TMI Blog2021 (10) TMI 826X X X X Extracts X X X X X X X X Extracts X X X X ..... As date of grant of interest and non-receipt of interest is relevant to determine the year of taxability of the same. Undisputedly, the interest has been granted in Assessment Year 2007-08 and, therefore, the interest was not chargeable to tax in the current year, and thus, the Assessing Officer cannot have a reason to believe that in the current year, any income has escaped assessment. Qua the issue in assessee s appeal following the ratio laid down by the Special Bench of this Tribunal in case of Avada Trading Co. (P) Ltd v ACIT [ 2006 (1) TMI 465 - ITAT MUMBAI] and followed in the case of Hindustan Unilever Ltd . [ 2012 (12) TMI 458 - ITAT MUMBAI] , we find that interest on income tax cannot be said to be chargeable to tax in current year as the same was granted in Assessment Year 2007-08 and thus, the reopening initiated by the Assessing Officer was bad in law. Claim of demerger expenditure u/s 35DD - Demerger of the assessee company s investment business to M/s. CHI Investments Ltd. does not fall under the definition of demerger specified in Section 2(19AA) - As assessee had claimed demerger expenditure u/s 35DD of the Act and the said fact was mentioned in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a plethora of reasons, we are of the opinion that there is no need to initiate multiplicity of proceedings. - ITA No.673/Mum/2017 And ITA No.74/Mum/2017 - - - Dated:- 22-9-2021 - Shri Shamim Yahya, AM And Shri Pavan Kumar Gadale, JM For the Assessee : Shri Vijay Mehta For the Revenue : Shri V. Sreekar Shri Manprit Duggal ORDER PER SHAMIM YAHYA, A. M.: There are cross-appeals filed by the assessee and the Revenue directed against the order of the CIT(A)-12, Mumbai dated 01.01.2016 pertaining to the Assessment Year 2008-09, which in turn has arisen from an order passed by the Assessing Officer dated 31.03.2015 under Section 143(3) r.w.s 147 of the Income Tax Act 1961 (in short the Act ). 2. The ground of appeal in assessee s appeal read as under :- Ground No. 1: On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in affirming the action of A.O. of reopening the assessment under section 147 of the Act and holding that it did not find any infirmity in the action of A.O for re-opening the assessment year under consideration. The appellant prays that the reopening of assessment u/s.147 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e original assessment was completed vide order passed under Section 143(3) of the Act dated 28.12.2010 assessing the total income at ₹ 130,69,49,382/-. Subsequently, a notice dated 08.03.2013 was issued under Section 148 of the Act for reopening the assessment on the ground that interest on income tax refund was not offered to tax. During the pendency of the said proceedings, another notice dated 25.03.2013 was issued under Section 148 of the Act for the reason that assessee is not eligible for benefit of Section 47(vib) r.w.s 2(19AA) of the Act and accordingly, capital gains to the extent of ₹ 318 crores had escaped assessment. The reasons for reopening recorded under both the notices were communicated to the assessee vide letter dated 06.12.2013. The assessee filed its objections against the reopening of assessment, however, the Assessing Officer, without disposing off the objections, passed an order under Section 147 r.w.s. 143(3) of the Act dated 03.03.2014. The assessee filed a Writ Petition before the Hon'ble Bombay High Court against the said order and against issuing two notices since the Assessing Officer had passed the order without disposing off the objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that the amount of ₹ 1503.65 lakhs mentioned in the reasons is available in the financial statements of the assessee for the year ended 31.03.2007. The said amount is the aggregate of excess Provision of income tax refund of ₹ 455.23 lakhs and interest on income tax refund of ₹ 10,48.42 lakhs appearing in Schedule 20 of the financial statements. It was further submitted that during the course of original assessment proceedings, it was specifically explained to the Assessing Officer, vide letter dated 15.12.2010. In response to a specific query that, the interest on income tax refund has been reduced in the computation of income. Hence, this fact was known to the Assessing Officer while passing the original assessment order under Section 143(3) of the Act. The Learned counsel of the assessee further submitted that for reopening the assessment under Section 148 of the Act, the Assessing Officer must have a reason to believe that income chargeable to tax has escaped assessment. However, reopening on the same set of facts, in absence of any tangible material in possession of Assessing Officer is not valid. It was contended that between the date of passing the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat a second notice of reopening during the pendency of first