SUPREME CAPITAL MANAGEMENT LTD.,MUMBAI vs. I.T.O.3(3)(4), MUMBAI

The captioned appeal by assessee for Assessment Year [AY] 2002-03 assails the order of the Ld. Commissioner of Income-Tax (Appeals)- 7 [CIT(A)], Mumbai Appeal No. CIT(A)-7/IT-203/08-09 dated 16/08/2012 qua confirmation of certain disallowances. The assessee has also contested the reassessment proceedings on legal grounds. The assessment was framed by Income Tax Officer-3(3)(4), Mumbai on 17/12/2007 u/s 143(3) read with Section 147 of the Income Tax Act, 1961. 2.1 Facts leading to the same are that the assessee being resident corporate assessee was subjected to an assessment u/s 143(3) read with section 147 of the Income Tax Act on 17/12/2007 where the loss of the assessee was re-determined at Rs.17,529/-. The original return of income was filed on 31/10/2002 at loss of Rs.12,48,340/- which was accepted in scrutiny assessment u/s 143(3) on 10/11/2004. 2.2 The reassessment proceedings were initiated on the premises that the assessee earned exempt dividend income of Rs.98,720/- during the year and claimed expenses of Rs.4,38,685/- against the same. Further, the assessee did not actually carry out any business activity during the year but claimed depreciation of Rs.11,66,816/- and preliminary expenses of Rs.63,998/- besides other expenses and the same has resulted into underassessment of income to the tune of Rs.12,48,340/- within the meaning of Explanation 2(c)(iv) to Section 147. Consequently, Supreme Capital Management Limited Assessment Year 2002-03 notice u/s 148 dated 30/03/2007 was issued and served on the assessee which was followed by statutory notices u/s 143(2) & 142(1). 2.3 The assessee contested the reassessment proceedings on the premises that all details were submitted during scrutiny assessment proceedings and Ld. AO, with due application of mind, accepted the claim of the assessee. However, not convinced, Ld. AO, while upholding reassessment proceedings re-computed loss at Rs.17,529/-.

Aggrieved, the assessee contested the same without any success before Ld. CIT(A) vide impugned order dated 16/08/2012 where the assessee contested the reassessment proceedings on legal grounds as well as on merits. Aggrieved, the assessee is in further appeal before us. 4.1 The Ld. Representative for Assessee [AR], contested the reassessment proceedings, firstly, by contending that all details were made available during original scrutiny assessment proceedings and the Ld. AO duly considered the same and allowed the assessee’s claim. Our attention was drawn to the fact that no new tangible material came to the possession of Ld. AO so as to justify reassessment proceedings. 4.2 The Ld. AR further contested the quantum addition by drawing our attention to the fact that the expenditure mainly consist of preliminary expenses and depreciation which were statutory deductions and arising from earlier years and therefore, allowable to the assessee. 4.3 Per Contra, Ld. DR placed reliance on the stand of lower authorities and contended that reassessment proceedings were rightly invoked since there was excessive claim of depreciation.

Since the legal grounds goes to the root of the matter, we take up the same first. It is noted that Assessment Year involved is 2002-03 and Supreme Capital Management Limited Assessment Year 2002-03 reassessment notice has been issued on 30/03/2007 and hence, the same is within four years from end of relevant AY. In this situation, the only requirement to be fulfilled in order to resort to reassessment proceedings, as per Section 147, was that the Ld. AO had some reasons to believe that income chargeable to tax had escaped assessment. Further, we note that explanation 2(c)(iv) to Section 147 has been invoked by Ld. AO since excessive loss or depreciation had been granted to the assessee. We further find that Explanation-2 creates a deeming fiction and has to be construed strictly. This explanation provides for situation, where income is deemed to have escaped assessment. Therefore, applying the statutory provisions to the issue in hand, we are inclined to hold that reassessment proceedings were rightly invoked by Ld. AO. Therefore, the legal ground raised