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Income Tax Appellate Tribunal, MUMBAI “E” BENCH, MUMBAI
Before: SHRI SHAILENDRA KUMAR YADAV, JUDICIAL & SHRI RAJESH KUMAR.
अपीलाथ� क� ओर से /By Appellant : Shri Manjunathaswamy, CIT D.R., & Shri Vinod Kumar, D.R. ��यथ� क� ओर से/By Respondent :Shri Rakesh Joshi, A.R. सुनवाई क� तार�ख/Date of Hearing : 14.06.2016 घोषणा क� तार�ख/Date of Pronouncement : 24.06.2016 ORDER PER SHAILENDRA KUMAR YADAV, J.M:
This appeal has been filed by Revenue against the order of Commissioner of Income-Tax (Appeals)-38, Mumbai, dated 28.02.2014 for A.Y. 2005-06 on following grounds:
A.Y. 05-06 [ACIT vs. M/s. Sun Investments P. Ltd.] Page 2
“1. "On the facts and in the circumstances of the case and in law, the ld CIT(A) erred in holding that the A.O. has wrongly assumed the jurisdiction u/s. 147 of the Act, without appreciating the fact that the A.O. had reason to believe that income has escaped assessment and that mere production of books of a/c or a foot-note in the computation of income does not necessarily amount to disclosure within the meaning of first proviso to sec. 147 as mentioned in Explanation 1 to sec 147 of the Act." 2. "On the facts and in the circumstances of the case and in law, the ld CIT(A) erred in treating the 'Loss on sale of investment' amounting to Rs. 7,30,31,599/- as business loss, without appreciating the fact that the loss pertained to sale of long term investment as exhibited in schedule E of the Balance Sheet, being a capital loss." 3. "On the facts and in the circumstances of the case and in law, the ld CIT(A) erred in deleting the addition made on account of bad debts written off amounting to Rs.10,97,05,670/- without appreciating the fact that the provision for 'doubtful receivable' of Rs. 10,97,05,670/- has not written off in the hoods of account by the assessee for A. Y.2005-06."
Assessee is a non banking finance company carrying on the activities of dealing in shares & securities, lending etc. Assessee filed its return of income declaring Nil income. The assessment u/s.143(3) of the Act was completed on 24.12.2007 making certain additions and determining total income at Rs. Nil. Subsequently the assessment was reopened by the ACIT, Circle 9(1), New Delhi on the ground that the assessee had debited an amount of Rs.7,30,31,599/- in the P & L account towards 'loss on sale of investments'. Assessing Officer was of the view that the loss pertained to sale of long A.Y. 05-06 [ACIT vs. M/s. Sun Investments P. Ltd.] Page 3 term investment as exhibited in Schedule 'E' of the balance sheet and this being a capital loss, should have been disallowed and added back to the income of the assessee. Accordingly, notice u/s.148 of the Act was issued on 30.03.2010, requiring the assessee to file the return of income within 30 days. In response to the said notice, assessee company filed a return of income on 19.04.2010. Further on scrutiny of the computation of income, it was noticed by Assessing Officer that the assessee company claimed deduction of Rs.10,97,05,670/- on account of written off interest on OCD's. Assessee was asked to explain why the same should not be disallowed. From the records, it was found that the assessee has made provision for doubtful recoverable during the year immediately proceeding the year under consideration. While computing the assessable income, assessee also claimed the same deduction during the year under consideration. Assessee claimed the same as bad debts. Since the assessee has not written off the same as bad debts, the Assessing Officer disallowed the sum of Rs.10,97,05,670/- and added the same to the income of assessee. The assessment u/s.147/143(3) of the Act was completed on 29.12.2010 determining total income at Rs.18,27,37,269/-.
2.1 Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee and after considering the same, CIT(A) allowed the ground of assessee. A.Y. 05-06 [ACIT vs. M/s. Sun Investments P. Ltd.] Page 4 2.2 The stand of assessee has been that since proceedings have been initiated u/s.147 of the Act on the basis of information/material available with the Assessing Officer and no new tangible information/material came to the knowledge of Assessing Officer subsequent to the conclusion of original assessment. Moreover, the proceedings have been initiated for the reasons for which rectification proceedings u/s.154 of the Act had been initiated earlier, which had not yet been concluded and no order has been passed in this regard till date. This shows that proceedings have been initiated on mere change of opinion. Assessment proceedings u/s.154 of the Act was pending on the same issue and not concluded u/s.147 of the Act initiated by Assessing Officer were ab initio, especially when except the return and its enclosures, no other material or information was in the possession of the Assessing Officer.
