENT NOTHING HAS BEEN MENTIONED TO ALLEGE THAT THE ASSESSEE FAILED TO DISCLOSE FULLY AND TRULY ALL TH E RELEVANT MATERIAL NECESSARY FOR THE ASSESSMENT. SINCE THE ASSESSMENT WAS REOPENED AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR THEREFORE TH E AO HAS NO JURISDICTION TO INVOKE THE PROVISIONS OF SECTION 147 AND THE REASSESSMENT MADE BY THE AO IS NOT SUSTAINABLE. 6. THE LD. AR HAS FURTHER CONTENDED THAT IN THE REA SONS RECORDED BY THE AO FOR REOPENING OF THE ASSESSMENT IT IS ON THE BASIS OF THE INFORMATION GATHERED FROM TAX AUDI T REPORT IN THE FORM OF 3CB AND 3CD WHICH WAS PART OF THE RETU RN OF THE ASSESSEE. THE LD. AR OF THE ASSESSEE HAS FURTHER POINTED OUT THAT IN THE TAX AUDIT REPORT UNDER ITEM 7(A) AND 7(B) THE ITA NO. 275/MUM/2008 (ASSESSMENT YEAR 2001-02) 4 ASSESSEE HAS CLEARLY MENTIONED THAT THERE IS A CHAN GE IN THE PARTNERS AND PROFIT SHARING RATIO. THE ASSESSEE H AS ALSO CLEARLY GIVEN DETAILS OF THE PARTNERS AND THEIR PRO FIT SHARING RATIO. THE LD. AR HAS FURTHER SUBMITTED THAT WHEN THE AO IN THE ORIGINAL ASSESSMENT PASSED U/S 143(3) HAS DULY EXAMINED THE CLAIM OF THE ASSESSEE U/S 10A AND ALLOWED THE N REOPENING OF THE ASSESSMENT AFTER FOUR YEARS IS BAS ED ON THE CHANGE OF OPINION. HE HAS RELIED UPON THE DECISION OF THE HON JURISDICTIONAL HIGH COURT IN THE CASE OF ZYCUS INFO TECH (P) LTD V/S CIT REPORTED IN 191 TAXMAN 13(BOM) AND SUBMITT ED THAT THE ISSUE OF DISALLOWANCE OF DEDUCTION U/S 10A IS ALSO IN FAVOUR OF THE ASESEEE BECAUSE SUB-SECTION SUB-SEC TION (9) BROUGHT INTO STATUTE VIDE AMENDMENT ACT 2000 W.E.F . 1.4.2000. 7. ON THE OTHER HAND THE LEARNED DR HAS MAINLY RE LIED UPON THE ORDER OF THE CIT(A) AND SUBMITTED THAT TH E ASSESSEE DID NOT SPECIFICALLY MENTIONED THE CHANGE IN THE CO NSTITUTION OF THE FIRM IN THE CONTEXT OF SECTION 10A(9) OF THE AC T. THE RECORD AND DOCUMENTS SUBMITTED BY THE ASSESSEE DOES NOT AMOUNT TO DISCLOSURE OF FULLY AND TRULY ALL THE M ATERIAL FACTS NECESSARY FOR THE ASSESSMENT . THE LD. DR HAS REFE RRED THE EXPLANATION (1) TO SECTION 147 AND SUBMITTED THAT T HE PRODUCTION OF BOOKS OF ACCOUNT OR OTHER EVIDENCE FR OM WHICH THE MATERIAL EVIDENCE COULD HAVE BEEN DISCOVERED W ITH DUE ITA NO. 275/MUM/2008 (ASSESSMENT YEAR 2001-02) 5 DILIGENCE WILL NOT AMOUNT TO THE DISCLOSURE WITHIN THE MEANING OF THE FIRST PROVISO. 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND RELEVANT RECORD. UNDOUBTEDLY THE REOPENING IS BEYOND FOUR YE ARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR THEREFORE THE CASE FALLS UNDER THE FIRST PROVISO TO THE SECTION 147 O F THE IT ACT. THE FIRST PROVISION TO SECTION 147 PROVIDES THE CON DITION FOR REOPENING OF THE ASSESSMENT THAT UNLESS THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT DUE TO FA ILURE ON THE PART OF THE ASSESSEE TO MAKE DISCLOSER FULLY AN D TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. THE CIT(A) HAS ADJUDICATED THE ISSUE AND HELD AS UNDER : 2.3.1 IN THE LIGHT OF THE FOREGOING FACTS AND CIRCUMSTANCES I FIND THAT THE AO DID