M/S. ADITYA BIRLA HEALTH SERVICES LTD.,,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,,

आदेश / ORDER

PER D. KARUNAKARA RAO, AM :

This appeal filed by assessee is directed against the order of Commissioner of Income Tax (Appeals), Pune-6 dated 15.12.2014 for assessment year 2007-08.

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“1. (a) The learned CIT(A) erred in holding that the learned AO had rightly reopened assessment proceedings which was completed u/s.143(3) after scrutiny without having any definite material to show that there was escapement of income.

(b) The learned CIT(A) erred in holding that the reopening was not based only on mere change of opinion.

2.(a) The learned CIT(A) erred in holding that the learned AO had rightly disallowed Rs.1,06,99,734/- out of pre-operative expenses on the ground that it was adjusted against interest income.

(b) The learned CIT(A) erred in holding that interest income earned before commencement of Business was not in the nature of capital receipt.

engaged in the business of running hospital at Pune and rendering of health

services. The assessee filed return of income declaring loss of Rs.14.90 Crore

(rounded off). During the scrutiny assessment proceedings u/s.143(3) of the

Income Tax Act, 1961 (hereinafter referred to as the ‘Act’), the assessed loss is

computed at Rs.14,83,71,470/- vide order dated 31.12.2009. In the

assessment, the Assessing Officer made ad-hoc disallowance of Rs.25,000/-

u/s.14A of the Act. In addition Assessing Officer also disallowed entire claim of

preliminary expenses of Rs.1,83,785/-.

satisfaction about concealment of income. For re-opening of the assessment,

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on 01.11.2011 the Assessing Officer issued notice u/s.148 of the Act. The

copies of the said reasons are placed at page 13/14 of the paper book. In

reassessment, the Assessing Officer noted that the assessee took interest

bearing loans and paid interest which is claimed as an allowable expenditure.

On finding that the said loans were invested in the shares and mutual funds

units, the Assessing Officer is of the view that the said claim of interest

expenditure against business income is not an allowable expenditure. This is

one of the items given in the said reasons. The claim of set off of the

preliminary expenditure against the pre operative income is the one issue. The

allowability of the expenditure claim of provisions of gratuity is the other issue

of concealment mentioned in the said reasons. Eventually, re-assessment was

completed on 08.03.2013 and computed total loss of Rs.13.74 Crore (rounded

off). Although the addition on account of sale of scrap is not brought out of the

reasons and Assessing Officer made addition of Rs. 3,13,865/- on this account

too. The details of addition are given in Para 13 of the re-assessment order and

the same are extracted herein below:

“13.Subject to the above and after discussion, the total income of the assessee is computed as under: ( Figs. in Rs.) Total Loss as per order u/s. 143(3) order dated 31.12.2009 (14,83,71,470)

i. Adjustment of pre- Rs.1,06,99,734/- operative expenses disallowed as discussed in Para-A above ii. Sale of scrap as Rs.3,13,865/- discussed in Para-B above iii. Disallowance of Rs.2,80,853/- provision as discussed in Para- C above iv. Disallowance of Rs.2,02,306/- interest expense as discussed in Para D above

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Rs.1,14,96,758/-

Less v. Depreciation as per Rs.5,34,987/- 1,09,61,771/- para-A above

Total Loss (13,74,09,699)

appeal before the CIT(A). In the appeal, assessee raised legal issue relating to

validity of re-assessment and the issuance of notice u/s.148 of the Act on the

grounds that reasons for re-opening were not furnished to the assessee despite

written request vide the letter dated 16.02.2012; and in the absence of any

tangible material/additional information supporting the reopening and the

additions. In the absence of any tangible material, the reassessment

proceedings become a case of review of his own order or change of opinion.

Mentioning that the issues for reassessment were already scrutinized by the

Assessing Officer during the regular assessment proceedings u/s.143 (3) of the

Act, the assessee argued that it is the case of review of change of opinion and

therefore, the assessee submitted that re-assessment is not legally valid. The

assessee has also raised grounds on merits of additions before CIT(A).

issue as well as on the merit and partly allowed the appeal of assessee on these

issues. The CIT(A) also granted partial relief on the merits of addition too.