one is non-est in the eyes of law. It is contended that the aforesaid is impliedly accepted by the Department, if one goes by the stand of the Assessing Officer in the Writ Petition filed by the assessee before the Hon ble Bombay High Court. It was pointed out that the assessee filed a Writ Petition challenging the order passed by the Assessing Officer under Section 143(3) r.w.s. 147 of the Act dated 03.03.2014, wherein the respondent, Department filed an affidavit, wherein the Department has accepted that for making addition in respect to the issue mentioned in the second notice, the Assessing Officer has invoked Explanation 3 to Section 147 of the Act. On this basis, it is canvassed, the validity of the reassessment has to be listed on the basis of this 1st notice issued u/s 148 of the Act, dated 08/02/2013. In other words, as per, learned Counsel of the assessee if the plea of the assessee that reopening on the basis of notice dated 08.03.2013 (1st notice) is bad in law, then the assessment order would not survive since the same is made in pursuance to proceedings arising from the 1st notice. He further submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, I have reason to believe that income chargeable to tax has escaped assessment due to failure on part of the assessee to disclose fully all material facts necessary for assessment. 10. It was submitted that the fact that demerger took place in the current year was mentioned in the Annual Financial Statements of the assessee as well as in the Director s report for the year ended 31.03.2008 which were available with the Assessing Officer at the time of original assessment proceedings. The assessee had claimed demerger expenditure under Section 35DD of the Act and the said fact was mentioned in the Tax Audit report that was available with the Assessing Officer. It was further submitted that during the course of original assessment proceedings, the assessee vide letter dated 15.12.2010 furnished details to the Assessing Officer regarding allowability of claim of expenses relating to demerger. Hence, the Assessing Officer was aware about the fact that demerger had taken place during the year at the time of original assessment proceedings. It was also submitted that the decision of the Hon'ble Bombay High Court approving the scheme of demerger of investment undertakin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer cannot entertain a belief that investment undertaking was not a separate undertaking of assessee, especially when no objection has been taken by the Department before the Hon'ble High Court at the time of approval of scheme of demerger. 12. It was further submitted that while reopening the assessment there was complete non-application of mind by the Assessing Officer. In the affidavit filed before the Hon'ble Bombay High Court in response to the Writ Petition filed by the assessee, the Department has stated in para no. 13 that information was received from Deputy Director of Income Tax (Inv.) Unit - VII(1), Mumbai vide letter dated 25.03.2013 that capital gains amounting to minimum of ₹ 328 crores has arisen in hands of assessee and the same has not been offered to tax. It was submitted that on the very same day, the Assessing Officer issued notice under Section 148 of the Act and in the reasons, stated that capital gains of ₹ 318 crores has not been offered to tax by the assessee. It was submitted that the assessee repeatedly sought details from the Assessing Officer as to how he arrived at the figure of ₹ 318 crores, however, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in shares was a non-tyre business of assessee having a book value of ₹ 126.20 crores which had been hived off from assessee to M/s CHI Investments Ltd. The Assessing Officer was of the view that the investment in shares transferred by assessee to M/s CHI Investments was merely a combination of assets and liabilities and did not constitute a business activity of the assessee or a unit or division or undertaking as envisaged in Explanation 1 to Section 2(19AA) of the Act. The Assessing Officer held that since the investment was not a separate undertaking of assessee, provisions of Section 2(19AA) were not satisfied and hence, the assessee was liable to pay capital gain tax on the said demerger. 17. Before the CIT(A), assessee submitted that the investment activity was a separate undertaking of the assessee and hence the provisions of Section 2(19AA) of the Act were satisfied. It was further submitted that the fact that investment unit was an undertaking of the assessee has also been accepted by the Hon'ble Bombay High Court vide order dated 23.11.2007. It was further submitted that M/s CHI Investments Ltd has earned profits in the first year of its operations. It was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been raised prior to sanction of scheme by the Court. Once the scheme is approved, it is implied that the same has been approved after considering the representations from the Government. In the present case, no objection was raised either by the Regional Director or Central Government against the scheme of demerger. Once the scheme is approved, the Department cannot contend that investment was not a separate undertaking of the assessee, especially in light of the fact that the same has been treated as a separate undertaking by the Hon'ble Bombay High Court. Reliance was placed on the decision of the Kolkatta bench of the Tribunal in case of Electrocast Sales India Ltd v. Dy. CIT [170 ITD 507(Kol)] . 