Dhanraj Mills P.Ltd, Mumbai vs Assessee

श्री आर.सी. शर्मा, ऱेखा सदस्य एवुं श्री विजयपमऱ रमि, न्याययक सदस्यके समक्ष

BEFORE SHRI R.C. SHARMA, ACCOUNTATN MEMBER AND SHRI VIJAYPAL RAO, JUDICIAL MEMBER

आमकय अऩीर सं. / ITA no.3100/Mum./2013 (ननधधायण वषा / Assessment Year : 2005-06)

Dhanraj Mills Pvt. Ltd. C/o R.G. and Sons Pvt. Ltd. Laxminarayan Mandir ................. अऩीरधथी / Bapubhai Vashi Road Appellant Vile Parle (W), Mumbai 400 056 PAN - AAACD5580D

फनधभ v/s

Dy. Commissioner of Income Tax ................... प्रत्मथी / OSD-II, Range-7, Mumbai Respondent

ननधधारयती की ओय से / Assessee by : Shri Vijay C. Kothari यधजस्व की ओय से / Revenue by : Dr. P. Daniel

सन ु वधई की तधयीख / आदे श घोषणध की तधयीख / Date of Hearing - 30.04.2015 Date of Order - 29.05.2015

आदे श / ORDER

विजयपमऱ रमि, न्याययक सदस्य के द्वारा / PER VIJAYPAL RAO, JUDICIAL MEMBER

The present appeal by the assessee is directed against the

impugned order dated 28th February 2013, passed by the

Commissioner (Appeals)-40, Mumbai, for the assessment year 2005-

06. The grounds raised by the assessee are as under:-

Dhanraj Mills Pvt. Ltd.

2 "1. The learned CIT(A) has erred in passing the order without giving proper opportunity to the appellant.

2. The learned CIT(A) has erred in confirming the re-opening of assessment u/s 147 fo the Act.

3. The learned CIT(A) has erred in confirming the addition of ` 35,25,000 being claim of write-off of loans and advances due to non-recovery of amounts.

4. The learned CIT(A) has erred in confirming the interest u/s 234C, 234B and 234C fo the Act.

2. The learned CIT(A) erred in confirming the initiation of penalty proceedings u/s 271(1)(c) of the Act."

2. Since the assessee has raised the issue of validity of re-opening

of the assessment under section 147 of the Income Tax Act, 1961 (for

short "the Act"), which goes to the root of the matter, therefore, we

shall first proceed to adjudicate ground no.2 of the assessee's appeal.

3. The original assessment was completed under section 144 of the

Act, on 31st December 2007. Subsequently, the Assessing Officer re-

opened the assessment by issuing a notice dated 22 nd March 2010

under section 148 of the Act. The assessee, vide its letter dated 8 th

April 2010, objected to the re-opening of the assessment on the

ground that the complete details of writing-off of the amount is

business loss were filed before the Assessing Officer and the Assessing

Officer, in the original assessment proceedings, accepted the claim of

the assessee after considering the reply of the assessee. Therefore,

the assessee took objection that the re-opening is based on change of

opinion which is not sustainable in view of the judgment of the Hon'ble Dhanraj Mills Pvt. Ltd.

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Delhi High Court in DCIT v/s Kalvinator of India Ltd., [2002] 75 TTJ

966 (Del), which has been confirmed by the Hon'ble Supreme Court.

The Assessing Officer completed the re-assessment and made the

disallowance on account of the business loss of ` 35,25,000.

4. The assessee challenged the action of the Assessing Officer

before the learned CIT(A) and also raised the objection of validity of

re-opening of the assessment but could not succeed.

5. Before us, the learned Counsel for the assessee submitted that in

the course of original assessment, the assessee furnished the details

of the business loss of the amount of ` 35,25,000, written-off as

business loss vide its letter dated 26th December 2007. The learned

counsel submitted that in this letter, the assessee has explained the

claim of business loss as well as the loss suffered by the assessee from

investment in shares. The Assessing Officer, while completing the

assessment on 31st December 2007, allowed the claim of the assessee

regarding the business loss of ` 35,25,000, but disallowed the claim of

the loss on account of investment in shares. Thus, the Assessing

Officer, while completing the assessment under section 144, has

considered the issue of disallowance of investment written-off after

considering the reply of the assessee and no disallowance was made in

respect of ` 35,25,000, claimed as business loss as explained by the Dhanraj Mills Pvt. Ltd.

