ITO, CHENNAI v. Shri Prasad Process Pvt. Ltd., CHENNAI

ITA 5/CHNY/2011 | 2001-2002
Pronouncement Date: 25-03-2011 | Result: Dismissed

Appeal Details

RSA Number 521714 RSA 2011
Assessee PAN AACCP8969L
Bench Chennai
Appeal Number ITA 5/CHNY/2011
Duration Of Justice 2 month(s) 22 day(s)
Appellant ITO, CHENNAI
Respondent Shri Prasad Process Pvt. Ltd., CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 25-03-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 25-03-2011
Assessment Year 2001-2002
Appeal Filed On 03-01-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI (BEFORE SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN JUDICIAL MEMBER) .. I.T.A. NO. 5/MDS/2011 ASSESSMENT YEAR : 2001-02 THE INCOME TAX OFFICER COMPANY WARD V(1) CHENNAI 600 034. (APPELLANT) V. M/S PRASAD PROCESS PVT. LTD. 175 NSK SALAI CHENNAI 600 020. PAN : AACCP8969L (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB RESPONDENT BY : SHRI T. BAN USEKAR O R D E R PER ABRAHAM P. GEORGE ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE ITS GRIEVANCE IS THAT THE CIT(APPEALS) HELD THAT THE REASSESSMENT TO BE INVAL ID. 2. SHORT FACTS APROPOS ARE THAT ORIGINAL ASSESSMENT OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR WAS COMPL ETED ON 16.4.2003 UNDER SECTION 143(3) READ WITH SECTION 14 7 OF THE INCOME- TAX ACT 1961 (HEREINAFTER CALLED THE ACT). ASSE SSEE HAD DURING THE RELEVANT PREVIOUS YEAR SOLD CERTAIN LAND AND BUILDI NG. WHILE I.T.A. NO. 5/MDS/11 2 COMPUTING THE CAPITAL GAINS A SUM OF RS.13 22 920/ - PAID BY THE ASSESSEE ON CAPITAL BORROWED FOR CONSTRUCTION OF TH E BUILDING WAS DEDUCTED. DURING THE ORIGINAL ASSESSMENT PROCEEDIN GS THE CLAIM OF THE ASSESSEE FOR SUCH DEDUCTION WAS AGAINST LONG TE RM CAPITAL GAINS ARISING ON TRANSFER OF LAND. THE A.O. WAS HOWEVER OF THE OPINION THAT THE LAND WAS ACQUIRED IN THE YEAR 1972 AND THE INTEREST PAYMENTS WERE MADE IN THE YEAR 1999 AND THEREFORE SUCH CLAIM COULD NOT BE ALLOWED. HOWEVER HE ACCEPTED THE ALT ERNATIVE CONTENTION OF THE ASSESSEE THAT SUCH INTEREST PAYME NTS WERE FOR LOAN TAKEN FOR CONSTRUCTION OF BUILDING AND ASSESSEE HA VING RETURNED SHORT TERM CAPITAL GAINS/LOSS ON ACCOUNT OF SALE OF BUILD ING THE AMOUNT OF INTEREST WAS ALLOWED AS A PART OF THE COST WHILE W ORKING OUT SUCH SHORT TERM CAPITAL GAINS/LOSS. ORIGINAL ASSESSMENT WAS COMPLETED ON THE ABOVE LINES. 3. LATER ON 30.3.2006 A NOTICE UNDER SECTION 147 O F THE ACT WAS AGAIN ISSUED TO THE ASSESSEE. DURING THE COURSE OF REASSESSMENT PROCEEDINGS A.O. WAS OF THE OPINION THAT THE INTER EST OF RS.13 22 920/- ON BORROWED CAPITAL ALLOWED AS A PA RT OF COST WHILE COMPUTING CAPITAL GAINS ON THE BUILDING WAS NOT ALL OWABLE AS PER SECTION 50 OF THE ACT. ACCORDING TO A.O. SUCH INT EREST PAYMENT WAS I.T.A. NO. 5/MDS/11 3 NOT WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANS FER AND SUCH LIABILITY WOULD HAVE CONTINUED TO EXIST IF IT WAS NOT CLEARED. TREATING THE LOAN AS A SELF CREATED LIABILITY IN THE SECOND ROUND OF PROCEEDINGS THE A.O. DISALLOWED THE CLAIM OF THE I NTEREST PAYMENT OF RS.13 22 920/- AND RECOMPUTED THE SHORT TERM CAPITAL GAINS. 