ACIT LTU 2 CHENNAI, CHENNAI vs. WHEELS INDIA LIMITED, CHENNAI

आयकर अपीलीय अिधकरण ‘बी’ �ायपीठ चे�ई म�। IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI

माननीय +ी मनोज कुमार अ/वाल ,लेखा सद4 एवं माननीय +ी संजय सरमा, �ाियक सद4 के सम7। BEFORE HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM AND HON’BLE SHRI SONJOY SARMA, JUDICIAL MEMBER

आयकर अपील सं./ ITA No.2770/Chny/2019 (िनधा@रण वष@ / Assessment Year: 2011-12) बनाम M/s. Wheels India Ltd. ACIT Padi, Chennai 600 050. Large Taxpayer Unit-1, Chennai. / Vs. �थायी लेखा सं./जीआइ आर सं./PAN/GIR No. AAACW-0315-K (अपीलाथ�/Appellant) : (��थ� / Respondent) & आयकर अपील सं./ ITA No.2700/Chny/2019 (िनधा@रण वष@ / Assessment Year: 2011-12) ACIT M/s. Wheels India Ltd., बनाम Large Taxpayer Unit-2, No.21, Pattulos Road, / Vs. Chennai. Padi, Chennai 600 002. �थायी लेखा सं./जीआइ आर सं./PAN/GIR No. AAACW-0315-K (अपीलाथ�/Appellant) : (��थ� / Respondent) अपीलाथ� की ओरसे/ Assessee by : Shri Vikram Vijayaraghavan (Advocate)-Ld. AR ��थ� की ओरसे/Revenue by : Ms. M.S. Deeptha (JCIT) – Ld. Sr. DR सुनवाई की तारीख/Date of Hearing : 23-08-2022 घोषणा की तारीख /Date of Pronouncement : 07-09-2022 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid cross-appeals for Assessment Year (AY) 2011-12 arises out of the order of learned Commissioner of Income Tax (Appeals)-9, Chennai [CIT(A)] dated 30-07-2019 in the matter of an

assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) r.w.s. 147 of the Act on 28-03-2016. The grounds raised by the assessee read as under: 1. The order of the Commissioner of Income tax (Appeals) is contrary to law, facts and circumstances of the case. 2 The Commissioner of Income tax (Appeals) ought to have appreciated that all the facts were available before the Assessing Officer at the time of original assessment under Section 143(3) and hence reopening arises only due to change of opinion and not on account of concealment of any particulars by the Appellant, hence the order is to be quashed as being without jurisdiction. 2.1 The Commissioner of Income tax (Appeals) ought to have appreciated that reassessment can be resorted to only when there is reason to believe that an income had escaped due to the fact that the assessee had concealed or provided inaccurate particulars. 2.2 The Appellant submits that reopening within 4 years on the same set of facts and without any tangible material would amount to mere change of opinion. The re- assessment proceedings cannot be initiated by the AO when he has already considered the matter in the original assessment, therefore, indicating a mere change of opinion. 2.3 The Appellant submits that the principle that there must be tangible material on the basis of which an assessment is sought to be re-opened even within a period of four years is now well established by the judgment of the Hon'ble Supreme Court in CIT v. Kelvinator 320 ITR 561 (SC). 2.4 The Commissioner of Income tax (Appeals) ought to have appreciated that the DCIT had disallowed an expense which was not recorded in the reason for reopening the assessment. 3. Without prejudice to the above, The Commissioner of Income tax (Appeals) erred in confirming that the amount of realized foreign exchange loss arising at the time of repayment of foreign currency loan borrowed for the purpose of procuring indigenous assets, which was incurred after the date on which such assets were put to use, was capital expenditure. 3. 1 The Commissioner of Income tax (Appeals) ought to have appreciated that the need to capitalize the foreign exchange loss u/s 43A arises only for imported machineries and is not applicable for assets procured indigenously 3.2 The Commissioner of Income tax (Appeals) ought to have appreciated that the foreign exchange loss arose at the time of repayment of loan and was actually paid 3.3 Without prejudice to our above contention, the Commissioner of Income tax (Appeals) ought to have held that additional depreciation was allowable. 4. The Appellant craves leave to adduce additional evidence at the time of hearing.

The grounds taken by the Revenue read as under: 1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case. 2. The learned CIT(A) has erred and directed the AO to delete the disallowance made u/s 14A or otherwise the disallowance if any, must be restricted to the earning of exempt income.

