ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, KOTA vs. M/S SHIV VEGPRO PVT. LTD., KOTA

PER VIJAY PAL RAO, JM :

This appeal by the revenue is directed against the order dated 29th March, 2019

of ld. CIT (A), Kota for the assessment year 2011-12. The revenue has raised the

following grounds :-

“ 1. On the facts and in the circumstances of the case, the ld. CIT (A) has erred in deleting addition of Rs. 12,74,04,995/- made by AO u/s 68 on account of accommodation entry taken by the assessee without appreciating the facts discussed in the assessment order. 2. On the facts and in the circumstances of the case, the LD. CIT (A) has erred in deleting addition of Rs. 2,98,795/- made by AO on account of disallowance of commission payment.

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was concluded through Video Conference. The assessee is a private limited company

and engaged in the business of manufacturing/processing and trading of Agro based

products. The assessee has e-filed its return of income for the year under

consideration on 30.09.2011 declaring total income of Rs. 4,52,11,888/-. Scrutiny assessment under section 148 was completed on 29th March, 2014 at the total income

of Rs. 4,66,65,470/-. Thereafter the AO reopened the assessment by issuing notice under section 148 on 29th March, 2018 on the basis of information received from DIT

Investigation, Chandigarh regarding accommodation entry received by the assessee

from M/s. Shree Ram Trading Co. The reassessment was completed on 12.12.2018

whereby the AO has made addition under section 68 of the IT Act of Rs. 12,74,04,995/-

along with disallowance of commission payment and freight payment total amounting to

Rs. 12,83,51,717/-. The assessee challenged the action of the AO before the ld. CIT

(A) both on merits of the addition as well as validity of reopening of the assessment.

The ld. CIT (A) deleted the addition made by the AO. However, the ground raised by

the assessee challenging the validity of reopening was decided against the assessee.

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Aggrieved by the impugned order of ld. CIT (A), the revenue has filed the present

appeal. The assessee respondent has not filed any appeal or cross objection.

However, the assessee has filed an application under Rule 27 of ITAT Rules, 1963 to

defend the impugned order of the ld. CIT (A) on the ground of validity of reopening of

the assessment which was decided against the assessee by the ld. CIT (A). Thus the

plea raised by the assessee under Rule 27 of ITAT Rules, 1963 is as under :-

“ The very action taken u/s 147 r/w 148 is bad in law without jurisdiction and being void ab-initio, the same kindly be quashed. Consequently, the impugned assessment framed u/s 144/148 dated 04.03.2016 also kindly be quashed.”

The issue agitated by the assessee under Rule 27 of the ITAT Rules is a pure legal issue

and goes to the root of the matter. Further if the assessee succeeds on this issue as

raised under Rule 27, then the appeal of the revenue would become infructuous.

Accordingly, we first take up the plea raised by the assessee respondent under Rule 27

of the ITAT Rules. The ld. A/R of the assessee has submitted that this ground was

raised by the assessee before the ld. CIT (A) but the same was decided against the

assessee. Since the ld. CIT (A) has granted the relief to the assessee on the merits of

the matter whereby the addition made by the AO was deleted, therefore, the assessee

did not file any cross appeal or cross objection in this matter. However, since the

validity of reopening of the assessment was decided against the assessee, therefore, as

per the provisions of Rule 27 of the ITAT Rules the assessee can raise this plea to

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defend the impugned order of the ld. CIT (A) and to challenge the maintainability of the

appeal filed by the revenue. Therefore, he has pleaded that the objection raised by the

assessee may be decided before taking up the appeal of the revenue. In support of

his contention, he has relied upon the following decisions :-

CIT vs. BPL Systems & Projects Ltd. 227 ITR 779 (Ker.)

PCIT vs. Sun Pharmaceuticals Industries Ltd. 86 taxmann.com 148 (Guj.)

The ld. A/R has further submitted that since the original assessment was completed

under section 143(3) and reopening of the assessment is after the expiry of 4 years

from the end of the assessment year, therefore, in the absence of failure on the part of

the assessee to disclose fully and truly all relevant facts necessary for assessment, the

reopening of the assessment is bad in law. He has referred to the proviso to section

147 of the IT Act and submitted that it is a pre-condition to reopen the assessment in

case of the original assessment completed under section 143(3) and notice under

section 148 is issued after 4 years from the end of the assessment year that there is a

failure on the part of the assessee to disclose fully and truly all the relevant facts

necessary for assessment. The AO has not made any such allegation in the reasons

recorded for reopening of the assessment. Therefore, the reopening of the assessment

is bad in law and liable to be quashed. He has further contended that even under the

provisions of section 147 of the IT Act it is a pre-condition for reopening of the

assessment that there should be a reason to believe and not reason to suspect. In

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the case in hand, the AO has reopened the assessment based on the information

received from the Investigation Wing which is very vague and general and even not

pointed out how the income assessable to tax has escaped assessment. The AO has

even not verified the veracity of the information on the basis of which the assessment

was reopened. The AO was not having so-called investigation report in his possession

but only on the basis of the letter he has blindly reopened the assessment. Therefore,

the AO has not applied his independent mind but reopened the assessment based on

the communication received by the AO without having report of the Investigation Wing

which is the basis of said communication. The ld. A/R has relied upon a series of

decisions in support of his contention that the reopening of the assessment after lapse

of 4 years from the end of the assessment year is not valid when original assessment

was completed under section 143(3) and there is no failure on the part of the assessee

to disclose fully and truly all the relevant facts necessary for assessment. The AO has

suspected the sales made to a particular party which is only a friction of the total

turnover of the assessee which is more than Rs. 331 crores. All the sales so declared

were subjected to provisions of sections of Rajasthan Value Added Tax Act and made

against ‘C’ Form. The Commercial Taxes Department has accepted and assessed the

sales so declared by the assessee. The entire sales were fully accounted for in the

accounts which were duly audited under section 44AB of the Act. The sales in question

were effected through broker who also confirmed the sale transactions. The entire

payment was received through banking channel. The AO while completing the scrutiny

assessment, has not even doubted the genuineness of the transaction. Therefore, once