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assessee in the same reply. Thus, the Assessing Officer has considered

the said reply of the assessee dated 26th December 2007 and allowed

the claim on account of business loss written-off. Subsequent re-

opening is based on change of opinion as there was no fresh material

or information came to the knowledge of the Assessing Officer after

completion of assessment on 31st December 2007. In support of his

contention, he relied upon the decision of the Hon'ble Jurisdictional

High Court dated 28th January 2015 in CIT v/s Jet Speed Audio Pvt.

Ltd., [2015] 230 Taxman 430 (Bom.).

6. On the other hand, the learned Departmental Representative

relied upon the orders of the authorities below and submitted that this

issue has been considered by the Assessing Officer and the learned

Commissioner (Appeals) for the assessment year 2004-05 and the

disallowance has been confirmed by the learned CIT(A) for the

assessment year 2004-05, therefore, the claim of the assessee is not

permissible as it was also decided for the assessment year 2004-05.

He has further contended that the re-opening is within four years and,

therefore, it is not hit by proviso to section 147 of the Act.

7. We have considered the rival submissions as well as relevant

material on record. The original assessment was completed under

section 144 on 31st December 2007. Subsequently, vide notice dated Dhanraj Mills Pvt. Ltd.

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22nd March 2010, under section 148 of the Act, the Assessing Officer

re-opened the assessment by recording the reasons as under:-

"In this case order u/s 144 was passed on 31.12.2007 on the assessed income of ` 17,91,17,060 against the returned loss of ` 1,16,29,290. During the verification of case records, it is seen that the assessee claimed loans written off amounting to ` 35.25 lakhs and debited the same to the Profit & Loss account.

This is in the nature of capital loss and cannot be treated as revenue expenditure. This has remained to be disallowed. In view of the facts and circumstances, I have no reasons to belief that the income of ` 35.25 lakhs has escaped assessment and this is a fit case for issue of notice u/s 148 of the Act."

8. Thus, it is clear that the Assessing Officer has re-opened the

assessment on the ground that the assessee claimed loss written-off

amounting to ` 35,25,000, which according to the Assessing Officer, at

the time of re-opening, is in the nature of capital loss and cannot be

treated as revenue expenditure. We find that at the time of passing

the assessment order dated 31st December 2007, the Assessing Officer

has disallowed the claim of loss on account of investment in shares

and discussed the said issue as under:-

"The assessee has written off investment of ` 6000000. He was asked to file the details. He has filed the details stating as under. For the investment written off he has stated that he had suffered a business loss of ` 6000000 companies has forfeited the shares on account of non-payment of allotment money. He has filed the list of such companies. However, he has not filed any other documentary evidence or proof in support of his contention. Hence, the contention of assessee is not acceptable. The amount of ` 6000000 as written off is added back to the income of the assessee."

Dhanraj Mills Pvt. Ltd.

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9. It is apparent from the findings of the Assessing Officer that the

assessee filed a list of such companies. It is pertinent to note that the

list of companies in respect of loss on account of investment in the

shares has been annexed by the assessee along with letter dated 26 th

December 2007. The said letter has not been disputed by the

Revenue. In the first part of the said letter, the assessee has given the

explanation regarding the claim of business loss of ` 35,25,000,

written-off. Therefore, while completing the assessment on 31 st

December 2007, the Assessing Officer considered the letter dated 26 th

December 2007 and, thereafter, the claim of the assessee in respect of

the business loss of ` 35,25,000, was allowed. As it is clear from the

reasons recorded by the Assessing Officer for re-opening of the

assessment that no fresh material or information came to the notice /

knowledge of the Assessing Officer regarding this claim of business

loss of ` 35,25,000, but the Assessing Officer has re-opened the

assessment on the belief that the said claim of business loss is not

allowable as it is capital in nature. Hence, it is not the case of the

Assessing Officer that any new material came to the knowledge

subsequent to the order dated 31st December 2007. Therefore, the

belief of the Assessing Officer that the income assessable to tax as

escaped assessment in respect of the claim of business loss is not

based on any tangible material came to the knowledge of the Dhanraj Mills Pvt. Ltd.