However, CIT(A) omitted to adjudicate the legal grounds No. 1(a) and 1(c) raised

before him.

correctness the reasons recorded before issuance of notice u/s.148 of the Act

and held that the Assessing Officer is not justified in re-opening of assessment

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on certain issues i.e. i) taxability on interest income of trading units ii) claim of

interest on loans invested in share and units and iii) provision for gratuity is

allowable deduction. However, the CIT(A) upheld the re-opening on the ground

relating to capitalization of pre-operative expenses. However, regarding the core

legal issue relating to validity of the notice u/s. 147/148 of the Act, where the

reasons are not supplied to the assessee as well as when there is no re-opening

tangible material, the CIT(A) did not adjudicate these issues and is silent.

These issues were raised by assessee during First Appellate proceedings and

para 1(a) and 1(c) are relevant in this regard. As stated earlier, the CIT(A) did

not adjudicate them, in particular.

On the issues relating merits of additions, the CIT(A) confirmed some of

the additions relating to i) capitalization of pre-operative expenses ii) denial of

claim of said expenses and iii) the provision of gratuity as allowable business

expenditure and against the assessee.

Tribunal raising grounds already extracted above. Before us, the Ld. AR

submitted that the legal issues raised before the CIT(A) were not adjudicated

unambiguously. We shall now take up the legal issues first. Ground-wise

adjudication is taken up in the preceding paragraphs.

of assessment. According to the Ld. Counsel of the assessee, this is the case of

review of the Assessing Officer’s order or the change of opinion on many issues.

Further, Ld. AR submitted that in absence of any tangible material, the re-

opening is unsustainable and relied on various bindings decisions/judgment in

general and the decision of Delhi High Court in the case of Madhukar Khosla

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Vs. ACIT reported as 367 ITR 165 in particular. Stating that the Assessing

Officer is only empowered to re-assess the concealment of income, Ld. A.R.

submitted that the Assessing Officer he has no power to re-assess and a

reference is made to the binding judgment of Hon'ble Supreme Court of India

in the case of CIT Vs. Kelvinator of India Ltd reported as 320 ITR 561 (SC).

Bringing our attention to page 1 to 4 of the paper book, the ld. Counsel

submitted that the Assessing Officer issued detailed questionnaire appending

notices u/s. 143(2) and 142(1) commonly dated 20.11.2009 and demonstrated

that the issue relating to pre operative expenses was already being examined.

Bringing our attention to questionnaire dated 20.11.2009 to question No. XV,

Ld. Counsel submitted that the assessee answered the said inquiry and

explained the same in regular assessment proceeding. Ld. Counsel brought

out attention to page 8 of the paper book in this regard. He also submitted that

all this issues are considered while making additions in the re-assessment after

scrutinizing the subject matter by Assessing Officer in regular assessment

proceeding.

supplying the copy of the reasons recorded by the Assessing Officer. He relied

on the written request of the assessee on this issue. On the need for the

existence of tangible material to act as a livewire, Ld. AR submitted that the

present reassessment proceeding does not have the basis of any such material.

Therefore, Ld. AR call for quashing the reassessment proceedings.

orders of Assessing Officer and CIT(A). Relying on the decision of Hon'ble

Bombay High Court in the case of Dr. Amin’s Pathology Laboratory Vs. P.N.

