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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
PER MAHAVIR SINGH, JM: This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-37, Mumbai [in short CIT(A)], in appeal No. CIT(A)-37/I.T.-110/ACCC-40/11-12 dated 09.01.2012. The assessment was framed by the Asst. Commissioner of Income Tax, Circle-40 Mumbai (in short ‘ACIT’/ ‘AO’) for the A.Y. 2003-04 vide order dated 27.12.2010 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
ITA Nos. 1326/Mum/2012 2. The first issue in this appeal of assessee is regarding assumption of jurisdiction by the AO for reopening assessment under section 147 read with section 148 of the Act. For this assessee has raised the following ground No. 1: -
“1. The Commissioner of Income-tax (Appeals) - 37, Mumbai (hereinafter referred to as the ClT(A)) erred in upholding the action of the Assistant Commissioner of Income-tax, Central Circle 40. Mumbai (hereinafter referred to as the Assessing Officer) in reopening the assessment and recording the reasons tinder section 148 which are vague, insufficient and erroneous in law.
The appellants contend that on the facts and circumstances of the case and in law, the issue of notice under section 148 is bad in law and hence, the impugned assessment requires to be quashed.”
Brief facts relating to this case are that the assessee is engaged in trading in shares and securities. The return of income for AY 2003-04 in this case was filed by the assessee under section 139(1) of the Act on 01.1.2003 declaring total loss of ₹ 14.15,94,890/-. Original assessment in this case was completed under section 143(3) of the Act Vide order dated 17.02.2006. The return of income in this case was filed by the assessee under section 139(1) of the Act on 01.1.2003 declaring total loss of ₹ 14.15,94,890/-. The business loss was allowed to be carried forward at ₹ 11,53,44,311/-. Subsequently, the case was reopened by issuing notice under section 148 of the Act dated 29.01.2010. The reasons for reopening was communicated to the assessee vide AO’s letter dated 05.08.2010. The following are the reasons recorded:
ITA Nos. 1326/Mum/2012 “M/s. Panther Fincap & Management Services Ltd. A.Y. 2003-04
Return of Income was filed on 01.12.2003 declaring total loss of Rs. 14,15,94,890/-. The return was processed u/s. 143(1) on 30.12.2003 accepting returned loss. The case was selected for scrutiny being compulsory scrutiny assessed in Central Charge. Assessment u/s 143(3) completed on 143(3) on 17.022006 determining total income at Rs. 20,53,450/-.
Subsequently the following issue was noticed which falls under the description of income escaping assessment u/s 147.
I. On perusal of the financial statements and assessments records, it was revealed from the details of prior period adjustment' that brokerage refund (i.e. prior period income) of Rs. 7,51,86,892/- was adjusted against the bank interest (i.e. prior period expenses) of Rs. 4,89,06,057/- and the balance of Rs. 3,06,78,407/- was shown as prior period item below the line of balance sheet.
On verification of the previous year's assessment records and financial statements of A.Y.'s 2000-01, 01-02, 02-03 it was seen that the assessee company had never credited any brokerage income. On the contrary expenses were claimed towards brokerage and commission payment.
Since the above brokerage income was not taxed in the earlier years as claimed by the company, it
ITA Nos. 1326/Mum/2012 should have been treated as income arising during the relevant financial year and should have been taxed, instead of adjusting it against prior period expenses.
The tax on the above income escaping assessment works out to Rs. 2,76,31,149/- (Rs. 2,63,1 5,380(tax) + Rs. 13,1 5,769(SC)"
While going through the financial statements it was seen that Ks. 19,27.71.401/- was debited to profit and loss etc towards Interest paid to Global Trust Bank and Madhavpura Mercanitle co-op bank. On perusal of the assessment records i.e. the list of secured loans and the bank statements of both the above banks, it was noticed that the interest of Ks. 10,43,77,146/- in respect of Global trust bank and Rs. 8,83,94,2551- in respect of Madhavpura bank was included in total outstanding loan and shown as ' 0/s Secured Loans' in the liability side of the balance sheet of the company for the relevant financial year i.e. 2002-03
Thus the interest upon portion of ₹ 19,27,71,401/- was included and shown as part of the total o/s loan amount of ₹ 128,09,30,539/- which indicates that the above interest was not paid during the previous year 2002-03 relevant to AY 2003-04.
