PRINCIPAL COMMISSIONER OF vs. SHREE LAXMI JEWELLERY

TCA.Nos.535 and 536 of 2018 In the High Court of Judicature at Madras Dated : 16.09.2020 Coram : The Honourable Mr.Justice T.S.SIVAGNANAM and The Honourable Mrs.Justice V.BHAVANI SUBBAROYAN Tax Case Appeal Nos.535 and 536 of 2018 Principal Commissioner of Income Tax Central I No.108, Mahatma Gandhi Road, Chennai. ...Appellant in both Appeals Vs M/s.Shree Laxmi Jewellery Pvt Ltd., No.99, Usman Road, T.Nagar, Chennai 600 017. PAN:AAACL1289M ...Respondent in both Appeals COMMON PRAYER: APPEALS under Section 260A of the Income Tax Act, 1961 against the order dated 12.09.2017 made in ITA.Nos.3345 & 1666/Mds/2016 and C.O.No.15/Mds/2017 on the file of the Income Tax Appellate Tribunal, Madras 'A' Bench for the assessment years 2009-10 & 2013-14. 1/18 https://www.mhc.tn.gov.in/judis/ TCA.Nos.535 and 536 of 2018 For Appellant in both Appeals: Mr.T.R.Senthil Kumar Senior Standing Counsel assisted by Ms.K.G.Usha Rani For Respondent in both Appeals: Mr.T.Pramodkumar Chopda Common Judgment was delivered by

T.S.Sivagnanam,J.

