Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “ H ”, MUMBAI
PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘the CIT(A) ]dated 01/10/2021 for the Assessment Year 2012-13.
The assessee has raised additional ground of appeal assailing reopening of assessment u/s. 147 of the Income Tax Act, 1961 [in short ‘the Act’] . The additional ground raised by the assessee vide application dated 21/03/2022 reads as under:
“1)That the reopening of assessment u/s 147 of the Act, is quite illegal, arbitrary, unwanted, unjustified and bad in law. 2)That the appellate further craves ,leave ,to add ,to alter and /or to amend any of the aforesaid grounds of appeal as and when necessary.”
3. Shri Bhupendra Shah appearing on behalf of the assessee submits that the additional ground of appeal raised by the assessee is purely jurisdictional issue which goes to the root of validity of reopening assessment. No fresh evidence is required to be furnished for adjudication of additional ground. All the relevant documents are already on record. The ld. Authorized Representative for the assessee further submits that in case additional ground is decided in favour of assessee, the grounds raised on merits would become academic. The ld. Authorized Representative for the assessee submits that at this stage he would be confining his submissions on the additional ground of appeal, challenging reopening of assessment.
The ld. Authorized Representative for the assessee raised multiple contentions challenging validity of reopening:
(i) The first contention raised by the ld. Authorized Representative for the assessee is that in reasons for reopening the Assessing Officer has mentioned that assessee has received total payment of Rs.28.00 crores from sale of soyabean seeds, i.e. from M/s. Selwel Mineral Pvt. Ltd., Rs.8.00 crores and M/s. Vishal Victory Metal Engg. Pvt. Ltd. Rs.20.00 crores during the financial year 2011-12. The Assessing Officer has alleged that both the aforesaid companies are Calcutta based companies and the transactions with these companies are bogus. Therefore, amount of Rs.28.00 crores reflected in the books of assessee as sale of soyabean seeds is unexplained cash credit. However, in assessment made u/s. 143(3) r.w.s. 147 of the Act, no addition has been made by Assessing Officer on account of bogus transaction with the aforesaid two companies. An addition of Rs.3,60,00,000/- has been made on altogether a different ground and that too on estimations. The Assessing Officer made addition of commission @5% on transfer of funds Rs.72.00 crores. The ld. Authorized Representative for the assessee submits that the Hon'ble Bombay High Court in the case of CIT vs. Jet Airways (India) Ltd.,331 ITR 236/ 195 Taxman 117 has held that no addition can be sustained in assessment made consequent to section 147, if the addition is other than the grounds for which reasons have been recorded for reopening. The ld. Authorized Representative for the assessee further placed reliance on the decision of Hon'ble Bombay High Court in the case of CIT vs. Double Dot Finance Ltd. 214 Taxman 47 reiterating the law laid down in the case of CIT vs. Jet Airways (India) Ltd.(supra).
(ii) The next contention of the assessee is that the assessment u/s. 143(3) was completed on 12/03/2015. The assessment has been reopened vide notice dated 28/03/2019 i.e. beyond the period of four years. The assessment u/s. 143(3) was made after examining the books of account. No fresh incriminating material was available with the Assessing Officer to reopen the assessment. There is no allegation in the reasons for reopening that assessee has failed to disclose fully or truly all material facts necessary for its assessment for that assessment year. In support of this contention the ld. Authorized Representative for the assessee placed reliance on CIT vs. Foramer France, 264 ITR 566(SC) / 129 Taxman 72 (SC).
(iii) The third contention raised by the assessee is that DDIT(Investigation) issued notice u/s. 131 of the Act on 09/04/2018. The assessment u/s.143(3) was completed on 12/03/2015. Thus, on the date of issuance of notice u/s. 131 of the Act no assessment proceedings were pending. In the absence of any pending proceedings the notice issued u/s. 131 of the Act is bad in law. To support this contention ld. Authorized Representative for the assessee placed reliance on the decision in the case of Jamnadas Madhavji & Co. vs. J.B. Panchal, ITO, 162 ITR 331(Bom).
(iv) The forth and the last contention raised by the assessee assailing reopening of assessment is that the Assessing Officer in scrutiny assessment proceedings had examined the issue in detail. The assessee complied with all the notices issued during regular assessment proceedings and after having examined all the documents the Assessing Officer passed the assessment order. Reopening of assessment and making estimated addition on account of commission on sales is merely on account of change of opinion, hence, reassessment proceedings are unsustainable. To support this contention the ld. Authorized Representative for the assessee placed reliance on the decision in the case of Kelvinator of India Ltd. vs. CIT, 358 ITR 440(Del)/ 37 taxamann.com 443 (Del).
Per contra, Shri Tejinder Pal Singh Anand representing the Department vehemently defended the impugned order and the validity of proceedings u/s. 147 of the Act. The ld. Departmental Representative submits that it is a case of hawala entries. The case laws on which assessee has placed reliance are not applicable to the facts of present case. The ld. Departmental Representative in support of his submissions placed reliance on the decision of Co-ordinate Bench in the case of Keystone Realtors Pvt. Ltd. vs. DCIT in for the Assessment Year 2007-08 decided on 17/10/2022. The ld. Departmental Representative submits that on similar set of facts the Co-ordinate Bench upheld reopening of assessment.