Since the interest was not paid to the bank and it was just a provision made. it should have been disallowed u/s 438 of I.T. Act.
ITA Nos. 1326/Mum/2012 Failure to do so has resulted in underassessment of business income of Rs. 7,74,44,069/-, as the business loss of Rs. (-) 11,53,44,311/- as assessed u/s 143(3) after adjusting the interest disallowance would result in positive business income as stated above.
The tax on above works out to Rs. 2,84,60,695/-(i.e. 2,71,05,424/-(tax) + Rs. 13,55,271(S.C.).
In the view of above I believe that there is an under assessment of income to the tune of Rs. 15,63,90,209/- (Rs. 7,89.46,140/- + Rs. 7,74,44,069/-) within the meaning of section 147.”
From the above reasons recorded by the AO, we find that the reopening was mainly on the following reasons: -
Prior period of adjustment on account of refund of brokerages escaped assessment to the Tune of ₹ 7,51,86,892/-.
The provision of interest debited to profit and loss account towards interest paid to Global Trust Bank and Madhavpura Mercantile Co-op Bank at ₹ 19,27,71,401/-
The assessee before AO during reassessment proceedings contended vide letter dated 18.10.2010 that reopening is bad in law as no fresh material available with the AO for issuance of notice under section 148 of the Act and this is clear case merely change of opinion. However, the AO has not considered this reopening as bad in law and framed re- assessment vide order dated 27.12.2010. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) also confirmed the action of the AO
ITA Nos. 1326/Mum/2012 in reopening of assessment by observing in Para 2.4.22 and 2.4.23 as under: -
“24.22 In such circumstances, it cannot be held that there was full and true disclosure by the appellant. Accordingly, the second contention of the appellant fails.
2.4.23 In view of the above binding precedents of the Hon’ble Supreme Court, I am of the view that the Ld. AO. had valid reasons to initiate reassessment proceedings which were duly recorded and communicated to the appellant and therefore, there is no merit in the arguments advanced by the Ld. AO. on this ground. Accordingly, this ground of appeal is dismissed.”
Aggrieved, now assessee is in appeal before Tribunal.
Before us, the learned Counsel for the assessee stated that the assessee before AO during the course of original assessment proceedings filed details of prior period adjustment vide letter dated 06.02.2006 and the relevant details are as under: -
Details of prior Period Adjustment Sr. Particulars Amount No. A Prior Period of Income Brokerage Refund a) Woodstock Securities Pvt. Ltd 42,263,033 b) Vimla S. Jajoo 2,147,013 c) Herald Equities Pvt. Ltd 3,269,609 d) Marshall Equities Pvt. Ltd 2,501,237 e) Omega Equities Pvt. Ltd. 13,259,572 f) Millenium Equities Pvt. Ltd 11,746,339 75,186,802 Bank Interest Reversed
ITA Nos. 1326/Mum/2012 Global Trust Bank Ltd. 420,314 Global Trust Bank Ltd. 3,621,243 Global Trust Bank Ltd. 356,165 4,397,722 B Prior Period of Expenses Global Trust Bank Ltd. 1,989,910 Madhavpura Mercantile Co-op bank 46,916,147 Ltd. 48,906,057 Total 30,678,467 7. Further, details are also enclosed at assessee’s paper book at pages 20-39 party-wise. The learned Counsel for the assessee also stated that the details of interest claimed of ₹ 19,27,88,380/- relating to three parties and the same was filed before the AO during the original assessment proceedings vide letter dated 14.02.2006 and the relevant details were as under :-
“Details of Interest Claimed
Sr. Particulars Amount
Global Trust Bank Ltd. 104,377,146
Madhavpura Mecantile Co-Op Bank 88,394,255
M/s Phulchand Sons Inv Pvt Ltd 16,979
Total 192,788,380.”