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Assessing Officer subsequent to the original assessment but the said

belief is based on the record already available with the Assessing

Officer at the time of the assessment. It is clear that the re-opening is

based on change of opinion. The Hon'ble Jurisdictional High Court in

Jet Speed Audio Pvt. Ltd. (supra), while considering identical issue,

has held in Para-9 to 13 as under:-

"9. We find that the impugned order of the Tribunal has rendered a finding of fact on the basis of material before it, in particular the fact that during original assessment proceedings a query was made with regard to the same issue which was responded to by the respondent - Assessee and on satisfaction of the same, the Assessing Officer had passed an assessment order. Therefore, reopening of assessment on an issue in respect of which a query was raised and responded to by the assessee would amount to a change of opinion. The tangible material being urged before us by Mr.Chhotaray, is the audit objections received by the Assessing Officer. However, as would be clear from the reasons reproduced hereinabove, there is no mention of any tangible material in the reasons recorded for issuing reopening notice under Section 148 of the Act. Thus, we find no fault with the findings of the Tribunal that there is no tangible material mentioned in the reasons recorded by the Revenue which would warrant a different opinion being taken then which was taken when the original order of assessment was passed. It is a settled position in law that a reopening notice can be sustained only on the basis of grounds mentioned in the reasons recorded. It is not open to the Revenue to add and/or supplement later the reasons recorded at the time of issuing reopening notice.

10. Mr.Chhotaray, learned Counsel for the Revenue urged on merits of the Revenue's case to charge Rs.1.34 crores allowed as bad debts, has to be appropriately brought to tax as capital loss. We pointed out to Mr.Chhotaray, learned Counsel for the Revenue that the scope of the present proceedings is only with regard to reopening notice under Section 148 of the Act and we are not dealing with the merits of the assessibility of the income alleged to have escaped assessment. On this Mr.Chhotaray submitted that the issue which he seeks to urge is that merely because the Assessing Officer has been careless in bringing to Dhanraj Mills Pvt. Ltd.

8 tax a particular amount which is chargeable to tax, the Revenue should not be precluded from issuing notice under Section 148 of the Act. This submission of Mr.Chhotaray overlooks the facts that power to reopen is not a power to review an assessment order. At the time of passing assessment order, it expected of the Assessing Officer that he will apply mind and pass an order.

An assessment order is not a mere scrap of paper. To accept the submission of Mr.Chhotaray, would mean to negate the well settled position in law as stated by the Supreme Court in the case "CIT Vs. Kelvinator of India Ltd., [(2002) 256 ITR 1 (Delhi)(FB)]" that the concept of 'change of opinion' brought in so as to have in built test to check abuse of power. In view of the above, we find no substance in the submissions raised by Mr.Chhotaray.

11. The decisions cited by Mr.Chhotaray, learned Counsel on behalf of the Revenue in support of his submissions that oversight in passing assessment order will give Assessing Officer jurisdiction to issue notice, placed heavy reliance upon the case "Kalyanji Mavji & Co." (supra). However, on the above aspect it has been held to be no longer good law by the subsequent decision of the Supreme Court in the case of "Indian and Eastern Newspaper Society Vs. Commissioner of Income Tax, New Delhi, (119 ITR 996)" wherein the Supreme Court has observed thus:-

"Now, in the case before us, the ITO had, when he made the original assessment, considered the provisions of S.9 and 10. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on material already considered by him. The revenue contends that it is open to him to do so, and on that basis to reopen the assessment under s.147(b). Reliance is placed on Kalyanji Mavji & Co. V. CIT (1976) 102 ITR 287 (SC), where a Bench of two learned Judges of this court observed that a case where income had escaped assessment due to the "oversight, inadvertence or mistake" of the ITO must fall within S.34(1)(b) of the Indian I.T.Act,1922. It appears to us, with respect that the proposition is stated too widely and travels farther than the statute warrants in so far as it can be said to lay down that if, on reappraising the material considered by him during the original assessment, the ITO discovers that he has committed an error in consequence of which income has escaped assessment, it is open to him to reopen the assessment. In our opinion, an error Dhanraj Mills Pvt. Ltd.

