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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
Both the appeals of the assessee are directed against the respective orders of the Commissioner of Income Tax (Appeals)-1, Chennai, dated 23.12.2015 and pertain to assessment years 2007- 08 and 2008-09. Since common issue arises for consideration in both the appeals, we heard both the appeals together and disposing of the same by this common order.
Sh. T. Banusekar, the Ld. representative for the assessee, submitted that the first issue arises for consideration in both the appeals is with regard to reopening of assessment under Section 147 of the Income-tax Act, 1961 (in short 'the Act'). According to the Ld. D.R., for the assessment year 2007-08, the assessment was reopened after expiry of four years. It is not the case of the Assessing Officer that there was any negligence on the part of the assessee in furnishing inaccurate particulars before completing the original assessment. In fact, the original assessment was completed. For the assessment year 2008-09, the assessment was reopened within four years. According to the Ld. representative, the assessee, a non-banking financial company, borrowed loan from several banks. The loan was settled by making one-time payment. The one-time settlement made by the assessee was the subject matter of earlier assessment and, in fact, the CIT(Appeals) deleted the addition made by the Assessing Officer with regard to one-time settlement. On further appeal by the Revenue, the same was confirmed by this Tribunal also. By placing reliance on the judgment of Delhi High Court in CIT v. Goyal M.G. Gases Ltd. (2010) 321 ITR 437, the Assessing Officer reopened the assessments for both the assessment years. According to the Ld. representative, an addition was made with regard to one-time settlement, which was in fact, deleted by the CIT(Appeals). On further appeal by the Revenue, the same was confirmed by this Tribunal. Now, the Assessing Officer claims that even though it is not taxable in normal computation, the same has to be included for the purpose of computing the book profit under Section 115JB of the Act. According to the Ld. representative, when the one-time settlement was not taxable in the normal computation, the same cannot form part of book profit under Section 115JB of the Act. The Ld. representative clarified that since it is one-time settlement of loan, the same was brought to the balance sheet as capital reserve.
The Ld. representative further clarified that the one-time settlement was not routed through Profit & Loss account.
Sh. T. Banusekar, the Ld. representative for the assessee, further submitted that in response to the reasons recorded for the reopening of assessments, the assessee has filed a detailed objection on 04.07.2014 for the assessment year 2007-08 and on 19.03.2015 for the assessment year 2008-09, the copies of objections are available at pages 25 and 36 of the paper-book.
According to the Ld. representative, these objections were not disposed of by the Assessing Officer before completing the assessments. Placing reliance on the judgment of Apex Court in GKN Driveshafts (India) Ltd. v. ITO 259 ITR 19, the Ld. representative submitted that the Assessing Officer is bound to dispose of the objection of the assessee by a separate order. By placing reliance on the judgment of Madras High Court in CIT v.
Baer Shoes (India) (P) Ltd. (2011) 331 ITR 435, the Ld. representative submitted that the power of reopening of assessment under Section 147 of the Act has to be invoked in accordance with the conditions laid down therein. Merely because a judgment was rendered subsequently that cannot be a reason to reopen the assessment under Section 147 of the Act. The Madras High Court found that reopening of assessment on the basis of subsequent judgment of Apex Court would amount to change of opinion.
Therefore, according to the Ld. representative, reopening of assessment on the basis of the High Court judgment is nothing but change of opinion, therefore, reopening of assessment is invalid.
Sh. T. Banusekar, the Ld. representative for the assessee, has also placed his reliance on the judgment of Delhi High Court in CIT v. Orient Craft Ltd. (2013) 354 ITR 536 and submitted that on identical set of facts, the Delhi High Court found that even though no assessment was made under Section 143(3) of the Act, reopening of assessment would amount to change of opinion. The Ld. representative has also placed his reliance on the judgment of Apex Court in CIT v. Kelvinator of India Ltd. (2010) 320 ITR 561 and the judgment of Full Bench of Delhi High Court in CIT v. Kelvinator of India Ltd. (2002) 256 ITR 1.
Placing reliance on the judgment of Gujarat High Court in General Motors India Pvt. Ltd. v. DCIT (2013) 354 ITR 244, the Ld. representative for the assessee submitted that when the Assessing Officer fails to dispose of the objection raised by the assessee for reopening of assessment, the Assessing Officer cannot pass an assessment order. According to the Ld. representative, after serving notice under Section 148 of the Act, the Assessing Officer was expected to give a copy of the reason recorded for reopening and the Assessing Officer thereafter has to consider the objection of the assessee and pass a speaking order. A copy of the order shall be served on the assessee and an opportunity shall be given to the assessee to challenge the order before appropriate forum. Therefore, according to the Ld. representative, the Assessing Officer has to first dispose of the objection of the assessee. In this case, the objection filed by the assessee was not disposed off. In similar circumstances, the Gujarat High Court has quashed the order of the Assessing Officer. In view of this judgment of Gujarat High Court, according to the Ld. representative, the assessment order passed by the Assessing Officer without disposing of the objection cannot stand in the eye of law.
Referring to the judgment of Apex Court in Apollo Tyres Ltd. v. CIT (20020 255 ITR 273, the Ld. representative for the assessee, submitted that the assessee was expected to compute the book profit under Section 115JB(2) of the Act under Parts II and III of Schedule VI to the Companies Act, 1956. Once the book profit is computed as per the provisions of Companies Act and certified by the auditor, the Assessing Officer cannot go beyond the book profit computed and certified by the auditor. The power of the Assessing Officer is only to verify whether it is certified by the auditor or not. In this case, according to the Ld. representative, the Assessing Officer recomputed the book profit by including the one-time settlement made by the assessee, which is not permissible as held by the Apex Court in Apollo Tyres Ltd. (supra). Referring to the decision of Delhi Bench of this Tribunal in Suresh Chandra v. ITO in I.T.A.
No.3061/Del/2012, a copy of which is available at page 78 of the paper-book, the Ld. representative submitted that the Assessing Officer is mandated to decide the objection of the assessee to the notice issued under Section 148 of the Act before passing the order.
The Ld. representative further placed his reliance on the judgment of Bombay High Court in CIT v. Adbhut Trading Co.
(2011) 338 ITR 94 and submitted that once the Profit & Loss account prepared by the assessee was certified by the authorities under the Companies Act, it is not open to the Assessing Officer to contend that the Profit & Loss account has not been prepared in accordance with law under the provisions of Companies Act. In this case, the Profit & Loss account was certified by the authorities prescribed under the Companies Act. Therefore, the Assessing Officer now cannot contend that the Profit & Loss account was not prepared in accordance with law under the Companies Act. Placing reliance on the judgment of Madras High Court in CIT v.
Vijayashree Finance & Investment Co (P) Ltd. (2008) 216 CTR 191, the Ld. representative submitted that while computing income under Section 115J of the Act, the power of the Assessing Officer is to examine whether the book profit as computed was certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The A.O. thereafter has limited power to increase or reduce as provided for in the Explanation to the said Section. To put it differently, according to the Ld. representative, the Assessing Officer does not have jurisdiction to go behind the net profit shown in the Profit & Loss account except to the extent provided for in the Explanation to Section 115J of the Act.
On the contrary, Shri B. Koteswara Rao, the Ld. Departmental Representative, submitted that the assessee borrowed loan from several banking institutions and the same was settled by one-time payment. Therefore, the banking institutions waived their claim for providing one-time settlement. The payment of one-time settlement was the subject matter of litigation before this Tribunal. This Tribunal found that one-time settlement cannot be the subject matter of taxation under the normal computation. The Assessing Officer further found that in view of judgment of Delhi High Court in Goyal M.G. Gases Ltd. (supra), even though the write back of loans was not taxable under normal provisions of the Act, they are to be included for the purpose of computation of book profit. Since the assessee has not included for computing the book profit, according to the Ld. D.R., the book profit was not computed as per the provisions of Companies Act, the Assessing Officer has rightly recomputed the book profit in accordance with the provisions of the Act.
Placing reliance on the decision of Mumbai Bench of this Tribunal in DCIT v. Bombay Diamond Co. Ltd. (2010) 33 DTR 59, the Ld. Departmental Representative, submitted that when the accounts were not prepared in accordance with Parts Ii and III of Schedule VI to the Companies Act, merely because the auditor has certified the account, it cannot be said that the Assessing Officer cannot recompute the book profit. In view of this decision of Mumbai Bench of this Tribunal, according to the Ld. D.R., the Assessing Officer has every right to recompute the book profit when the accounts were not prepared as per the provisions of Companies Act. According to the Ld. D.R., the one-time settlement and waiver of loan by the banking institutions was admittedly not routed through Profit & Loss account. The assessee has taken the same to the balance sheet directly. Therefore, the accounts were not maintained as per the provisions of Companies Act. When the accounts were not maintained as per the provisions of Companies Act and waiver of loan and one-time settlement were not routed through Profit & Loss account, according to the Ld. D.R., the book profit was not computed as per the provisions of Companies Act. Therefore, the judgment of Apex Court in Apollo Tyres Ltd. (supra) may not be applicable at all. When it was found that the accounts were not prepared in the manner provided in Parts II and III of Schedule VI to the Companies Act, 1956, the Assessing Officer can go beyond the book profit as per the audited accounts. Therefore, according to the Ld. D.R., it is not correct to say that the Assessing Officer cannot recompute the book profit. According to the Ld. D.R., since the accounts were not maintained as per the provisions of Companies Act and one-time settlement and waiver of loan by the banking institutions were not routed through Profit & Loss account, the Assessing Officer has rightly recomputed the book profit.
Referring to reopening of the assessments, the Ld. Departmental Representative submitted that no assessment order was passed under Section 143(3) of the Act. In fact, the returns of income were processed under Section 143(1) of the Act. Placing reliance on the judgment of Apex Court in ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd. (2007) 291 ITR 500, the Ld. D.R. submitted that once the conditions provided under Section 148 of the Act were satisfied, the Assessing Officer has every right to reopen the assessment, therefore, the contention of the Ld. representative for the assessee that the assessment was reopened beyond four years is not correct. Even though the assessment was reopened beyond four years for the assessment year 2007-08, since no assessment was made under Section 143(3) of the Act, provisions of Section 147 of the Act may not be applicable at all. Referring to the assessment order for both the assessment years, the Ld. D.R. submitted that the Assessing Officer in categorical terms recorded that there was a failure on the part of the assessee to disclose fully and truly all the material facts that were necessary to complete the assessment. In view of this, according to the Ld. D.R., it cannot be said that the reopening of assessment is invalid.
Referring to the contention of the assessee that there was change of opinion by the Assessing Officer, the Ld. D.R. submitted that the Assessing Officer has not expressed any opinion with regard to book profit under Section 115JB of the Act. In fact, no assessment was made, therefore, the Assessing Officer had no occasion to express any opinion. Unless and until the Assessing Officer expresses his opinion by passing an assessment order under Section 143(3) of the Act, it cannot be said that the Assessing Officer changed his opinion. In the absence of any opinion by the Assessing Officer, it cannot be said that the Assessing Officer changed his opinion, therefore, the judgment of Apex Court and the judgment of Full Bench of Delhi High Court in Kelvinator of India Ltd. (supra) may not be applicable at all.
We have considered the rival submissions on either side and perused the relevant material available on record. We have carefully gone through the orders of the authorities below. The assessee is a non-banking financial company. The assessee borrowed loan from several banks and financial institutions and settled the same by one-time settlement. The banks and financial institutions waived loan and principal amount and interest so as to enable the assessee to settle the outstanding due by one-time settlement. The taxability of one-time settlement was the subject matter of appeal before this Tribunal. This Tribunal found by an order dated 20.09.2011, that the one-time settlement cannot be subjected to taxation. The issue now before this Tribunal is with regard to computation of book profit under Section 115JB of the Act. The Assessing Officer claims that even though one-time settlement was not taxable in view of the decision of this Bench dated 20.09.2011, the same has to be included for the purpose of computing book profit. Therefore, she reopened the assessment by issuing notice under Section 148 of the Act.
The assessee now claims before this Tribunal that the reopening of assessment is not valid. According to the Ld. representative, for the assessment year 2007-08, the assessment was reopened after expiry of four years, therefore, the reopening is bad in law. For the assessment year 2008-09, the Ld. representative for the assessee contends that the reopening of assessment was due to change of opinion. The assessee also claims that in response to notice under Section 148 of the Act, an objection was filed for reopening of assessment. For the assessment year 2007-08, the objection was filed before the Assessing Officer on 04.07.2014 and for the assessment year 2008- 09, the objection was filed on 19.03.2015. The assessee claims that these objections were not disposed off by the Assessing Officer before passing the assessment orders. The question now arises for consideration is - Can the Assessing Officer proceed further in the assessment proceeding without disposing of the objections filed by the assessee for reopening the assessment? This issue was subject matter of discussion before the Gujarat High Court in General Motors India Pvt. Ltd. (supra). The Gujarat High Court, after considering the case laws on the subject, has observed as follows:-
“23. A Division Bench of this court in Arvind Mills Ltd. v. Asst. CWT (No. 2) [2004] 270 ITR 469 (Guj), after considering the decision of this court in Garden Finance Ltd. v. Asst. CIT [2004] 268 ITR 48 (Guj), held in the majority opinion as under (page 474 of 270 ITR) : " 'What the Supreme Court has now done in the GKN case [2003] 259 ITR 19 is not to whittle down the principle laid down by the Constitution Bench of the apex court in Calcutta Discount Co. Ltd. case [1961] 41 ITR 191 (SC) but to require the assessee first to lodge preliminary objection before the Assessing Officer who is bound to decide the preliminary objections to issuance of the reassessment notice by passing a speaking order and, therefore, if such order on the preliminary objections is still against the assessee, the assessee will get an opportunity to challenge the same by filing a writ petition so that he does not have to wait till completion of the reassessment proceedings which would have entailed the liability to pay tax and interest on reassessment and also to go through the gamut of appeal, the second appeal before Income-tax Appellate Tribunal and then reference/tax appeal to the High Court.
Viewed in this light, it appears to me that the rigour of availing of the alternative remedy before the Assessing Officer for objecting to the reassessment notice under section 148 has been considerably softened by the apex court in GKN case [2003] 259 ITR 19 in the year 2003. In my view, therefore, the GKN case [2003] 259 ITR 19 does not run counter to the Calcutta Discount Co. Ltd. case [1961] 41 ITR 191 (SC) but it merely provides for challenge to the reassessment notice in two stages, that is,—
(i) raising preliminary objections before the Assessing Officer and in case of failure before the Assessing Officer
(ii) challenging the speaking order of the Assessing Officer under section 148 of the Act.
The position in law is thus well settled. After a notice for re-assessment has been issued an assessee is required to file the return and seek reasons for issuance of such notice. The Assessing Officer is then bound to supply the reasons within a reasonable time. On receipt of reasons, the assessee is entitled to file preliminary objections to issuance of notice and the Assessing Officer is under a mandate to dis pose of such preliminary objections by passing a speaking order, before proceeding with the assessment in respect of the assessment year for which such notice has been issued."
From the aforesaid discussion, we are of the considered opinion that the writ petition under article 226 of the Constitution of India is maintainable where no order has been passed by the Assessing Officer deciding the objection filed by the assessee under section 148 of the Act and assessment order has been passed or the order
deciding an objection under section 148 of the Act has not been communicated to the assessee and assessment order has been passed or the objection filed under section 148 has been decided along with the assessment order. If the objection under section 148 has been rejected without there being any tangible material available with the Assessing Officer to form an opinion that there is escapement of income from assessment and in the absence of reasons having direct link with the formation of the belief, the writ court under article 226 can quash the notice issued under section 148 of the Act. The writ petition filed by the petitioner is maintainable. The Assessing Officer is mandated to decide the objection to the notice under section 148 and supply or communicate it to the assessee. The assessee gets an opportunity to challenge the order in a writ petition. Thereafter, the Assessing Officer may pass the reassessment order. We hold that it was not open to the Assessing Officer to decide the objection to notice under section 148 by a composite assessment order. The Assessing Officer was required to, first decide the objection of the assessee filed under section 148 and serve a copy of the order on the assessee. And after giving some reasonable time to the assessee for challenging his order, it was open to him to pass an assessment order. This was not done by the Assessing Officer, therefore, the order on the objection to the notice under section 148 and the assessment order passed under the Act deserves to be quashed.”
In view of the above observation of Gujarat High Court, this Tribunal is of the considered opinion that the Assessing Officer was expected to dispose of the objections filed by the assessee before proceeding further in the assessment.
In this case, it is not in dispute that the objections filed by the assessee were not disposed off by the Assessing Officer.
Therefore, consequential assessment framed by the Assessing Officer cannot stand in the eye of law. This judgment of Gujarat High Court was considered in an unreported decision of Delhi Bench of this Tribunal in Suresh Chandra (supra). The assessee has filed a copy of this decision of Delhi Bench of this Tribunal which is available at page 78 of the paper-book. The Delhi Bench, after considering the judgment of Gujarat High Court in General Motors India Pvt. Ltd. (supra) and the judgment of Apex Court in GKN Driveshafts (India) Ltd. (supra), has found that the Assessing Officer was first required to dispose off the objection of the assessee. Since the objections were not disposed of, the impugned assessment dated 31.12.2010 was void ab initio. In fact, the Delhi Bench of this Tribunal has observed as follows at para 8 of its order:-
“8. In view of the above decisions, we find that the Assessing Officer is mandated to decide the objection to the notice under sec. 148 of the Act and supply or communicate it to the assessee. Thereafter, the assessee gets an opportunity to challenge the order in a writ petition. Thereafter, the Assessing Officer may pass the reassessment order. It is not open to the Assessing Officer to decide the objection raised against notice under sec. 148 by a composite assessment order. Thus, the Assessing Officer was required to first decide the objection of the assessee filed under sec. 148 and serve a copy of the order on assessee. And after giving some reasonable time to the assessee for challenging his order, it is open to him to pass an assessment order. Since such compliance has not been made by the Assessing Officer in the present case, we hold that the impugned assessment order dated 03.10.2008 as not valid and the same is held as void ab initio.”
In view of the above, this Tribunal is unable to uphold the orders of the authorities below. Accordingly, the orders of both the authorities below are set aside and the addition made by the Assessing Officer is deleted.