As evident, the common issue in cross-appeal is disallowance of loss on repayment of foreign currency loans. The revenue is also aggrieved by deletion of disallowance u/s 14A. The assessee has assailed the reassessment proceedings on legal grounds. 2. The assessee, vide petition dated 07.03.2022, seek admission of additional grounds of appeal. By way of this petition, the assessee seeks deduction in respect of export benefits. It has been submitted that the assessee has received certain subsidies from government which would not be capital receipt and therefore, the same is not taxable. The assessee also seeks deduction of face value of DEPB license while computing the gains arising from sale of DEPB license. We find that all these are claim are altogether new claims which could not be admitted at this stage of proceedings. These claims are factual matters, the necessary facts which are not available either in the return of income or in the orders of lower authorities. For the same, we place reliance on the decision of Hon’ble Supreme Court in the case of CIT V/s Sun Engineering Private Ltd. (198 ITR 297) wherein it was held as under: - 38. Although, section 147 is part of a taxing statute, it imposes no charge on the subject but deals merely with the machinery of assessment and in interpreting a provision of that kind, the rule is that construction should be preferred which makes the machinery workable. Since the proceedings under section 147 are for the benefit of the revenue and not an assessee and are aimed at garnering the 'escaped income' of an assessee, the same cannot be allowed to be converted as 'revisional' or 'review' proceedings at the instance of the assessee, thereby making the machinery unworkable. 39. As a result of the aforesaid discussion we find that in proceedings under section 147 the ITO may bring to charge items of income which had escaped

assessment other than or in addition to that item or items which have led to the issuance of notice under section 148 and where reassessment is made under section 147 in respect of income which has escaped tax, the ITO's jurisdiction is confined to only such income which has escaped tax or has been under-assessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings. It is only the under-assessment which is set aside and not the entire assessment when reassessment proceedings are initiated. The ITO cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject matter of proceedings under section 147. An assessee cannot resist validly initiated reassessment proceedings under this section merely by showing that other income which had been assessed originally was at too high a figure except in cases under section 152(2). The words 'such income' in section 147 clearly refer to the income which is chargeable to tax but has 'escaped assessment' and the ITO's jurisdiction under the section is confined only to such income which has escaped assessment. It does not extend to reconsidering generally the concluded earlier assessment. Claims which have been disallowed in the original assessment proceeding cannot be permitted to be reagitated on the assessment being reopened for bringing to tax certain income which had escaped assessment because the controversy on reassessment is confined to matters which are relevant only in respect of the income which had not been brought to tax during the course of the original assessment. A matter not agitated in the concluded original assessment proceedings also cannot be permitted to be agitated in the reassessment proceedings unless relatable to the item sought to be taxed as 'escaped income'. Indeed, in the reassessment proceedings for bringing to tax items which had escaped assessment, it would be open to an assessee to put forward claims for deduction of any expenditure in respect of that income or the non-taxability of the items at all. Keeping in view the object and purpose of the proceedings under section 147 which are for the benefit of the revenue and not an assessee, an assessee cannot be permitted to convert the reassessment proceedings as his appeal or revision, in disguise, and seek relief in respect of items earlier rejected or claim relief in respect of items not claimed in the original assessment proceedings, unless relatable to 'escaped income', and reagitate the concluded matters. Even in cases where the claims of the assessee during the course of reassessment proceedings related to the escaped assessment are accepted, still the allowance of such claims has to be limited to the extent to which they reduce the income to that originally assessed. The income for purposes of 'reassessment' cannot be reduced beyond the income originally assessed. 40. It would be seen that whereas in the case of Anglo French Textile Co. Ltd. (supra) the question as to the rights of an assessee to claim 'redoing', 'revising' or 'recomputing' entire income during the reassessment proceedings was left open, that question did not come up for consideration in the case of H.R. Shri Ramulu ( supra) or H.M. Esufali H.M. Abdulahi (supra) or even in V. Jaganmohan Rao's case (supra). Some of the High Courts, therefore, fell in error in reading those judgments, divorced from the context in which the precise questions came up for consideration in those cases, and to hold that the assessee could 'reagitate' the concluded issues and claim relief in respect of items, finally concluded in the original assessment proceedings, during the reassessment proceedings, unconnected with the escapement of income. We cannot, therefore, approve in

