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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: HON’BLE JUSTICE SHRI P.P.BHATT & SHRI G.S. PANNU
The captioned appeal filed by the Assessee pertaining to Assessment Year 2010-2011 is directed against an order passed by CIT(A)-52, Mumbai dated 30.11.2015, which in turn arises out of an order passed by the Assessing Officer under Section 143(3) r.w.s 147 of the Income Tax Act, 1961 (in short „the Act‟) dated 27.3.2014.
The assessee has raised the following ground of appeal: “1. The Ld. Commissioner of Income-Tax (Appeals) has erred in law and in facts in confirming assessment order passed u/s. 143(3) r.w.s. 147 of the Act dated 27.03.2014.
2. The Ld. Commissioner of Income-Tax (Appeals) has erred in law and in facts in confirming the disallowance of interest expenditure amounting to Rs.11,75,62,498/-.
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3. The Ld. Commissioner of Income-Tax (Appeals) has erred in law and in facts in confirming the estimated addition on account of personal household expenses at Rs.3,00,000/-.
4. The Ld. Commissioner of Income-Tax (Appeals) has erred in law and in facts that in confirming the levy of interest u/s. 234A, 234B and 234C of the Act. 5. The Ld. Commissioner of Income-tax (Appeals) has erred in law and in facts in not appreciating that the income assessed in the hands of the appellant were subjected to the provisions of TDS and hence on the said amount of tax no interest can be computed u/s. 234B and 234C of the Act. “
Thereafter, during the pendency of appeal, the assessee has filed additional grounds of appeal as under:
“1. Whether in facts and circumstances of the case, the AO and ld CIT(A) ought to have granted capitalisation of interest expenses attributable to shares and securities which is not allowable u/s.57(iii) of the Act. 2. The ld CIT(A) has erred in law and in facts in not appreciating that the assessment reopened u/s 147 of the Act was invalid and bad in law.”
At the outset, Learned Authorised Representative of the assessee prayed to admit the Additional Grounds of appeal as the same goes to the root of the case. For this proposition, he relied on the decision of Hon‟ble Supreme Court in the case of National Thermal Power Corporation vs CIT, 229 ITR 383 (SC) and other several decisions of Hon‟ble Supreme Court and Hon‟ble High Courts.
5. On the other hand, ld D.R. did not seriously oppose the admission of Additional Grounds, but submitted that these Grounds were not raised before any of the lower authorities.
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We have heard the rival submissions and perused the record of the case. We find that the Additional Grounds raised by the assessee involve a point of law where the relevant facts are on record, and go to the root of the matter and, therefore, in view of the decision of Hon‟ble Supreme Court in the case of National Thermal Power Corporation (supra) and in the interest of substantial justice, we admit the Additional Grounds of appeal and the parties were allowed to argue the appeal on merits of the case.
Ld. Authorised Representative of the assessee first of all argued that the reopening of assessment under section 147 of the Act is bad in law and invalid.
The facts of the case are that the assessee belongs to Harshad Mehta Group and was notified under the Special Court (Trial of offences relating to transactions in Securities) Act, 1962. The Assessing officer observed that the assessee did not file the return of income in time for the year under consideration as provided u/s.139(1) of the Act. Therefore, the Assessing officer issued notice u/s.148 of the Act on 6.10.2012 calling for return of income after recording the following reasons:
“The assessee is a member of the Harshad S Mehta Group and is notified under the Special Court (TORTS) Act, 1992. The assets of the assessee are under attachment as per the order of the Hon‟ble Special Court. The scrutiny assessments of the assessee completed by this office till date, have resulted in large sums of additions to the returned income and thereby creation of a large demands, running into crores of Indian rupees. Some of the issues on which the additions were made have even stood the test of appeal. In recent assessments completed, the interest expenses have been disallowed and income assessed has been far more than the income return.