These appeals, filed by the Revenue, under Section 260A of the Income Tax Act, 1961 ('the Act' for brevity) is directed against the order dated 12.09.2017 passed by the Income Tax Appellate Tribunal Bench 'A' Chennai ('the Tribunal' for brevity) in I.T.A.No.3345/Mds/2016 and C.O.No.15/Mds/2017 for the Assessment Year under consideration (AY 2009-10). The appeal was admitted on 30.11.2018 on the following Substantial Questions of Law: i).Whether the Appellate Tribunal right in holding that the Department had no jurisdiction to reopen the case of the assessee u/s.147 of the Act which was beyond the period of four years from the end of the relevant assessment year, when the notice u/s.148 was issued on 30.03.2014, which is before the expiry of four years from the end of the assessment year 2009-10? 2/18 https://www.mhc.tn.gov.in/judis/ TCA.Nos.535 and 536 of 2018 ii)Whether the Appellate Tribunal was right in holding that the assessee had fully and truly disclosed all material at the time of original assessment u/s.143(3) of the Act and no fresh materials had surfaced for the assessment to be reopened, without considering Explanation 1 and Explanation 2(c) to Section 147 of the Income Tax Act, when there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment? 2. The assessee is a Company involved in the business of manufacturing and trading of bullion and jewelery. It filed its Return of Income on 24.09.2009 declaring a total income of Rs.59,75,709/-. The assessment was completed under Section 143(3) of the Act by order dated 27.12.2011 determining the total income of Rs.64,67,840/-. Subsequently notice under Section 148 of the Act dated 30.03.2014 was issued and the assessment was reopened by recording the following three reasons: Reasons for Reopen In Schedule 'O' of P&L A/c, purchase of bullion (Bar) was shown as Rs.94,61,07,298/-. Actual amount paid for the purchase of 574157/- grams was only 3/18 https://www.mhc.tn.gov.in/judis/ TCA.Nos.535 and 536 of 2018 Rs.72,26,54,848/- @ Rs.1258.64. The quantitative details have tallied and where is no other gold bars purchased apart from the above. Excess purchase charges of Rs.22,34,52,450/- claimed towards bullion have to be added back to the taxable income. In the P&L A/c, the assessee had debited Rs.4,18,209/- as previous year sales tax paid. It is not clear to which year it pertains and sales escaping assessment, if any, in view of sales tax paid has to be brought to tax in the relevant assessment year. Further it is seen that the assessee had debited Rs.8,26,576/- on trade mark expenses. Since trade mark comes under intangible assets only depreciation has to be allowed. 3. In the course of reassessment proceedings, the Assessing Officer was convinced with the explanation offered by the assessee insofar as the first reason, pertaining to the alleged excess purchase charges of Rs.22,34,52,450/-. In the order of reassessment dated 27.03.2015 in paragraph no.6.1, the Assessing Officer has recorded that the purchases to 4/18 https://www.mhc.tn.gov.in/judis/ TCA.Nos.535 and 536 of 2018 the tune of Rs.22,34,52,450/- was done through MCX and the same is found to be in order. 4. With regard to the second issue namely the correctness of the debit of Rs.4,18,209/- done by the assessee in the P&L A/c as 'previous year sales tax payment', we informed by Mr.T.R.Senthikumar, learned Senior Standing Counsel for the appellant / Revenue that the Assessing Officer has dropped proceedings by putting up of Note 'not to the assessee' which is apprehended to the Assessment Order dated 27.03.2015. 5. With regard to the third reason for reopening namely debit of Rs.8,26,576/- on 'Trademark expenses', the Assessing Officer granted partial relief to the assessee by allowing depreciation of 25% and disallowed Rs.11,250/- and added back the same to the total income. So far as this issue is concerned, the assessee accepted the reassessment order and did not challenge the same. Thus out of the three reasons which were the reasons for reopening the assessment under Section 147 of the Act, the first reason was held in favour of the assessee and no ground to reopen, the 5/18 https://www.mhc.tn.gov.in/judis/ TCA.Nos.535 and 536 of 2018 second issue was also held in favour of the assessee as the Assessing Officer himself was satisfied with the explanation and with regard to the third issue, partial relief was granted to the assessee. However while completing reassessment proceedings, the Assessing Officer embarked upon a exercise to examine as to whether a sum of Rs.1,05,59,900/- which was claimed as a 'business loss' was allowable. It is to be noted that this was never a reason mentioned in the notice issued under Section 148 of the Act. However it is the argument of the Revenue that notwithstanding the fact that the issue is not one of the reasons to reopen, in terms of Explanation 3 to Section 147 of the Act, in the course of proceedings, if it comes to the notice of the Assessing Officer that income in respect of any of the issues has escaped assessment, he can exercise his power to assess or reassess under Section 147 of the Act. 6. We do not wish to go into the said controversies because the assessee did not contend that the said point cannot be taken up by the Assessing Officer but appears to have given their explanation when point was put forth to the assessee. The assessee submitted that their transactions 6/18 https://www.mhc.tn.gov.in/judis/ TCA.Nos.535 and 536 of 2018 are covered under Proviso (a) to Section 43(5) of the Act as they are in the business of trading in Gold and have entered into these transactions to guard against loss through price fluctuation in respect of their contracts for actual delivery of goods sold by them. The assessee placed reliance on a decision of the Tribunal in the case of Kanishka Gold Pvt Ltd (ITA.No.1323/Mds/2012). The Assessing Officer while completing reassessment proceedings appears to have been convinced that the nature of transactions done by the assessee would fall under Clause (a) of Section 43(5) of the Act. However denied relief and treated the loss of Rs.1.09 acres as Speculative Loss by giving interpretation that Clause (a) to (d) in Section 43(5) of the Act have to be read in conjunction and not in disjunction. The reason for rendering such a finding appears to have been inspiration drawn from the decision of the Tribunal in the case of Sharp Electronics Private Limited Vs. Assistant Commissioner. 7. In our considered view the said decision could not have been applied to the facts of the instant case because the word 'or' used in clauses (a) to (ha) in Explanation to Section 115J(1A) was the subject matter of 7/18 https://www.mhc.tn.gov.in/judis/ TCA.Nos.535 and 536 of 2018 consideration in the said case while interpreting as to whether 'or' should be conjunctive or disjunctive, and it was held that it is necessary to read 'and' in the place of 'or' and vice versa. Plain reading of Section 115J(1A) and Clauses (a) to (d) thereunder will clearly shows that each one of them is a separate and different transaction. Though the Assessing Officer agrees that the assessee's transaction would fall under Clause a to Section 43(5) of the Act, gives the interpretation that each of the clauses are to be considered cumulatively. 