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TMI Blog2012 (12) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... (All) iv) Consolidated Photo & Finvest Limited vs. ACIT (2006) 281 ITR 394 (Del) v) KLM Royal Dutch Airlines vs. ADIT (2007) 292 ITR 49 (Del) vi) ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) (SC) vii) Praful Chunilal Patel vs. Makwana ACIT (1999) 263 ITR 832" 1.1. Grounds of Cross Objection read as under:- "1. That on the facts and circumstances of the case, the loss incurred on sale of vehicle amounting to Rs.6538841/- in the normal course of the business is an allowable deduction and the loss is not being capital in nature. 2. That similar claim has been allowed in the past and subsequent years by treating the same as business loss and not being capital in nature. That consistency is required to be followed in the matter of assessment." 1.2. In the cross Objections, the assessee has also raised an additional ground as follows:- "That on the facts and circumstances of the case, the reopening of the assessment is bad in law." 2. The assessee is a dealer of Telco and is engaged in buying and selling of vehicles. A return of income at Rs. 4,09,20,360/- was filed. The returned income was processed u/s 143(1) of the Act on 21.02.2005. Thereafter, after recording t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, in the present case, the Assessing Officer had on record itself and also stood revealed from the reasons recorded. The decision taken by Ld. CIT (A), therefore, needs to be set aside by allowing ground in appeal raised by the revenue. 6. On the other hand, the ld. counsel for the assessee, supporting the conclusion reached by the Ld. CIT (A), states that keeping in view the nature of business and the fact that in the earlier assessments it is discernible that loss on sale of repossessed vehicles is a commercial/business loss of the assessee. The issue also stood examined in the assessment for Assessment Year 2001-02 where similar audit objections were also considered in the light of the judgement rendered by Hon'ble Allahabad High Court in the case of Motor General Sales Pvt. Ltd. vs. CIT, 226 ITR 137 (All). The Assessing Officer himself has disputed the audit objection and, therefore, the same cannot be used to form reason to believe that income has escaped assessment. Reliance has been placed on the judgement of Hon'ble Gujarat High Court in the case of Cadila Healthcare Ltd. vs. ACIT (2012) 64 DTR 344. Reliance has also been placed on the judgement of the Hon'ble Delhi High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit scrutiny revealed that the assessee had debited Rs.6538841 to the profit and loss account (in schedule 17) on account of "Loss on sale of Repossessed Assets." This loss being capital in nature, should have been disallowed and added back to the income of the assessee. The omission resulted in underassessment of income of Rs.6538841/- involving short levy of tax of Rs.2392725.00. Ongoing through the audit objection, it is found that there is substance in the issue raised by the audit. The loss on sale of repossessed assets is not allowable as trading loss in this case as held by the Honble Allahabad High Court in the case of Motor and General Sales (Pvt.) Ltd. vs. CIT (226 ITR 137). The facts of the case are also similar and in both the cases the vehicles are not registered in the name of respective assessee. This was the basis on which the court gave the ruling in favour of the revenue. Thus the information provided by the audit has material substance within the meaning of section 147 and the same is invokable. Further, in case of Ranchi Club v. CIT in 214 ITR 643, 1995 (Pat), the honourable court has held that in cases where only summary assessment has been made and intimatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endered by the Hon'ble Delhi High Court in the case of CIT vs. SPL's Siddhartha Ltd. (supra), therefore, cannot be applied to peculiar facts of this case. We, therefore, do not agree with the Ld. CIT (A) that the assessment has been reopened on the instructions of ld. CIT. 9. As regards the assessee's belief that the Assessing Officer has disputed the objections and, as such, he cannot use the audit report for initiating action u/s 147 of the Act, we find that the issue has to be examined in the light of the judgement of the Apex Court in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra). According to the aforesaid judgement, relevant consideration for assumption of jurisdiction is that the Assessing Officer must form a prima facie belief based on material on record that income of the assessee has escaped assessment. This prima facie opinion must be based on material on record and should not be mere pretence or reason to suspect. The material on record reveals that in the case of the appellant himself proceedings for re-assessment had also been initiated for Assessment Year 2001-02 in respect of identical claim of loss on sale of repossessed assets. The proceedings for r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact which emerges from the aforesaid letters is that the Assessing Officer himself has entertained a belief that the loss on sale of repossessed assets in the case of the assessee is a business loss and not a capital loss. Moreover, it is pertinent to state here that despite above replies, action u/s 148 was initiated for Assessment Year 2001- 02 and an order dated 16.12.2008 was made. The aforesaid order was annulled by the Ld. CIT (A) and the Appellate Tribunal confirmed the action vide its order dated 13.11.2009. Since, in the business of the assessee loss has been treated as a business loss, therefore, it does not stand to any reason that it could be a capital loss in the impugned year particularly when no change in business activity is shown to have undergone in the year under consideration. 12. Under the peculiar facts and considering the history of the assessee itself as well as the replies and reasoning taken by the Assessing Officer himself while dealing with the audit objections, it cannot be said that there was any tangible material in the possession of the Assessing Officer for forming opinion that the expenditure/loss under consideration could be capital loss and not ..... 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