We have heard the submissions made by rival sides and have examined the orders of authorities below. We have also considered the decisions on which respective sides have placed reliance to support their contentions. The assessee in appeal has raised additional grounds to challenge validity of reopening of assessment u/s. 147 of the Act. The additional grounds raised by the assessee are purely legal. No fresh evidence is required to be adduced for adjudicating the said grounds. Hence, the additional grounds raised by the assessee are admitted for adjudication on merits .
The assessee has raised multiple submissions assailing validity of reassessment proceedings. The first argument of the assessee is that the reasons recorded for reopening assessment u/s.147 of the Act are different from the ground on which addition has been made by the Assessing Officer reopened assessment u/s. 147 of the Act.
The assessment for Assessment Year 2012-13 was reopened for the reason that the assessee has indulged in some bogus transactions, hence, the addition was proposed to be made on account of unexplained cash credit. The relevant extract of reasons for reopening u/s. 147 are reproduced herein below:
“2…………………..Futher, the DDIT (Inv), Unit 8(4), Mumbai has also observed that both the company M/s. Sewel Mineral Pvt. Ltd. And M/s. Vishal Victory Metal Engg. Ltd. are the Kolkata based companies and the transaction made with these Kolkata based companies are bogus.
Thus such an amount of Rs.28 crore appearing in above mentioned transactions in the name of the assessee is unexplained cash credits which the assessee has bought in his books of accounts in the garb of sales of Soyabean Seeds. Accordingly, the deeming provisions of explanation 2 of section 147 are invoked and it is a strong case of escapement of income for the year under consideration.
In view of the above, I have reason to believe that the income to the extent of Rs.28 Crore chargeable to tax for the AY 2012-13 has escaped assessment.” Whereas, perusal of the assessment order dated 30/12/2019 u/s. 143(3) r.w.s. 147 of the Act shows that no addition has been made by the Assessing Officer on the issue recorded in the reasons for reopening. The solitary addition in reopening proceedings was made on account of commission income Rs.3.60 crores.
The Hon'ble Bombay High Court in the case of CIT vs. Jet Airways (India) Ltd.(supra) has held as under:
“15. Parliament, when it enacted the Explanation (3) to section 147 by the Finance (No. 2) Act, 2009 clearly had before it both the lines of precedent on the subject. The precedent dealt with two separate questions. When it effected the amendment by bringing in Explanation 3 to section 147, Parliament stepped in to correct what it regarded as an interpretational error in the view which was taken by certain courts that the Assessing Officer has to restrict the assessment or reassessment proceedings only to the issues in respect of which reasons were recorded for reopening the assessment. The corrective exercise embarked upon by "Parliament in the form of Explanation 3 consequently provides that the Assessing Officer may assess or reassess the income in respect of any issue which comes to his notice subsequently in the course of the proceedings though the reasons for such issue were not included in the notice under section 148(2). The decisions of the Kerala High Court in Travancore Cements Ltd.'s case (supra) and of the Punjab & Haryana High Court in Vipan Khanna's case (supra) would, therefore, no longer hold the field. However, insofar as the second line of authority is concerned, which is reflected in the judgment of the Rajasthan High Court in Shri Ram Singh's case (supra), Explanation 3 as inserted by Parliament would not take away the basis of that decision. The view which was taken by the Rajasthan High Court was also taken in another judgment of the Punjab & Haryana High Court in CIT v. Atlas Cycle Industries [1989] 180 ITR 319. The decision in Atlas Cycle Industries' case (supra) held that the Assessing Officer did not have jurisdiction to proceed with the reassessment, once he found that the two grounds mentioned in the notice under section 148 were incorrect or non-existent. The decisions of the Punjab & Haryana High Court in Atlas Cycle Industries' case (supra) and of the Rajasthan High Court in Shri Ram Singh's case (supra) would not be affected by the amendment brought in by the insertion of Explanation 3 to section 147.- 16.Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment or reassessment on grounds other than those on the basis of which a notice was issued under section 148 setting out the reasons for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance Act (No. 2) of 2009. However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which, comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee.” Thus, it is unambiguously clear from above that if no addition is made in reassessment proceedings u/s. 147 of the Act on an issue for which reasons for reopening are recorded, the addition made on any other ground would be unsustainable. Similar view has been reiterated by the Hon'ble Bombay High Court in the case of CIT vs. Double Dot Finance Ltd. (supra). The reassessment proceedings fail on the first contention raised by the assessee. Consequently, assessment order dated 30/12/2019 passed u/s. 143(3) r.w.s. 147 of the Act is quashed and the appeal of assessee is allowed.
Since, the assessee succeeds on first contention raised challenging reopening of assessment, we do not deem it necessary to deal with other arguments raised assailing validity of reopening, at this stage.
In the result, appeal by the assessee is allowed.
Order pronounced in the open court on Tuesday the 24th day of January, 2023.