9 discovered on a reconsideration of the same material (and no more) does not give him that power. That was the view taken by this Court in Maharaj Kumar Kamal Singh V. CIT (1959)35 ITR 1 (SC), CIT V. A.Raman and Co. (1968)67 ITR 11 (SC) and Bankipur Club Ltd. V. CIT (1971) 82 ITR 831 (SC) and we do not believe that the law has since taken a different course. Any observations in Kalyanji Mavji & Co. V. CIT (1976) 102 ITR 287(SC) suggesting the contrary do not, we say with respect, lay down the correct law." (emphasis supplied).

12. The aforesaid view on the above proportion has been reiterated by the Apex Court in A.L.A.Firm vs Commissioner of Income Tax 183 ITR 285 wherein the Court held that change of opinion where opinion was formed earlier does not give the Assessing Officer jurisdiction to reopen an assessment. The Apex Court interalia on the above issue held as under: "Even making allowances for this limitation placed on the observations in Kalyanji Mavji (1976) 102 ITR 287 (SC) the position as summarised by the High Court in the following words represents, in our view the correct position in law (at p.620 of 102 ITR) : "The result of these decisions is that the statute does not require that the information must be extraneous to the record. It is enough if the material on the basis of which the reassessment proceedings are sought to be initiated, came to the notice of the Income tax Officer subsequent to the original assessment. If the income Tax Officer had considered and formed an opinion on the said material in the original assessment itself then he would be powerless to start the proceedings for reassessment. Where, however the Income Tax Officer had not considered the material and subsequently came by the material from the record itself, the such a case would fall within the scope of section 147 (b) of the Act" (emphasis supplied).

13. The decision of Delhi High Court in the case "New Light Trading Co."(supra) does not indicate what reasons were recorded for issuing notice of reopening therein. In the present case the reasons as recorded by the Assessing Officer and reproduced hereinabove clearly indicate that there was no tangible material adverting to the reasons recorded for issuing reopening notice. Similarly the decision of this Court in the case "Dr.Amin's Pathology Laboratory" (supra), it has been observed that if any item has escaped from assessment which otherwise is includible within the assessment and the Assessing Officer notices it subsequently by his own investigation or by reason of some information received by him, one cannot say that it constitutes change of opinion. In the present facts during Dhanraj Mills Pvt. Ltd.

10 original proceedings itself this issue was investigated by the Assessing Officer by raising specific query with regard to bad debts of Rs.1.35 crores. Consequently, this is not a case where this information has been noticed by the Assessing Officer subsequently in the assessment proceedings. In view of the above, in our opinion, none of the three decisions are applicable in the present facts."

10. Following the aforesaid judgment of the Hon'ble Jurisdictional

High Court in Jet Speed Audio Pvt. Ltd. (supra), we set aside the re-

opening of the assessment and consequent re-assessment. Ground

no.2, raised by the assessee is allowed.

11. Since we have quashed the re-assessment, therefore, the other

grounds, as raised by the assessee, become infructuous and do not

require any adjudication.

12. ऩरयणधभत् ननधधारयती की अऩीर स्वीकृत की जधती है ।

12. In the result, assessee's appeal is allowed.

Order pronounced in the open Court on 29.5.2015

Sd/- Sd/-

आर.सी. शर्मा विजयपमऱ रमि, ऱेखा सदस्य न्याययक सदस्य R.C. SHARMA VIKAYPAL RAO ACCOUNTANT MEMBER JUDICIAL MEMBER

मुंबई MUMBAI, ददनाुंक DATED: 29.5.2015 Dhanraj Mills Pvt. Ltd.

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आदे श की प्रनतलरपऩ अग्रेपषत / Copy of the order forwarded to:

(1) ननधधारयती / The Assessee;

(2) यधजस्व / The Revenue;

(3) आमकय आमुक्त(अऩीर) / The CIT(A);

(4) आमकय आमुक्त / The CIT, Mumbai City concerned; (5) पवबधगीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / The DR, ITAT, Mumbai; (6) गधर्ा पधईर / Guard file.

सत्मधपऩत प्रनत / True Copy आदे शधनुसधय / By Order प्रदीऩ जे. चौधयी / Pradeep J. Chowdhury वरयष्ठ ननजी सधचव / Sr. Private Secretary उऩ / सहधमक ऩंजीकधय / (Dy./Asstt. Registrar) आमकय अऩीरीम अधधकयण, भुंफई / ITAT, Mumbai