Further details were filed at pages 42-45. The learned Counsel for the assessee took us through the original assessment order and stated that the AO has considered this aspect of claim of interest vide Para 4.1 of the assessment order and allowed the claim of the assessee. Similarly, the AO also allowed the claim of refund of brokerage for prior periods and the details were filed before the Assessing Officer. In view of the above, the learned Counsel for the assessee argued that the original
ITA Nos. 1326/Mum/2012 assessment was completed under section 143(3) of the Act and the AO has raised the queries regarding both the issues and replies were filed and even the AO has considered the same. According to the learned Counsel, the relevant Assessment Year is 2003-04 and the original assessment was completed under section 143(3) of the Act vide order dated 17.02.2006 and the notice under section 148 was issued dated 29.01.2010. Hence, in view of these facts, the learned Counsel for the assessee stated that admittedly this reopening is beyond four years and assessee’s case falls under the first proviso to section 147 of the Act. He took us through the reasons recorded and argued that from the very reasons it cannot be enumerated whether there is any failure on the part of the assessee to disclose fully and truly all material facts necessary for this assessment year. The learned Counsel for the assessee accordingly stated that once there is no failure on the part of the assessee to disclose fully and truly all material fact necessary for this assessment, the reopening beyond four years is not permissible. Further, he stated that there is no tangible material and it is merely a change of opinion as the AO has applied his mind to the facts of the case and taken a view. For this the learned Counsel for the assessee relied on the decision of Hon’ble Bombay High Court in the cases of Aventis Pharma Ltd. vs. ACIT (2010) 323 ITR 570 (Bom), Asteriods Trading Investments (P.) Ltd. Vs. DCIT (2009) 308 ITR 1990 (Bom), ICICI Prudential Life Insurance Co. Ltd. Vs. ACIT (2020) 325 ITR 471 (Bom).
When this was pointed to the learned Sr. Departmental Representative that was the failure on the part of the assessee, he only referred to the re-assessment order and that the assessee during the course of assessment proceedings could not submit the confirmations of the brokers whoever refunded the excess brokerage charge to them. Hence, there is failure on the part of assessee itself.
ITA Nos. 1326/Mum/2012 10. We have heard the rival contentions and gone through the facts and circumstances of the case. We have gone through the reasons recorded for issuance of notice under section 148 of the Act as reproduced above and noted that on both the issues i.e. Prior Period Adjustments of brokerage refund as well as interest paid to Global Trust Bank and Madhavpura Mercantile Co-op Bank, the complete details were filed before the AO during the course of original assessment proceedings in response to the queries raised by the AO. Admittedly, the assessment was completed under section 143(3) of the Act and reopening by issuing notice under section 148 of the Act is beyond four years. Here, it is to mention that this issue is squarely covered in favour of assessee and against Revenue by the decision of Hon’ble Supreme Court in the case of CIT vs. Foramer France (2003) 264 ITR 566 (SC).
In the similar circumstances, Hon’ble Supreme Court in the case Foramer France (Supra) has taken the view that the first proviso to section 147 of the Act lays down an exception whereby the AO is not permitted to exercise his jurisdiction in reopening the assessment beyond a period of four years from the end of the relevant assessment year. Once the exception carved out by proviso to s. 147 of the Act comes into play, the case would fall outside the ambit of s. 147 of the Act. As per proviso to s. 147 of the Act, no action under this section can be taken after expiry of four years from the end of the relevant assessment year, unless inter alia, income chargeable to tax had escaped assessment by reason of failure of the assessee to make full and true disclosure of all material facts necessary for assessment. In case, there being no whisper in the reasons supplied to assessee that income escaped assessment by reason of assessee’s failure to make a full and true disclosure of all material facts necessary for assessment, notice under section 148 of the Act issued beyond four years from the end of
ITA Nos. 1326/Mum/2012 relevant assessment year was barred by limitation under proviso to s. 147 of the Act, hence without jurisdiction. If either of these conditions is not fulfilled the notice is without jurisdiction. If the notice issued u/s 148 fails to satisfy either of the conditions, it deserves to be quashed. However, the officers have many time issued notices for reopening the assessments even beyond four years from the end of the assessment year without fulfillment of any of the legal conditions as stipulated in the first proviso to this section. Such an action of the revenue authorities is strictly challenged by the taxpayers at large in the court of law and courts have quashed the notice issued by Revenue authorities or quashed the re-assessment orders. Hon’ble Supreme Court affirmed the judgment of Hon’ble Allahabad High Court in the case Foramer vs. CIT (2001) 247 ITR 436 (All) wherein Hon’ble Allahabad High court has considered the issue as under: -
“Having heard the learned counsels for the parties, we are of the view that these petitions deserve to be allowed.
It may be mentioned that a new section substituted section 147 with effect from 1-4- 1989. The relevant part of the new section 147 is as follows :
"147. Income escaping assessment.—If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has
ITA Nos. 1326/Mum/2012 escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub- section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year."
This new section has made a radical departure from the original section 147 inasmuch as clauses (a) and (b) of the original section 147 have been deleted and a new proviso added to section 147.
ITA Nos. 1326/Mum/2012 10. In Rakesh Aggarwal v. Asstt. CIT[1997] 225 ITR 4961, the Delhi High Court held that in view of the proviso to section 147 notice for reassessment under section 147/148 should only be issued in accordance with the new section 147, and where the original assessment had been made under section 143(3), then in view of the proviso to section 147 the notice under section 148 would be illegal if issued more than four years after the end of the relevant assessment year. The same view was taken by the Gujarat High Court in Shree Tharad Jain Yuvak Mandal v. ITO[2000] 242 ITR 612.
In our opinion, we have to see the law prevailing on the date of issue of the notice under section 148, i.e., 20-11-1998. Admittedly, by that date, the new section 147 has come into force and, hence, in our opinion, it is the new section 147 which will apply to the facts of the present case. In the present case, there was admittedly no failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessment. Hence, the proviso to the new section 147 squarely applies, and the impugned notices were barred by limitation mentioned in the proviso.
The learned departmental counsel relied on section 153(3)(ii) of the Act and submitted that
ITA Nos. 1326/Mum/2012 there was no bar of limitation in view of the said provision. We do not agree. Section 153 relates to passing of an order of assessment and it does not relate to issuing of notice under section 147/148. Moreover, this is not a case where reassessment is sought to be made in consequence of, or to give effect to, any finding or direction contained in the order of the Tribunal in Boudier Christian's case. As already stated above, Boudier Christian's case related to the employees of the company, whereas the impugned notice has been issued to the company. Hence, it cannot be said that the proposed reassessment in consequence of the impugned notice would be in consequence of, or to give effect to, any findings of the Tribunal in Boudier Christian's case.
A direction or finding as contemplated by section 153(3)(ii ) must be a finding necessary for the disposal of a particular case, that is to say, in respect of the particular assessee and in relevance to a particular assessment year. To be a necessary finding it must be directly involved in the disposal of the case. To be a direction as contemplated by section 153(3)(ii) it must be an express direction necessary for the disposal of the case before the authority or court vide Rajinder Nath v. CIT[1979]120 ITR 141 (SC); Gupta
ITA Nos. 1326/Mum/2012 Traders v. CIT[1982] 135 ITR 5042 (All.); CIT v. Tarajan Tea Co. (P.) Ltd.[1999] 236 ITR 4773 (SC) and CIT v. Goel Bros.[1982] 135 ITR 5114(All.), etc. The case of an expatriate employee was to be decided on the basis of the provisions of article XIV of the treaty, whereas corporate income was to be decided on the basis of either article III or article XVI of the treaty or section 44BB. Hence, the observation of the Tribunal in Boudier Christian's case was not a direction necessary for the disposal of the appeal relating to the petitioner. The eligibility of income of the petitioner from manning and management contracts was never an issue directly or indirectly involved in the case of Boudier Christian.