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the sales declared and fully accounted for in the accounts which were duly audited and

accepted by the AO while completing the scrutiny assessment, then the same cannot be

doubted merely on suspicion arising from vague and incomplete information in case of

a third party. Thus the ld. A/R has submitted that the reopening of the assessment is

inconformity with the provisions of section 147 of the Act and the same is liable to be

quashed.

assessee under Rule 27 of the ITAT Rules. He has contended that the jurisdiction of

the Tribunal is to consider the subject matter in the appeal and not beyond that. The

issue of validity of reopening is not the subject matter of appeal of the revenue and,

therefore, in the absence of any cross appeal or cross objection by the assessee such

an issue cannot be allowed to be raised. Thus the ld. CIT D/R has contended that the

Tribunal cannot entertain and consider an issue which is not subject matter of appeal

before it. In support of his contention, he has relied upon the judgment of Hon’ble

Allahabad High Court in case of Kanpur Industrial Works vs. CIT, 59 ITR 407 (All.) and

submitted that the Hon’ble High Court has held that no relief can be granted to an

assessee unless he asked for it and is entitled in law to get it. The Tribunal has no

jurisdiction to give any relief though he may be entitled to it, if he does not ask for it in

the appeal. The powers of the Tribunal though are very wide but only within the

subject matter of appeal. He has also relied upon the Hon’ble Delhi High Court in case

of CIT vs. Edward Keventer (Successors) Pvt. Ltd., 123 ITR 200 (Del.) and submitted

the Hon’ble High Court has again reiterated that the jurisdiction of the Tribunal is only

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in respect of the subject matter of the appeal and not beyond. Thus he has objected to

the plea raised by the assessee under Rule 27 of the ITAT Rules on the ground that the

Tribunal has no jurisdiction to entertain such a plea which is not subject matter of

appeal. As regards the validity of reopening, the ld. D/R has submitted that the AO has received the information vide letter dated 16th January, 2018 wherein all the details of

accommodation entries provided by various persons including M/s. Shree Ram Trading

Co. with whom the assessee has transactions of sale. Therefore, the AO was having

definite information about the bogus accommodation entries received by the assessee

on account of sales. He has also referred letter dated 13.03.2018 of ADIT Investigation

Jaipur to Pr. CIT, Kota wherein the information received from DIT Investigation

Gurgaon was shared with the respective Pr. CITs for appropriate action. Thus the ld.

CIT D/R has submitted that the relevant information was also annexed with the said

letter which constitutes a tangible material to form the belief that the income

assessable to tax has escaped assessment. This is new material and information which

was received by the AO after completion of the assessment and, therefore, based on

such new material, the AO has formed the opinion that the income assessable to tax

has escaped. There is a live link between the information received by the AO and the

reason recorded for reopening of the assessment. He has referred to Explanation-1 of

section 147 and submitted that mere production of books of account would not

constitute disclosure of true and full facts necessary for assessment. In support of his

contention, he has relied upon the following decisions :-

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Avirat Star Homes Venture Pvt. Ltd. vs. ITO 102 taxmann.com 60 (Bombay)

Etiam Emedia Ltd. Vs. ITO 101 taxmann.com 231 (MP)

Purnima Komalkant Sharma vs. DCIT 114 taxmann.com 718 (Guj.)

RDS Project Ltd vs. ACIT 113 taxmann.com 534 (Del.)

record. Rule 27 of the ITAT Rules confers a right to respond to support or defend the

order of the ld. CIT (A) on any of the grounds decided against him without filing any

cross appeal or cross objection. For ready reference, we quote Rule 27 of the ITAT

Rules as under :-

“27. The respondent, though he may not have appealed, may

support the order appealed against on any of the grounds decided

against him.”

Thus Rule 27 of the ITAT Rules is only a provision to defend the impugned order by the

respondent, if the said order is challenged by the other party and the respondent

choose not to file cross appeal or cross objection can still defend the said order on the

ground which was decided against him by the ld. CIT (A). This provision is not a

provision to challenge the order of the ld. CIT (A) in respect of the ground which is

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decided against the respondent but it is only a provision to defend the said order and

that too only on the ground which is decided against the assessee. Thus Rule 27 of

the ITAT Rules can be invoked only in a case where a ground which is decided against

the respondent if agitated before the Tribunal and the respondent succeeds in the said

plea and that would render the appeal filed by the other party infructuous. In other

words, if an issue or ground which was raised before the ld. CIT (A) challenging the

very validity of the assessment order was decided against the assessee but the other

issues are decided in favour of the assessee, then in such a case the revenue files an

appeal against the order of the ld. CIT (A), the assessee can without filing the cross

appeal or cross objection support or defend the order of the ld. CIT (A) on such issue

which was decided against the assessee. Thus in case the assessee succeeds on this

ground, then the appeal of the revenue would fail because of the reason that the

validity of the assessment itself is decided in favour of the assessee. Though the plea

raised under Rule 27 would not disturb the order of the ld. CIT (A) but the effect of the

outcome of such plea in favour of the assessee would be failure of the revenue’s

appeal. The scope of Rule 27 of the ITAT Rules was considered by the Hon’ble Bombay