HAVE REASON TO BELIEVE THAT THE APPELLANT HAD CLAIMED EXEMPTION U/ S 10A DESPITE CLEAR-CUT PROVISIONS OF SECTION 10A(9) DISQUALIFYING IT FROM MAKING THE CLAIM. THE CLAIM O F THE EXEMPTION BY THE APPELLANT DESPITE BEING CLEARLY INELIGIBLE DID LEAD TO ESCAPEMENT OF INCOME AS THE INCOME ORIGINALLY ASSESSED HAD BEEN MADE THE SUBJEC T OF EXCESSIVE RELIEF AND FURTHER EXCESSIVE ALLOWANCE ALSO HAD BEEN COMPUTED. THE REOPENING IS THEREFORE IN PERFECT SYNC WITH CLAUSE-C OF EXPLANATION-2 TO SECT ION 147. TAKING INTO CONSIDERATION THE ABOVE FACTS AND CIRCUMSTANCES AND JUDICIAL DECISION I DO NOT FIND THAT THE CASE WAS REOPENED MERELY ON CHANGE OF OPINION. THERE IS THUS NO INFIRMITY IN THE REOPENING. IT IS CONFIRMED AND THIS GROUND OF APPEAL IS DISMISSED. 9.. THE AO HAS RERECORDED THE REASONS FOR REOPENING OF THE ASSESSMENT AS UNDER : ITA NO. 275/MUM/2008 (ASSESSMENT YEAR 2001-02) 6 THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.NIL WAS FILED ON 20.10.2001. THE ASSESSEE HAD CLAIMED EXEMPTION U/S 10A AMOUNTING TO RS.1 71 30 398/-. THE CASE WAS SELECTED FOR SCRUTIN Y AND ORDER U/S 143(3) WAS PASSED ON 30.3.2004. HOWEVER THE ISSUE OF TRANSFER OF OWNERSHIP OR BENEFICIAL INTEREST IN THE UNDERTAKING WAS NOT EXAMINED IN THE SAID ORDER: 2. DURING THE YEAR THE ASSESSEE HAS CLAIMED S 10A EXEMPTION TO THE EXTENT OF RS.1 71 30 398/-. TH E ASSESSEE HAS SUBMITTED STATEMENT FOR WORKING FOR S 10A BESIDES THE ASSESSEE HAS ALSO SUBMITTED FROM NO.10CCAC FOR ALTERNATIVE CLAIM OF DEDUCTION U/S 80HHC. THE ROI HAS THE FOLLOWING COMMENTS. AS PER LEGAL OPINION OBTAINED BY THE ASSESSEE FIRM THE TOT AL INCOME OF THE FIRM IS EXEMPT U/S 10A/10B OF THE AC T. WITHOUT PREJUDICE TO THE ASSESSEES CLAIM FOR EXEMPTION U/S 10A/10B THE ASSESSEE HAS OBTAINED CERTIFICATE IN FORM NO. 10CCAC DATED 4.9.2001 FOR DEDUCTION U/S 80HHC OF THE ACT IN CASE THE CLAIM OF THE ASSESSEE FOR EXEMPTION U/S 10A/10B IS DENIED BY THE DEPARTMENT. THE ASSESSEE HAS MADE A ALTERNATIVE CLAIM OF DEDUCTION FOR RS.1 37 01 819/- U/S 80HHC 3. THE ABOVE CLAIM FOR DEDUCTION U/S 10A HAS BEEN MADE EVEN THOUGH THE CONSTITUTION OF THE FIRM HAS CHANGED W.E.F.1.4.2000. THE ASSESSEE FIRM HAS UNDERGONE A CHANGE IN CONSTITUTION DURING AY 2001- 02. THE TERMS OF PARTNERSHIP HAS CHANGED W.EF. 1.4.2000 AS EVIDENCED BY FORM 3CD REPORTS AND DEED OF PARTNERSHIP CUM RETIREMENT SUBMITTED WITH T HE RETURN OF INCOME. 10. THE CHANGE IN TERMS OF PARTNERSHIP W.E.F 1.4.2 000 IS AS FOLLOWS : SHARING RATIO UP TO 31.3.2000 SHARING RATIO W.E.F 1.4.2000 NAME OF PARTNERS PROFIT LOSS PROFIT LOSS SHRI VRAILAL C MEHTA 35% 50% 11.11% 16.67% ITA NO. 275/MUM/2008 (ASSESSMENT YEAR 2001-02) 7 5. THUS THERE HAS BEEN CHANGE IN THE CONSTITUTION OF THE FIRM. IN THE PARTNERSHIP CHANGE W.E.F 1.4.2000 TWO NEW PARTNERS NAMELY M/S KIRI T JEWELS LTD AND M/S K P SANGHAVI INTERNATIONAL LTD HAVE ACQUIRED 66.66% STAKE IN THE FIRM. IN THE ENTI RE PROCESS THE SHARES OF ALL PARTNERS HAVE UNDERGONE COMPLETE CHANGE. BESIDES THE NAME OF THE ASSESSEE FIRM HAS BEEN CHANGED FROM M/S METS JEWELLERY TO M/S KMG JEWELERY 6. IN THIS REGARD IT IS IMPORTANT TO RECALL THE PROVISIONS OF SECTION 10A(9) WHICH R EADS AS FOLLOWS: 9) WHERE DURING ANY PREVIOUS YEAR THE OWNERSHIP O R THE BENEFICIAL INTEREST IN THE UNDERTAKING IS TRANSFERRED BY ANY MEANS THE DEDUCTION UNDER SUB- SECTION (1) SHALL NOT BE ALLOWED TO THE ASSESSEE FO R THE ASSESSMENT YEAR RELEVANT TO SUCH PREVIOUS YEAR AND THE SUBSEQUENT YEARS THE PROVISIONS ARE EXPLICIT THAT S 10A EXEMPTION W ILL NOT BE AVAILABLE FOR THE ASSESSEE IN THE AY IN WHIC H THE CHANGE HAS TAKEN PLACE AND ALSO IN THE SUBSEQUENT YEAS. THUS THE ASSESSEE FIRM IS NOT ENTITLED TO BENEFITS U/S 10A DURING AY 2001-02 IN V IEW OF THE CHANGE IN CONSTITUTION OF FIRM. THIS ISSUE H AS BEEN EXAMINED IN DETAIL IN THE ASSESSMENT PROCEEDINGS FOR AY 2003-04. 7. AS PER EXPLANATION 2 OF SECTION 147 FOR THE PURPOSE OF THIS SECTION THE FOLLOWING SHALL ALSO B E DEEMED TO BE CASES WHERE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT NAMELY:- ( C ) WHERE AN ASSESSMENT HAS BEEN MADE BUT- - (I) INCOME CHARGEABLE TO TAX HAS BEEN UNDER ASSESSED OR (III) SUCH INCOME HAS BEEN MADE TH SUBJECT OF EXCESSIVE RELIEF UNDER THIS ACT; 11. IT IS PERTINENT TO NOTE THAT IN PARAGRAPHS 3 AN D 4 OF THE REASONS RECORDED THE AO CAME TO KNOW ABOUT THE CHA NGE OF THE CONSTITUTION OF THE PARTNERSHIP FROM THE FORM 3CD REPORT ITA NO. 275/MUM/2008 (ASSESSMENT YEAR 2001-02) 8 AND DEED OF PARTNERSHIP WHICH WERE SUBMITTED WITH THE RETURN OF INCOME. THUS INFORMATION WHICH RECEIVED BY THE AO WAS ALREADY AVAILABLE WITH THE AO AS SUBMITTED BY THE ASSESSEE ALONG WITH E RETURN OF INCOME. IT IS NOT THE CASE OF SUBMITTING ANY BOOKS OF ACCOUNTS OR OTHER DOCUMENT SUBSEQUENT TO THE FILING OF THE RETURN BUT THE INFORMATION WAS FURN ISHED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME CLEARLY EX HIBITING THE CHANGE OF CONSTITUTION OF THE PARTNERSHIP. THER EFORE THERE IS NO ALLEGATION MADE BY THE AO THAT THE INCOME A SSESSABLE TO TAX IS ESCAPED ASSESSMENT DUE TO FAILURE OF THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL THE RELEVA NT MATERIAL NECESSARY FOR ASSESSMENT. THE PROVISIONS OF FIRST P ROVISO TO SECTION 147 ARE ATTRACTED. 12. IN VIEW OF THE DECISION OF THE JURISDICTIONAL H IGH COURT IN THE CASE OF HINDUSTAN LEVER LTD V. R B WADKAR(NO.1 ) HINDUSTAN LEVER LTD V. R B WADKAR(NO.1)- 268 ITR 33 2(BOM) AND THE DECISION IN GERMAN HINDUSTAN LEVER LTD V. R B WADKAR(NO.1)- 268 ITR 332(BOM)REMEDIES LTD V/S DC IT - 106 TAXMAN 435 (GUJ) WE SET ASIDE THE RE-ASSESSMEN T AS VOID AB-INITIO. SINCE THE REASSESSMENT IS HELD AS V OID WE DO NOT PROPOSE TO GO INTO THE MERITS OF THE ISSUE OF D ISALLOWANCE OF DEDUCTION U/S 10A. ITA NO. 275/MUM/2008 (ASSESSMENT YEAR 2001-02) 9 13. IN THE RESULT THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31ST M AR 2011 SD SD (S V MEHROTRA ) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL M EMBER MUMBAI DATED 31ST MAR 2011 SRL:4311 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR ITAT MUMBAI