Moreover, the Tribunal in the appeal relating to the assessment of the petitioner's own case, vide Dy. CIT v. O.N.G.C. As agent of Foramer France[1999] 70 ITD 468 (Delhi), has considered the decision of the Tribunal in Boudier Christian's case. It is settled law that an appeal is a continuation of the original proceedings and, hence, when the Tribunal in the appeal relating to the petitioner has considered the decision of the Tribunal in Boudier Christian's case, the impugned notice under section 147/148 would obviously be on
ITA Nos. 1326/Mum/2012 the basis of a mere change of opinion by the income-tax authorities, which would not be valid as held by the Supreme Court in Indian & Eastern Newspaper Society v. CIT[1979] 119 ITR 996 1 ;Gemini Leather Stores v. ITO[1975] 100 ITR 1 (SC) and Jindal Photo Films Ltd. v. Dy. CIT[1998] 234 ITR 1702(Delhi), etc.
In the decision of the Tribunal in the assessee's own case O.N.G.C.'s (supra), it has been held that the income from the contract between the parties was business income and not fee for technical services.
Although we are of the opinion that the law existing on the date of the impugned notice under section 147/148 has to be seen, yet even in the alternative even if we assume that the law prior to the insertion of the new section 147 will apply, even then it will make no difference since even under the original section 147 notice for reassessment could not be given on the mere change of opinion as held in numerous cases of the Supreme Court, some of which have been mentioned above. Since the Tribunal in the appeal relating to the assessee-company had considered the Tribunal's earlier decision in Boudier Christian's case, it will obviously amount to mere change of opinion, and, hence,
ITA Nos. 1326/Mum/2012 the notice under section 147/148 would be illegal.” 12. In view of the above facts of the present case and the judgment of Hon’ble Supreme Court in the case of Foramer France (supra), we confirm the order of CIT(A) quashing the re-assessment proceedings and allow this issue of Revenue’s appeal. As we have decided the jurisdictional issue only, and set aside the order of CIT(A) the reassessment order framed by the AO, we refrain our self from adjudicating the issue on merits. Accordingly, the appeal of assessee is allowed. 13. In the result, the appeal of assessee is allowed Order pronounced in the open court on 31-08-2018. Sd/- Sd/- (एन. के. प्रधान /N.K. PRADHAN) (महावीर स िंह /MAHAVIR SINGH) (लेखा दस्य / ACCOUNTANT MEMBER) (न्याययक दस्य/ JUDICIAL MEMBER) मुिंबई, ददनािंक/ Mumbai, Dated: 31-08-2018 स दीप सरकार, व.निजी सधिव / Sudip Sarkar, Sr.PS
17 ITA Nos. 1326/Mum/2012 आदेश की प्रनिललपप अग्रेपिि/Copy of the Order forwarded to : अपीलाथी / The Appellant 1. प्रत्यथी / The Respondent. 2. आयकर आयुक्त(अपील) / The CIT(A) 3. आयकर आयुक्त / CIT 4. ववभागीय प्रयतयनधध, आयकर अपीलीय अधधकरण, मुिंबई / DR, ITAT, 5. Mumbai गार्ड फाईल / Guard file. 6.
आदेशाि सार/ BY ORDER, त्यावपत प्रयत //True Copy// उप/सहायक पुंजीकार (Asstt. Registrar) आयकर अपीलीय अधिकरण, मुिंबई / ITAT, Mumbai