High Court in case of B.R. Bamasi vs. CIT, 83 ITR 223 (Bom.) and observed at para 244

to 246 as under :-

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judgment in the case of Commissioner of Income-tax v. Ranchhoddas Karsondas. Mr. Joshi has not disputed this position. The only question is whether the Tribunal was entitled in law to refuse to allow the assessee to urge that ground in the appeal before it. Now a Division Bench of this High Court in Commissioner of Income-tax v. Hazarimal Nagji & Co., after considering the relevant sections of the Income-tax Act and the relevant Rules made thereunder, held that the powers of the Appellate Tribunal are similar to the powers of an appellate court under the Civil Procedure Code. It has further held that the respondent in an appeal is undoubtedly entitled to support the decree which is in his favour on any grounds which are available to him, even though the decision of the lower court in his favour may not have been based on those grounds. It has further held that if the appellant in his challenge to the decree of the lower court is entitled to take a new ground not agitated in the court below by leave of the court, there appears to be no reason why a respondent in support of the decree in his favour passed by the lower court should not be entitled to agitated a new ground and subject to the same limitation. A Division Bench of the Allahabad High Court has taken a similar view in Kanpur Industrial Works v. Commissioner of Income-tax. That judgment has considered the position of an appeal under section 33 of the Income-tax Act along with the relevant Rules and that of an appeal under the Code of Civil Procedure and the provisions of Order XLI, rule 22. The judgment holds that when the department files an appeal for an increase in the assessed income, the subject-matter of the appeal is the increase claimed by the department and the assessee can urge any ground of defence even though it might have been rejected by the Appellate Assistant Commissioner for showing that there should be no increase. It has further held that that the assessee is not liable to be assessed at all is a ground for showing that there should be no further assessment and the department's appeal can therefore be resisted on that ground and that there is no incongruity in maintaining the assessment order

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passed against the assessee and yet refusing to increase it on the ground that he was not liable to be assessed at all. The judgment points out however that if the Tribunal accepts the ground of defence that the assessee was not liable to be assessed, it can only refuse to increase the assessed income as only such an order would be within the scope of the appeal filed by the department and any other order such as annulling the assessment would be outside the scope of the appeal. That judgment holds that the position of an appeal under section 33 of the Income-tax Act and an appeal under the Code of Civil Procedure is identical. A Full Bench of the Madras High Court has in Venkata Rao v. Satyanarayanamurthy, held that it was open to a respondent in appeal who had not filed cross objection with regard to the portion of the decree which had gone against him to urge in opposition to the appeal of the plaintiff a contention which it accepted by the trial court would have necessitated the total dismissal of the suit, but the decree in so far as it was against him would stand. The judgment of the Tribunal in our case clearly shows that, although the assessee wanted to raise a new point as a ground of defence in the appeal, he specifically stated that he wanted to rely upon it only for the purpose of having the appeal by the department for enhancement in income-tax dismissed. But even if the assessee had not made such a statement, the above judgment shows that the assessee would be entitled to raise a new ground, provided it is a ground of law and does not necessitate any other evidence to be recorded, the nature of which would not only be a defence to the appeal itself, but may also affect the validity of the entire assessment proceedings. If the ground succeeds, the only result would be that the appeal would fail. The acceptance of the ground would show that the entire assessment proceedings were invalid, but yet the Tribunal which hears that appeal would have no power to disturb or to set aside the order in favour of the appellant against which the appeal has been filed. The ground would serve only as a weapon of defence against the appeal. If the respondent has not himself taken any proceedings to challenge the order in appeal, the

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Tribunal cannot set aside the order appealed against. That order would stand and would have full effect in so far as it is against the respondent. The Tribunal refused to allow the assessee to take up allowed to be urged and succeeded, the Tribunal would have not only to dismiss the appeal, but also to set aside the entire assessment. The point would have served as a weapon of defence against the appeal, but it could not be made into a weapon of attack against the order in so far as it was against the assessee”.

(emphasis supplied by us)

The Hon’ble High Court after considering the judgment of the Hon’ble Allahabad High

Court in case of Kanpur Industrial Works vs. CIT (supra) has held that even if the

assessee has not filed any cross appeal or cross objection, it would be entitled to raise a

ground of law which would not only be a defence to the appeal filed by the revenue but

may also affect the validity of the entire assessment proceedings. If the ground raised

by the assessee succeeds, the only result would be that the appeal of the revenue

would fail. The acceptance of the ground would show that the assessment itself would

be invalid and vitiate. The Hon’ble High Court has further observed that if such a

ground is allowed to be urged and succeeded, the Tribunal would have not only to

dismiss the appeal but also to set aside the entire assessment. Such a plea would have

served as a weapon of defence against the appeal, but it could not be made a weapon

to attack against the order in so far as it was against the assessee. Therefore, the

effect of a plea raised by the assessee against the validity of reopening if decided in

favour of the assessee, then it would be only to the extent of defence against the

appeal and the appeal of the revenue would fail. The Hon’ble Gujarat High Court in

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case of PCIT vs. Sun Pharmaceuticals Industries Limited (supra) has held in para 11 to