21. It was submitted that in any case 'undertaking' is not defined under the Companies Act, 1956 or the Income-tax Act, 1961. It is submitted that the word 'undertaking' used in Explanation 1 to Section 2(19AA) of the Act includes part of undertaking and combination of assets and/or liabilities if it constitutes a business. There is no requirement regarding period of existence of undertaking prior to demerger. It was submitted that 'part of undertakin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment activity was not shown as a separate segment. Forth objection was Scheme of demerger is an arrangement amongst family members of Goenka group. It was submitted that the Assessing Officer has not alleged that the transactions are unlawful. Merely because the transactions are within the same group, it cannot be concluded that the same are undertaken with a motive to evade tax unless some material is brought on record by the Assessing Officer. It was argued that, in any case, the said scheme has been approved by the Hon'ble Bombay High Court wherein no such objection has been raised. 23. The learned counsel made without prejudice argument that even if it is held that the demerger is not in accordance with the provisions of Section 2(19AA) of the Act, the capital gain tax would not arise in the hands of the company. It is submitted that detailed submissions were made in this regard before the Assessing Officer, which have been even noted by the Assessing Officer, however he has not dealt with this issue in his order. Further, submissions in this regard were also made before the CIT(A). 24. We have carefully considered the rival submissions and perused the materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible in law. The change of opinion is not allowed. It is well settled law that the Assessing Officer cannot review his own order under the garb of reassessment. In this regard, it is pertinent to refer to the decision of the Hon'ble Bombay High Court in case of Asian Paints v. Dy. CIT 308 ITR 195, 198 wherein the Hon'ble Bombay High Court held as under: It is further to be seen that the Legislature has not conferred power on the Assessing Officer to review its own order. Therefore, the power under section 147 cannot be used to review the order. In the present case, though the Assessing Officer has used the phrase reason to believe , admittedly between the date of the order of assessment sought to be reopened and the date of formation of opinion by the Assessing Officer, nothing new has happened, therefore, no new material has come on record, no new information has been received, it is merely a fresh application of mind by the same Assessing Officer to the same set of facts and the reason that has been given is that the some material which was available on record while assessment order was made was inadvertently excluded from consideration . This will, in our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment. 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) . 26. In light of our above discussion, the reopening of the assessment on above reasons is bad in law and void ab initio . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A bare look at the provisions of sub-section (1) of section 244A reveals that as soon as any refund becomes due under any provisions of the Act, the assessee becomes entitled to receive the interest in respect of such refund calculated in the manner provided in clauses (a) and (b) of such provisions. Therefore, the moment the refund is granted, an enforceable debt is created in favour of the assessee in respect of interest due on such refund. Consequently, income can be said to accrue on the date of refund itself. Therefore, when such interest is actually granted along with the refund, then the requirements of sections 4 and 5 are fully satisfied and the same can be taxed in the year of receipt. There was no merit in the contention of the assessee that such right was contingent as the interest so received could be varied or withdrawn after the assessment under section 143(3). According to the dictionary meaning, a right or an obligation can be said to be contingent when such right or obligation is dependent on something not yet certain. According to section 244A, the only condition for grant of interest is that there must be a refund due to the assesse under any provision