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Income Tax Appellate Tribunal, ‘C’ BENCH, BANGALORE
Before: SHRI VIJAY PAL RAO & SHRI INTURI RAMA RAODr.Rajkumar Road Malleswaram West,
This is an appeal filed by the assessee directed against the order of the CIT(A). LTU, Bangalore, dated 30/5/2014 for the assessment year 2008-09.
The assessee raised the following grounds:
3. Briefly facts of the case are as under: The appellant- assessee is a company duly incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacture and sale of various electrical and engineering equipments. It filed return of income for the assessment year 2008-09 on 28/9/2008 declaring a total income of Rs.795,41,41,782/-. Against the said return of income, assessment was completed u/s 143(3) of the Income-tax Act,1961 [‘the Act’ for short] vide order dated 16/11/2011 at a total income of Rs.849,71,54,003/-. Subsequently, the Assessing Officer [AO] had come to know during the course of assessment
Page 3 of 10 proceedings for the assessment year 2009-10 that the assessee claimed exemption of interest-free tax bonds of Rs.105,00,450/- under the provisions of section 10(23G) of the Act for the assessment year 2008-09. Since provisions of sec.10(23G) of the Act were omitted by the Finance Act, 2006 w.e.f. 1/4/2007, the AO formed a belief that income escaped assessment for the assessment year 2008-09 and accordingly re-opened the assessment u/s 147 of the Act after recording reasons and a notice u/s 148 of the Act dated 21/3/2013 was issued and served on the assessee-company. In response to said notice, assessee- company had stated vide its letter dated 23/4/2013 that r/ originally filed u/s 139(1) on 28/9/2013 be treated as return in response to notice u/s 148 of the Act. Further, the assessee has sought reasons for reopening the assessment and the same were intimated vide AO’s letter dated 7th May 2013. After issuing notice u/s 143(2) dated 24/5/2010, assessment was completed by the AO at a total income of Rs.853,57,05,824/- after disallowing tax-free interest claimed, as exempt u/s 10(23G) of Rs.105,00,550/- and an amount of Rs.6,06,79,000/- was also added back as no tax at source was deducted on payments to contractors and professionals on technical fee. Royalties, trade mark etc. and an amount of Rs.14,21,28,000/- was added back as being import duty paid on the closing stock.
Page 4 of 10 4. Being aggrieved, an appeal was filed before the CIT(A). It was contended before the CIT(A) that the very initiation of re- assessment proceedings u/s 147 is bad in law as the fact of claim of examination of interest income was duly disclosed in the return of income and there are no reasons to believe that income escaped assessment proceedings. In support of this contention, assessee-company relied upon plethora decisions which are as follows:
The above submissions have been negative by the CIT(A) by holding that there was no opinion formed by the AO at the time of framing original assessment and therefore the re-assessment proceedings are not vitiated by change of opinion and thereby confirmed the validity of the re-assessment proceedings. As regards the disallowance of claim for exemption u/s 10(23G) was confirmed by the CIT(A). The CIT(A), while dealing with disallowance of deduction on reverse of provisions observed as follows:
Being aggrieved, assessee-company is before us in the present appeal.
5.1 Learned counsel for assessee-company contended that the very claim of exemption of tax-free interest under the provisions of section 10(23G) of the Act was very much available before the AO at the time of original assessment proceedings. There was no fresh information suggesting that the claim is inadmissible. Therefore, it is a case of change of opinion. Applying the law laid
Page 6 of 10 down by the Hon’ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd., (320 ITR 561) re-assessment proceedings should be declared as null and void. He placed reliance on the decision of this Tribunal in the case of Fibres & Fabrics International Pvt. Ltd. vs. DCIT in dated 10/2/2016 for the proposition that an erroneous order passed by the original AO does not give jurisdiction for re-assessment proceedings. Thus, he submitted that the very re-assessment proceedings are not valid in law. Without prejudice to this, learned counsel for assessee-company submitted that that the claim for deduction of provision of written back was allowable as in the year in which provision was created the same was offered to tax as no tax had been deducted at source under the provisions of section 40a(ia) of the Act.