8. In our understanding and on a plain reading of the Statute, we find that each of the clauses under Section 43(5) deals with separate type of contracts / transactions. Therefore, there is no room to give any interpretation to read the expression 'or' as 'and'. Be that as it may, on facts, the CIT(A) examined as to whether the business loss claimed by the assessee can be treated as a Speculative Loss and held that it cannot be done so and the Tribunal also held that there was no fresh materials to treat it as Speculative Loss. 8/18 https://www.mhc.tn.gov.in/judis/ TCA.Nos.535 and 536 of 2018 9. Mr.T.Pramodkumar Chopda, learned counsel for respondent relied upon a detailed statement given by the assessee for the assessments dated 24.11.2011, 05.12.2011 and 12.12.2011 and demonstrated before us that the very nature of transaction was subject matter of discussion in the scrutiny assessment done at the first instance and the assessee had placed a note before the Assessing officer under the heading ''Hedging'' as to why the transaction with M/s.Gadiya Comtrade India Private Limited should not be considered as a Speculative transaction. Further more, the assessee also established as to why no tax needs to be debited under Section 194 H of the Act and explained the nature of transaction and submitted that the future contracts entered into by the assessee is a derivative . Thus when such material was available with the Assessing Officer at the first instance while completing assessment under Section 143(3) of the Act, then on the same material, the Assessing Officer cannot reopen the assessment and it is a case of change of opinion. 9/18 https://www.mhc.tn.gov.in/judis/ TCA.Nos.535 and 536 of 2018 10. It is a strenuous argument of Mr.T.R.Senthilkumar, learned Senior Standing Counsel that the Tribunal committed a factual error in holding that the assessment was reopened beyond the period of 4 years. In this regard, the learned counsel submitted that the assessment year consideration is AY 2009-10, from 01.04.2009 to 31.03.2010 and the four year period would come to an end on 31.03.2014 and notice under Section 148 of the Act was issued on 30.03.2014, one day before the end of the four year period. 11. On verification of the facts we find that the stand taken by the Revenue appears to be right and the assessment was reopened within four years that is one day prior to 31.03.2014, by issuance of notice under Section 148 of the Act. Even if it is so, the statute mandates that the Assessing Officer has to have reasons to believe that any income chargeable to tax has escaped assessment and there are long line of decisions which say that there should be material to show that the income chargeable to tax has escaped assessment. In the instant case all the details were available at the first instance before the Assessing officer in the scrutiny assessment. In 10/18 https://www.mhc.tn.gov.in/judis/ TCA.Nos.535 and 536 of 2018 such circumstances, the attempt of the Assessing officer by invoking power under Section 147 of the Act is infact to review the earlier Assessment order. 12. It was argued by Mr.T.R.Senthilkumar, learned Senior standing counsel that the Tribunal dismissed the Revenue's appeal and allowed the assesse's cross objection solely on the ground that the assessment was reopened after a period of four years and there is no fresh material. 13. On a reading of the impugned order passed by the Tribunal and as rightly pointed out by Mr.Pramodkumar Chopda, that alone was not only reason for the Tribunal to dismiss the appeal filed by the Revenue. The Tribunal also pointed out that the assessee had fully and truly disclosed all materials at the time of original assessment under Section 143(3) of the Act and no fresh materials had surfaced for the assessment to be reopened. 11/18 https://www.mhc.tn.gov.in/judis/ TCA.Nos.535 and 536 of 2018 14. Mr.T.R.Senthilkumar, learned Senior Standing Counsel referred a decision in the case of Rabo India Finance Private Limited vs. Deputy Commissioner of Income Tax [2013 (34) taxmann.com 228 (Bombay)]. In the said decision it was held that assessment can legitimately be reopened on the basis of the materials which comes to the notice of the Assessing Officer after original assessment or during the course of assessment proceedings for next assessment year. There cannot be any quarrel over the legal position and may not be necessary to deal with the same as in the instant case, we have found that all materials were placed by the assessee before the Assessing Officer during the scrutiny assessment under Section 143(3) of the Act and no new material had surfaced during reassessment proceedings. In fact the Assessing Officer wanted to reopen the proceedings on three grounds, two of the grounds were held to be not grounds for reopening and held in favour of the assessee, on the third ground, partial relief was granted to the assessee. 12/18 https://www.mhc.tn.gov.in/judis/ TCA.Nos.535 and 536 of 2018 15. Mr.Pramodkumar Chopda, learned counsel had referred to the decisions in the case of CIT Vs. Kelvinator of India Ltd 2010 (187) Taxman.312 (SC) and CIT Vs. Ashley Services Ltd., 2014 (44) Taxmann.com (Madras), Principal Commissioner of Income Tax-6, Chennai Vs. Santech Solutions (P) Ltd., 2018 (97) Taxmann.com 179 (Madras) and Tractors & Farm Equipment Ltd., Vs. Assistant Commissioner of Income Tax, Company Circle III(2), Chennai 2019 (102) Taxmann.com 130 (Madras). These decisions have been relied on to show that the assessment cannot be reopened on a mere change of opinion. In the case of M/s.Ashley Services Ltd which pertains to a assessee who was granting loans and advances and earning income from share-trading and the question was whether it was a ground for treating the loss as speculative loss. 16. The decision in the case of Kelvinator of India Private Limited fully supports the case of the assessee, wherein the Hon'ble Supreme Court held that after 01.04.1989, the Assessing Officer has power to reopen, provided there is tangible material to come to a conclusion that 13/18 https://www.mhc.tn.gov.in/judis/ TCA.Nos.535 and 536 of 2018 there is escapement of income from assessment, reasons must have a live link with formation of belief. 17. As already pointed out the finding rendered by the Assessing Officer stating that the expression 'or' occurring in between Clause (a) to (d) of Section 43(5) should be read as 'and' as no such interpretation could have been made to the statutory provision as explained by us in the presiding paragraphs. On facts, the Assessment Officer was in favour of the assessee. However used the expression 'seems' by stating that though the assessee seems to be qualified under clause (a) to Section 43(5), since they had not complied with condition ('d') they are not entitled to any relief. As pointed out earlier reopening, based upon a change of opinion or a review of decision taken by the Assessing officer, is impermissible. Further the interpretation given by the Assessing Officer to Section 43(5) of the Act is wholly untenable. 18. For all the above reasons, this Court finds no good grounds to interfere with the order passed by the Tribunal. In the result, these Tax Case 14/18 https://www.mhc.tn.gov.in/judis/ TCA.Nos.535 and 536 of 2018 Appeals are dismissed and the Substantial Questions of Law are answered against the Revenue. No costs.