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The assessee has not filed his return of income for the year under consideration. Considering the past record of the assessee income from the attached assets, there is bound to be income from the attached assets. The assets under attachment are earning taxable interest income, as in all the years. There is certainty that there is taxable income of the assessee. Further the assessee is following this practice of not filing the return, despite having taxable income since last few years and the income tax department had to resort to section 148 to tax this escaped income. I, therefore have a reason to believe within the meaning of the section 147 of the Income Tax Act, 1961 that the assessee has not filed his return of income to avoid the additions made in the past, which might be of the recurring nature. Therefore- there is 'income chargeable to tax' escaping assessment to that extent. The default lies on the part of the assessee because he has not filed his return of income. In order to assess the correct income of the assessee, action under section 147 is being taken and the assessee is directed to file his return within the prescribed time period. Notice u/s 148 of the Income Tax Act, 1961 is issued to the assessee.”
In response to said notice, the assessee filed a letter dated 25.11.2013 stating that the returned filed on 31.3.2011 may be treated as return u/s.148 of the Act. During the course of assessment proceeding, the assessee filed a revised computation of income. On perusal of the same, the Assessing Officer noticed that in the revised computation of income, the assessee did not offer interest income of Rs.6,06,29,340/-, which was offered in the return of income. The Assessing Officer noted that the assessee had shown business loss of Rs.1,75,23,793/-, after claiming various expenses, including interest payable to Canfina amounting to Rs.1,75,00,000/- and demat charges of Rs.21,391/-. The Assessing Officer observed that the loan in respect of which interest of Rs.1,75,00,000/- is payable to Canfina had been utilized by the assessee for purchase of shares and securities and that 5 421/Mum/2016 A.Y. 2010-11 during the year, the assessee had earned dividend income exempt from tax amounting to Rs.49,07,089/- on such investments. Therefore, he disallowed the entire expenditure of Rs.1,75,00,000/-, in terms of the provisions of Sec.14A read with Rule 8D(i). Further, the Assessing Officer disallowed de-mat charges of Rs.21,391/- also u/s.14A, in view of dividend income claimed exempt. Thus, the Assessing Officer assessed the business loss at Rs.45,184/-, as against Rs.1,75,23,793/- claimed by the assessee. Further, the Assessing Officer noted that in the Income & Expenditure Account, the assessee has shown the interest income on Term Deposits/Fixed Deposits at Rs,2,07,51,162/- and interest on loan receivable at Rs.6,06,29,340/- {totaling to Rs.8,13,80,502/-) and has claimed interest expenditure of Rs.6,39,29,064/- against the same. He disallowed assessee's claim of deduction for interest on loans amounting to Rs.6,39,29,064/-, payable to group concerns, observing that the liability was only a contingent liability. Accordingly, he assessed the entire interest income of Rs.8,13,80,502/-. Besides, the Assessing Officer also added an of Rs.12,00,000/- u/s. 69C of the Act, towards personal household expenses. Finally, the Assessing Officer completed the assessment u/s.143(3) r.w.s 147 of the Income Tax Act, 1961 on 27.3.2014 determining the income at Rs.8,26,25,690/-.
On appeal, the CIT(A) confirmed the reassessment proceedings. Hence, the assessee is in appeal before us.
The Learned Authorised Representative referred to page No.3 of paper book and submitted that the assessee has filed return of income u/s.139(1) for the assessment year 2010-2011 on 31.3.2011. Therefore, he submitted that the Assessing Officer has overlooked the fact that the return of income was filed by the assessee on 31.3.2011 alongwith the computation of total income, thus, as per the Learned
6 421/Mum/2016 A.Y. 2010-11 Authorised Representative, the reopening was made on an incorrect fact recorded by the Assessing Officer. He submitted that in the reasons for reopening of the assessment, Assessing Officer has stated that the interest expenses have been disallowed and income assessed has been far more than the income returned; that the assessee has not filed his return of income for the year under consideration; that considering the past record of income from the attached assets, there is bound to be income from the attached assets; that there is certainty that there is taxable income of the assessee; and, that the assessee is following the practice of not filing the return despite having taxable income since last few years and the income tax department had to resort to section 148 to tax this escaped income. The Learned Authorized Representative relied on the decision of the Hon'ble Gujarat High Court in the case of Sagar Enterprises vs. ACIT (2002) 257 ITR 335 (Guj) wherein, it was held that a notice issued under section 148 on a factually incorrect basis that the assessee had not filed its return could not be sustained even on the basis of alternative reason since it could not be said with certainty as to which factor weighed with the concerned officer when he issued the impugned notice and when the assessing authority was himself unsure, the formation of belief about escapement of income was not justified.
