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IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 17/SRT/2017 (Hearing in Virtual Court)
Hi-Tech Marketing, The Income – Tax Officer, 114, Belgium Tower, Old Ward -3(1)(4), Surat Linear Bus Stop, Station Road, Surat – 395 003. Vs PAN : AABFH5705N APPELLANT RESPONDEDNT
Appellant by Shri Hiren R Vepari - CA Respondent by Shri O P Meena – Sr. DR Date of hearing 02-09-2020 Date of pronouncement 02-09-2020
Order Under Section 254(1) of Income-tax Act PER PAWAN SINGH, JUDICIAL MEMBER:
This appeal filed by the assessee under section 253 of Income-tax Act is directed against the order of the ld. Commissioner of Income Tax (Appeals)-3, [in short “the CIT(A)”], Surat dated 08/06/2017, which in turn arises from assessment order dated 27/10/2015 passed under section (u/s.)143(3) r.w.s 147 of Income Tax Act [in short “the Act”] for the Assessment Year (AY) 2010- 11.
The assessee has raised the following grounds:-
“(I) Reopening of assessment: (1) The learned Commissioner of Income-tax (Appeals) ought to have held that the Assessing Officer erred in reopening of the assessment when the issue on which assessment has been reopened was considered and examined
2 ITA No. 17/SRT/2017/AY.2010-11/ Hi Tech Marketing by the Assessing Officer in the course of assessment proceedings by show cause notice dt. 24-01-2013. (2) The appellant therefore, submits that this being change of opinion, the reopened assessment is required to be cancelled. Without prejudice to the above (II) Disallowance u/s.40A (2)(b) Rs.1.88.424 (1) On the facts and circumstances of the case and as per law, the learned Commissioner of Income-tax (Appeals) erred in confirming disallowance of Rs.1,88,424 when appellant had paid interest at the rate of 18% while the Assessing Officer felt that rate of interest should be 12%. (III) Miscellaneous: The appellant craves leave to add, alter or vary any of the grounds of appeal.”
Brief facts of the case are that the assessee is a company is engaged in the business of Trading in Electrical Items, filed return of income for relevant assessment year dated 31/09/2010 declaring total income at Rs.6,93,061/-. The case was selected for scrutiny. The assessment was completed under section (u/s) 143(3) of the Act on 12/03/2013. Subsequently, the case was reopened u/s.147 of the Income Tax Act. Notice u/s.148 dated 26/03/2015 served upon the assessee. In response to notice u/s.148 dated 26/03/2015, the assessee filed its reply dated 09/04/2015. In reply the assessee contended that return filed on 31/09/2010 may be considered as return in response to notice u/s.148. The assessee also demanded the reasons recorded for reopening. In response to the demand of reasons recorded, the Assessing Officer (AO) vide its letter dated 20/04/2015 supplied the reasons recorded. The following reasons recorded by Assessing Officer:-
“In this case, the assessee filed his return of income for A.Y. 2010-11 and declaring total income of Rs.693201/-. Subsequently this case was selected for scrutiny and assessed his total income of Rs.742320I- u/s 143(3) of the IT Act on 12.03,2013. After scrutiny it has come to notice that assessee has given interest on unsecured loan @ 18% but
3 ITA No. 17/SRT/2017/AY.2010-11/ Hi Tech Marketing according to provisions u/s 40A(2) of the IT Act he can give @ 12%. Accordingly, excess interest paid @ 6% which worked out of Rs.1884241- to such parties covered u/s 40A (2)(b) of the Act was not acceptable. Thus, there are Rs.1884241- excess payment is not acceptable expense and thereby escaped from assessment.”
After receipt of reasons recorded, the assessee filed its objection against the reopening. In the objection, the assessee specially contended during the assessment the Assessing Officer raised specific quarry with regards to payments of interest on unsecured loan to related parties. The assessee in response to the specific quarry, during the original assessment furnished detailed reply and the required information. It was also stated that the Assessing Officer after considering the explanation of assessee accepted the explanation of the assessee and passed the assessment order. Copy of show cause notice/ questionnaires raised by Assessing Officer during original assessment as well as with reply passed by assessee was also furnished. The assessee further stated that there was no failure on the part of assessee to disclose fully and truly all material facts necessary in the case of assessment. The assessee also contended that the payment of interest of unsecured loan to related party is reasonable. The contents of the reply filed by the assessee is duly recorded by assessing officer in para 4.2 of the assessment order.
