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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI G. MANJUNATHA & SHRI. ANIKESH BANERJEE
आदेश /O R D E R
PER ANIKESH BANERJEE, JUDICIAL MEMBER:
The present appeal was filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals), Chennai [in brevity ‘Ld CIT(A)] bearing order no. dated 19.06.2017 for assessment year 2009-10.
:-2-: ITA. No: 2090/Chny/2017 2. The Revenue has filed the grounds which are extracted as under: “ 1. The order of the learned CIT(A) is contrary to law, facts and circumstances of the case.
The CIT(A) erred in quashing the assessment completed u/s.147 without adjudicating on the merits of the issues raised in reopened assessment. 2.1 The CIT(A) failed to appreciate that the AO had reopened the assessment based on the fresh inf8rmation in the C&AG's report received subsequent to the passing of the original assessment u/s.143(3) and therefore, the reopening is very much valid and tenable in law. 2.2 The CIT(A) erred in holding that the reopening of assessment u/s.147 was on account of change of opinion on the issue considered in the assessment completed u/s.143(3). 2.3 The CIT(A) failed to appreciate that no opinion on the issue was given by the AO while completing the assessment u/s.143(3) and therefore, reopening u/s.147 could not be held to be made on account of change of Opinion. 2.4 The CIT(A) failed to appreciate that on a similar issue, the jurisdictional Tribunal had held in the case M/s. Chennai Petroleum Corporation Ltd Vs. DCIT in that since there is no opinion was formed at the time of regular assessment u/s.143(3) of the Act and the assessee has filed objections to reopening of the Act and ld. Assessing Officer considered the objection of the assessee on the reopening of assessment, the reopening of the assessment is valid.
3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the ld.CIT(A) may be set-aside, and that of the Assessing Officer is restored.”
Prelude: 3.1 The assessee company is a public limited company and filed its return of income for assessment year 2009-10 on 30.09.2009 admitting total income at Rs. 99.96 crores. The revised return of income was filed on 04.09.2010 to claim the credit for additional TDS without any change of the total income. The case was selected :-3-: ITA. No: 2090/Chny/2017 for scrutiny and order u/s. 143(3) of the Income Tax Act, 1961 (in brevity ‘the Act’) was passed on 21.12.2011, declaring total income of Rs. 109.13 crores.
3.2 The notice u/s. 148 for reopening of the assessment u/s. 147 of the Act was issued on 25.03.2015. The reasons behind is that the assessee is adjusted an amount of Rs. 323.53 crores in the security premium account adjusted against various provisions made during the years towards diminution in the value of investments/write off of loss assets. The following adjustments were made: (i) Provision for standard assets Rs. 200.00 crores (ii) Loss of bad debts/loan losses Rs. 100.00 crores (iii)Provision for diminution in the value Investments Rs. 23.53 crores Total Rs. 323.53 crores The amount was adjusted during the calculation of computation under sub section 2 of section 115JB of the Act. On the other hand, the amount was taken in the Revenue account as transferred from securities premium account which was credited in the P&L account. So, there is no effect in the net profit.
:-4-: ITA. No: 2090/Chny/2017 4. After keeping view in the notice u/s. 148 of the Act, the assessee filed a reply dated 02.06.2015 requesting the Ld. Assessing Officer (in brevity ‘the AO’) to treat the return of income filed on 04.09.2010 as return filed as receipts u/s. 148 of the Act. The company gave details of objections to the re-opening of assessment vide order dated 11.03.2016. The Ld. AO vide his order dated 14.03.2016 rejected the objections raised by the assessee. The Ld. AO ignored the objections of the assessee and passed the assessment order on 29.03.2016 which was received by the assessee on 04.04.2016.
4.1 In the order of assessment, the AO added Rs. 323.53 crores being an amount in security premium account adjusted against the various provisions made during the year towards diminution/investment of loss assets write off. The provision for write off and the amount of security premium account against which it was adjusted and reflected in the P&L account by way of presentation. The Ld. AO added this amount to the income assessed under normal provisions of section as well as P&L account computation u/s. 115JB of the Act.
:-5-: ITA. No: 2090/Chny/2017 5. The Ld. AO has re-opened the assessment u/s. 147 of the Act on the basis of the report of the Centralized Audit Unit, CAG. But later on, the Ministry has rejected the report as reported by the CAG. As per the report of the CAG, it is mentioned that the transfer from the share premium account to P&L account as resulted to conversion of the capital receipts into Revenue receipts as credit to the P&L account reduced from statement of income. The main object of the CAG is that the assessee cannot take a different stand one in the Income Tax purpose and another for the book purpose i.e., treating it as capital receipts for the Income Tax purpose and crediting it to P&L account for the book purpose. The objection raised by the CAG was amply replied by the Income Tax Department and they had clearly identified that it was only the presentation and only because the High Court had ordered for such entries routed through, the same was included in P&L account. Therefore, the amount transferred from capital account as per directions of Hon’ble High Court will not become Revenue. The report of the CAG has merely taken the facts already disclosed at the time of assessment and had come to a different conclusion. This is nothing but a mere change of opinion.
