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Income Tax Appellate Tribunal, HYDERABAD ‘ A ‘ BENCH, HYDERABAD.
Before: SHRI S.S. GODARA & SHRI LAXMI PRASAD SAHU
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD ‘ A ‘ BENCH, HYDERABAD.
BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER (Through Virtual Hearing)
ITA Nos.638 & 639/Hyd/2017 (Assessment Years : 2007-08 & 2008-09) M/s. SPR Infrastructure India Vs. Dy. Private Limited, Commissioner of Surya Soudha, Plot No.185, Income Tax, Ayyappa Society, Khanamet Circle 3(2), Village, Hyderabad. Hyderabad. PAN AACCD4913G Appellant Respondent
Appellant By : Shri P. Murali Mohan Rao. Respondent By : Smt. Nivedita Biswas (D.R)
Date of Hearing : 24.02.2021. Date of Pronouncement : 29.04.2021.
O R D E R Per Shri S.S. Godara, J.M. : These two assessee's appeals for Assessment Years 2007-08
& 2008-09 arise against the Commissioner of Income Tax
(Appeals)-3, Hyderabad’s common order dt.20.02.2017 passed in
case No.0325 & 0326/CIT(A)-3/15-16; respectively, involving
2 ITA Nos.638 & 639/Hyd/2017
proceedings u/s.143(3)r.w.s. 147 r.w.s.254 & 263 of the Income
Tax Act, 1961 ('the Act').
Heard both the parties. Case files perused.
It is noticed at the outset that this is the second round of
proceedings between the parties before us qua the assessee's
identical/sole substantive grievance seeking to reverse both the
lower authorities identical action income from other sources
addition on various facets. This assessee had earlier filed ITA
Nos.1173 & 1174/Hyd/2014 in former round. Learned co-
ordinate bench’s earlier order dt.3.12.2014 had restored the
same back to the file of with specific directions Assessing Officer
as under :
“ 2. Briefly stated, assessee is a company and filed its return of income for A.Y. 2007-08 on 02.11.2007 declaring total income of Rs.6,48,27,000. For A.Y. 2008- 09 it filed return of income on 30.09.2008 (wrongly stated as 30.08.2010 in the order of Ld. CIT(A)), acknowledged by I.T. department on 07.10.2009 as per page 36 of the paper book, declaring total income of Rs.1,33,68,000. There were survey operations under section 133A in assessee’s business premises on 20.07.2011. During the course of survey, it was found that assessee has no bills or vouchers for the expenditure claimed in the returns of income. Similarly, from the bank statement found during the survey and also obtained post survey, it was found that assessee had received huge amounts from M/s. Global City Projects P. Ltd., now known as New Global City Projects P. Ltd(NCCPL). Enquiries were made from the said company and a statement of the Director Mr. Prasad V. Potluri was recorded. Consequent to the above findings, A.O. has issued notice under section 148 by initiating proceedings under section 147 and served notices on 20.09.2011. In response, assessee filed letters on 15.11.2011 requesting to treat the returns filed originally as returns filed in response to the notice issued under section 148. The reasons for issuance of notice under section 148 were communicated by letter dated 16.11.2011 and thereafter, notice under section
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143(2) and 142(1) have been issued. It was the Assessing Officer’s contention that assessee has received various amounts from the said company towards land development cost and without doing any land development cost, assessee has received the entire amount and utilized for further investing in various other group concerns. Accordingly, A.O. was of the opinion that the total receipts of Rs.99,65,65,250 for A.Y. 2007-08 and Rs.54,77,75,359 for A.Y. 2008-09 are assessee’s income. In arriving at that, A.O. has noted statement recorded from Mr. Prasad V. Potluri and also various amounts of inflow and outflow in assessee’s ING Vysya Bank and thereafter, giving due opportunity to assessee, the gross receipts from NCCPL were brought to tax.
Before the Ld. CIT(A), assessee contested that initiation of proceedings under section 147 were not correct and it was only change of opinion by A.O. as the original returns were accepted. This contention of assessee were rejected by Ld. CIT(A) by stating as under :
“7.6. The notice u/s 148 was issued following a survey at the appellant's business premises on 20.07.2011 in which it was noticed that there were no bills or vouchers claimed by the appellant in its returns. The Assessing Officer had also recorded a statement from Sri Prasad V. Potluri, Director of NCC, who had confirmed that the appellant had not carried out any of the works for which the payment had been made and for which the expenditure had ostensively been claimed by the appellant. Thus, there was more than adequate tangible material for Assessing Officer's belief that income had escaped assessment necessitating action u/s 147.
7.7. In its decision in the case of GKN Driveshafts India Ltd v ITO 259 ITR 19 (SC), the Supreme Court had laid down the procedure to be followed on issue of notice u/s 148. Inter alia, the Court directed that the Assessing Officer should pass a speaking order on the objections of Assessee to the issue of notice, before proceeding with the assessment. There is no reference in the assessment order to the objections claimed to have been raised by the appellant to the issue of notice u/s 148. In order to ascertain whether the appellant had made any objections to the issue of notice u/s 148, the assessment records were called for and perused. A perusal of the assessment records shows that thought the appellant sought and was provided the reasons recorded for issue of notice u/s 148, it did not object to the issue of the notice. In the absence of any objection from the appellant, there was obviously no occasion for the Assessing Officer to pass any order, speaking or otherwise, dealing with the objections.