The objection of assessee was not accepted by Assessing Officer. The Assessing Officer after considering the submission of assessee made a disallowance of Rs.1,88,424/- u/s.40A(2)(b) of the Income Tax Act. In the re-assessment order passed u/s.143(3) r.w.s. 147 on 27/10/2015. On appeal before CIT(A), the re- opening as well as addition/ disallowance u/s.40A(2)(b) was upheld. Thus, further aggrieved the assessee has filed present appeal before this Tribunal.
4 ITA No. 17/SRT/2017/AY.2010-11/ Hi Tech Marketing 6. We have heard the rival submissions of ld. Authorized Representative (Ld. AR) of the assessee and the ld. Senior Departmental Representative (Sr. DR) of the Revenue and perused the orders of lower authorities carefully. The ld. AR of the assessee submits that original assessment was completed u/s.143(3) on 12/03/2013. Before passing the assessment order the Assessing Officer vide notice dated 11/07/2012 raised specific quarry regarding details of payments of interest to related parties along with their confirmations, details of unsecured loan on confirmations, details of unsecured loan paid to squared up during the year. The assessee vide reply dated 30/07/2013 furnished complete details required by Assessing Officer. The Assessing Officer after considering the reply of assessee passed the assessment order on 12/03/2013. The Assessing Officer after applying his mind accepted the explanation of the assessee. The ld. AR submits that once Assessing Officer has applied his mind on a particular issue and accepted the explanation furnished by assessee, the re-assessment on the same issue reflects a mere change of opinion. Therefore, the re-assessment notice is unjustified and the re-assessment order passed on such reopening is liable to be set-aside. The ld. AR further submits that it is well-settled position under the law that even if the Assessing Officer does not discuss the item/issues on which he raised and called necessary explanation and details and the assessee furnished the same thereto, the Assessing Officer is deemed to have applied his mind on the issue and accordingly the re- assessment on similar issue is not permissible.
To buttress his submissions, the ld. AR of the assessee relied upon the decision of Hon'ble Jurisdictional High Court in Giriraj Steel vs. Deputy
5 ITA No. 17/SRT/2017/AY.2010-11/ Hi Tech Marketing Commissioner of Income Tax, (2018) 402 ITR 204 (Gujarat) and the decision of Hon'ble Apex Court in the case of ITO vs. Tech Span India (P) Ltd, (2018) 404 ITR 10 (SC).
On merit, the ld. AR of the assessee submits that in last 10 assessment years the case of the assessee was selected for scrutiny on three different years and no such/similar addition/ disallowance was made. The payment of similar interest to related party was accepted by the Revenue in three scrutiny assessment orders. The ld. AR for the assessee further submits that assessee also availed unsecured loan from unrelated parties and same rate of interest was paid to such unrelated party at the rate of 18% per annum. Accordingly, the ld. AR of the assessee submits that though the reassessment is liable to be quashed, even otherwise the assessee liable to be succeeded even on merit the assessee as good case in liable to succeeded as the interest paid to related parties on unsecured loan is not unreasonable.
On the other hand, the ld. Sr. DR for the Revenue supported the order of the lower authorities. The ld. Sr. DR submits that the assessee has paid interest at the rate of 18% to related parties. The payment of interest to related party at the rate of 18% is unreasonable and excessive. The Assessing Officer while passing the original assessment order has not discussed the issue. The order of assessing officer is silent on the issue under consideration. On the validity of reopening the ld. Sr. DR of the Revenue submits that the reasons recorded by Assessing Officer were not based on Audit objection as recorded by ld. CIT(A) in para 7.2 of his order. Since, there is no discussion of the issue in the assessment order, thus, it cannot be said that there is change of opinion on the
6 ITA No. 17/SRT/2017/AY.2010-11/ Hi Tech Marketing issue on which case was reopened. The ld. DR for the Revenue prayed for the dismissal of appeal.