2.3 In this case, assessment was re-opened u/s. 147 of the Act on the ground that assessee had debited an amount of Rs. 7,30,31,599/- in the P&L account towards loss on sale of investments, which being long term capital gain should not have been allowed as business loss. The loss was on account of sale of shares. Assessee had been showing the shares as investments in the balance sheet, however, for the A.Y. 1992- 93 and A.Y. 1993-94 Assessing Officer treated the sale of shares as business income/loss and completed the assessment u/s 143(3) of the Act. The said orders have also been confirmed by the CIT(A) for both the years. Thereafter, A.Y. 05-06 [ACIT vs. M/s. Sun Investments P. Ltd.] Page 5 assessee has been consistently showing the sale of shares as business income or loss which has also not been disturbed by the Assessing Officer till A.Y. 2005-06. The return of income filed for the assessment year 2005-06 contain a footnote in the computation of total income that the company is holding shares, debentures etc. as investments in group companies and the gain or loss on disposal of shares/debentures have been treated as business income/loss as per the last assessments. Once such note has been appended and the assessment has been concluded u/s 143(3) of the Act, there would be no reason for the reopening of the assessment on the said ground. Assessing Officer is not permitted to review u/s. 147 of the Act of the earlier decision taken by him in the absence of there being any material to come to a different conclusion. It is a settled proposition of law that reason to believe can never be the outcome of a change of opinion. This view is supported by Hon’ble Supreme Court decision in the case of CIT vs. Kelvinator India Ltd. [320 ITR 561] and CIT vs. Foramer France [264 ITR 567] are applicable to the facts of the case of assessee. Since, Assessing Officer has changed his own earlier decision, so, CIT(A) was justified in holding that Assessing Officer has wrongly assumed the jurisdiction u/s.157 of the Act. Same is upheld.
Next issue is with regard to business loss of Rs.7,30,31,599/- on sale of shares treated as capital loss, which is disallowed by Assessing Officer.
ITA No.4077/Mum/14 A.Y. 05-06 [ACIT vs. M/s. Sun Investments P. Ltd.] Page 6 3.1 In appeal, various contentions were raised on behalf of assessee and in response to same, remand report was called for and same furnished to the assessee for comment and having considered the same, CIT(A) observed that assessment was re-opened u/s.147 of the Act on the ground that assessee had debited an amount of Rs.7,30,31,599/- in P&L account towards ‘loss on sale of investments’ which being long term capital gains should not be allowed as business loss. The loss is on account of sale of shares. Assessee has been showing the shares as investments in the balance sheet, however, for A.Y. 1992-93 and A.Y. 1993-94, Assessing Officer treated the sale of shares as business income/loss and completed the assessment u/s.143(3) of the Act. The said orders have also been confirmed by CIT(A) for both the years. Assessing Officer himself had assessed the income or loss on account of sale under the head ‘profit & gains from business’ instead of ‘income of capital gains’ shown by assessee, which has been followed by assessee consistently. Assessing Officer has not given any reason except stating that the assessee had shown the said shares as long term investments in the balance sheet. In this regard, CIT(A) observed that assessee has been showing said shares as investments in the balance sheet and since the department had altered the nature of income from capital gains to business income, assessee accepted the said decision of the department and has been offering the income under the head ‘business’, though the said shares have been continued to be shown as investments in the balance sheet. Facts have not A.Y. 05-06 [ACIT vs. M/s. Sun Investments P. Ltd.] Page 7 been different to the earlier A.Ys. 1992-93 & 1993-94, wherein Assessing Officer himself treated the sale of shares as business income/loss. In this view, Assessing Officer cannot keep changing the head of income without bringing new material on record. Therefore, loss on sale of shares of Rs.7,30,31,599/- was rightly directed to be treated as business loss. This reasoned factual finding of CIT(A) needs no interference from our side. We uphold the same.
Next issue is with regards to disallowance of bad debts of Rs.10,97,05,670/- made by Assessing Officer, which was confirmed by CIT(A).
4.1 In appeal, various contentions were raised on behalf of assessee and in response to same, remand report was called for and same was confronted to the assessee and having considered the facts and circumstances and including remand report and reply to same, CIT(A) granted relief to the assessee by observing that for A.Y. 2004-05 assessee company debited provision for doubtful interest receivable of Rs. 10,97,05,670/- in the P&L account but added the same in the computation of income since mere provision cannot be allowed as deduction. During A.Y. 2005-06 assessee has written off interest receivable and claimed the same as allowable deduction in the computation of income. Since the provision was debited in P&L account last year the same was not debited once again in the P&L account this year. Instead the assessee claimed deduction only in the computation of income for A.Y. 2005-06. Assessee A.Y. 05-06 [ACIT vs. M/s. Sun Investments P. Ltd.] Page 8 explained necessary entries were passed in the books of account with reference to write off of bad debts. The entries passed by assessee have been verified and found to be correct. So, following the decision of Hon'ble Supreme Court in the case of TRF Ltd. vs CIT [323 1TR 397], the addition made on account of bad debts written off of Rs. 10,97,05,670/- was rightly deleted by CIT(A). This reasoned factual finding of CIT(A) needs no interference from our side. We uphold the same.
As a result, appeal filed by Revenue is dismissed.
Pronounced in the open Court on this the 24th day of June, 2016.
Sd/- Sd/- (RAJESH KUMAR) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai: Dated 24/06/2016 True Copy S.K.SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार, आयकर अपील�य अ�धकरण, मुंबई ।