7.8 The appellant has also submitted that the Assessing Officer had failed to comply with the provisions of sec.151. Sec.151(1) applies to a situation where the original assessment had been made u/s 143(3) or u/s 147. In the appellant's case, the returns had merely been processed u/s 143(1) before issue of notice u/s 148 resulting in the present proceedings. Sec.151(1) is, therefore, not relevant to the facts in the appellant's case.
7.9. Sec.151(2) applies in a situation where the notice u/s 148 is issued more than 4 years from the end of the relevant assessment year. In the appellant's case, the
4 ITA Nos.638 & 639/Hyd/2017
notices for both the years were issued well before this period of 4 years. Sec.151(2) is, therefore, not relevant to the facts in the appellant's case either.
7.10 In view of the above discussion, I find that all the grounds (particularly the additional grounds) filed by the appellant are frivolous and have no basis in facts. The appeal is dismissed on the issue of validity of the notice u/s 148 and the proceedings u/s 147.”
Another ground raised before Ld. CIT(A) was nonproviding copy of statement of Mr. Prasad V. Potluri. Ld. CIT(A) directed the A.O. to provide copy to assessee and opportunity to assessee to make its submissions. Ld. CIT(A) records that assessee has no submissions to make and the grievance of Assessee has been redressed.
Next objection raised by assessee was that assessee’s revised returns filed on 12.02.2013 are to be treated as valid returns. It was assessee’s contention that since proceedings under section 148 were initiated, assessee can validly revise the returns and relied on various case law. Ld. CIT(A), however, rejected these contentions by stating as under:
“9.9. The AR has sought to argue that a return filed in response to a notice u/s 148 is to be treated as a return required to be furnished u/s 139 and consequently, the appellant was entitled, all over again, to revise its returns of income. I do not agree with this view of the AR for reasons discussed below. Firstly, as held in the case of CIT v Sun Engg Works Ltd 198 ITR 297 (SC), proceedings u/s 147 are for the benefit of the revenue and not for the benefit of Assessee. The mere fact of issue of notice u/s 148 is not meant to give a fresh lease of life to Assessee and enable it to resort to all the benevolent provisions of the Act for its benefit. The deeming provisions of sec.148(1), deeming a return filed under it to be a return filed u/s 139, do not entitle the appellant to invoke sec.139(5).
9.10. Further, as pointed out by the Add\. CIT in his letter, the time limit for filing a return u/s 139(5) is within two years of the end of the assessment year or the completion of assessment, whichever is earlier. While the completion of assessment is a variable, the period defined by the end of two years from the end of the assessment year is not. The clause, whichever is earlier, emphasises that the appellant cannot turn the provisions of sec.139(5) into an open-ended benefit. The period ending with the end of two years from the end of the assessment year had indisputably ended on 31.3.2010 for AY 2007-08 and on 31.3.2011 for AY 2008-09 and therefore, the benefit of sec.139(5) was no longer available to it on 12.03.2013 for either of the two years.
9.11. Even if it were to be presumed that the return filed in response to notice u/s 148 was equivalent to one filed u/s 139, such a return would be subject to all the conditions laid down u/s 139(5). The benefit of sec.139(5) is available only to a return filed u/s 39(1) and not to a belated return u/s 139(4). The appellant did not file the return in response to the notice u/s 148 within the time of 30 days allowed to it and the belated letter filed by it, deeming the original return filed as
5 ITA Nos.638 & 639/Hyd/2017
one filed u/s 148, would at best qualify the appellant to the benefits of sec.139(4), not of sec.139(5).
9.12. It is, therefore, held that the revised returns filed on 12.03.2013 for the two years were not valid returns and the Assessing Officer was justified in ignoring them for the purpose of making the assessment.”
Assessee further contended that it has filed revised audit report and accordingly, the incomes as declared in the revised audit report should be considered. However, this contentions of assessee was also rejected by Ld. CIT(A) vide paras 10.2 to 10.4. 7. Now coming to the merits of the additions made by A.O., Ld. CIT(A) was of the opinion that since assessee has not carried out any development activity, the entire receipts received by assessee are Revenue receipts and are taxable accordingly. Ld. CIT(A) final findings are as under :
“11.4. Indeed, it is interesting to note that though NCC was aware of the lack of any development activity having actually been carried out by the appellant at least in July 2012 when the statement of its Managing Director was recorded by the Assessing Officer, it has failed to take any legal action for recovery of the amount even till March, 2014, i.e. more than a year and half later. 11.5. To conclude, I hold that -
a. The revised filed by the appellant were not valid and no cognisance can be taken of these returns.
b. The revision of accounts carried on by the appellant was not valid and no cognisance can be taken of the revised audited results.
c.The receipts from NCC were in the nature of revenue receipts and liable to tax.
11.6. Since it is undisputed that the appellant did not carry out any of the developmental works and that it had admittedly not incurred any expenses for earning this income, I hold that the Assessing Officer had correctly brought the entire receipts of Rs.47,15,18,833 for AY 2008-09 and Rs.99,65,65,250 for AY 2007-08 to tax as income of the appellant.”