of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it would be without remedy if the interest was reduced by virtue of assessment under section 143(3). That apprehension was unfounded. If interest is reduced by virtue of subsection (3) of section 244A on account of assessment under section 143(3), the interest granted in earlier year gets substituted and it is the reduced amount of interest that would form part of income of that year. Thus, it would amount to mistake rectifiable under section 154. If the basis on which income was assessed is varied or ceases to exist, then such assessment would become erroneous and can be rectified. Similarly, anyincome assessed may become non-taxable by virtue of retrospective amendment and, consequently, erroneous assess ment can be rectified. Therefore, if the interest granted under section 244A(1) is varied under sub-section (3) of such section, then the interest originally granted would be substituted by the reduced/increased amount, as the case may be. Thus, income on account of interest if assessed can be rectified under section 154. Therefore, interest on refund under section 244A(1) granted to the assessee in the proceedings under section 143(1)(a) would be assessable in the year in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure u/s 35DD of the Act and the said fact was mentioned in the Tax Audit report that was available with the Assessing Officer. It was further submitted that during the course of original assessment proceedings, the assessee vide letter dated 15.12.2010 furnished details to the Assessing Officer regarding allowability of claim of expenses relating to demerger. Hence, the Assessing Officer was aware about the fact that demerger had taken place during the year at the time of original assessment proceedings. The decision of the Hon'ble Bombay High Court approving the scheme of demerger of investment undertaking of the assessee was available with the Assessing Officer. Thus, no new material came to the knowledge of the Assessing Officer subsequent to the order passed u/s 143(3) of the Act dated 28.12.2010. In the absence of any new tangible material, reopening on the same set of facts is not permissible. As discussed in earlier para of this order, following the ratio laid down by the Hon ble Bombay High Court in the case of Asian Paints (supra) and Jet Speed Audio Pvt. Ltd. (supra), we hold that the second reopening notice issued by the Assessing Officer is invalid and bad in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly the share exchange ratio (as approved under the scheme) was acted upon assuming acceptance from the income tax department. Thus by applying the Doctrine of acquiescence, the department would be now barred from raising an objection to the scheme. Further a claim of estoppel arises when one party gives legal notice to a second party of a fact or claim, and the second party fails to challenge or refute that claim within a reasonable time . 32. In view of the above, we find that the Assessing Officer cannot have a reason to believe that the investment undertaking was not a separate undertaking of assessee, especially when no objection has been taken by the Assessing Officer before the Hon'ble High Court. Hence, reopening is invalid on this account also. 33. It also pertinent to note here the observation made by the Hon ble Bombay High Court in the case of Casby CFS(P) Ltd. In re [2015] 231 taxman 89 (Bombay) . The relevant portion of the catch note is reproduced as under:- Section 143, read with section 139(5), of the Income-tax Act, 1961 and section 232 of the Companies Act 2013/section 394 of the Companies Act, 1956- Assessment General (Protective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 25.03.2013 was issued even when the proceedings under the first reopening notice u/s 148 of the Act dated 08.03.2013 were pending and, therefore, the same is invalid. It was pointed out that while issuing second reopening notice, the Assessing Officer relied on Explanation 3 to section 147 of the Act. It was further argued that if the reopening pursuant to the first reopening notice dated 08.03.2013 is held to be invalid, it will automatically render the entire reopening proceedings as void as the assessment order has been passed pursuant to the first notice u/s 148 of the Act. 36. We find substance in the argument of the learned counsel of the assessee. At the outset, we find that when the reassessment proceeding were already ongoing, there was no need to issue fresh notice u/s 148 of the Act as the Assessing Officer had sufficient power under Explanation 3 to section 147 of the Act to make addition on other ground if the addition on the ground stated in the reason for reopening is made. Further, mere issuance of notice u/s 148 of the Act is not sufficient. There should be an assessment order pursuant to the notice issued u/s 148 of the Act. Section 153 of the Act provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Sesa