:-6-: ITA. No: 2090/Chny/2017 6. The assessee had made its adjustments as per the directions of the Hon’ble Jurisdictional High Court and routed this adjustments through P&L accounts and adjusted this amount by deducting from computation u/s. 115JB of the Act.
The assessee in his tax audit report’s discussed the issue and the copy of the extract of Auditor’s report dated 18.05.2009 was enclosed in the volume 4 page no. 16 of the paper book of the assessee which reads as under: “4. Without qualifying our report, we invite attention to Note 2 of Schedule 18 on capital reduction regarding utilization / adjustment / set off of the Securities Premium Account towards creation of Provision for Standard Assets for an amount of Rs.20,000 lakhs, adjustment of write off of the bad debts / loan losses and other non-recoverable assets for an amoiun of Rs.10,000 lakhs and setting off of the provision for diminution, other than temporary, in the value of investments of the Company in one of its subsidiaries, M/s. DBS Cholamandalam Distribution Limited, amounting to Rs.2,353 lakhs, by withdrawal of such sums from the Securities Premium Account to the Profit and Loss Account of the Company, made in accordance with the Capital Reduction Proposal under Sections 78, 100 to 103 of the Companies Act,1956 and confirmed by the Hon. High Court of Judicature at Madras on April 29, 2009 whose Order and minute dated April 20, 2009 was registered with the Registrar of Companies, Chennai on April 30, 2009. This is not in accordance with the Accounting Standards referred to in section 211 (3C) of the companies Act, 1956 and the relevant Pronouncements of the Institute of Chartered Accountants of India.”
The findings of the Ld. AO took in the assessment order u/s. 143(3)/147 of the Act dated 29.03.2016 which read as under:
:-7-: ITA. No: 2090/Chny/2017 “10.3 Thus the assessee company computation of reducing the provision for standard assets Rs. 200 crore and loss assets written off Rs.100 crores was not as per the provision of Section 115JB of Income Tax Act 1961, which is a code by itself. The Hon'ble Supreme Court in the landmark judgment of Apollo Tyres Ltd. vs. CIT, reported in 122 Taxman 562 has held that the AO while computing the income under Section 115J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The A.O. thereafter has limited power of making additions and reductions as provided for in the Explanation to the said section. To put it differently, the A.O. does not have the jurisdiction to go behind the net profit shown in the P&L account except to the I extent provided in the Explanation to Section 115J.This principle is applicable to the assessee as well hence the assessee company can't make any addition or deduction other than what is furnished in the explanation to section 115 JB. Hence, Rs. 323,53,00,000/- is considered as unascertainable provisions / loss and added back to the income under MAT provision, Further the other additions made (subject to the Direction of the Ld. CIT (A)) vide order dated 2H2.2011 holds good for the reason said in the said order.”
After the order of the Ld. AO, the assessee filed an appeal before the ld. CIT(A). The Ld. CIT(A) passed an order and the order of the ld. CIT(A) read as follows: “4. I have carefully gone through the facts in issue, submissions made by the appellant and material on record. As may be seen the assessment proceedings u/s.143(3) r.w.s. 147 have been objected to and challenged on the grounds of, both, assumption of jurisdiction u/s.148 r.w.s.147 as also on merits. For the sake of convenience, the issue with regard to jurisdiction is taken up first. 5. The appellant has highlighted the issues mentioned hereinafter with regard to the assumption of jurisdiction by the AO. That all material facts were fully and truly disclosed in respect of adjustment of Rs.323.53 crores from the share premium account which apparently is the basis for re-opening of the impugned assessment. (i) The re-opening has been made merely on change of opinion that the amount of Rs.323.53 crores was revenue in nature even though the earlier finding is that it was :-8-: ITA. No: 2090/Chny/2017 capital in nature and was credited to the P & L account only as per the directions of the Madras High Court. (ii) The re-assessment has arisen only because of certain observations by the CAG who mentioned in the draft report to the IT authorities that transfer from share premium account to the P & L account has resulted in conversion of capital receipt into revenue receipt and the credit to the P & L account was reduced from the statement of income. (iii)The reply / response of the Department to the C & AG dated 10.06.2015 stating that the objection raised has not been accepted by the Ministry and that the objection raised may be treated as settled itself vindicates the appellant's stand. (iv)The re-opening of assessment was made only to satisfy the C & AG and there was no iota of satisfaction of the AO with regard to income having escaped assessment. (v) The re-opening has been made merely on assumption and surmises without specifically pointing out as to what was not disclosed by the appellant in its return filed originally on the basis of which assessment was made u/s.143(3) which is sought to be re-opened now.”