Contesting the above findings of Ld. CIT(A), Ld. Counsel submits that initiation of proceedings are not correct. Further, it was also contention that assessee has received funds and in turn, paid the funds to various people and so considering that fact other company treated the amount as advance of purchase of property, Assessee has revised the company accounts and filed revised Balance sheet and P & L accounts withdrawing the incomes. Therefore, the revised financials adopted by company should be considered for reassessment proceedings. In support assessee also placed on record, the annual reports of New Cyberabad City Project P. Ltd., for the year ending 30.03.2007 and 30.03.2008. Ld. Counsel also relied on MCA Circular No.1/2003 17/75/2002- CLV dated 13.01.2003 to support the contention that assessee is competent to revise the accounts. With reference to merits of the addition made by A.O. it was submitted that assessee did enter into agreement with M/s. New Cyberabad City Projects P. Ltd., for the
6 ITA Nos.638 & 639/Hyd/2017
purpose of development of project and funds have come and gone and it was the intention of assessee to enter into real estate transactions. But since there were disputes regarding project and the area, nothing has materialized and so assessee has revised the accounts and there were no incomes. It was the submission that revised income should be considered in re-assessment proceedings.
In reply, Ld. D.R. submitted that assessee has originally offered gross profit on contract receipts and offered income. A.O. found out in the survey proceedings that no expenditure as claimed in the P & L Account, was incurred by assessee and accordingly, the receipts were brought to tax correctly. It was, however, for Assessee to substantiate the expenditure claimed. Considering the statement of Mr. Prasad V. Potluri it can be stated that assessee has entered into transactions and issued bogus expenditure bills. Therefore, the gross receipts are taxable as Assessee has shown amounts as revenue receipts in the P & L account.
We have considered the issue and examined the contentions and documents placed on record. There is no dispute that assessee has initially shown receipts as revenue receipts and claimed various expenses and declaring incomes in the P & L account. The returns were also filed accordingly. The same were also processed. Consequent to the survey proceedings, A.O. found that the expenditure entries made in the books of accounts are not genuine and accordingly, he brought to tax entire receipts as shown in the P & L Account as income of assessee. In the re- assessment proceedings after the notice under section 148 was issued, assessee revised its accounts and claimed that no income has accrued to it or loss should be assessed.
As far as re-opening of assessments are concerned, we support the orders of Ld. CIT(A) on the issue as A.O. has reason to believe that incomes have escaped at that point of time. AO did not find any expenditure vouchers in assessee’s premises during survey proceedings and so, he has reason to believe that income has escaped assessment. Thus he has validly initiated proceedings under section 147. As no assessment under section 143(3) was originally done and only returns were accepted under section 143(1), following the principles laid down by Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Ltd 291 ITR 500(SC), the intimation under section 143(1) cannot be treated as order of assessment. Prior to 01.04.1989, A.O. had to pass an assessment order if he decides to accept the return but now amended provisions, requirement of passing the order has been dispensed with and instead only intimation is required to sent. As there is no assessment u/s 143(3), the question of change of opinion does not arise. Further, what is required at the time of issueance of notice under section 147 is reason to believe that the income has escaped assessment, but not the established act of escapement of income. In view of the judgment of Hon’ble Supreme Court, we are of the opinion that assessee’s contentions on reopening are not valid and accordingly, they are rejected.
Coming to the merits of the issue including filing of revised returns with revised audited accounts, we are of the opinion that assessee’s action cannot be supported in the light of the fact that proceedings are under section 147. The Hon’ble Supreme Court in the case of Sun Engineering Works Ltd., 198 ITR 297 it
7 ITA Nos.638 & 639/Hyd/2017
was held that proceedings under section 147 are for the benefit of Revenue and not for the benefit of assessee. Since, assessee has offered incomes originally which were accepted, the proceedings being initiated are only to add some more to the originally admitted incomes. Therefore, on that context, the revised returns and revised audit reports cannot be considered. The Hon’ble Supreme Court Order in the above referred case has held as under :
“Held “Under s. 147, the Assessing Officer has been vested with the power to "assess or reassess" the escaped income of an assessee. The use of the expression "assess or reassess such income or recompute the loss or depreciation allowance" in s. 147 after the conditions for reassessment are satisfied, is only relatable to the preceding expression in cls. (a) and (b), viz., "escaped assessment". The term "escaped assessment" includes both "non-assessment" as well as "underassessment". Income is said to have "escaped assessment" within the meaning of this section when it has not been charged in the hands of an assessee in the relevant year of assessment. The expression "assess" refers to a situation where the assessment of Assessee for a particular year is, for the first time, made by resorting to the provisions of s. 147 because the assessment had not been made in the regular manner under the Act. The expression "reassess" refers to a situation where an assessment has already been made but the ITO has, on the basis of information in his possession, reason to believe that there has been underassessment on account of the existence of any of the grounds contemplated by the provisions of s. 147(b) r/w the Explan. 1 thereto. (Para 7)
The principle laid down in V. Jaganmohan Rao's case (1970) 75 ITR 373 (SC) : TC51R.313 is only to the extent that once an assessment is validly reopened by issuance of notice the previous underassessment is set aside and the ITO has the jurisdiction and duty to levy tax on the entire income that had escaped asessment during the previous year. What is set aside is, only the previous underassessment and not the original assessment proceeding. An order made in relation to the escaped turnover does not affect the operative force of the original assessment, particularly if it has acquired finality, and the original order retains both its character and identity. It is only in cases of "underassessment" based on cls. (a) to (d) of Expln. 1 to s. 147, that the assessment of tax due has to be recomputed on the entire taxable income. The judgment in Jaganmohan Rao's case, therefore, cannot be read to imply as laying down that in the reassessment proceedings validly initiated, Assessee can seek reopening of the whole assessment and claim credit in respect of items finally concluded in the original assessment. Assessee cannot claim re-computation of the income or redoing of an assessment and be allowed a claim which he either failed to make or which was otherwise rejected at the time of original assessment which has since acquired finality. Of course, in the reassessment proceedings it is open to an assessee to show that the income alleged to have escaped assessment has in truth and in fact not escaped assessment but that the same had been shown under some inappropriate head in the original return. (Para 25)
Although, S. 147 is part of a taxing statute, it imposes no charge on the subject but deals merely with the machinery of assessment and in interpreting a
8 ITA Nos.638 & 639/Hyd/2017
provision of that kind, the rule is that construction should be preferred which makes the machinery workable. Since the proceedings under s. 147 are for the benefit of the Revenue and not an assessee and are aimed at garnering the ‘escaped income' of an assessee, the same cannot be allowed to be converted as ‘revisional' or ‘review' proceedings at the instance of Assessee, thereby making the machinery unworkable. Thus in proceedings under s. 147 the ITO may bring to charge items of income which had escaped assessment other than or in addition to that item or items which have led to the issuance of notice under s. 148 and where reassessment is made under s. 147 in respect of income which has escaped tax, the ITO's jurisdiction is confined to only such income which has escaped tax or has been under assessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting Assessee to reagitate questions which had been decided in the original assessment proceedings. It is only the underassessment which is set aside and not the entire assessment when reassessment proceedings are initiated. The ITO cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject-matter of proceedings under s. 147. An assessee cannot resist validly initiated reassessment proceedings under this section merely by showing that other income which had been assesed originally was at too high a figure except in cases under s. 152(2). The words ‘such income' in s. 147 clearly refer to the income which is chargeable to tax but has "escaped assessment" and the ITO's jurisdiction under the section is confined only to such income which has escaped assessment. It does not extend to reconsidering generally the concluded earlier assessment. Claims which have been disallowed in the original assessment proceeding cannot be permitted to be re-agitated on the assessment being reopened for bringing to tax certain income which had escaped assessment because the controversy on reassessment is confined to matters which are relevant only in respect of the income which had not been brought to tax during the course of the original assessment. A matter not agitated in the concluded original assessment proceedings also cannot be permitted to be agitated in the reassessment proceedings unless relatable to the item sought to be taxed as ‘escaped income'. Indeed in the reassessment proceedings for bringing to tax items which had escaped assessment, it would be open to an assessee to put forward claims for deduction of any expenditure in respect of that income or the non-taxability of the items at all. Even in cases where the claims of Assessee during the course of reassessment proceedings relating to the escaped assessment are accepted, still the allowance of such claims had to be limited to the extent to which they reduce the income to that originally assessed. The income for purposes of ‘reassessment' cannot be reduced beyond the income originally assessed. (Para 26 & 27)
Conclusion : Once an assessment is validly reopened only the previous underassessment is set aside and not the original assessment proceedings particularly if it has acquired finality. In the reassessment proceedings it is not open to an assessee to seek a review of the concluded item, unconnected with escapement of income.”
In view of the legal position as enunciated by the Hon’ble Supreme Court, the contention of assessee to revise incomes and accounts can not be accepted as
9 ITA Nos.638 & 639/Hyd/2017
the proceedings are initiated for bringing to tax the escaped incomes. The contentions of assessee on that fails.
However, the action of the A.O. in taxing the entire receipts as income cannot be upheld. As far as the statement of Potluri V. Prasad is concerned, it was admitted that they have entered into an agreement for purchase of property through assessee company for acquiring land bank in Hyderabad and development of the same. For passing on amounts to assessee, assessee might have raised bogus bills but at present, the parties are in dispute. The said company New Cyberabad City Projects P. Ltd., admittedly treated the amount paid to assessee as advance and assessee even though treated the receipts as revenue receipts and offered incomes, subsequently with revising accounts treated them as a liability in the books of accounts. Be that as it may, there are enquires made by A.O. about the transactions and AO has the following findings.
“In view of the statement of Sri Prasad V. Potluri, Director of NCCPL that no development activities were carried on by the assessee company and the fact that no evidence in the form of bills/vouchers were found at the business premises of the assessee at the time of survey, it was felt necessary to cause inquiries at field level to ascertain the truth. Accordingly, Sri Y. Prasad, Inspector of Income Tax was directed to visit the lands at Survey No.664 and 721 of Nadergul village and report the factual position. Accordingly, Sri Y. Prasad visited the lands at Sy.No. 664 & 721 of Nadergul village and submitted his report on 23.09.2011.
As per the report of Inspector, the lands in Sy.No.664 & 721 of Nadergul village are agricultural lands wherein is agricultural activity is being carried out even on the date of inspection. Some of the lands in these survey No. are barren lands and a village by name Rangannaguda is situated in this survey no. No trace of any development work was found to have taken by taken place in these survey Nos.”
Not only that A.O. has summoned the VRO and his statement was extracted in paras 5 and 6 of the order which also indicate that the so-called land sold to M/s. New Cyberabad City Projects Ltd., is in fact owned by various agriculturists and they are conducting agricultural operations and as per VRO records, neither assessee nor M/s. New Cyberabad City Projects Ltd., or any of its associates are owners of the lands. A.O. also made an attempt to trace the trail of money received by assessee company and the outflows 14 ITA.No.1173 & 1174/Hyd/2014 M/s. SPR Infrastructure (India) Ltd., Hyderabad. are to various individuals and also to various group concerns. However, except analyzing the flow of money, A.O. did not enquire about the ultimate recipients of the money and how the funds received from M/s. New Cyberabad City Projects Ltd., are utilized. Since, there are findings on record both by A.O. and by Ld. CIT(A) that no such transactions have ever occurred as shown in the books of account, the purpose of receipt of money and its transfer could be any other, other than what is shown on record. In view of this, we are not in a position to uphold the entire receipts received by assessee as income. At the same time, we are also
10 ITA Nos.638 & 639/Hyd/2017
not in a position to estimate the income on the gross receipts, since assessee itself treated gross receipts as advance in the revised accounts and admittedly, there was no work done by assessee company. In view of this, we cannot uphold the action of A.O. in treating the entire receipts as income and at the same time, we also not in a position to give any finding that the audited accounts revised by assessee are to be accepted as such, in the absence of any justification of the same. Therefore, while disallowance of entire expenditure made by A.O. cannot be upheld as such, we set aside the assessment to the file of A.O. to make fresh enquiries and see the latest position and whether the amounts received and appropriated by assessee can be considered as incomes of assessee. A.O. is directed to enquire whether any proceedings are initiated under any other Act, like Money Laundering Act or whether there are any other violations committed in these transactions. Admittedly, there were bills were given for the so called work which was not done and as seen from the statement of Mr. Prasad V. Potluri, assessee also registered some properties in the name of the said company which are found to be not correct. Therefore, A.O. is directed to 15 ITA.No.1173 & 1174/Hyd/2014 M/s. SPR Infrastructure (India) Ltd., Hyderabad. enquire about these aspects and arrive at the correct position of incomes as per law and facts of the case. However, in case, no escaped incomes are to be considered, A.O. is directed to accept the income returned, as reassessment proceedings are only for the benefit of Revenue. Keeping the principles laid down by Hon’ble Supreme Court(supra), we direct the A.O. to accept the income returned in case further enquiries reveal that these transactions does not give rise to any concealed income. With these observations, assessee’s grounds are partly allowed for statistical purposes.”
The Assessing Officer took us to the consequential
assessment proceedings. It emerges that the twin assessments
herein; both dt.29.2.2016 inter alia - hold that the assessee had
received impugned huge sum from M/s. Global City Projects P.
Ltd. (now known as M/s. New Cyberabad City Projects P. Ltd.
“NCCPL”) to the tune of Rs.125.15 Crores towards land
development cost without actually performing any work. The
same followed yet another receipt of Rs.21,65,65,250 towards
land development as well. It is also not in dispute that the
11 ITA Nos.638 & 639/Hyd/2017 assessee had received the impugned sum of Rs.99,65,65,250
and claimed project development charges against a sum of
Rs.89,50,15,265 as well.
There is also no issue between the parties that the
department had carried out a sec. 133 survey in assessee's case
on 20.07.2011. It then recorded statement of Shri P.V. Potluri
(supra) that the assessee had collected the impugned huge
sums inter alia of the alleged project development invoices
without actually performing any work. The Assessing Officer’s
consequential order next proceeded to examine the entire
money trail in assessee's books allegedly indicating that it had
diverted the foregoing project development receipts’ sums to
its group associates involving companies and directors without
actually developing the concerned site. He also enquired from
the enforcement agencies (supra) wherein the latter informed
that no proceedings under the “money laundering” law had
been initiated against any of these parties. The Assessing
Officer then examined the issue as to whether the amounts
received and appropriated would be taken as assessee's
12 ITA Nos.638 & 639/Hyd/2017 income or not. He considered the payees reply dt.14.12.2015
and observed that both of them had colluded with the group
companies in issuing bogus development invoices only without
executing the development works. And that the assessee and
its group concerns bank statements along with various land
transactions sufficiently proved that it had been merely created
as a namesake for the purpose of obtaining funds from “NCCPL”
in the guise of contract works; in turn directed to the sister
concerns for buying properties and starting newspaper. The
Assessing Officer therefore added the impugned sum(s) of
Rs.99.65 Crores and Rs.47.15 Crores (supra) as income from
“other” sources.
The CIT(Appeals) has confirmed the Assessing Officer’s
action but treated the very sum as business income as follows :
----Space left intentionally----
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This leaves the assessee aggrieved.
We have given our thoughtful consideration to the rival
pleadings against and in support of the impugned/identical
addition(s). A perusal of the Tribunal’s order in first round
remand directions makes us clear that the same have already
sealed the ultimate outcome of the instant ‘lis’. This is for the
reason that learned co-ordinate bench had made it clear inter
alia concluded that it could not uphold the treatment of the twin
receipt amounts received by the assessee as its taxable income.
More particularly in view of the fact that it had not performed
any development work at all. Learned co-ordinate bench
further observed that neither the said disallowance of the entire
expenditure could be agreed with nor these receipts could be
subjected to estimation as well. These three key findings make
21 ITA Nos.638 & 639/Hyd/2017 it evident that the department’s action seeking to assess the
assessee's entire receipts credit or debit side as well as
estimation, thereof in case of M/s.“NCCPL” (supra) already
stands decided against the Revenue and in favour of the tax
payer. We therefore are of the opinion that there is nothing left
in the instant second round for to delve deeper on the
impugned issue(s).
Learned CIT-DR vehemently argued at this stage that
the Assessing Officer had framed his consequential assessment
strictly in the light of the tribunal’s remand directions wherein
not only he examined the entire issue qua the money trail
employed but also he has verified all the facts form the
enforcement agencies as well (supra). All these arguments
failed to evoke our concurrence since the purpose of reopening
mechanism was only to assess the assessee qua these receipts
followed by the alleged bogus invoices wherein the learned co-
ordinate bench had made it clear in the former round itself that
neither of them could be taken as assessee's income. We thus
hold that merely because the Assessing Officer has added these
22 ITA Nos.638 & 639/Hyd/2017 receipts as income from “other” sources or the CIT(A) as
business income (supra), does not make any difference at all.
This is more particularly for the reason that the assessee had
already suceeded qua assessment of the very sum as income in
the first round as set aside in Section 254 proceedings.
There is yet another equally important aspect of the
matter qua validity of the impugned reopening. There is hardly
any dispute that the Assessing Officer had invoked his section
148/147 jurisdiction for the reason that the survey exercise
dt.20.7.2007 had witnessed the impugned receipt in assessee's
credit side without carrying out any development works since
involving as bogus invoices only. Learned co-ordinate bench’s
first round order had admittedly reversed the said twin
reasoning that neither of them could be assessed as assessee's
income. Faced with this situation, we hold that once the
impugned reopening mechanism based on this twin reasoning
itself was decided against the department on merits, there is no
reason left to support the impugned reopening since its very
foundation itself has no legs to stand as per learned co-
23 ITA Nos.638 & 639/Hyd/2017
ordinate bench decision in Joginder Singh Vs. ITO in ITA
No.222/Ars/2014 Dt.11.06.2015 taking note of hon'ble apex
court’s landmark decision G K N Driveshafts India Ltd. Vs. ITO
(2003) 259 ITR 101 (SC) held that -
“ 7. The short question before us really is whether in such circumstances the CIT(A) ought also to have cancelled the reassessment proceedings as well and whether there is any contradiction in the action of the CIT(A) in upholding the reassessment proceedings and quashing the additions made on the basis of the reasons recorded for reopening the assessment. This question assumes significance in the light of the fact that while these additions stand deleted, some other additions, made during the course of reopened assessment, continue to survive.
We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
We have noted that the assessment was reopened on the ground that the partnership firm Citi Plaza, in which the assessee had 25% share, had issued three post dated cheques of Rs 23,57,000 each and made bank payments of Rs 40,90,630 towards principal and Rs 40,92,568 towards interest, whereas the above “payments were much more than the income declared by the assessee”. Learned CIT(A) himself holds, in paragraph 6.4 extracted above, that the post dated cheques issued by the partnership firm were not encashed and that the bank payments were not made by the partnership firm but by the buyers of the property sold by the partnership firm. During the appellate proceedings, the Assessing Officer was duly confronted with the related facts and he could not, as the CIT(A) has noted in so many words, controvert the stand of the assessee. Clearly, therefore, the reasons for reopening the assessment were incorrect. The CIT(A) has held so and the Assessing Officer is not in challenge against these findings. Yet, when it came to adjudicate upon the challenge to the validity of reassessment proceedings, the CIT(A) holds that “the Assessing Officer was having plenty of reasons to issue notice under section 148 of the Act”. He does so on the basis that (a) “the assessee had not disclosed the facts which are now being disclosed at the time of appellate proceedings”, and that (b) “the cheques issued by Shri Surinder Mohan Singh (i.e. a person other than the assessee) to the outgoing partners were found to be drawn on an account which was not in his name or in the name of the partnership firm”. These things were, in our considered view, wholly irrelevant inasmuch as these things have nothing to do with the reasons of reopening the assessment as noted in the reassessment order itself.
In any event, it was not the revenue’s case that the assessee failed to disclose what he ought to have disclosed under the law. Such a non disclosure, therefore,
24 ITA Nos.638 & 639/Hyd/2017
cannot be a reason enough to uphold the validity of reassessment proceedings. Similarly, the cheques to the outgoing partner of the firm, in which assessee is a partner, having been issued by an account other than the account of the assessee or of the partnership firm cannot be a reason enough to come to the conclusion that ‘income has escaped assessment in the hands of the assessee’. There is no cause and effect relationship in this fact and the income escaping assessment in the hands of the assessee.
It is a well settled legal position, as held by Hon’ble Bombay High Court, in the case of Hindustan Lever Ltd. vs. R.B. Wadkar [(2004) 268 ITR 332 (Bom)], that when it comes to examining the validity of reassessment proceedings, ".... No inference can be allowed to be drawn on the basis of reasons not recorded. It is for the AO to disclose and open his mind through the reasons recorded by him”. Hon’ble Bombay High Court, in the case of Prashant S. Joshi vs. ITO [(2010) 324 ITR 154 (Bom)] has observed : "The AO must have reasons to believe that such is the case (i.e. any income chargeable to tax has escaped assessment for a particular year) before he proceeds to issue notice under s. 147" and that "the reasons which are recorded by the AO are the only reasons which can be considered when formation of belief is impugned". In view of these discussions, and the correctness of the reasons recorded for reopening the assessment having been decided against this assessee, the CIT(A) ought also have held that the very reassessment proceedings are legally unsustainable on the facts of this case. There is an inherent contradiction in the approach of the CIT(A).
Learned Departmental Representative’s defence for the stand of the CIT(A)’s order is reliance on Hon’ble jurisdictional High Court’s judgment in the case of Majinder Singh Kang (supra). That was a case in which Their Lordships have held that even when the Assessing Officer does not make any addition in respect of the reasons for which reassessment proceedings are initiated, the reassessment proceedings can still be valid nevertheless. To quote the observations made by Their Lordships, “A plain reading of Explanation 3 to Section 147 clearly depicts that the assessing officer has power to make additions even on the ground on which re-assessment notice might not have been issued in case during reassessment proceedings, he arrives at a conclusion that some other income has escaped assessment which comes to his notice during the course of proceedings for re-assessment under Section 148 of the Act “ and that “The provision nowhere postulates or contemplates that it is only when there is some addition on the ground on which re-assessment had been initiated, that the assessing officer can make additions on any other ground on the basis of which income may have escaped assessment.” The SLP filed by the assessee, against the view so expressed by Their Lordships, has been dismissed by Hon’ble Supreme Court on 19.08.2011.
The view so taken by Their Lordships is the law in the jurisdiction of Hon’ble Punjab & Haryana High Court even though other Hon’ble High Courts have taken a contrary view. The judicial precedents from other Hon’ble High Courts, as available in the public domain and even after taking note of the views so expressed by Their Lordships, have taken a contrary view of the matter, such as in the cases of CIT vs Mohmed Juned Dadani [(2013) 258 CTR 268 (Gujrat)], CIT
25 ITA Nos.638 & 639/Hyd/2017
VS Jet Airways [(2011) 331 ITR 236 (Bombay)], Ranbaxy Laboratories Limited Vs CIT [(2011)336 ITR 136 (Delhi)], ACIT Vs Major Deepak Mehta [(2012) 344 ITR 641 (Chattisgarh)]. All these decisions were dealing with the law as it stood after the insertion of Explanation 3 to Section 147 but then the views so expressed being contrary to the law laid down by Hon’ble jurisdictional High Courts, these decisions cannot indeed be applied on this assessee. Be that as it may, that is a purely academic aspect of the matter.
There cannot possibly be any two opinions with regard to the enunciation of law by Their Lordships in Majinder Singh Kang’s case (supra). However, we find that the reliance by the learned Departmental Representative on this decision, on the facts of this case, to be inapt. In Majinder Singh Kang’s case, Their Lordships have nowhere held that the proposition of law laid down therein to be applicable even to the cases wherein even when reasons recorded for reopening the assessment are held to be incorrect, and thus unsustainable in law, the Assessing Officer can still go ahead and make additions in the reassessment proceedings in respect of reasons other than the reasons recorded for reopening the reassessment. Hon’be High Court’s judgment in the case of Majinder Singh Kang’s case (supra) has not been shown to have altered, even sub silientio, the well settled legal position that the validity of reassessment proceedings is a sine qua non for any additions being made to the income of the assessee, during the course of the reassessment proceedings whether in respect of the reasons recorded for reopening the assessment or in respect of the reasons other than the reasons recorded for reopening the assessment.
Moreover, particularly in the light of the scheme of law as visualized by Hon’ble Supreme Court’s decision in the case of GKN Driveshafts Vs ITO [(2003) 259 ITR 101 (SC)], such a situation would be rather rare .
The reason is this. The reasons for reopening the assessment, as is the scheme of law visualized and set out by Hon’ble Supreme Court in the GKN Driveshaft’s case (supra), are to be confronted to the assessee and the assessee has an opportunity to rebut these reasons. This is a stage prior to the Assessing Officer proceeding with the reassessment proceedings and after he has issued notice for reopening the assessment. In a situation in which the assessee can convince the Assessing Officer that these reasons are not good enough to make the additions, the reassessment proceedings are to be dropped anyway.
There is no bar on the nature of material that the assessee may seek to rely upon, even at the first stage, to demonstrate that the reasons for reopening are unsustainable in law and even this adjudication by the Assessing Officer is subject matter of legal scrutiny by the appellate authorities in the course of the same appellate proceedings as against the reassessment order. The scheme of law, as laid down by the Hon’ble Supreme Court in GKN Driveshaft’s case, thus provides for dual adjudication by the Assessing Officer on the correctness of the reasons recorded for reopening the assessment- one at the stage of dealing with the objections of the assessee prior to proceeding with the reassessment proceedings, and the other at the point of time when, during the reassessment proceedings, the Assessing Officer has to take a call on additions to be made in
26 ITA Nos.638 & 639/Hyd/2017
respect of these reasons. That is where there is a paradigm shift in the scheme of things post GKN Drivershaft decision. In a situation in which, during the reassessment proceedings, the Assessing Officer finds these reasons to be so incorrect that he concludes that no income has escaped the assessment and the additions on that count are unwarranted, the same should have been the position at the stage of adjudicating on the correctness of the reasons recorded in the pre- reassessment proceedings. In the latter proceedings also, the assessee has the liberty to bring the material, other than that available to the Assessing Officer on his records, that no income has escaped assessment. The conclusions in these two sets of somewhat parallel exercises cannot, therefore, be ordinarily different. In other words, when the Assessing Officer is satisfied that no additions can be made on the basis of the reasons of reopening, as recorded by him, he has to drop the reassessment proceeding at this initial stage itself. When the examination of correctness of the reasons recorded come up for adjudication before the appellate authorities, the approach, therefore, cannot be any different either.
In the case before Hon’ble jurisdictional High Court, as evident from the extracts from the CIT(A)’s order reproduced therein, the reassessment was quashed on the ground that the Assessing Officer “could not make additions in respect of the income which had not escaped assessment for which no notice had been given to the assessee under Section 148 read with Section 147 of the Act”. Their Lordships appreciated that to that extent the legal proposition was incorrect in the light of insertion of Explanation 3 to Section 147, and the earlier judicial precedents, which were relied upon by the assessee, did not hold good law, as Their Lordships made clear in no uncertain words. The correctness of the reasons of reopening was not an issue before Their Lordships. The correctness of the reasons for reopening was not, directly or indirectly, in challenge.
As is evident from the discussions earlier in this order, here is a case in which the very reasons on account of which the CIT(A) has deleted the quantum additions were also good enough to hold that the initiation of reassessment proceedings is bad in law and yet the CIT(A) was fighting shy of the logical conclusions thereto and natural corollaries to these findings. It is also important to bear in mind the fact that the relief so granted by the CIT(A), on the basis of which the additions in respect of the reasons recorded for reopening the assessment were deleted and which were, in our considered view, good enough to quash the reassessment itself, is not even challenged in further appeal. These findings of the CIT(A) have thus reached finality. and are not even in dispute before us. If such be the facts, there can be no justification for taking these findings to its logical conclusions and, based on these uncontroverted findings, quash the reassessment itself. What held good for deleting the additions on the basis of the reasons recorded the assessment, on the fact of this case and in our
27 ITA Nos.638 & 639/Hyd/2017 humble understanding, was good enough to hold the reasons for reopening the assessment to be incorrect as well. We are unable to see any legally sustainable reasons to come to different conclusions. In our considered view, therefore, the CIT(A) ought to have quashed the reassessment as well.
In view of these discussions, and bearing in mind entirety of the case, we hold that the CIT(A) ought to have, on the peculiar facts and circumstances of the case, quashed the reassessment proceedings as well. We, therefore, quash the reassessment proceedings. As reassessment itself is quashed as above, nothing else survives for adjudication.”
We adopt the above detailed reasoning mutatis mutandis and
hold that the impugned reopening itself is not sustainable in
the light of the alleged twin reasons recorded (supra) by the
Assessing Officer which have been decided in the tribunal first
round that the same did not give rise to any taxable income
which could be stated to have escaped assessment in assessee's
case. It is thus apparent that the impugned additions be it as
income from ‘other’ sources or ‘business’, both are contrary to
the tribunal’s remand directions closing all options of assessing
the entire credit, debit as well as estimates thereof (supra),
would not help the Revenue’s cause. We thus quash the
impugned reopening as well in both these appeals.
28 ITA Nos.638 & 639/Hyd/2017
All other pleadings in the instant appeals are rendered
academic.
The assessee's appeals are allowed in above terms. Copy
of this order is placed in the respective files.
Order pronounced in the open court on 29th April, 2021.
Sd/- Sd/- (LAXMI PRASAD SAHU) (S.S. GODARA) Accountant Member Judicial Member Hyderabad, Dt.29.04.2021. * Reddy gp Copy to : 1. M/s. SPR Infrastructure India Private Limited, Surya Soudha, Plot No.185, Ayyappa Society, Khanamet Village, Hyderabad. 2. DCIT, Cir. 3(2), Hyderabad. 3. Pr. C I T-3, Hyderabad. 4. CIT(Appeals)-3, Hyderabad. 5. DR, ITAT, Hyderabad. 6. Guard File.
By Order Sr. Pvt. Secretary, ITAT, Hyderabad.