Goa Ltd Vs. CIT (117 taxmann.com 96 dated 28.2.2020) wherein a similar contention was raised by the assessee and the Hon'ble Bombay High Court adjudicated the matter in favour of the assessee. That given the factual matrix in the instant case pending before your Honorand the favorable decision of the Hon'ble Bombay High Court supra clarifying the intent of the legislature, the appellant is now filing an additional ground of appeal wherein the appellant pleads that the education cess and higher and secondary education cess paid by the appellant is deductible while computing income under the head PGBP. That it is stated that the additional ground of appeal raises purely question of law and no new facts are required to be brought on record. It is therefore humbly prayed that the additional ground of appeal may kindly be admitted and adjudicated by your Honor. That in this regard, reliance is placed on the following decisions: a. National Thermal Pozver Corporation v, CIT (229 ITR 383)(SC) b. Jute Corporation of India Ltd v. CJT[187 ITR 688 (Supreme Court) L. Ahemdabad ElectridIy Co. Ltd v. CIT [199 ITR 351 (Bom) (FB). d. Maruti Suzuki India Ltd V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant have drawn attention to the provisions of section 2(19AA) of the Act which are relevant in the matter. As per these provisions when a demerger takes place in relation to the company certain conditions are to be fulfilled. The ARs therefore while drawing attention through the provisions of section 2(19AA) have contended that the appellant have fulfilled all the requirements as per the provisions of section 2(19AA) of the Act, namely, all the properties pertaining to Investment Undertaking are transferred to the resulting company at their book value. All the liabilities relating to the investment undertaking are transferred to the resulting company at their book values. Shares of the resulting company are issued to the shareholders of the demerged company on proportionate basis. Shareholders holding not less than 75% in value of shares of the demerged company become shareholder of the resulting company. The demerged company has transferred the unit, division or business activity on a going concern basis as is evident from the financials of CHI Investments Ltd. post demerger. 12.19 It is therefore seen that the appellant has fulfilled all the conditions stipulated u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an any transfer of a unit, division or business activity of a company to another company pursuant to the scheme of arrangement u/s.391 to 394 of the Companies Act. Thus, in my view, as per the provisions of section 2(19AA) what has been demerged from the appellant company to the resulting company was a unit division or a business activity as per the provisions of section 2(19AA) of the Act. The appellant has thus met all the conditions laid down in section 2(19AA) of the I.T Act, 1961. 12.22 It is seen that the AO has contended in the assessment order that before demerger no separate staff was allocated for investments activity and no separate office ,area or floor was demarcated for this activity. It is seen that it is not essential to earmark separate staff or separate area for Investment Activity. The appellants business i.e. tyre business and investment activities had common asset and common staff working for both the business. What is essential under demerger is the transfer of assets and liabilities which constitute a running business and the business can be carried on uninterruptedly with such assets and liabilities alone. This has been done in the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed observations on various objections raised by the Assessing Officer while allowing assessee s claim of demerger and has also considered the fulfillment of requirement of Section 2(19AA) of the Act. Here we note that assessee has clearly raised the objection without prejudice that even if it is held that the demerger is not in accordance with the provisions of section 2(19AA) the capital gain tax would not arise in the hands of the assessee. Detailed submissions were made in this regard before the Assessing Officer, which have been noted by the Assessing Officer in his order however, he has not dealt with this issue in his order. Further, submissions in this regard were also made before the CIT(A). Learned Counsel of the assessee submitted that in fact assessee has suffered a loss, in this regard in place is capital gain which has been assessed by the Assessing Officer. 41. Upon careful consideration we are of the opinion that we have already held that reopening in this case is not justified on several counts. Hence, this aspect of departmental claim of capital gain and the counter claim made by assessee that in fact assessee has suffered a loss are only of academic interest. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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