The Ld. CIT(A) has rejected the order of the Ld. AO on the basis of the re-opening u/s. 148 of the Act. The Revenue filed an appeal against the order of the ld. CIT(A) before us for further adjudication.
During the hearing, the Ld. Departmental Representative (in brevity ‘the DR’) vehemently argued and submitted the written submissions following the judgments of the Hon’ble Apex Court which are as follows: (i) CIT vs P.V.S. Beedies (P) Ltd reported in [1999] 103 Taxman 294 :-9-: ITA. No: 2090/Chny/2017 (ii) Claggett Brachi Co. Ltd vs CIT reported in [1989] 44 Taxman 186 (iii) CIT vs First Leasing Co. of India Ltd reported in [2001] 118 Taxman 181. As per the Ld. DR, the Ld. AO has correctly re-opened after receiving the report from the CAG and the assessee cannot be adjusted this amount during computation u/s. 115JB of the Act.
The Ld. Counsel of the assessee argued on that issue and mentioned that the assessment was made provisions u/s. 143(3) of the Act. The documents with audit report were filed before the Ld. AO. The re-opening u/s. 148 of the Act is nothing but a change of opinion and no tangible material was found during the re-opening u/s. 148 of the Act. He further told that there is no failure on the part of the assessee to disclose fully and truly all material facts necessary in its assessment so there is no reason to believe that income has escaped assessment.
As per the ld. Counsel of the assessee, adjustments on security premium account was made as per the order of the Hon’ble High Court of Madras order bearing no CP.No. 3/2009 dated 20.04.2009.
:-10-: ITA. No: 2090/Chny/2017 14. In relation to re-opening u/s. 148 of the Act, the counsel of the assessee filed the following judgments: (i) Cholamandalam Investments and Finance Company Ltd vs ACIT W.O. No 19375 of 2017 dated 12.12.2017 (ii) IL & FS Investment Managers Ltd vs ITO & ORS WP No. 2703 of 2006 dated 27.11.2006 (2008) 298 ITR 032 (iii) N.K. Proteins Ltd vs. ITO (OSD) SCA No. 24746 of 2006 dated 20.09.2016, (2016) 389 ITR 541 (Guj) (iv) Grasim Industries Ltd vs DCIT WP No. 3068 of 2019 dated 07.12.2021 (v) CIT vs Mettur Chemical & Industrial Corporation Tax Case No. 139 of 1984 dated 10.02.1998 (2000) 242 ITR 119 (mad) (vi) Cadila Healthcare Ltd vs ACIT SCA No. 15566 of 2011 (2013) 355 ITR 393 (Guj) (vii) TTK Prestige Ltd vs DCIT WP No. 30388/2015 dated 10.08.2018 (2018) 304 CTR 689 (Kar) (vii) Avtec Limited vs DCIT WP(C) 1874/2014 dated 16.12.2014 (2015) 370 ITR 611 (Del) (viii) Jagat Jayantilal Parikh vs DCIT Civil No. 16062 of 2012 dated 28.02.2013 (2015) 355 ITR 400 (Guj)
We heard both the parties. The assessee adjusted the security premium by reduction of capital. In one hand, the credit was made :-11-: ITA. No: 2090/Chny/2017 in P&L account and on the other hand amount was adjusted during computation of income u/s. 115JB of the Act. There is no affect in the P&L account during computation of the net profit. The issue was already disclosed in the tax audit report and as well as computation u/s. 115JB of the Act. During the assessment u/s. 143(3), the AO never pointed out the issue as escapement of income. The re- opening was made as per the report of the CAG. So, there is no tangible material to the ld. AO for permission of reasonable believe for escapement of income. The different Apex Court pointed out that the audit report cannot be the basis for re-opening u/s. 148 of the Act. Further, there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for this assessment. There is no reason to believe that the income has escaped assessment during the year. The Petitioner statement that all said withdrawals from security premium account consequent to the aforesaid proposal will be utilized for the adjustments set up prescribed above. The issue was already discussed in the financial statement for the financial year 2008-09 and which was came to the purview of the ld. AO. The re-opening is nothing but a mere change of opinion of the Ld. AO during formation of belief for re-opening, Pr CIT, Non-Corporate Cir.2(1)/Chennai vs M.R.Narayanan, [2021] 131 taxmann.com 280 (Madras). As a result, all the :-12-: ITA. No: 2090/Chny/2017 grounds of the Revenue are rejected in relation to the re-opening u/s. 148 of the Act.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the court on 16th March, 2022 at Chennai.