15 as under :-

“11. To put the controversy beyond doubt, Rule 27 of the Rules makes it clear that the respondent in appeal before the Tribunal even without filing an appeal can support the order appealed against on any of the grounds decided against him. It can be easily appreciated that all prayers in the appeal may be allowed by the Commissioner (Appeals), however, some of the contentions of the appellant may not have appealed to the Commissioner. When such an order of the Commissioner is at large before the Tribunal, the respondent before the Tribunal would be entitled to defend the order of the Commissioner on all grounds including on grounds held against him by the Commissioner without filing an independent appeal or cross-objection. 12. Rule 27 of the Rules is akin to Rule 22 Order XLI of the Civil Procedure Code. Sub-rule (1) provides that any respondent, though he may not have appealed from any part of the decree, may not only support the decree but may also state that the finding against him in the Court below in respect of any issue ought to have been decided in his favour; and may also take any cross-objection to the decree which he could have taken by way of an appeal. In case of Virdhachalam Pillai v. Chaldean Syrian Bank Ltd.AIR 1964 SC 1425 in context of the said Rule the Supreme Court observed as under: "32. Learned Counsel for the appellant raised a short preliminary objection that the learned Judges of the High Court having categorically found that there was an antecedent debt which was discharged by the suit-mortgage loan only to the extent of Rs. 59,000/- and odd and there being no appeal by the Bank against the finding that the balance of the Rs. 80,000/- had not gone in discharge of an antecedent debt, the respondent was precluded from putting forward a contention that the entire sum of Rs. 80,000/- covered by Exs. A and B went for the discharge of antecedent debts. We do not see any substance in this objection, because the respondent is entitled to canvass the correctness of findings against it in order to support the decree that has been passed against the appellant." 13. Likewise, in case of S. Nazeer Ahmed v. State Bank of Mysore AIR 2007 SCW 766 it was held and observed as under: "7. The High Court, in our view, was clearly in error in holding that the appellant not having filed a memorandum of cross-objections in terms of Order XLI Rule 22 of the Code, could not challenge the finding of the trial court that the suit was not barred by Order II Rule 2 of the Code. The respondent in an appeal is entitled to support the decree of the trial court even by challenging any of the findings that might have been rendered by the trial court against himself. For supporting the decree passed by the trial court, it is

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not necessary for a respondent in the appeal, to file a memorandum of cross- objections challenging a particular finding that is rendered by the trial court against him when the ultimate decree itself is in his favour. A memorandum of cross-objections is needed only if the respondent claims any relief which had been negatived to him by the trial court and in addition to what he has already been given by the decree under challenge. We have therefore no hesitation in accepting the submission of the learned counsel for the appellant that the High Court was in error in proceeding on the basis that the appellant not having filed a memorandum of cross-objections, was not entitled to canvass the correctness of the finding on the bar of Order II Rule 2 rendered by the trial court." 14. Similar issue came-up before Division Bench of this Court in case of Dahod Sahakari Kharid Vechan Sangh Ltd. v. CIT [2006] 282 ITR 321/[2005] 149 Taxman 456 (Guj.) in which the Court observed as under: "17. Taking up the second issue first, the Tribunal has committed an error in law in holding that the assessee having not filed cross-objection against findings adverse to the assessee in the order of Commissioner (Appeals), the said findings had become final and remained unchallenged. The Tribunal apparently lost sight of the fact that the assessee had succeeded before the Commissioner (Appeals). The appeal had been allowed and the penalty levied by the assessing officer deleted in entirety. In fact, there was no occasion for the assessee to feel aggrieved and hence, it was not necessary for the assessee to prefer an appeal. The position in law is well settled that a cross objection, for all intents and purposes, would amount to an appeal and the cross objector would have the same rights which an appellant has before the Tribunal. 18. Section 253 of the Act provides for appeal to the Tribunal. Under sub- section (1), an assessee is granted right to file an appeal; under sub-section (2), the Commissioner is granted a right to file appeal by issuing necessary direction to the assessing officer; sub-section (3) prescribes the period of limitation within which an appeal could be preferred. Section 253(4) of the Act lays down that either the assessing officer or the assessee, on receipt of notice that an appeal against the order of Commissioner (Appeals) has been preferred under sub-section (1) or subsection (2) by the other party, may, notwithstanding that no appeal had been filed against such an order or any part thereof, within 30 days of the notice, file a memorandum of cross objections verified in the prescribed manner and such memorandum shall be disposed of by the Tribunal as if it were an appeal presented within the period of limitation prescribed under sub-section (3). Therefore, on a plain reading of the provision, it transpires that a party has been granted an option or a discretion to file cross objection. 19. In case a party having succeeded before Commissioner (Appeals) opts not to file cross objection even when an appeal has been preferred by the

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other party, from that it is not possible to infer that the said party has accepted the order or the part thereof which was against the respondent. The Tribunal has, in the present case, unfortunately drawn such an inference which is not supported by the plain language employed by the provision. 20. If the inference drawn by the Tribunal is accepted as a correct proposition, it would render Rule 27 of the Tribunal Rules redundant and nugatory. It is not possible to interpret the provision in such manner. Any interpretation placed on a provision has to be in harmony with the other provisions under the Act or the connected Rules and an interpretation which makes other connected provisions otiose has to be to avoided. Rule 27 of the Tribunal Rules is clear and unambiguous. The right granted to the respondent by the said Rule cannot be taken away by the Tribunal by referring to provisions of Section 253(4) of the Act. The Tribunal was, therefore, in error in holding that the finding recorded by the Commissioner (Appeals) remained unchallenged since the assessee had not filed cross objections." 15. The first question is, therefore, answered against the Revenue and in favour of the assessee.”