broad propositions laid in that regard in Indian Refrigeration Industries (P.) Ltd.'s case (supra), Ramsevak Paul's case (supra ), Assam Oil Co. Ltd.'s case (supra), Standard Motor Products of India Ltd.'s case (supra), Rangnath Bangur's case (supra), State Bank of Hyderabad's case (supra) and Indian Rare Earth Ltd.'s case (supra). 41. Keeping in view the above principles, we may now turn our attention to the question formulated by the High Court as noticed in the earlier part of the judgment. 42. The Tribunal rightly found that the loss which the assessee wanted to be set off against the 'escaped income' could not be allowed to be so set off because in the original assessment proceedings, no 'set off' was claimed or permitted and the original assessment had acquired finality when the appeal against the order of assessment failed before the AAC and the assessee took no further steps to agitate the issue. The Tribunal was also right in concluding that the items which the assessee wanted to be taken into account in the proceedings under section 147 were unconnected with the escapement of income. The High Court clearly fell in error in holding otherwise. Since the original assessment had been concluded finally against the assessee, it was not permissible for the assessee in the reassessment proceedings to seek a review/revision of the concluded assessment for the purpose of computation of the escaped income. The High Court clearly fell in error by permitting the assessee to reagitate, in the reassessment proceedings under section 147(a), the finally concluded assessment proceedings and to grant to him relief in respect of items not only earlier rejected, but also unconnected with the escapement of income by assuming as if the original assessment had not been concluded or was 'still open'. 43. Therefore, our answer to the question formulated by the High Court and noticed in the earlier part of this judgment is that in the reassessment proceedings it is not open to an assessee to seek a review of the concluded item, unconnected with the escapement of income, for the purpose of computation of the escaped income. 44. The appeals, consequently, succeed and are allowed. The orders of the High Court are set aside and those of the Tribunal restored. Since the assessee had not put in any appearance, there shall be no order as to costs.

It has clearly been held by Hon’ble Court that that the proceedings u/s 147 are for the benefit of the revenue and not for the benefit of an assessee and are aimed at garnering the 'escaped income' of an assessee. These proceedings could not be allowed to be converted as 'revisional' or 'review' proceedings at the instance of the assessee, thereby making the machinery unworkable. Therefore, in such proceedings u/s 147, AO could bring to charge items of income which had escaped assessment other than or in addition to that item or items

- 6 - which have led to the issuance of notice under section 148 and where reassessment is made under section 147 in respect of income which has escaped tax, the AO’s jurisdiction is confined to only such income which has escaped tax or has been under-assessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings. It is only the under- assessment which is set aside and not the entire assessment when reassessment proceedings are initiated. The AO cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject matter of proceedings under section 147. An assessee cannot resist validly initiated reassessment proceedings under this section merely by showing that other income which had been assessed originally was at too high a figure except in cases under section 152(2). The words 'such income' in section 147 clearly refer to the income which is chargeable to tax but has 'escaped assessment' and the AO’s jurisdiction under the section is confined only to such income which has escaped assessment. It does not extend to reconsidering generally the concluded earlier assessment. Claims which have been disallowed in the original assessment proceeding cannot be permitted to be reagitated on the assessment being reopened for bringing to tax certain income which had escaped assessment because the controversy on reassessment is confined to matters which are relevant only in respect of the income which had not been brought to tax during the course of the original assessment. A matter not agitated in the concluded original assessment proceedings also cannot be permitted to be agitated in the

- 7 - reassessment proceedings unless relatable to the item sought to be taxed as 'escaped income'. Indeed, in the reassessment proceedings for bringing to tax items which had escaped assessment, it would be open to an assessee to put forward claims for deduction of any expenditure in respect of that income or the non-taxability of the items at all. Keeping in view the object and purpose of the proceedings under section 147 which are for the benefit of the revenue and not an assessee, an assessee cannot be permitted to convert the reassessment proceedings as his appeal or revision, in disguise, and seek relief in respect of items earlier rejected or claim relief in respect of items not claimed in the original assessment proceedings, unless relatable to 'escaped income', and reagitate the concluded matters. Even in cases where the claims of the assessee during the course of reassessment proceedings related to the escaped assessment are accepted, still the allowance of such claims has to be limited to the extent to which they reduce the income to that originally assessed. The income for purposes of 'reassessment' cannot be reduced beyond the income originally assessed. Respectfully following the ratio of this decision, the additional grounds as urged by the assessee qua altogether new claim are not admitted. 3. So far as the issues arising out of cross-appeals are concerned, the same are adjudicated as under. 4. The material facts are that the assessee was assessed for the year u/s. 143(3) of the Act on 07-03-2014. However, the case was reopened and a notice u/s. 148 of the Act was issued on 26-03-2015. The reasons of reopening were communicated to the assessee and the assessee’s objections thereto was disposed-off vide communication