Prasad, JCIT reported as 252 ITR 673 (Bom.) and the decision of Hon'ble

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Delhi High Court in the case of Dalmia (P.) Ltd. Vs. CIT reported as 14

taxmann.com 106, Ld. DR submitted that re-assessment is valid. However,

he fairly admitted that these decisions are mostly based on the issue relating to

proviso to section 147 of the Act regarding re-opening of assessment made

beyond 4 years whereas the re-assessment in this case is done within a period

of 4 years. Regarding this legal issue of re-opening of the completed

assessment without supplying reasons despite repeated request of the assessee

and in absence of tangible material, the Ld. DR mentioned that the CIT(A) is

silent in giving categorical findings to the extent of ground No. 1(a) and 1(c)

raised before the CIT(A). However, the CIT(A) attended to the grounds

holistically without attending to the sub grounds.

reassessment proceedings when Assessing Officer failed to provide copies of

reasons despite the written request by the Assessee; (ii) when there is no

tangible material to support the reasons relied on by the Assessing Officer in

re-assessment proceedings. As discussed in the preceding paragraphs of its

order and also on perusal of the order of CIT(A), we find there is no

adjudication by the CIT(A) on the above referred legal issue in his order. To that

extent, the order of CIT(A) cannot be considered as complete and a speaking

one. To specify, the CIT(A) omitted to adjudicate the sub grounds No. 1(a) &

1(b) raised before him. In the process, CIT(A) failed to comply with the

provisions of section 250(6) of the Act. Hence, there is need for directing the

CIT(A) to pass a speaking order on the grounds which go root to the matter

relating to validity of reassessment proceedings.

change of opinion on the scrutinized issue are analyzed. It is the case of the

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assessee that the reassessment order constitutes review of his own order by

Assessing Officer which is not permissible in law. To support his argument, the

Ld. AR demonstrated developments in the regular assessment proceedings on

the issue relating to claim of set off of the pre-operative expenditure against the

pre commencement interest income. On considering the same, we find there

are certain issues i.e. set off of pre operative expenses against pre operative

income were scrutinized directly by the Assessing Officer during regular

assessment proceedings. The issue of disallowance of interest expenditure was

indirectly dealt by the Assessing Officer qua the disallowance u/s.14A of the

Act. However, the same was not the case with all the issues mentioned in the

reasons recorded before issuing of notice u/s.148 of the Act. To that extent,

arguments of Ld. Counsel on the issue of re-opening are not correct in all

additions. There are additions i.e. sale of scrap made by the Assessing Officer

in the reassessment and this issue was not examined in the regular

assessment. As such, the questionnaire (supra.) and the reasons are silent on

this issue.

A.R. to file details of the issues scrutinized by the Assessing Officer in first

round. But there is no compliance by the AR to the said direction of the

Tribunal till date. The said direction was given to verify the extent of

correctness of argument relating to the change of opinion/review. Thus, there

is need for the CIT(A) to examine the relevant argument at his end.

and relating to i) correctness of set off of pre operative expenses against pre

operative income ii) correctness of claim of gratuity and iii) correctness of

disallowance of interest expenditure of Rs. 2,02,306/-. Adjudication of these

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issues become relevant only if the assessee failed to win on the legal issue

raised in ground No. 1 (a) and 1(b) of the grounds.

CIT(A) needs to verify the arguments of Ld. A.R. relating to all the legal issue.

There is requirement for remanding the said legal issues raised in ground No.

1(a) and 1(b) to the file of CIT(A) for fresh adjudication on all the argument of

the assessee discussed above. The CIT(A) shall grant reasonable opportunity of

bearing heard to the assessee in accordance with set principles of natural

justice. Accordingly, ground No. 1(a) & 1(b) is allowed for statistical

purposes.

ground No. 2, 3 and 4 becomes premature. CIT(A) is directed to re consider the

same and passed a speaking order on these grounds too after considering the

arguments of the assessee on merits.

and hence, require no adjudication and dismiss as such.

purposes.

Order pronounced on 23rd day of May, 2018.

Sd/- Sd/- (सुषमा चावला / Sushma Chowla ) (डी.क�णाकरा राव/D. Karunakara Rao) �या�यक सद�य /JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे / Pune; �दनांक / Dated : 23rd May, 2018.

10 ITA No.248 /PUN/2015 A.Y.2007-08

SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT (Appeals), Pune-6. 4. The CIT-5, Pune. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.