The Hon’ble High Court has observed that if order of the Commissioner (Appeals) is at

large before the Tribunal, the respondent before the Tribunal would be entitled to

defend the order of the Commissioner (Appeals) on all the grounds including on the

grounds held against him by the Commissioner without filing an independent appeal or

cross objection. In case of CIT vs. BPL Systems & Projects Ltd. (supra), the Hon’ble

Kerala High Court while considering the issue of raising a plea under Rule 27 of the

ITAT Rules, has held as under :-

“The first question relates to the exercise of powers by the Income-tax (Appellate Tribunal) Rules, 1963. This was with regard to an aspect decided against the assessee and seeking to support the order of the first appellate authority on submissions in regard thereto. We had an occasion to consider this aspect when we decided Income-tax Reference No. 2 of 1992 Travancore Chemical and Manufacturing Co. Ltd, v. CIT [1997] 226 ITR 429—on September 17, 1996,

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where we had an occasion to refer to the statutory provisions of sections 253(4), 254(4) along with the necessary provisions of the Income-tax (Appellate Tribunal) Rules, 1963. This was with regard to the proposition that the respondent before the Tribunal, though he may not have appealed, may support the order appealed against on any of the grounds decided against him. Not only that the provisions of rules 22 and 27 of the Income-tax (Appellate Tribunal) Rules, 1963, provide for the occasion but section 253 of the Income-tax Act, 1961, dealing with the powers of the Appellate Tribunal in regard to the appeals before it, sub- section (4) thereof recognizes the right of the respondent, "notwithstanding that he may not have appealed against such order or any part thereof", he has a right to agitate and to be heard in the matter. This is because, section 253(4) of the Act endorses the situation of finality with regard to the orders passed by the Appellate Tribunal. In view of the above reasons, the Appellate Tribunal under resort to rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963, would be justified to consider the contention raised by the assessee in regard to which the first appellate authority had decided against him. Question No. 1 thus gets answered in the affirmative, against the Revenue and in favour of the assessee.”

Therefore, in view of the above settled proposition of law, the assessee is allowed to

raise this plea under Rule 27 of the ITAT Rules. The decisions relied upon by the ld.

CIT D/R are in respect of the facts where a part relief was granted by the ld. CIT (A) in

respect of the same issue and the assessee without filing the appeal or cross objection

attempted to raise the plea under the shelter Rule 27 of the ITAT Rules to get the full

relief on the same issue which was partly allowed in favour of the assessee and the

revenue challenged the order of the ld. CIT (A). Under Rule 27 of the ITAT Rules, the

assessee cannot seek relief more than what was granted by the ld. CIT (A). Therefore,

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in those cases when the issue is decided partly in favour of the assessee, then in the

absence of any separate issue which is decided against the assessee and the effect of

such a plea would render the assessment invalid, the assessee was not allowed to raise

an issue on the merits without challenging the order of the ld. CIT (A). Therefore,

those decisions would not help the case of the revenue in present circumstances where

the assessee raised an issue of validity of reopening before the ld. CIT (A) and the ld.

CIT (A) decided the same against the assessee.

ld. CIT (A) and decided against it by the ld. CIT (A) and now the assessee has raised

the same plea under Rule 27 of the ITAT Rules. At the outset, we note that the original assessment was completed under section 143(3) on 29th March, 2014 and thereafter the AO issued notice under section 148 on 29/30th March, 2018. Therefore,

undisputedly the notice under section 148 was issued after expiry of 4 years from the

end of the assessment year in question and thus the proviso to section 147 would be

attracted in this case. The reasons recorded by the AO for reopening of the assessment

is reproduced in the assessment order as under :-

“ Return of income was filed by the assessee on 29.09.2011 declaring the total income of Rs. 4,52,11,890/-. Assessment u/s 143(3) of the I.T. Act, was completed on 29.03.2014 at income of Rs. 4,66,65,470/-. Further the Addl. DIT (Inv.) Jaipur vide letter no. 587 dated 13.03.2018 has informed that an investigation report was received from DIT (Inv.) Chandigarh alongwith list of beneficiary.

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As per the information, the assessee has ltaken accommodation entry of Rs. 4,55,43,635/- during the F.Y. 2010-11 from Shree Ram Trading Co. Through PNB Account No. 577002100051253 in UB a/c No. 352605010053116 of the assessee. As per the investigation report, this accommodation entry was provided by Vipin Garg Group against a commission of 0.5% to 2%. In view of the above, I have reason to believe, that income chargeable to tax has escaped assessment to the tune of Rs. 4,55,43,635/-. Therefore, notice u/s 148 is to be issued.”

As it is clear from the reasons recorded that the AO has even not mentioned as on what

account or transactions the assessee has taken the accommodation entry from Shree

Ram Trading Co. It appears that the AO has just narrated the contents as received by

him from the Investigation Wing without having all the details and Investigation Report.

The AO even in the assessment order has not made any reference of investigation

carried out by him during the course of reassessment proceedings but he has simply

relied on the information received from the Investigation Wing and the queries raised to

the assessee which was replied by the assessee. Apart from seeking the explanation

from the assessee, the AO has not conducted any enquiry in respect of the said

information from the party concerned who has allegedly made the statement of

providing accommodation entries. Thus it is apparent that the reasons recorded by the

AO are vague and do not reveal even the nature of transactions in the garb of which

the alleged accommodation entries were received by the assessee. Further, the AO in

the reasons recorded has not even alleged that there is a failure on the part of the

assessee to disclose fully and truly all material facts necessary for assessment. In the

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absence of such an allegation or failure on the part of the assessee, the reopening after

4 years from the end of the assessment year when the original assessment was

completed under section 143(3) is not permitted. The ld. D/R has relied upon the

Explanation-1 to section 147, however, said explanation has a limited application only

to consider the plea of the assessee that he has produced the books of accounts before

the AO and thereby all the facts and details were disclosed during the course of scrutiny

assessment. In the case in hand, when finally the accommodation entries were found

to be on account of sales made by the assessee which is the primary record as part of

the Profit & Loss account as well as computation of income and, therefore, in the

absence of any allegation by the AO, the Explanation-1 to section 147 cannot be

pressed into service. All the sales including the sales in dispute are duly accounted in

the books of account which were audited and subject to scrutiny of the Commercial

Taxes Department, therefore, the assessee cannot be held guilty for not furnishing all

the information necessary for assessment. If the AO proposed to treat some of the sale

transactions as bogus, then the assessee is not expected to disclose any other fact than

the transaction itself which is duly recorded in the books of account and part of the

primary record of the assessee. Therefore, the primary facts disclosed by the assessee

at the time of original assessment and in the absence of any allegation on the part of

the AO in the reasons recorded for reopening that there is a failure on the part of the

assessee to disclose fully and truly all the relevant facts necessary for assessment, the

reopening is hit by the provisions of section 147. This Bench of the Tribunal

20 ITA No. 739/JP/2019 M/s. Shiv Vegpro Pvt. Ltd., Kota.

in case of M/s. Dwarka Gems Ltd vs. DCIT in ITA No. 71/JP/2017 dated 27.03.2018 has

considered an identical issue in para 4 as under :-

“4. We have considered the rival submissions as well as the relevant material on record. There is no dispute that the original assessment was completed under section 143(3) on 27th December, 2010 after an addition on account of unverifiable/bogus purchases was made by the AO. Thus it is manifest from the record that the AO while completing the original assessment under section 143(3) has conducted an enquiry in respect of the purchases made by the assessee and finally concluded that the purchases made by the assessee from the 12 parties were not verifiable and accordingly an addition of 25% of such purchases were made by the AO. Therefore, the issue of genuineness of purchases was duly examined by the AO while completing the scrutiny assessment under section 143(3). The AO, thereafter, issued a notice under section 148 on 21.11.2014 which is after four years from the end of the assessment year under consideration. The reasons recorded for reopening of the assessment are as under :-

“As per information it had been established that bogus sales entries were made in favour of M/s Dwarka Gems on various dated during F.Y. 2007-08 i.e. A.Y. 2008-09 total amounting to Rs. 31,40,818/-. These entries were provided by M/s Meridian Gems & M/s Millenium Stars which are some of the bogus concerns of Bhanwar Lal Jain & Group.”

Thus it is clear that the reopening of the assessment is based on the information received and to assess the income in respect of the purchases made by the assessee which was examined by the AO during the original

21 ITA No. 739/JP/2019 M/s. Shiv Vegpro Pvt. Ltd., Kota.

scrutiny assessment under section 143(3). The AO after an enquiry and investigation during the original assessment proceedings held that the purchases made from 12 parties are not verifiable/genuine. Thus except the purchases made from those 12 parties, the AO has accepted the genuineness of the purchases including the two parties, namely M/s. Maridian Gems and M/s. Millennium Star. Even if the subsequent information received from the DIT Investigation Wing Mumbai renders the assessment order passed under section 143(3) defective and erroneous for want of proper verification and investigation, the same would not turn the case in the category that the assessee has failed to disclose fully and truly all the particulars necessary for assessment. It is not the case of the AO that the assessee has not furnished the requisite documents and details of purchase rather the AO conducted a detailed enquiry during the original assessment on the issue of genuineness of purchases. Thus the information received by the AO from Investigation Wing Mumbai would not amount to non disclosure of particulars by the assessee, rather it was the subject matter of enquiry by the AO in the original assessment. Therefore, if the AO failed to conduct proper enquiry regarding the genuineness of the purchases, the same would not give jurisdiction to the AO to review the order or remove the defect based on subsequent information. The statute has provided segregation of powers and jurisdiction between the hierarchy of the taxing authorities and, therefore, the power and jurisdiction vested with one authority cannot be assumed by the other authority. Section 263 is a provision of check and balances and, therefore, in case of failure on the part of the AO to conduct a proper enquiry as revealed by a subsequent material and information came to the knowledge of the Commissioner, the provisions of section 263 can be invoked by the revisionary authority. Therefore, the remedy for any defect or default in the order of the AO is provided under section 263 of the Act

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and not under section 147. The reopening after four years from the end of the assessment year completed under section 143(3) is not permissible without satisfying the condition precedent as provided under the provisions of section 147 of the Act. The subsequent information received by the AO cannot remove or relax the said condition provided under the provisions of section 147 that the assessee failed to disclose fully and truly all the material necessary for assessment. In the case in hand, when the AO has already conducted an enquiry on the issue and the assessee is not expected to furnish more than what was already furnished during the assessment proceedings, then the reopening based on the information from the Investigation Wing on the same issue is nothing but change of opinion and to review the order passed by the AO under section 143(3) which is not permissible under law. Accordingly, in the facts and circumstances of the case, we hold that the reopening is not valid and, therefore, the reassessment framed by the AO is without jurisdiction and consequently the reassessment order passed is quashed.”

This Bench of the Tribunal in the case of M/s. Zari Silk India Pvt. Ltd. in ITA No.