(T.S.S., J.) (V.B.S., J.)

16.09.2020 Internet: Yes /No Index : Yes/No To Principal Commissioner of Income Tax Central I No.108, Mahatma Gandhi Road, Chennai. 15/18 https://www.mhc.tn.gov.in/judis/ TCA.Nos.535 and 536 of 2018 T.S.SIVAGNANAM,J. And V.BHAVANI SUBBARAYON.,J. Sk TCA.Nos.535 and 536 of 2018 16.09.2020 16/18 https://www.mhc.tn.gov.in/judis/ TCA.Nos.535 and 536 of 2018 T.C.A.Nos.535 & 536 of 2018 T.S.Sivagnanam, J. and V.Bhavani Subbaroyan, J. (Order of the Court was made by T.S.Sivagnanam, J.) The matter has been placed under the caption 'For Being Mentioned' at the instance of the learned counsel for the Revenue and it is pointed out that in the preamble portion of the judgment, the appeal No.1666/Mds/2016 should not be shown. 2. We find that while drafting the certified copy, the said appeal number has already been deleted. Therefore, it is open to the Revenue to apply for a fresh certified copy and obtain the same from the Registry. Thus, no further clarification is required.

(T.S.S., J.) (V.B.S., J.)

22.12.2020 Kak 17/18 https://www.mhc.tn.gov.in/judis/ TCA.Nos.535 and 536 of 2018 T.S.SIVAGNANAM, J. AND V.BHAVANI SUBBAROYAN, J. Kak T.C.A.Nos.535 & 536 of 2018 22.12.2020 18/18 https://www.mhc.tn.gov.in/judis/