He also relied on the decision of Hon‟ble Bombay High Court in the case of General Electoral Trust vs ITO in Writ Petition No.1155 of 2016 order dated 20.7.2016, wherein, it is held that mere non-filing of return of income does not give jurisdiction to the Assessing Officer to reopen the assessment unless the person concerned has total income which is assessable under the Act exceeding maximum amount which is not chargeable to Income tax Act. He also relied on the decision of Hon‟ble Gujrat High Court in the case of Mumtaz Haji Mohmad Memon vs ITO, in Special Civil Application No.21030 of 2017 dated 21.3.2018,
7 421/Mum/2016 A.Y. 2010-11 wherein, it is held that the assessee had actually filed the return of income and offered to tax but the Assessing officer cannot dispute the fact the assessee did file the return, and in such a situation assuming jurisdiction on a wrong factual basis is not justified.
The Learned Authorised Representative also referred to the judgment of the Hon‟ble Bombay High Court in the case of German Remedies Ltd vs DCIT, 285 ITR 26 (Bom), wherein, it is held that where the assessment is sought to be reopened merely on suspicion that the assessee might have incurred expenditure for earning the dividend income and there is no material whatsoever to entertain a prima facie belief that the income has escaped assessment; the reasons entertained by the Assessing Officer that the income has escaped assessment is wholly based on presumption, conjectures and surmises and, therefore, the reopening is not permissible in law.
On the other hand, ld D.R. supported the orders of lower authorities. He submitted that the reopening is justified.
We have heard the rival submissions and perused the record of the case. We find that the first reason for reopening of the assessment is that the assessee has not filed his return of income for the year under consideration. However, on perusal of Paper Book placed at page-3, we find that the assessee has filed the return of income on 31.3.2011, i.e. prior to recording of reasons by the Assessing Officer. In this background, what has been sought to be pointed out is that the reasons recorded for formation of belief of escapement of income are based on an incorrect fact. The incorrect fact being the return not having been filed by the assessee. It has also been pointed out that even if it is accepted that incorrect noting about the absence of return filed was not the only basis for formation of belief, the Learned
8 421/Mum/2016 A.Y. 2010-11 Authorised Representative relied upon the judgment of the Hon'ble Gujarat High Court in the case of Sagar Enterprises (supra) to contend that in such a situation also, the recording of reasons is untenable. The Hon'ble Gujarat High Court noted that once there was a factually incorrect basis about the formation of belief about escapement of income, such reasons could not be taken to be valid even if the alternate reasons relied upon may be correct. As per the Hon'ble High Court, in such a situation it could not be said with certainty as to which factor weighed with the Assessing Officer to form a belief about escapement of income. Thus, in our view, as in the instant case, the recording of reasons is based on an incorrect assumption of fact, the same invalidates the formation of belief envisaged under Section 147/148 of the Act. As a consequence thereof, the assumption of jurisdiction under Section 147/148 of the Act is untenable and is liable to be set-aside. We hold so.
Insofar as the other Grounds raised by the assessee on the merits of the various additions made are concerned, the same are not being adjudicated as they have been rendered academic in view of our decision to quash the reassessment on the basis of the aforesaid discussion
In the result, appeal of the assessee is allowed.
Order Pronounced in the open court on 28/06/2019