4. ASSESSEE IN ITS APPEAL BEFORE THE CIT(APPEALS) A RGUED THAT THE ORIGINAL ASSESSMENT WAS COMPLETED UNDER SECTION 143 (3) READ WITH SECTION 147 OF THE ACT AFTER CONSIDERING THE CLAIM OF THE ASSESSEE ON INTEREST PAYMENT TO VIJAYA BANK AND THE A.O. HAD A FTER APPLICATION OF MIND CAME TO A CONCLUSION THAT SUCH INTEREST COULD BE ALLOWED WHILE CALCULATING THE SHORT TERM CAPITAL GAINS/LOSS OF TH E ASSESSEE. THEREFORE ACCORDING TO ASSESSEE THE SECOND REOPEN ING WAS DONE SIMPLY BASED ON A CHANGE OF OPINION. THOUGH IT WAS DONE WITHIN A FOUR YEARS PERIOD FROM THE RELEVANT PREVIOUS YEAR ACCORDING TO ASSESSEE IT WAS ONLY DUE TO CHANGE OF OPINION AND BY REASON OF THE DECISION OF HON'BLE APEX COURT IN THE CASE OF CIT V . KELVINATOR OF INDIA (2010) 320 ITR 561 (SC) SUCH REOPENING WAS I NVALID. CIT(APPEALS) WAS APPRECIATIVE OF THIS CONTENTION. ACCORDING TO HIM THE ASSESSMENT WAS REOPENED ONLY ON A CHANGE OF OPI NION AND SUCH I.T.A. NO. 5/MDS/11 4 REOPENING WAS NOT JUSTIFIABLE ON FACTS. HE THEREF ORE QUASHED THE REOPENING AS WELL AS THE CONSEQUENT ASSESSMENT. 5. NOW BEFORE US THE LEARNED D.R. STRONGLY ASSAIL ING THE ORDER OF THE CIT(APPEALS) SUBMITTED THAT THE A.O. IN THE IN TIAL ROUND OF ASSESSMENT HAD NOT APPLIED HIS MIND AND HAD PEDANTI CALLY ACCEPTED THE CLAIM OF THE ASSESSEE. THEREFORE ACCORDING TO HIM THE A.O. WAS JUSTIFIED IN INITIATING REASSESSMENT PROCEEDINGS WI THIN A FOUR YEARS PERIOD FROM THE END OF THE RELEVANT ASSESSMENT YEAR . 6. PER CONTRA THE LEARNED A.R. STRONGLY RELIED ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF KELVINATOR OF IND IA (SUPRA) AND ARGUED THAT THE REOPENING WAS RIGHTLY HELD TO BE IN VALID. 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. IN THE ORIGINAL ASSESSMENT COMPLETED ON 16.4.2003 W ITH REGARD TO THE CLAIM OF THE ASSESSEE ON INTEREST PAYMENT OF RS.13 22 920/- TO VIJAYA BANK IT WAS HELD BY THE ASSESSING OFFICER AT PARA 3 AS UNDER:- 3. THE ASSESSEE CLAIMED INTEREST PAYMENT OF RS.13 22 920/- PAID TO VIJAYA BANK CHENNAI AND REDUCED FROM THE CA PITAL GAIN. THE LAND IN QUESTION WAS ACQUIRED BY THE ASSESSEE CO MPANY IN THE YEAR 1972. IT IS SEEN FROM THE BANK STATEMENTS THA T THE INTEREST PAYMENTS WERE MADE IN THE YEAR 1999. THUS IT IS OBVIOUS THAT THE INTEREST PAYMENTS WERE IN NO WAY C ONNECTED TO I.T.A. NO. 5/MDS/11 5 ACQUISITION OF LAND IN QUESTION. IT IS PROPOSED TO THE ASSESSEE THAT THE INTEREST CLAIM OF 13 22 920 WILL NOT BE CO NSIDERED FOR ARRIVING AT CAPITAL GAINS THE ASSESSEE EXPLAINED T HAT THE LOAN WAS OBTAINED TO CONSTRUCT BUILDING WHICH IS FORMING PAR T OF THE ASSET WHICH HAS GONE TO PUTTING THE ASSET IN SHAPE THAT I NCREASED THE VALUE OF THE ASSET AND EASY MARKETABILITY. THE INTEREST OF 13 22 920/- HAS OBVIOUSLY BEEN OBTAI NED FROM VIJAYA BANK TOWARDS CONSTRUCTION OF BUILDINGS. THE ASSESSEE HAS RETURNED THE SHORTTERM CAPITAL GAIN/LO SS ON ACCOUNT OF BUILDINGS SEPARATELY. HENCE THE INTEREST PAID FO R LOAN TAKEN FOR CONSTRUCTION OF BUILDINGS FROM VIJAYA BANK VADA PALANI CHENNAI IS CONSIDERED WHILE WORKING OUT SHORT TERM CAPITAL GAINS/LOSS SEPARATELY. 8. IT IS TO BE NOTED THAT THE ABOVE ASSESSMENT ITSE LF WAS COMPLETED ON A REOPENING DONE UNDER SECTION 147 OF THE ACT. IT IS CLEAR FROM THE ASSESSMENT ORDER THAT THE A.O. HAD D ULY CONSIDERED THE CLAIM OF THE ASSESSEE AND CAME TO A CONCLUSION THAT SUCH INTEREST PAYMENT COULD BE ALLOWED FOR ARRIVING AT THE SHORT TERM CAPITAL GAINS/LOSS OF THE ASSESSEE. NOW ANOTHER REOPENING HAS BEEN RESORTED TO AND THE SECOND PARA OF THE ASSESSMENT O RDER PASSED PURSUANT TO SUCH REOPENING WOULD CLEARLY SHOW THE R EASON FOR SUCH REOPENING:- THE ASSESSEE HAS SOLD THE ASSETS CONSISTING OF LAN D AND BUILDING DURING THE YEAR. INCOME FROM CAPITAL GAINS WAS THE ONLY SOURCE OF INCOME OF THE ASSESSEE FOR THE YEAR. WHIL E COMPUTING THE CAPITAL GAINS THE ASSESSEE HAS DEDUCTED INTERE ST AMOUNTING TO RS.13 22 920 PAID ON THE BORROWED CAPITAL FOR CO NSTRUCTION OF I.T.A. NO. 5/MDS/11 6 BUILDING. IT IS NOT AN ALLOWABLE DEDUCTION AGAINST SALE OF BUILDING AS THERE IS NO PROVISION U/S 50 TO CLAIM THE SAME. ANY EXPENDITURE CAN IF AT ALL BE ALLOWED ONLY U/S 50(1) (I). THIS IS NOT AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CON NECTION WITH SUCH TRANSFER. THE LIABILITY WOULD HAVE BEEN THERE EVEN IF IT WAS NOT CLEARED NOW. IN OTHER WORDS IT HAS NO RELATION TO THE SALE OF THE ASSET AND HENCE DOES NOT QUALIFY FOR THE DEDUCTI ON U/S 50(1). COURTS HAVE HELD THAT SELF CREATED LIABILITY CANNOT BE DEDUCTED FROM CAPITAL GAINS. THE INTEREST PAYMENT OF RS.13 2 2 920 IS THEREFORE NOT ALLOWABLE AS DEDUCTION EITHER UNDER L ONG TERM CAPITAL GAINS OR SHORT TERM CAPITAL GAINS. THE ASS ESSEES REPRESENTATIVE SRI. N. RAGHURAMAN C.A. APPEARED AN D FILED ASSESSEES LETTER DATED: 27-10-06 ACCEPTING THE DIS ALLOWANCE OF INTEREST PAID ON BORROWED CAPITAL. BASED ON THE AB OVE THE ASSESSMENT IS COMPLETED. 9. IT IS CLEAR FROM THE ABOVE THAT THERE WAS NO NEW MATERIAL WITH THE A.O. HE ONLY HAD A CHANGE OF OPINION. HON'BL E APEX COURT IN THE CASE OF KELVINATOR OF INDIA (SUPRA) HAS CLEARLY HELD AT PARA 6 OF ITS ORDER THAT A SCHEMATIC INTERPRETATION HAS TO BE GIV EN TO THE WORDS REASON TO BELIEVE WHILE EXERCISING THE POWER TO R EOPEN. HON'BLE APEX COURT FURTHER HELD THAT A REASSESSMENT CAN BE INITIATED BASED ON FULFILLMENT OF CERTAIN PRE-CONDITIONS AND SHOULD NOT BE BASED ON MERE CHANGE OF OPINION. AGAIN THEIR LORDSHIP HELD THAT THE CONCEPT OF CHANGE OF OPINION WAS A TEST TO CHECK ABUSE OF POWER OF ASSESSING OFFICER. IN OUR OPINION THERE WAS NO TA NGIBLE MATERIAL WITH ASSESSING OFFICER IN THE GIVEN CASE AFTER THE ORIG INAL ASSESSMENT TO COME TO A CONCLUSION THAT THERE WAS ANY ESCAPEMENT OF INCOME. I.T.A. NO. 5/MDS/11 7 WHAT WAS RESORTED TO WAS BASED ONLY ON A CHANGE OF OPINION. LD. CIT(APPEALS) WAS ABSOLUTELY JUSTIFIED IN QUASHING T HE REOPENING AND CONSEQUENT REASSESSMENT. WE DO NOT FIND ANY REASON TO INTERFERE. 10. IN THE RESULT THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 25 TH MARCH 2011. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI DATED THE 25 TH MARCH 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-V CHENNAI-34 (4) CIT CHENNAI-III CHENNAI (5) D.R. (6) GUARD FILE