1103/JP/2019 dated 17.12.2019 has also considered identical issue at pages 11 to 16 as

under :-

“The first part of the reasons recorded by the AO is nothing but the details of share capital received by the assessee from various entities which were already recorded in the books of account and also shown in the Balance Sheet as on 31st March, 2008. The second part of the reasons recorded by the AO is regarding the information received from the Investigation Wing Mumbai and thereafter a survey conducted by the AO

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at the premises of the assessee. We find that except the non-discovery of the share application forms, nothing was detected by the AO during the survey which can lead to belief that the transaction of share capital received by the assessee is bogus. Thus whatever the AO has alleged in the reasons recorded and proceedings of survey all these facts and details were part of the books of account already produced before the AO during the scrutiny assessment and were subjected to verification and examination. The third part of the reasons recorded is regarding the purchases worth Rs. 21,57,500/- from the company M/s. New Planet Trading Co. Pvt. Ltd. The AO has considered the said company as shell company owned and operated by Shri Praveen Kumar Jain. This belief was formed by the AO on the basis of the information received from the Investigation Wing Mumbai. Except the Inward Register, no other incriminating material found during the survey to say that the purchases made by the assessee are bogus. It is pertinent to mention that the purchases were made by the assessee when the assessee was having its only show room at M.I. Road, Jaipur whereas the survey was conducted at the show room at Narain Singh Circle, Jaipur. Subsequently the assessee has filed this record of inventory register showing the entries of the alleged purchases. Moreover, during the assessment proceedings under section 143(3), the AO has specifically called for purchase and sales vouchers, bills along with cash book, ledger, bank book and those details were furnished by the assessee for the verification and examination of the AO. The last part of the reasons recorded by the AO is referring the information gathered during the survey as well as material impounded and information received from the Investigation Wing Mumbai. However, except the non availability of the application form at the time of survey and the purchases were not found in the Inward Register at the place of survey, nothing else was detected during the survey proceedings. Most

24 ITA No. 739/JP/2019 M/s. Shiv Vegpro Pvt. Ltd., Kota.

importantly, the AO in the reasons recorded has not made any allegation of failure on the part of the assessee to disclose fully and truly all relevant facts necessary for assessment. In the absence of any allegation that the income has escaped assessment due to the failure on the part of the assessee to disclose fully and truly all the relevant facts necessary for assessment, the reopening after 4 years from the end of the relevant assessment year is hit by the proviso to section 147 of the IT Act. Once the transaction of share capital received by the assessee as well as purchases made from the said entity are duly recorded in the books of account and were subjected to the verification and examination of the AO, then the reopening of the assessment even on the basis of information received from the Investigation Wing Mumbai after 4 years from the end of the assessment year is not permitted as it will amount to review its own order by the AO and rejecting the documentary evidence produced by the assessee which was already accepted by the AO. This Tribunal in case of ITO vs. M/s. Silver Sand Builders Pvt. Ltd. (supra) has considered an identical issue in para 6 as under :-

“6. We have considered the rival submissions as well as the relevant material on record. The original return of income filed under section 139(1) for all the three years were subjected to scrutiny assessment under section 143(3). Subsequently the AO has proposed to assess the income being notional rent in respect of the closing stock in the commercial complex, namely, Silver Square. The said space which was to be assessed as Income from House Property is at 4th Floor of the said commercial complex. The AO has recorded identical reasons for all the three years. The recorded reasons for the assessment year 2007-08 are as under :-

25 ITA No. 739/JP/2019 M/s. Shiv Vegpro Pvt. Ltd., Kota.

“ Return of income for the A.Y. 2008-09 was filed on 20.07.2009 at an income of Rs. 1,83,170/-. During the course of assessment proceedings for A.Y. 2012-13 it is found that the assessee is a builder and developer and has developed a commercial complex Silver Square at C-18, Bhagwan Das Road, Jaipur. The project was started on 15.08.2003 and was completed on 10.08.2005. The assessee was requested to file the details of total area constructed and year-wise area sold. In response, the assessee filed details of opening stock as on 1.4.2011 and closing stock as on 31.03.2012. One more request was made vide letter dated 17.03.2015 to file year-wise details of area sold from the date of completion of project but no compliance was made.

Assessment for A.Y. 2012-13 has been completed u/s 143(3) of the I.T. Act, treating the income from unsold portion of project under the head Income from house property keeping in view the finding of Hon’ble Delhi High Court in the case of Commissioner of Income Tax vs. M/s. Ansal Housing Finance & Leasing Co. Ltd. in ITA 18/1999 dated 31.10.2012 wherein it is held that the income from unsold portion of stock in trade is also assessable under the head Income from house property.

On examination of details filed, it is found that the assessee was having 12722.82 Sq. ft. unsold area as on 1.4.2011, meaning thereby that at least this portion of stock 12722.82 sq. ft. was unsold during the F.Y. 2007-08 also.

Further, as per the rent agreement dated 27.06.2006 entered by the assessee with M/s. Dominos Pizza India Ltd. as regards 447.32 sq. ft. of the ground floor of the project, rent of Rs. 70 per sq. ft. per month is shown to be receivable on the let out portion.

Since no details of unsold portion for the F.Y. 2007-08 have been filed by the assessee, and unsold portion of 12722.82 sq. ft. was available with the assessee as on 01.04.2011, it is clear that at least area of 12722.82 sq. ft. was unsold during the F.Y. 2007-08 also. Keeping in view the above facts, I have reason to believe that income to the tune of Rs.

26 ITA No. 739/JP/2019 M/s. Shiv Vegpro Pvt. Ltd., Kota.

1,06,87,168 (12722.82 sq. ft. x 70 per sq. ft. per month x 12 months) has escaped assessment to tax under the head Income from house property for the A.Y. 2008-09 within the meaning of provisions of sec. 147 of the I.T. Act. Therefore, permission is being sought for issue of notice u/s 148 of the I.T. Act.”