5.2 On the other hand, learned CIT(DR) vehemently contested that re-assessment proceedings are valid initiated as the AO had come to know that during the course of assessment proceedings for assessment year 2009-10 that exemption was wrongly allowed u/s 10(23G) of the Act which was no longer in vogue. The fact that the provisions of section 10(23G) of the Act omitted bny the Finance Act, 2006 w.e.f. 1/4/2007, were brought to the notice of the AO only during the course of assessment proceedings for the assessment year 2009-10. Discovery of this information enabled the AO to form opinion that income had escaped assessment. Therefore, the ratio of the decision of the Page 7 of 10 Hon’ble Supreme Court in the case of Kelvinator of India Ltd.,(supra) cannot be applied. As regards merits, the CIT(DR) submitted that the assessee-company had failed to discharge the onus of providing that reversal of provision was out of the amount disallowed in the earlier year. Therefore, no claim can be allowed on mere submissions without evidence. He prayed for sustenance of the addition made.
We heard rival submissions and perused material on record. We shall, at the first instance, deal with grounds of appeal challenging re-assessment proceedings. The contention of the assessee-company that there was no fresh information which enabled the AO to form opinion that income escaped assessment cannot be accepted, as information had come to the knowledge of AO that the provisions of section 10(23G) were omitted w.e.f. 1/4/2007 during the course of subsequent assessment proceedings. As held by the Hon’ble Bombay High Court in the case of Multiscreeen Media (P) Ltd. vs. Union of India & another (324 ITR 54). Even the Hon’ble Supreme Court in the case of Ess Kay Engineering P.Ltd. vs. CIT (247 ITR 818) Phool Chand Bajrang Law & another vs. CIT(203 ITR 456) held that information obtained in subsequent assessment proceedings could lead to a belief that income chargeable to tax has escaped assessment even though the transaction in question had been examined during the course of original assessment proceedings.
Page 8 of 10 Reliance placed by the learned counsel for assessee-company on the decision in the case of Kelvinator of India Ltd., (supra) is misplaced, as there is no opinion formed in the original assessment proceedings on the issue of claim of examination of tax free interest u/s 10(23G) of the Act. Therefore, we hold that initiation of re-assessment proceedings u/s 147 is valid in law.
Now, coming to merits of the addition of Rs.5,27,67,000/- on account of reversal of provision for royalty, fees for technical service etc., of Rs.79,12,000/- on account of reversal of provision for contractor and professional fee etc., it is the claim of the assessee-company that these amounts were disallowed u/s 40a(ia) suo motu for non-deduction of tax at source. In the year under consider consideration, the very provision created was reversed and therefore the same should be allowed as a deduction. There is no quarrel on this proposition but the claim can be allowed only on satisfying the AO that the provision was reversed out of amount disallowed earlier. The CIT(A) has recorded a categorical finding that the assessee has failed to link provision reversed with the amount of provision originally created and disallowed. The CIT(A) also observed that the assessee- company had expressed its helplessness to establish the link between original provision and reversal provision during the year under consideration. In the circumstances, the CIT(A) has confirmed the addition. Even before us, assessee-company had not made any attempt to prove nexus between amount of Page 9 of 10 provision created which was disallowed in earlier years and the amount of provision reversed during the year under consideration. The onus of proving the claim always lies with the assessee. The Hon’ble Supreme Court in the case of CIT vs. Imperial Chemical Industries (India) Ltd., (74 ITR 17)(SC) has unequivocally held that burden of providing that the claim is allowable lies on the assessee. Discharge of burden has to be effective and meaningful and not to cover up the book entries and paper work. In view of failure by the assessee-company to prove nexus between amount disallowed suo motu, provisions of section 40a(ia) and the amount reversed during the year under consideration, we have no option but to confirm the action of the AO making the addition on the same.
In the result, the appeal filed by the assessee is dismissed.