Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI DUVVURU RL REDDY & SHRI S. JAYARAMAN
आदेश/ O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
The assessee filed this appeal against the order of the Commissioner of Income Tax (Appeals)-15, Chennai in dated 30.11.2017 for the assessment year 2003-04.
M/s. Spic Holdings and Investments Ltd., the assessee’s assessment for assessment year 2003-04 was completed U/s.143(3) on 10.02.2006. The AO reopened the assessment U/s.148 on 31.03.2010 and completed the reassessment disallowing interest expenditure of Rs.2,36,44,738/- as capital in nature, consequently reduced the total loss assessed U/s.143(3) at Rs.10,62,89,538/- to Rs.8,26,44,800/- Aggrieved, the assessee filed an appeal before the CIT(A). The ld.CIT(A) dismissed the appeal. Aggrieved against that order, the assessee filed this appeal.
During the hearing, the ld.AR primarily challenged the validity of reassessment submitting that during the course of original assessment, a letter dated 08.06.2006 was submitted before the AO giving the following particulars:- “1. ADVANCES RECOVERABLE IN CASH OR KIND FOR WHICH VALUE IS TO BE RECEIVED - Notes on Account Point NO.6.
The statutory auditors of the Company vide Item NO.6 of the Notes on Accounts relating to the Assessment Year 2003-04 had observed that the advances recoverable in cash or kind includes an amount of Rs.8,11,52,662/- being the advance given to SPIC Petrochemicals Limited towards share capital subscription. The aforesaid amount includes an accrued interest of Rs.2,36,44,738/- not acknowledged, The breakup details for the Advance against Equity of Rs.8,11,52,662/- including accrued interest as on 31/03/2003 (Assessment Year 2003-04) are furnished below:
Advance Against Equity Rs.5,75,07,924/- Interest Rs.2,36,44,738/- Out of the total interest of Rs.2,36,44,738/-, an interest component of Rs.72,41,235/- pertains to the assessment year 2003-04 and the balance of Rs.1 ,64,03,503/- pertains to the previous assessment years.
Regarding the Auditors' observation referring to non acknowledgement of accrued interest, we wish to clarify that the accrued interest of Rs.2,36,44,738/- was debited by the assessee Company to SPIC Petrochemicals Ltd and SPIC Petrochemical Limited is yet to acknowledge the above claim of the Company.
As already informed by us vide our letter dated 26th December 2005, we also wish to state that the interest of Rs.72,41,235/- relating to the Assessment Year 2003-04 was offered as income in the relevant assessment year.” and further invited out attention to the assessee’s letter dated 26.12.2005 wherein the assessee furnished the following details:- “1. Interest on Loans and Advances: SPIC Petrochemicals Ltd. With reference to the above, we wish to inform that the Interest of Rs.72,41 ,235/- on the advance against equity extended by the company to SPIC Petrochemicals' Ltd., relating to the financial year 2002-03 (Assessment Year 2003-04) has already been offered as income in the relevant year. Likewise the balance amount of interest of Rs.1,83,34,711/- was also offered as income in the earlier years.
The interest income was netted off against the interest expenses actually incurred by the Company and therefore the same was not finding place in the P&L A/c of the audited annual report of the Company for the Assessment Year 2003-04.”
Thereafter duly considering the submissions, the AO passed the assessment determining the total loss at Rs.10,62,89,538/-. Therefore, the ld.AR submitted the AO has reopened the assessment merely on a change of opinion. Further, the ld.AR submitted that since the original assessment is made U/s.143(3), after the expiry of 4 years from the end of the relevant assessment year, such assessment could be reopened only after recording the reason that the assessee has failed to disclose fully and truly all material facts necessary for the assessment of that assessment year. In this case there is no such satisfaction and hence, the ld.AR pleaded that the re-assessment is not valid and hence it may be quashed. Per contra, the ld.DR submitted that though these details were furnished, it is not complete and hence the case falls within the scope of the decision of the Hon’ble Supreme Court in the case of Girilal & Co. Vs. ITO, Mumbai reported in [2016] 75 taxmann.com and therefore the ld.DR supported the orders of the lower authorities.
We heard the rival submissions and considered the relevant material. In this case original assessment was completed U/s.143(3) on 10.02.2006. The reassessment notice was issued on 31.03.2010, after the expiry of 4 years from the end of the assessment year 2003- 04. The reasons recorded by the AO in the assessment order is extracted as under:- " In the notes forming part of accounts vide schedule no.12, item no.6, assessee had shown there was advance recoverable in cash or kind to the extent of Rs.8,1l,52,6621-. Out of this it was submitted that the interest of Rs.2,36,44, 738 has not been acknowledged. These advances have been given by the assessee to SPIC Petrochemical Industries Ltd. towards share capital subscription. On an application filed by the ICICI Bank Ltd., Debt Recovery Tribunal (DRT) has granted interim relief by way of appointment of receiver with a direction to get the property of SPIC Petro valued for sale. The appeals filed by the SPIC Petro and Southern Petrochemical Industries Corporation Ltd.(SPIC) before the Debt Recovery Appellate Tribunal were dismissed. Subsequently, SPIC Petro and SPIC had filed writ petitions before the Honourable Bombay High Court.
The Hon'ble Bombay High Court on 17.04.2003 adjourned the petitions with a direction that SPIC Petro will not be dispessessed from the property, nor will the property be sold as directed by the Tribunal. SPIC Petro has to submit a report regarding raising of finance and to clear the liabilities. Hence, this assessee company was hopeful no loss will arise out of the above involvement and the amount advance including the interest thereon is fully recoverable.
In mercantile system of accounting, all items of credit are to be brought into account immediately after they become due and before they are actually received. Any remark made by the assessee in its books pertains to its accounting audit only and not that of the debtor company and therefore the sum of Rs.2,36,44,738 as per this above referred notes refers to interest income of this assessee which is not acknowledged by this assessee. Therefore, I am satisfied that this interest income of Rs.2,36,44,738 has escaped the income of the assessee as per Section 148.
Further, it needs to be verified as to whether the ICICI Bank has actually charged interest or not and as to whether the same has been adjusted against the loan borrowed or not by the assessee. After verification only the actual interest income offered by the assessee can be assessed and it needs to be verified as to whether the assessee has set off the interest income against the interest expenditure without offering the same interest income to Income tax thereon. Thus, for the purpose of assessing interest income of Rs.2,36,44,738 and also to verify the actual interest income assessable, I am satisfied that income to that extent has already escaped taxation and therefore the assessment completed u/s.143(3) needs to be re-opened for bringing the income that has escaped to tax.
Therefore 1 am satisfied that 1 have reasons to believe that the income of the assessee to the extent of Rs.2,36,44,738/- has escaped taxation within the meaning of section 148 of the IT Act.”
From the above, it is clear that the AO has relied on the same materials which were duly considered by him while making the original assessment. Further, the AO has not recorded in his reason any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for that assessment year, supra, which is sine qua non for invoking the jurisdiction U/s 147, in this case. Further, it is clear from the particulars furnished by the assessee during the original assessment, which is extracted in para 3 supra, that the assessee has disclosed fully and truly all the material facts necessary for its assessment at the time of original assessment itself. Therefore, the reasons recorded for issuing the notice U/s.148 lack jurisdiction and hence the assessee’s appeal is allowed.
In the result, the assessee’s appeal is allowed.
Order pronounced in the court on 27th September, 2019 at Chennai.