Accordingly, the AO issued notices under section 148 of the IT Act for the assessment year 2008-09 on 30th March, 2015, for the assessment year 2009-10 on 22nd March, 2016 and for the assessment year 2010-11 on 29th March, 2017. Thus the notices issued under section 148 for all the three years are after the expiry of four years from the end of the respective assessment year. The revenue has not disputed this fact that the reopening in respect of all the three years is after the expiry of four years from the end of the assessment year. It is apparent from the reasons recorded by the AO that the AO proposed to assess the notional rent after determining the ALV of the unsold space at 4th Floor of the commercial complex in question in view of the decision of Hon’ble Delhi High Court in case of CIT vs. M/s. Ansal Housing Finance & Leasing Co. Ltd. (supra). The reasons do not indicate that the AO has received any fresh factual information but all the relevant facts, information and record were available with the AO at the time of framing the scrutiny assessment for all these three assessment years. Though the assessment under section 143(3) for the assessment year 2012-13 was completed prior to the reopening of these assessments and therefore, the said assessment order for the assessment year 2012-13 may constitute tangible material apart from the decision of the Hon’ble Delhi High Court in case of CIT vs.

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M/s. Ansal Housing Finance & Leasing Co. Ltd. (supra) for forming the belief that income assessable to tax on account of notional rent in respect of unsold stock of the assessee escaped assessment. However, even if the decision of Hon’ble Delhi High Court and the assessment order passed under section 143(3) for the assessment year 2012-13 may constitute tangible material for forming the belief, the same shall be subject to the fulfillment of the conditions as prescribed in the first proviso to section 147 of the IT Act. There is no allegation by the Assessing Officer in the reasons recorded that the income proposed to be assessed in the reassessment proceedings has escaped assessment due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Even otherwise, we find that all the relevant material in respect of the issue of assessment of rental income of the unsold stock was already available with the Assessing Officer at the time of scrutiny assessment. Hence, when the original assessment was framed under section 143(3) and the reopening is after the expiry of four years from the end of the relevant assessment year then the Assessing Officer is not permitted to reopen the assessment until and unless the conditions prescribed in the proviso to section 147 are satisfied. The Assessing Officer himself has not alleged that the income proposed to assess has escaped assessment for want of disclosure of all material facts necessary for assessment. ” The ld. Commissioner of Income Tax (Appeals) has considered this issue in para 3.1.2 as under :-

Xxxxxx xxxxxx xxxxxx

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In the said case the ld. CIT (Appeals) as well as the Tribunal has considered the judgment of Hon’ble Jurisdictional High Court in case of CIT vs. Hindustan Zinc Ltd. 393 ITR 264 (Raj.) wherein it was held that the duty of the assessee to disclose fully and truly all material facts necessary for his assessment does not extend beyond the furnishing of all the primary facts before the assessing authority and the AO was satisfied with the said disclosure of the assessee in the original assessment. Therefore, once the assessee has disclosed all the relevant facts whatever assessee was supposed to disclose, then treating a particular transaction as bogus would not amount to non disclosure of the necessary facts by the assessee. In view of the above facts and circumstances of the case as well as the various decisions as relied upon by the ld. A/R of the assessee, we are of the considered view that when there is no allegation of the AO in the reasons recorded that income assessable to tax has escaped assessment due to failure on the part of the assessee to disclose all facts necessary for assessment, the notice issued by the AO under section 148 on 5th February, 2015 after 4 years from the end of the assessment year is hit by the first proviso to section 147 and thereby the AO cannot exercise the jurisdiction to reopen the assessment. Hence we hold that the initiation of proceedings under section 147/148 of the I.T. Act is bad in law. The same is quashed.”

The Hon’ble Bombay High Court in case of Hindustan Lever Ltd. vs. R.B. Wadkar, 268

ITR 332 (Bom.) in an identical issue has held in para 17 to 21 as under :-

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“17. Having heard the parties at length, we are of the opinion that the petitioner can be disposed of on the first contention raised by the petitioner, wherein the petitioner has contended that the notice issued under section 148 is without jurisdiction being hit by the proviso to section 147 of the Act as such not within the prescribed period provided under proviso to section 147 of the Act. In the circumstances, it would be necessary to turn to section 147 of the Act, which reads as under :

"147. Income escaping assessment.—If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereinafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :

Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year."

30 ITA No. 739/JP/2019 M/s. Shiv Vegpro Pvt. Ltd., Kota.

31 ITA No. 739/JP/2019 M/s. Shiv Vegpro Pvt. Ltd., Kota.

Further, the Hon’ble Bombay High Court in case of OHM Stock Brokers Pvt. Ltd. vs. CIT,

351 ITR 443 (Bom.) has held in para 7 to 9 as under :-

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Accordingly in view of the above facts and circumstances as well as the legal

proposition as laid down in various decisions by the Hon’ble High Courts, the reopening

of the assessment is not valid and the same is liable to be quashed. The issue of

validity of reopening as agitated by the assessee under Rule 27 of the ITAT Rules is

decided in favour of the assessee. Since this issue goes to the root of the matter and

quashed the reassessment itself, therefore, as a result, the appeal of the revenue would

fail. Though deciding this issue under Rule 27 of the ITAT Rules would not affect the

impugned order of the ld. CIT (A) but the only consequence of deciding this issue in

favour of the assessee is that the appeal of the revenue would fail and the order of the

ld. CIT (A) is upheld. Since we have decided this legal issue in favour of the assessee

and as a result of which the appeal of the revenue becomes infructuous and fail,

therefore, we do not propose to go into the grounds raised by the revenue.

Order is pronounced in the open court on 30/07/2020.

Sd/- Sd/- (foØe flag ;kno) (fot; iky jkWo ½ (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member

Jaipur Dated:- 30/07/2020. Das/

33 ITA No. 739/JP/2019 M/s. Shiv Vegpro Pvt. Ltd., Kota.

आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

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