- 8 - dated 21.09.2015. The reopening was done to make disallowance u/s 14A and to add back realized loss on foreign currency loans taken to acquire indigenous capital goods. 5. Disallowance u/s. 14A of the Act: 5.1 Since the assessee had made investments in mutual funds and equity shares, Ld. AO proceeded to computed disallowance u/s 14A. The assessee submitted that in the absence of any exempt income, no such disallowance could have been made. However, rejecting the plea of the assessee, Ld. AO computed disallowance of Rs.115.16 Lacs as per Rule 8D. The Ld. CIT(A) directed Ld. AO to delete the disallowance after verifying the fact that the assessee did not earn any exempt income during the year. Aggrieved, the revenue is in further appeal before us. 5.2 From the facts, it appears that the assessee has not earned any exempt income during the year and therefore, disallowance u/s 14A would not be attracted as held by Hon’ble High Court of Madras in Redington (India) Ltd. V/s Addl. CIT(77 Taxmann.com 257). Therefore, no interference is required in the impugned order, on this issue. The grounds urged by the revenue stand dismissed. 6. Realized loss on foreign currency loans: 6.1 The assessee claimed deduction of Rs.73.62 Lacs in the computation statement which represent realized loss on exchange fluctuation at the time of repayment of foreign currency loans borrowed for acquiring indigenous capital goods. The Ld. AO held that since the loan was incurred in connection with acquisition of capital goods, the loss could not be allowed as revenue expenditure as held by Hon’ble

- 9 - Supreme Court in the case of ACIT V/s Elecon Engineering Co. Ltd. (189 Taxman 83). 6.2 The assessee submitted that the provisions of Sec.43A would not apply since the assessee has not acquired any assets from a country outside India. To acquire the assets indigenously, loan was taken in foreign currency. In the alternative, the assessee pleaded to allow depreciation on the same. 6.3 The Ld. AO rejected the plea of the assessee on the ground that foreign exchange expenses were to be capitalized if it was incurred to acquire fixed assets whether indigenous or imported. The alternative plea of depreciation was also rejected and the amount of Rs.73.62 Lacs was added to the income of the assessee. 6.4 The Ld. CIT(A) concurred that the provisions of Sec.43A are only in the context of asset acquired outside India and therefore, the same would not apply to the case of the assessee. Still the disallowance was sustained with a direction to Ld. AO to allow depreciation in accordance with law. This adjudication form subject-matter of cross- appeal before us. 6.5 After going through the factual matrix, it is undisputed position that the assessee has acquired the assets indigenously and accordingly, the provisions of Sec.43A would not apply. The adjudication of Ld. CIT(A) is correct to that extent. 6.6 Proceeding further, it appears that the assessee is claiming this loss separately in the computation of income and not debiting the same in the books of accounts. We are of the considered opinion that the losses / expenses incurred after installation of fixed assets would be revenue in nature whereas losses / expenses incurred before

- 10 - installation would have to be capitalized along with fixed assets. From the submissions, it could be gathered that the assets have been acquired in earlier years. However, the assessee is not debiting any expenditure in the Profit & Loss Account but claiming the same as separate item in the computation of income. Therefore, it would be vital to see that similar accounting methodology has been adopted by the assessee in all the years and similar gains, if any, earned by the assessee, have been offered to tax in computation of income in other years. It would also be vital to ascertain that at the time of liquidation of loans, how these losses as claimed as separate deduction have been adjusted in the books of accounts. The assessee could not be allowed double deduction i.e., as a separate item at year-end and again at the time of liquidation of loans. Therefore, the issue as adjudicated in impugned order is set-aside and restored back to the file of Ld. AO to ascertain the correct factual matrix in the light of these observations and adjudicate the issue afresh after affording opportunity of hearing to the assessee. The assessee, in turn, is directed to substantiate its claim. The grounds of cross-appeals stand allowed for statistical purposes. 7. In ground nos. 1 to 2.4, the assessee has challenged the validity of reassessment proceedings. However, no such arguments have been made before us in support of these grounds. Therefore, concurring with the adjudication of Ld. CIT(A) in the impugned order, the same stand dismissed.

- 11 - 8. The appeal of the assessee as well as the appeal of the revenue stands partly allowed for statistical purposes.

Order pronounced on 07th September, 2022.

Sd/- Sd/- (SONJOY SARMA) (MANOJ KUMAR AGGARWAL) �ाियक सद4 /JUDICIAL MEMBER लेखा सद4 / ACCOUNTANT MEMBER चे,ई / Chennai; िदनांक / Dated : 07-09-2022 EDN/- आदेश की Vितिलिप अ/ेिषत/Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� (अपील)/CIT(A) 4. आयकर आयु�/CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF