ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE- 3(4) MUMBAI, MUMBAI vs. THE SHIPPING CORPORATION OF INDIA LIMITED, MUMBAI

ORDER \nPER NARENDRA KUMAR BILLAIYA, AM:\nI.T.A. No. 1752/Mum/2024 & are\ncross-appeals by the assessee and the revenue against the very same\norder dated 09/02/2024 by NFAC, Delhi [hereinafter 'the ld. CIT(A)']\npertaining to AY 2016-17.\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1752/Mum/2024\nI.T.A. No. 1970/Mum/2024\n2\n2.\nThe cross-appeals were heard together and are disposed off by\nthis common order for the sake of convenience and brevity.\n3.\nGrievance of the assessee reads as under-\n\"1.0 GROUND NO. 1\nThe CIT(A) has erred in law and on facts in upholding validity of reassessment\nproceedings, despite the same having been initiated on the basis of mere change of\nopinion, without any new tangible material/ information coming to the possession of\nthe assessing officer subsequent to completion of assessment under section 143(3) of\nthe Income Tax Act, 1961 ('the Act').\nGROUND NO. 2\nThe CIT(A) has erred in not treating reimbursement of overheads for managed\nvessels as profit from core activities.\n3.0 GROUND NO. 3\nThe CIT(A) has erred in law and on facts in directing the assessing officer to make\naddition towards mark-up calculated @ 2.50% on reimbursement of overheads for\nmanaged vessels.\nThe appellant craves leave to add and/or to amend and /or to delete any ground out\nof the foregoing grounds of appeal

, at any time before the hearing or during the course\nof hearing.\"\n4.\nThe grievance of the revenue reads as under:-\n\"1.\nWhether on the facts of the case and in law, Ld. CIT(A) was justified in\ndeleting the mark-up on reimbursement of overheads for managed vessels form the\ntotal income of the appellant?\n2.\nWhether on the facts of the case and in law, Ld. CIT(A) was justified in\ndeleting the foreign fluctuation gain from the total income of the appellant?\n3.\nThe Appellant craves leave to add, amend and/or vary the grounds of Appeal\nbefore or during the course of hearing.\"\n5.\nVide application dated 26/07/2024, the assessee sought\npermission to raise the following additional ground of appeal:-\n\"1.\nThat on the facts and in circumstances of the case, the Id. AO has erred\npassing the Assessment order without disposing the objections filed by the\nappellant which is in violation of the procedure as laid down by the Hon'ble\nSupreme Court in KN Driveshafts (India) Ltd and hence the reassessment\nproceedings are invalid and bad in law.\"\n6.\nSince the additional ground mentioned hereinabove, goes to the\nroot of the matter, we decided to adjudicate it first.\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1752/Mum/2024\nI.T.A. No. 1970/Mum/2024\n3\n7.\nRepresentatives of both the sides were heard at length. Case\nrecords carefully perused and the relevant documentary evidence\nbrought on record along with judicial decisions referred, duly\nconsidered in light of Rule 18(6) of the ITAT Rules, 1963.\n8.\nBriefly stated, the facts of the case are that the assessee\nelectronically filed its return of income on 29/11/2016 declaring total\nincome of Rs.1,79,14,88,584/- under normal provisions of the Act and\nbook profit of Rs.1,65,32,24,597/- u/s 115JB of the Act. The return was\nselected for scrutiny assessment and vide order dated 11/12/2018,\nframed u/s 143(3) of the Act, the returned income was assessed at\nRs.2,23,10,90,360/- under the normal provisions of the Act and book\nprofit at Rs.1,88,11,20,919/- u/s 115JB of the Act. Vide notice dated\n27/03/2021 issued u/s 148 of the Act, the AO proposed to assess/re-\nassess the income of the assessee asking the assessee to file its return of\nincome. Vide letter dated 19/04/2021, the assessee asked the AO to treat\nthe return filed u/s 139(1) of the Act as the return filed pursuant to the\nnotice u/s 148 of the Act. The AO gave following reasons for re-opening\nof assessment:-\n***This space has been left blank intentionally. P.T.O.***\n4\nGOVERNMENT OF INDIA\nMINISTRY OF FINANCE\nINCOME TAX DEPARTMENT\nOFFICE OF THE DEPUTY\nCOMMISSIONER OF INCOME TAX\nDCIT/ACIT, Cir.-3(4), Mumbai\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1752/Mum/2024\nI.T.A. No. 1970/Mum/2024\nTo,\nTHE SHIPPING CORPORATION OF INDIA LIMITED\n245 SHIPPING HOSUE, MADAM CAMA ROAD NARIMAN\nPOINT\nMUMBAI 400021, Maharashtra\nIndia\nPAN:\nAAACT1524F\n Assessment Year:\n2016-17\nDated:\n17/11/2021\nDIN & Letter No:\nITBA/AST/F/17/2021-22/1037026532(1)\nSir/Madam/ M/s,\nSubject: Communication of reasons of reopening u/s 147 for A.Y -2016-17 in the case of THE\nSHIPPING CORPORATION OF INDIA LIMITED reg.\nThe assessee had filed e-return on 29.11.2016 declaring total income of\nRs.179,14,88,584/- under normal provision of the Act and Book Profit of\nRs.165,32,24,597/- u/s 115JB of the Income tax Act. The case was selected for\nscrutiny and assessment for A.Y. 2016-17 was completed on 11.12.2018 after\nscrutiny assessed income of Rs.223,10,90,360- under normal provision of the\nIncome tax Act and computed Book Profit of Rs.188,11,20,919/-u/s 115JB of the\nIncome tax Act.\n2.\nSubsequently on perusal of the records it was observed that the assessee\nhad opted tonnage tax scheme i.e presumptive tax Chapter XII G and approved by\nthe competent authority under section 115VP of the IT Act. Thus the income was\noffered from Core activity, Incidental Activity under tonnage tax and Income from\nOther source in their computation.\nThe Assessee had offered Net gain on foreign currency transaction of\nRs.13.24 crore and Income from Rescindment of contracts of Rs.19.52 Crore under\nthe Head Other Income (Note-24) in Profit and Loss Account. Further, it was noticed\nthat the assessee had neither offered these incomes under the head as Incidental\nActivity under tonnage tax nor as Income from Other source in their computation.\nHowever, it was observed that during assessment the Income from Rescindment\nof\n5\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1752/Mum/2024\nI.T.A. No. 1970/Mum/2024\ncontracts of Rs.19.52 Crore had been considered as business income under\nIncidental Activity and brought to tax, whereas gain on foreign currency transaction of\nRs.13.24 crore was neither discussed nor brought to tax.\nIt is pertinent to mention here that the assessee himself considered both the\ntransaction as Other Income in their profit and loss account, hence foreign currency\ntransaction of Rs.13.24 crore should have also been considered as income due to\ntheir incidental to the business only and brought to tax. However, the same income\nwas not added while assessment. This has resulted in under assessment of income\namounting to Rs. Rs.13,24,00,000/-.\n2.1 Therefore I am of the view that income to the extent of amount of Rs.\n13,24,00,000/- as explained above, has escaped assessment.\n2.2 Further it was observed that during assessment it was mentioned that the core\nactivity and incidental activity has been properly defined in section 115V-1(2) and\n115V-1(5) respectively. Therefore the income from Reimbursement of overhead for\nmanaged vessel amounting to Rs.35,79,48,794/- is considered as income from\nincidental activity and excluded from the core activity turnover in paral 1.3 (page I lof\n33) of the assessment order. As the income was excluded from the Core activity\nturnover, the said income should have been considered as Income from Incidental\nActivity while computing the income under the head incidental activity under tonnage\ntax. However, it was observed that during assessment the same had considered as\nincome under the head Incidental Activity under tonnage tax, even it was excluded\nfrom the turnover of Core Activity. This has resulted in under assessment of income\namounting to Rs. Rs.35,79,48,794/-.\n2.3 Therefore I am of the view that income to the extent of amount of Rs.\n35,79,48,794/-, as explained above, has escaped assessment.\n9. Vide submissions dated 30/11/2021, the assessee objected the\nreopening of the assessment strongly contending that reopening is\ninvalid in absence of any new material on record to establish that\nincome has escaped assessment. The objections raised by the assessee\nread as under:-\n6\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1752/Mum/2024\nI.T.A. No. 1970/Mum/2024\nभारतीय नौवहन निगम लिमिटेड\n(भारत सरकार का उद्यम)\nपंजीकृत कार्यालयः शिपिंग हाउस, 245 मादाम कामा रोड, मुंबई- 400 021.\nफोन. 91-22-2202 6666, 2277 2000 फैक्स: 91-22-2202 6905 वेबसाइट: www.shipindia.com\nThe Shipping Corporation Of India Ltd.\n(A GOVERNMENT OF INDIA ENTERPRISE)\nRegd. Office: Shipping House, 245, Madame Cama Road, Mumbai-400 021. Ph: 91-22 2202 6666, 2277 2000\nFax: 91-22 22026905 Website: www.shipindia.com\nसीआईएन/CIN-L63030MH1950G01008033\nRef: ITBA/AST/F/17/2021-22/1037026532(1)\n30th November 2021\nTo\nDeputy Commissioner of Income Tax\nCircle 3(4), Mumbai\nDear Sir,\nKind Attention: Shri DEEPAK SHUKLA\nSub: The Shipping Corporation of India Limited. PAN: AAACT1524F. Assessment Year: 2016-17\nThe assessee refers to the captioned notice dt. 27th March 2021 issued u/s 148 of the Act. The\nassessee further refers to its reply dt. 19th April 2021 filed in response to the said notice and\nreasons for reopening dt. 17th November 2021 received by the assesse on 18th November 2021.\nIn this regard, the assessee would like to submit its objections to issuance of notice u/s 148 as\nunder:\nA.\nA.1\nA.2\nA.3\nBackground\nThe return of income for AY 2016-17 was filed by the assessee on 29. November 2016\ndeclaring total income of Rs.179,14,88,584/- under normal provisions of the Act and\nbook profit of Rs.165,32,24,597/-. The return was selected for scrutiny and the\nassessment order was passed on 11th December 2018 assessing total income at Rs.\n223,10,90,360/- under normal provision of the Act and book profit at Rs.\n188,11,20,919/-.\nVide notice u/s 148 dt., 27th March 2021, the assessment for AY 2016-17 was sought to\nbe reopened. In response to the said notice, the assessee vide reply dt. 19th April 2021\nrequested your goodself to treat the return of income filed for AY 2016-17 as return in\nresponse to notice u/s 148. Further, vide the said reply, the assessee requested your\ngoodself to provide reasons for reopening. However, the assesse had replicated its\noriginal ITR and filed the ITR again on 20th May 2021.\nVide letter dt. 17th November 2021 (enclosed as Annexure-A), your goodself has\nprovided reasons recorded for reopening. The relevant paras of the said reasons are\nreproduced below:\n7\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1752/Mum/2024\nI.T.A. No. 1970/Mum/2024\n2.\nThe Assessee had offered Net gain on foreign currency transaction of Rs.13.24 crore\nand Income from Rescindment of contracts of Rs.19.52 Crore under the Head Other\nIncome (Note-24) in Profit and Loss Account. Further, it was noticed that the assessee\nhad neither offered these incomes under the head as Incidental Activity under tonnage\ntax nor as Income from Other source in their computation. However, it was observed\nthat during assessment the Income from Rescindment of contracts of Rs.19.52 Crore\nhad been considered as business income under Incidental Activity and brought to tax,\nwhereas gain on foreign currency transaction of Rs.13.24 crore was neither discussed\nnor brought to tax.\nIt is pertinent to mention here that the assessee himself considered both the\ntransaction as Other Income in their profit and loss account, hence foreign currency\ntransaction of Rs.13.24 crore should have also been considered as income due to their\nincidental to the business only and brought to tax. However, the same income was not\nadded while assessment. This has resulted in under assessment of income amounting to\nRs. Rs.13,24,00,000/-.\n2.1, Therefore I am of the view that income to the extent of amount of Rs.\n13,24,00,000/- as explained above, has escaped assessment.\n2.2 Further it was observed that during assessment it was mentioned that the core\nactivity and incidental activity has been properly defined in section 115V-1(2) and\n115V-1(5) respectively. Therefore the income from Reimbursement of overhead for\nmanaged vessel amounting to Rs.35,79,48,794/- is considered as income from\nincidental activity and excluded from the core activity turnover in paral 1.3 (page I lof\n33) of the assessment order. As the income was excluded from the Core activity\nturnover, the said income should have been considered as Income from Incidental\nActivity while computing the income under the head incidental activity under tonnage\ntax. However, it was observed that during assessment the same had considered as\nincome under the head Incidental Activity under tonnage tax, even it was excluded\nfrom the turnover of Core Activity. This has resulted in under assessment of income\namounting to Rs. Rs.35,79,48,794/-.\n2.3 Therefore I am of the view that income to the extent of amount of\nRs.35,79,48,794/-, as explained above, has escaped assessment.\n\"\nB.\nIn the instant case, Reopening is invalid absence of any new material on record to\nestablish that income has escaped assessment\ni. The reasons recorded in the instant case clearly reveal that there was no new\ninformation on record to support the reopening. It is respectfully submitted that the\nreasons recorded are merely re-appreciation of the material already available on\nrecord.\nii. The Hon'ble Supreme Court in the case of CIT -vs.- Kelvinator of India Ltd [2010] 187\nTaxman 312 (SC)(order dt. 18-01-2010) has held that when a regular order of\nassessment is passed in terms of Sec. 143(3) of the Act, a presumption can be raised\nthat such an order has been passed by due application of mind. If it be held that an\norder which has been passed purportedly without application of mind would itself\nconfer jurisdiction upon the AO to reopen the proceeding without anything further,\n8\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1752/Mum/2024\nI.T.A. No. 1970/Mum/2024\nthe same would amount to giving premium to an authority exercising quasi-judicial\nfunction to take benefit of its own wrong. Sec. 147 of the Act does not postulate\nconferment of power upon the AO to initiate reassessment proceedings upon a mere\nchange of opinion. The relevant extract of the decision is reproduced below:\n\"Though the power to reopen under the amended s.147 is much wider, one\nneeds to give a schematic interpretation to the words "reason to believe" failing\nwhich s.147 would give arbitrary powers to the AO to re-open assessments on\nthe basis of "mere change of opinion", which cannot be per se reason to re-\nopen. One must also keep in mind the conceptual difference between power to\nreview and power to re-assess. The AO has no power to review; he has the power\nto re-assess. But re-assessment has to be based on fulfillment of certain pre-\ncondition and if the concept of "change of opinion" is removed, as contended\non behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" às an in-built test to check abuse of power by the AO. Hence, after 1.4.1989,\nthe AO has power to re-open, provided there is "tangible material" to come to\nthe conclusion that there is escapement of income from assessment. Reasons\nmust have a live link with the formation of the belief. This is supported by\nCircular No.549 dated 31.10.1989 which clarified that the words "reason to\nbelieve" did not mean a change of opinion.\"\nIn the case of Sabh Infrastructure Ltd. -vs.- ACIT [W.P.(C) 1357/2016](order dt. 25-\n09-2017] the Hon'ble Delhi High Court, has held as under:\n\"14. A perusal of the order disposing of the objections reveals that it proceeds\non the basis that the information sought for by the Petitioner which formed the\nbasis for the reasons to believe, including the evidence collected, was required\nto be provided only in the further assessment proceedings. The said order\noverlooks the fact that the reasons for reopening do not mention as to what fact\nor information was not disclosed by the Petitioner. This is very vital and in fact\ngoes to the root of the matter..\n15. The assessment proceedings, especially those under Section 143 (3) of the\nAct, have to be accorded sanctity and any reopening of the same has to be on a\nstrong and sound legal basis. It is well settled that a mere conjecture or surmise\nis not sufficient. There have to be reasons to believe and not merely reasons to\nsuspect that income has escaped assessment...\n18. Thus, the Petitioner cannot be said to have failed to disclose fully and truly\nall the material facts. This being a jurisdictional issue, the assumption of\njurisdiction under Sections 147 and 148 of the Act was erroneous...\"\nIn view of the above, it is respectfully submitted that in the instant case, in the\nabsence of any new tangible material available with the Ld. AO, the reassessment\nproceedings cannot be invoked.\n9\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1752/Mum/2024\nI.T.A. No. 1970/Mum/2024\nC.\nAssessee's duty does not extend beyond fully and truly disclosing all material facts\nnecessary for assessment\nIt is submitted that while it is duty of every assessee to disclose fully and truly all\nmaterial facts necessary for his assessment, his duty does not extend beyond such\ndisclosure. The Hon'ble Supreme Court in the case of Calcutta Discount Co. Ltd. -vs.-\nITO [1961]

41. ITR 191 has categorically held that that once all primary facts are\ndisclosed before the Assessing Authority, he requires no further assistance by way of\ndisclosure. It is for him to decide what inferences of facts can be reasonably drawn and\nwhat legal inferences have ultimately to be drawn.\nWhile framing the assessment, the factual details were accepted, which were available\non record. Thus, it is submitted that onus of the assessee lies only till full and true\ndisclosure of facts. For argument sake, even if it is said that the Assessing Officer had\noverlooked the details submitted by the assessee while framing the assessment, still\nthe disclosure by the assessee can be said to be full and true.\nThe Hon'ble Andhra Pradesh High Court in the case of Kohinoor Hatcheries (P.) Ltd\nvs.- DCIT [2016] 76 taxmann.com 150 (AP) [order dt. 16-08-2016] has observed that\nby making a distinction between a mere production of necessary materials and a true\nand full disclosure of materials necessary for assessment, the statute ensures two\nthings viz. (a) that an officer, who had once formed an opinion, does not seek to\nchange it later and (b) that an officer, who, deliberately or by his negligence, omitted\nto form an opinion, despite being made aware of the material facts, does not take\nrefuge later u/s 147 to cover up his negligence.\nD.\nAssessee's plea on merits\nWithout prejudice to the assessee's plea that there was no failure on the part of the\nassessee to disclose fully and truly all material facts necessary for assessment of AY\n2016-17 and hence reassessment is invalid, on merits, the assessee would like to submit\nas under:\nD.1.\nTreatment of Foreign currency transaction\nIt is submitted that the assessee's only business is operation of ships i.e., carrying out\nshipping activity. Refer Annual Report - SIGNIFICANT ACCOUNTING POLICIES point no.\n9 attached wherein treatment of foreign currency transaction is detailed as below:\nk\na) All foreign currency transactions for each month are recorded at the closing\nexchange rate of the second last Friday of the preceding month published on xe.com\nwebsite.\nb) The foreign currency balances other than in US Dollars appearing in the books of\naccount at the period end are translated into US Dollars at the closing exchange rate\nof the second last Friday of preceding month published on xe.com website.\nThereafter, the monetary assets and monetary liabilities as well as the Long Term\nLoans are translated into rupees at SBI Mean Rate prevailing at the period end.\nc) Exchange difference arising on repayment of liabilities and conversion of foreign\nc\ncurrency closing balances pertaining to long term loans for acquiring ships /\nM\n10\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1752/Mum/2024\nI.T.A. No. 1970/Mum/2024\ncontainers / other depreciable assets and asset under construction is adjusted in the\ncarrying cost of respective assets.\nd) The exchange differences arising on translation of other monetary assets and\nliabilities are recognised in the Statement of profit and loss.\nIn this regard, the assessee places reliance on the decision of the Hon'ble ITAT,\nMumbai in Tag Offshore Ltd, Mumbai vs Department Of Income Tax on 8. August,\n2014 has observed that\n\"If the foreign exchange gain has arisen to the assessee during the course of\nshipping business, then the same derives its character from such business only and\nno separate treatment can be given. Once the assessee's shipping income is taxed\nunder a special provision, then also, it will not make a difference as only the\nshipping income is to be taxed. There can be no separate assessment on foreign\nexchange gain on the ground that it is different from operation of ships. In the\ncontext of computation of deduction under section 80HHC, as cited by the learned\n'counsel, the Courts have invariably held that the foreign exchange gain or loss\ndirectly relates to the export and same is qualified for the purpose of deduction.\nThe same logic will follow here also and, therefore, any foreign exchange gain or\nloss has to be in relation to the shipping income. There is no basis for separately\ntaxing it as some other kind of business activity. Thus, we are not inclined to agree\nwith the reasoning and conclusion drawn by the learned Commissioner (Appeals)\nand the same is accordingly reversed. Ground no.1, raised by the assessee is\nallowed.\"\nIn view of above, it is submitted that the assessee has rightly considered Foreign\ncurrency transaction as Core shipping income in its Computation of Income.\nD.2.\nTreatment of income from Reimbursement of overhead for managed vessel\nThe assessee as part of its business manages various vessels which are owned by its\nclients. During the course of managing vessels, the assessee incurs direct, indirect\nexpenses as well as overhead expenses. The cost incurred by the assessee on\nmanaging vessel is accounted under various heads of expenses in the profit & Loss\naccount. On periodical basis, the assessee raises invoices on its clients wherein the\nassessee charges agreed mark up on direct and indirect cost incurred as\nremuneration for managing vessels. Further, the assessee also recovers\nproportionate overhead expenses incurred for managing vessels without any mark up\nfrom the client and the same is included in the invoices raised on the client. The cost\nof managed vessels is incurred for the business of operating ships i.e. core activities\nand when the assessee recovers such cost from the parties, the same should retain\nthe character of income from core activities.\nRule 11R of the Income Tax Rules, 1962 ('the Rules') provide that income from the\nfollowing specified four activities\n1\nALTO\nINDIAL\n11\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1752/Mum/2024\nI.T.A. No. 1970/Mum/2024\n(i)\n(ii)\n(iii)\n(iv)\nMaritime consultancy charges\nIncome from loading or unloading of cargo\nShip management fees or remuneration received for managed vessels\nMaritime education or recruitment fees are to treated as income from\nincidental activities.\nIt is submitted that only the aforesaid four activities have been specifically prescribed\nas incidental activities. As such, it implies that all activities, other than incidental\nactivities, should be considered as core activities. It is humbly submitted that\nreimbursement of management overhead expenses should be treated as part of turnover\nfrom core activities and not be taxed as Income from Incidental activity.\nIt is to be noted that the AO in his Assessment order dated 12th December 2018, has\nexcluded the reimbursement of managed vessel overhead expenses from Core activities\nfor calculating the 0.25% of Turnover from core activities, as required u/s 115VI of the\nAct. It is respectfully submitted that the assessment order is issued to arrive at the\nincidental income in excess of 0.25% for core activities.\nInformatively, this ground and reply thereon along with supportings were already\nsubmitted during the course of assessment proceedings for AY 2016-17 and currently the\nmatter is lying with CIT(A).\nIn light of the aforesaid, the assessee would like to request your goodself to drop the\nreassessment proceedings, since there have been no failure on the part of the assessee to\ndisclose fully and truly all material facts necessary for assessment and even on merits there is\nno case of escapement of income.\nWe shall be pleased to clarify any pertinent aspects.\nThanking you,\nYours faithfully\nFor The Shipping Corporation of India Ltd.\nकृते भारतीय नौवहन निगम लिमिटेड\nFor THE SHIPPING CORPORATION OF INDIA LTD.\nX\nAuthorized Signatory\nपाकराण\nउप महाप्रबंधक / Dy. General Manager I/C (Tax)\nEnclosures: As stated above\n10. Without disposing off the objections raised by the assessee, the\nAO proceeded with the re-assessment proceedings. The assessee\nrepeatedly pointed out to the AO that he has strong objections on the\nre-assessment proceedings. Specific instances are, submission dated\n12\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1752/Mum/2024\nI.T.A. No. 1970/Mum/2024\n06/01/2022 which is placed at pages 86 to 88 of the paper books,\nsubmission dated 24/03/2022 which is placed at pages 76 to 79 of the\npaper book, submissions dated 30/11/2021 exhibited at pages 70 to 75\nof the paper book.\n10.

1. In spite of several reminders during the course of assessment\nproceedings itself, the AO did not consider the submissions of the\nassessee insofar as, specific objections were concerned. The AO finally\nframed the assessment order dated 30/03/2022 u/s 147 r.w.s.144B of\nthe Act without disposing the objections raised by the assessee. The\nentire quarrel revolves around this action of the AO.\n11.\nThe ld. D/R vehemently stated that the proposed draft\nassessment order is nothing but the disposal of the objections raised by\nthe assessee.\n11.1.\nWe have given a thoughtful consideration to the impugned draft\nassessment order dated 24/03/2022. We do not find any whisper in\nrespect of disposal of any objection in the said draft assessment order\nwhich is placed on record.\n12.\nThe Hon'ble Bombay High Court in the case of Bayer Material\nScience (P) Ltd. vs. Deputy Commissioner of Income-tax-10(3) reported in\n382 ITR 333 (Bombay) had the occasion to consider a similar quarrel and\nheld as under:-\n“11. In the present facts, we find that the draft Assessment order was passed on 30th\nMarch, 2015 without having disposed of the Petitioner's objections to the reasons\nrecorded in support of the impugned notice. The reasons were supplied to the\nPetitioner only on 19th March, 2015 and the Petitioner had filed the objections to\nthe same on 25th March, 2015. This passing of the draft Assessment order without\nhaving disposed of the objections is in defiance of the Supreme Court's decision in\nGKN Driveshafts (India) Ltd. (supra). Thus, the draft Assessment order dated 30th\nMarch, 2015 is not sustainable being without jurisdiction. This for the reason that\nit has been passed without disposing of the objections filed by the Petitioner to the\n13\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1752/Mum/2024\nI.T.A. No. 1970/Mum/2024\nreasons recorded in support of their impugned notice. Accordingly, we set aside the\ndraft Assessment order dated 30th March, 2015. We are not dealing the validity of\nthe reasons in support of the impugned notice in the present facts as the time limit\nto pass the Assessment order as provided under 4th Proviso to sub-section(2) of\nSection 153 of the Act has already expired when the petition was filed.\n13.\nIn the case of KSS Petron Private Limited vs. ACIT in Income Tax\nAppeal No. 224 of 2014, the Hon'ble Bombay High Court was seized with\nthe following substantial question of law:-\n“ Whether on the facts and circumstances of the case and in law, the Tribunal\nwas justified in restoring the issue to the Assessing Officer after having\nquashed/ set aside the order dated 14th December, 2009 passed by the\nAssessing Officer without having disposed of the objections filed by the\nappellant to the reasons recorded in support f the reopening Notice dated 28th\nMarch, 2008.?"\n13.1.\nAnd the Hon'ble High Court, interalia held as under:-\n“7 On further Appeal, the Tribunal passed the impugned order. By the impugned\norder it held that the Assessing Officer was not justified in finalizing the Assessment,\nwithout having first disposed of the objections of the appellant. This impugned order\nholds the Assessing Officer is obliged to do in terms of the Apex Court's decision in\nGKN Driveshafts (India) Ltd., v/s. ITO 259 ITR 19. In the aforesaid circumstances,\nthe order of the CIT(A) and the Assessing Officer were quashed and set aside.\nHowever, after having set aside the orders, it restored the Assessment to the\nAssessing Officer to pass fresh order after disposing of the objections to reopening\nnotice dated 28 th March, 2008, in accordance with law.\n8 We note that once the impugned order finds the Assessment Order is without\njurisdiction as the law laid down by the Apex Court in GKN Driveshafts (supra) has\nnot been followed, then there is no reason to restore the issue to the Assessing Officer\nto pass a further/fresh order. If this is permitted, it would give a licence to the\nAssessing Officer to pass orders on reopening notice, without jurisdiction (without\ncompliance of the law in accordance with the procedure), yet the only consequence,\nwould be that in appeal, it would be restored to the Assessing Officer for fresh\nadjudication after following the due procedure. This would lead to unnecessary\nharassment of the Assessee by reviving stale/ old matters.\n9 In fact, to ensure that reopening notices are disposed of, expeditiously the\nparliament itself has provided in Section 153(2) of the Act a period of limitation\nwithin which the Assessing Officer must pass an order on the notice of reopening i.e.\nwithin one year from the end of the financial year in which the notice was issued. In\nfact, Section 153 (2A) of the Act as in force at the relevant time itself provides that\nan order of fresh Assessment, consequent to the order of Tribunal under Section 254\nof the Act, would have to be passed within one year from the end of the financial year\n14\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1752/Mum/2024\nI.T.A. No. 1970/Mum/2024\nin which the order under Section 254 of the Act, was passed by the Tribunal and\nreceived by the Commissioner of Income Tax.\n10 The Director of the appellant has filed an affidavit dated 19th September, 2006. In\nthe affidavit, it is stated that consequent to the impugned order of the Tribunal dated\n14th August, 2013, the Assessing Officer has not passed any order of reassessment.\nTime was granted on the last occasion to enable the Respondent to respond to the\naffidavit dated 19th September, 2006 of the Director of the Appellant Company. The\nRespondent is unable to dispute the facts stated in the affidavit dated 19th September,\n2016 filed by the Director of the Appellant Company. The time to pass a order on the\nnotice dated 28th March, 2008, even consequent to the impugned order of the\nTribunal, has lapsed.\n11 Therefore, on the above facts and law, the substantial question of law is answered\nin the negative i.e. in favour of the Appellant Assessee and against the Respondent\nRevenue.\"\n14.\nIn yet another case of Fomento Resorts & Hotels Ltd. vs. ACIT, in Tax\nAppeal No. 63 of 2007, the Hon'ble High Court of Bombay was seized\nwith the following question of law:-\n“(a) Whether on the facts and in the circumstances of the case, the Income-Тах\nAppellate Tribunal ought to have held that since the respondent did not furnish to\nthe appellant the reasons recorded for reopening of the assessment for the assessment\nyear 1997-98 and did not comply with the mandatory preconditions laid down by\nthe Hon'ble Supreme Court in GKN Driveshaft vs. ITO 259 ITR page 19, the\nreassessment order was bad in law as being opposed to the principles of natural\njustice ?\"\n15.\nAnd the Hon'ble High Court held as under:-\n“9. Rival contentions now fall for determination.\n10. As noted by us above, should the first substantial question of law be answered in\nfavour of the Appellant-Assessee, and against the Respondent-Revenue, then, there\nwill be no necessity to advert to the second substantial question of law framed by us\nin our order dated 20th November, 2007.\n11. In this case, the Assessing Officer, vide notice dated 13th March, 2003, sought to\nreopen the assessment by invoking the provisions of Section 11 of the said Act. At\nthe reverse of this notice, the Assessing Office, had stated the reason for reopening.\nAccordingly, it cannot be said that no reasons were furnished to the Appellant for\nreopening of the assessment or that there is breach of the law laid down by the Hon'ble\nApex Court in GKN Driveshafts (India) Ltd. (supra), at least, in so far as\nrequirement of furnishing of the reasons for reopening of the assessment is concerned.\nTo that extent, therefore, we are unable to agree with the contention of Mr. Dada that\n15\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1752/Mum/2024\nI.T.A. No. 1970/Mum/2024\nthis is a matter where the Assessing Officer failed to furnish the reasons for reopening\nof assessment whilst invoking the provisions of Section 11 of the said Act.\n12. Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. (supra) has, however,\nfurther held that once reasons are furnished, the Assessee is entitled to lodge his\nobjections and the Assessing Officer is duty bound to dispose of such objections, by\npassing a speaking order.\n13. In the present case, the Appellants did lodge their objections vide letter dated 14th\nApril, 2003. By a further letter dated 25th March, 2004, the Appellants requested the\nAssessing Officer to dispose of such objections by passing a speaking order before\nproceeding with the reassessment in respect of the Assessment Year 1997-98.\nHowever, the Assessing Officer, without proceeding to dispose of the objections\nraised by the Appellants by passing a speaking order, straight away proceeded to\nmake the assessment order dated 26th March, 2004, bringing to charge taxable\nexpenditure on ₹10,22,73,987/-. The assessment order dated 26th March, 2004, по\ndoubt, deals with the objections raised by the Appellant and purports to dispose of\nthe same. Ms. Linhares contends that this is a sufficient compliance with the\nprocedure set out in GKN Driveshafts (India) 10 txa63-07dt. 30-08-19\nLtd. (supra), assuming that the same is at all applicable to the\nproceedings under the said Act. Mr. Dada, however, submits that\nsuch disposal in the assessment order itself does not constitute the\ncompliance with the mandatory conditions prescribed by the Hon'ble\nSupreme Court in GKN Driveshafts (India) Ltd. (supra).\nsupport, as noted earlier, Mr. Dada relies upon Bayer Material\nScience (P) Ltd. (supra) and KSS Petron Private Ltd. (supra).\nIn\n14. The contention of Ms. Linhares that the decisions relied upon by Mr. Dada relate\nto the provisions of the Income Tax Act and, therefore, are not applicable to the\nproceedings under the Expenditure Tax Act, cannot be accepted. In the first place,\nthe provisions relating to reopening of assessment are almost pari materia. Secondly,\nfar as Assessment Year 1995-96 is concerned, the\nRespondent applied the very same\nruling in GKN Driveshafts\n(India) Ltd. (supra) to hold that the notice of reopening of assessment was ultra vires\nSection 11 of the said Act. This view, in the specific context of the said Act and\nincidentally in the specific context of this very Appellant, was upheld not only by\nthis Court, but also by the Hon'ble Supreme Court. This was in ETA No.1 and\n5/PANJ/01 decided by the Tribunal on 4.4.2006.\n15. The aforesaid decision of the ITAT was appealed by the Respondent vide Tax\nAppeal No.71/2006. This appeal was dismissed by this Court vide order dated 27th\nNovember, 2006, which reads thus :\n"Heard the learned Counsel on behalf of the parties.\nThis appeal is filed against the Order dated 4-4-2006 of the ITAT wherein in\npara 7 the learned ITAT has come to the conclusion that the Assessing Officer\nis required to give reasons, when asked for by the Assessee. Giving of reasons\n16\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1752/Mum/2024\nI.T.A. No. 1970/Mum/2024\nhas got to be considered as implicit in Section 11 of the Expenditure Tax Act,\n1987. It is now well settled that giving reasons in support of an order is part\nof complying with the principles of natural justice.\nIn the light of that, no fault could be found with the order of the learned ITAT\nand as such no substantial question of law arises as well.\nAppeal dismissed.\"\n16. The Respondent, instituted a Special Leave to Appeal (Civil) No.5711/2007\nwhich was, however, dismissed by the Hon'ble Apex Court vide order dated\n16/7/2007, by observing that there were no merits.\n17. Accordingly, for the aforesaid reasons, we are unable to accept Ms. Linhares's\ncontention based upon the any alleged variance between the provisions of the said\nAct and the provisions of the Income Tax Act, in so far as applicability of the\nprinciples in GKN Driveshafts (India) Ltd. (supra) is concerned.\n18.\nThe moot question is, therefore, the disposal of the objections by the Assessing\nOfficer in his assessment order dated 26th March, 2004 constitutes sufficient\ncompliance with the procedure prescribed by the Hon'ble Supreme Court in the case\nof GKN Driveshafts (India) Ltd. (supra) or, whether it was necessary for the\nAssessing Officer to have first disposed of the Appellant's objections by passing a\nspeaking order and only upon communication of the same to the Appellants,\nproceeded to reopen the assessment for the Assessment Year 1997-98.\n19. Virtually, an identical issue arose in the cases of Bayer Material Science (P) Ltd.\n(supra) and KSS Petron Private Ltd. (supra) before the Division Benches of our High\nCourt at Bombay.\n20. In Bayer Material Science (P) Ltd. (supra), by a notice dated 6/2/2013, the\nRevenue sought to reopen the assessment in the year 2007-08. The Assessee filed a\nrevised return of income and sought for reasons recorded in support of the notice\ndated 6.2.2013. The reasons were furnished only on 19.3.2015. The Assessee lodged\nobjections to the reasons on 25th March, 2015. The Assessing Officer, without\ndisposing of the Petitioner's objections, made a draft assessment order dated 30th\nMarch, 2015, since this was a matter involving transfer pricing. In such\ncircumstances, the Division Bench of this Court, set aside the assessment order by\nobserving that the Court was unable to understand how the Assessing Officer could,\nat all, exercise the jurisdiction and enter upon an inquiry on the reopening notice\nbefore disposing of the objections on the reasons furnished to the Assessee. This Court\nheld that the proceedings initiated by the Transfer Pricing Officer (TPO), on the\nbasis of such a draft assessment order, were without jurisdiction and quashed the\nsame.\n21. Similarly, in the case of KSS Petron Private Ltd. (supra), this Court was\nconcerned with the following substantial question of law :\n“Whether on the facts and circumstances of the case and in law, the Tribunal\nwas justified in restoring the issue to the Assessing Officer after having\n17\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1752/Mum/2024\nI.T.A. No. 1970/Mum/2024\nquashed/set aside the order dated 14th December, 2009 passed by the\nAssessing Officer without having disposed of the objections filed by the\nappellant to the reasons recorded in support of the re-opening Notice dated\n28th March, 2008?\"\n22. In the aforesaid case, the Assessing Officer had purported to dispose of the\nobjections to the reasons in the assessment order, consequent upon reopening of the\nassessment. This Court, however, held that the proceedings for reopening of\nassessment prior to disposing of the Asessee's objections by passing a speaking order,\nwas an exercise in excess of jurisdiction.\n23. KSS Petron Private Ltd. (supra), this is what the Division Bench has observed at\nparagraphs 7 and 8 of the Judgment :\n“7. On further Appeal, the Tribunal passed the impugned order. By the\nimpugned order it held that the Assessing Officer was not justified in\nfinalizing the Assessment, without having first disposed of the objections of\nthe appellant. This impugned order holds the Assessing Officer is obliged to\ndo in terms of the Apex Court's decision in GKN Driveshafts (India) Ltd.,\nv/s. ITO 259 ITR 19. In the aforesaid circumstances, the order of the CIT(A)\nand the Assessing Officer were quashed and set aside. However, after having\nset aside the orders, it restored the Assessment to the Assessing Officer to\npass fresh order after disposing of the objections to reopening notice dated\n28th March, 2008, in accordance with law.\n8 We note that once the impugned order finds the Assessment Order is\nwithout jurisdiction as the law laid down by the Apex Court in GKN\nDriveshafts (supra) has not been followed, then there is no reason to restore\nthe issue to the Assessing Officer to pass a further/fresh order. If this is\npermitted, it would give a licence to the Assessing Officer to pass orders on\nreopening notice, without jurisdiction (without compliance of the law in\naccordance with the procedure), yet the only consequence, would be that in\nappeal, it would be restored to the Assessing Officer for fresh adjudication\nafter following the due procedure.\nThis would lead to unnecessary harassment of the Assessee by reviving stale/\nold matters.\"\n24. According to us, the rulings in Bayer Material Science (P) Ltd. (supra) and\nKSS Petron Private Ltd. (supra) afford a complete answer to the contentions raised\nby Ms. Linhares in defence of the impugned order.\n25. Since, in the present case, the Assessing Officer has purported to assume the\njurisdiction for reopening of the assessment, without having first disposed of the\nAssessee's objections to the reasons by passing a speaking order, following the law\nlaid down in GKN Driveshafts (India) Ltd. (supra), Bayer Material Science (P) Ltd.\n(supra) and KSS Petron Private Ltd. (supra), we are constrained to hold that such\nassumption of jurisdiction by the Assessing Officer was ultra vires Section 11 of the\n18\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1752/Mum/2024\nI.T.A. No. 1970/Mum/2024\nsaid Act. The first substantial question of law will, accordingly, have to be answered\nin favour of the Appellant and against the Respondent-Revenue.\n26. As noted earlier, in view of the aforesaid, there is no necessity to advert to the\nsecond substantial question of law, at least, in so far as this Appeal is concerned. The\nAppeal is, therefore, allowed and the impugned orders dated 26th March, 2004 made\nby the Assessing Officer, 30th November, 2004 made by the Commissioner (Appeals)\nand 12th January, 2007 made by the ITAT are set aside on the ground of want of\ncompliance with jurisdictional parameters by the Assessing Officer, and without\ngoing into the second substantial question of law framed in this Appeal. Accordingly,\nwe clarify that the second substantial question of law, raised in this Appeal, is not to\nbe treated as decided in this Appeal, one way or the other.”\n16. Considering the facts of the case in totality, in light of the\nprocedure laid down by the Hon'ble Supreme Court in the case of GKN\nDriveshafts (India) Ltd. [2003] 259 ITR 19 (SC), followed by the Hon'ble\nBombay High Court in three decisions mentioned hereinabove, we are\nof the considered opinion that the assessment order dated 30/03/2022\nframed u/s 147 r.w.s.144B of the Act is without jurisdiction and\ndeserves to be set aside. We accordingly set aside the impugned notice\nu/s 148 of the Act thereby setting aside the impugned assessment order.\nThe additional ground raised by the assessee is allowed. Since we have\nquashed the impugned notice u/s 148 of the Act, we do not find it\nnecessary to delve into the merits of the case.\n17.\nIn the result, appeal of the assesse is allowed and that of the\nrevenue is dismissed.\nOrder pronounced in the Court on 9th January, 2025 at Mumbai.\nSd/-\n(SUNIL KUMAR SINGH)\nJUDICIAL MEMBER\nMumbai, Dated 09/01/2025\n*SC SPS\nSd/-\n(NARENDRA KUMAR BILLAIYA)\nACCOUNTANT MEMBER\n19\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1752/Mum/2024\nI.T.A. No. 1970/Mum/2024\nआदेश की प्रतिलिपि अग्रेषित/