We have considered the rival contentions of the parties and perused the orders of lower authorities accordingly. We have noted that the assessee has placed on record the following documents;
Copy of return of income with computation of income with profit and loss account of the assessee for the relevant assessment year with tax Audit Report, Notice u/s.142 dated 11/07/2012 showing the various questionnaires raised by Assessing Officer including on the issue of payment of interest to the related party, Reply of assessee dated 30/07/2012 along with the details of related party and their return of income, Details of unsecured loans, Copy of reply dated 31/02/2013 (explaining the fact that the loans on the related parties are 10 years old and the fact that departments accepted the allowance of 18% interest in three scrutiny assessment u/s.143(3) in the last 10 years), Copy of notice u/s.148 dated 26.03.2015, Reply of assessee dated 20/04/2015, informing the assessing officer to treat the return of income filed on 21.09.210 as return in response to notice under section148, Copy of letter of assessing officer dated 20.04.2015 containing the reasons recorded, Reply/objection of the assessee dated 25/05/2015 and 27/10/2015. 11. The assessee has certified that all the aforesaid documents were filed before the lower authorities. A careful perusal of the aforesaid documents makes it clear that during the scrutiny of proceeding u/s.143(3), the Assessing Officer has raised specific question with regard to the issue i.e. payment of interest of
7 ITA No. 17/SRT/2017/AY.2010-11/ Hi Tech Marketing Rs.18,99,150/- to related parties covered u/s.40A(2)(b) along with the other related information as required by Assessing Officer. Though, perusal of assessment order u/s.143(3) dated 12/03/2013 shows that there is no discussion on this issue by Assessing Officer. On perusal on reasons recorded, we find that the Assessing Officer reopened the assessment on the similar issue, which was raised and considered by Assessing Officer in the original assessment proceedings.
The Hon'ble High Court in Giriraj Steel vs. DCIT (supra) held that when the Assessing Officer has applied his mind to the assessee’s earlier case and had accepted the same, the reopening assessment reflected a mere change of opinion, thus, impugned reassessment notice is unjustified. The Hon'ble High Court further held that it is well-settled as laid down by them in a catena of decisions that even if the Assessing Officer does not discuss the item in the assessment order, but he has called for explanation or detailed in respect of such item and the assessee has furnished the explanation thereto, he is deemed to have applied his mind to the said case. On the aforesaid fact, the Hon'ble High Court held that the reopening of assessment being based upon a mere change of opinion, the assumption of jurisdiction on the part of Assessing Officer lacks validity and that the impugned notice u/s.148 of the Act, cannot be sustained.
The aforesaid decision of Hon'ble’ Jurisdictional High Court is clearly applicable on the facts of the present case. Considering the aforesaid facts and a decision of Hon'ble Jurisdictional High Court, we are of the view that the case in hand the reopening was based on mere change of opinion, thus, the reopening is
8 ITA No. 17/SRT/2017/AY.2010-11/ Hi Tech Marketing unjustified, and the action of Assessing Officer is vide ab initio. No contrary facts or law is brought to our notice. In the result, the Ground no. 1 of the appeal is allowed.
Even on merit of the case, we find that the during the relevant period under consideration the assessee has availed unsecured loan from unrelated parties and have made the payment of interest at the similar rate of interest similar as paid the related parties. Therefore, the payment of interest at the rate of 18% was not unreasonable. Considering this fact that we have also allowed the appeal of the assessee on merit.
In the result, the appeal of the assessee is allowed.
Order pronounced on 02/09/2020, as per Rule 34 of Income Tax Appellate Tribunal, Rule 1963.
Sd/- Sd/- (DR. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER
Surat, Dated: 02/09/2020 Samanta, PS Copy to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR // True Copy // /True copy/ By order
Assistant Registrar, ITAT, Surat