Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, CUTTACK BENCH, CUTTACK
Before: SHRI CHANDRA MOHAN GARG & LAXMI PRASAD SAHU
O R D E R Per C.M.Garg,JM The cross appeals filed by the assessee and the revenue are directed against the order of the CIT(A),1, Bhubaneswar for the assessment year 2010- 2011.
The assessee in its appeal in Ground Nos.1 & 2 of appeal has challenged the reopening of assessment under section 147 of the Act.
P a g e 1 | 7 & 24 6/C TK /2 017 Assessm ent Y ear : 20 10- 201 1
Facts in brief are that the assessee is engaged in the business of promotion of industries in the State of Odisha. The assessee e-filed its return of income on 11.10.2010 showing nil income. Thereafter, the assessee filed revised return on 12.10.2011 showing also same nil income. The AO completed the assessment under section 143(3) of the Act at nil income determining the MAT u/s.115JB at Rs.2,49,24,846/- on 19.2.2013.
However, the assessment was subsequently reopened by issuance of notice u/s.148 on 24.7.2014. The reasons for which the assessment was reopened were stated to be as follows:
" i. On verification of the assessment records, it is revealed that while converting net profit into book profit, provision for diminution in the value of the investments (Net) was not taken into account. Under the provisions of Sec. 115JB amount set-a-aside as provision for diminution in the value of any asset is to be added back if debited to profit and loss account. In the instant case Rs.4,83,927/- was debited in the P & L account for provision for diminution in the value of investments. But the same has not been added back to the net profit while computing book profit. So, Rs.4,83,927/- is required to be added back to the total income of the assessee, the above observation resulted in short levy of tax of Rs.82,265/-.which has not been done in the scrutiny assessment. ii. Further, On verification of the assessment records, it is revealed that the assessee had unabsorbed business loss of Rs.4,51,17,5991- brought forward from A/Y 2009-10 as per its return of income. Out of the above the AO allowed adjustment of Rs.1,60,37,112/- against the assessed income of Rs. 1,60,37,1121- for A/Y 2010-11 without verifying the actual amount of unabsorbed business loss as claimed by assessee, which needs to be verified. iii. Further, it is found that vide order dated 28.03.2013 u/s. 143(3)1263, Rs.3,03,33,5131- has been disallowed towards expense* for assessment year 2007-03 against loss on investment and interest out of one time settlement. During the A/Y 2007-08 the assessed income was (-) Rs.20,35,103/-, total loss as claimed by the assessee brought forward was Rs.7,49,67,132/- and the unabsorbed capital loss during A/Y 2007-08 was rs.73,16,0241- as claimed by assessee. During scrutiny assessment, the above addition in the assessed income of the A/Y2007-08 has not been adjusted. Since the assessed income of A/Y 2007-08 was increased by P a g e 2 | 7 & 24 6/C TK /2 017 Assessm ent Y ear : 20 10- 201 1
Rs.3,03,33,5131- vide order u/s. 143(3)1263, the corresponding loss was also reduced to the same extent. The unabsorbed business loss shown in A/Y 2010-11 was therefore, reduced to Rs. 147,84,0861- from Rs.4,51,17,599/-. If the unabsorbed business loss of Rs. 1,47,84,0861-were adjusted against the assessed income of Rs. 1,60,37,1121- for AIY 2010-11 then the net profit would be Rs. 12,53,0261- and no unabsorbed business loss would be carried forward to AIY 2011-12. The non-adjustment of the above addition to the income of the AIY 2007-08 and consequently, reduction of B/f business loss the same extent needs to be verified, which was not done during the course of scrutiny assessment. iv. Further, it is revealed that the assessee's income includes dividend of Rs.11,50,9441- which is exempted from tax uls. 10(34) of the !. T. Act. On the contrary section 14A says expenditure to the extend incurred for earning exempted income is disallowable. Nothing was found in the assessment records where the assessee had given statement showing expenditure related to exempted income. According the Rule 8D(2) the expenditure incurred related to exempted income comes Rs.58,89,7901-. Hence, the same should be disallowed uls. 14A and added back to the total income, which was not done during the course of scrutiny assessment. v. Further, it is found that the assessee has not furnished the report of an accountant which is required to be furnished by the assessee in accordance with the provision of under sub-section (4) of section 115JB in the Form No.29B along with Annexure-A under Rule 40B. So, it is clearly shows that the net profit and loss of account is not drawn up in accordance with the provision of Part-ll & HI of the sixth schedule to the company act. So, during the consideration of adjusted book profit, the AO has not been considered the Income Tax paid or payable or provision therefore, if debited to profit and loss account. In the instant case, the assessee was debited under the "provision for taxation (MAT)" amounting to Rs.32,20,9811- in the P 6 L account. Therefore, the above amount should have been added back for the purpose of determination of adjusted book profit and MAT is to be re-computed which was not done during the course of scrutiny assessment.
In view of the above, I have reason to believe that income chargeable to tax has escaped assessment as far as there is underassessment of income to the above extent, within the meaning of section 147 of the I. T. Act, 1961." 5. The assessee objected to the reassessment and submitted that the assessee had fully and truly disclosed all the material facts necessary for his assessment, and that, on the facts of his case, reassessment proceedings cannot be initiated. The Assessing Officer, however, was not impressed. He rejected the P a g e 3 | 7 & 24 6/C TK /2 017 Assessm ent Y ear : 20 10- 201 1 submissions of the assessee and passed reassessment order under section 143(3)/147 of the Act on 24.2.2016, inter alia, disallowing various disallowances.
Aggrieved, assessee carried the matter in appeal before the CIT(A) and made elaborate submissions, on legal and factual aspects, against validity of reassessment proceedings, but without any success. The CIT(A) also rejected these submissions and upheld the validity of reassessment proceedings by observing as follows:
“ I have considered the contentions of the assessee and perused the provisions of law with regard to reassessment proceeding. I find that all the conditions for reopening the assessment as laid down under law are fully satisfied in the case of the assessee. It has already been clarified in Explanation-1 below section 147 that 'production before the assessing officer of account books or other evidence from which material evidence could with due diligence have been discovered by the assessing officer will not necessarily amount to disclosure within the meaning of foregoing 'proviso'. Moreover, in the case of the assessee, the assessment was reopened with 4 years from the end of the assessment year and, therefore, the first proviso to section 147 which makes the existence of failure on the part of the assessee to disclose fully & truly all material facts necessary for his assessment as a precondition for initiation of reassessment proceeding, is not applicable. The AO has recorded reasons before initiation of reassessment proceeding u/s. 147 and communicated the same to the assessee. Keeping in view the facts of the case and the provisions of law, the ground raised by the assessee against reassessment proceeding is dismissed being devoid of any merit.”
Hence, the assessee is in further appeal before us.
Ld counsel for the assessee submitted that no new material had come to the knowledge of the Assessing Officer after framing of assessment u/s.143(3) of the Act on 19.2.2013 for assessment year 2010-11, which may afford 'reason to believe' that income of the assessee had escaped assessment. It is clearly evident from the reasons recorded that no new tangible information/material came to the knowledge of the Assessing Officer subsequent to the conclusion of the original
P a g e 4 | 7 & 24 6/C TK /2 017 Assessm ent Y ear : 20 10- 201 1 assessment. The reasons recorded by the assessing officer do not even indicate or allege that any fresh information came to the knowledge of the assessing officer warranting exercise of jurisdiction under section 147/148 of the Act. On the basis of, inter alia, these submissions, we are urged to quash the reassessment proceedings. Ld counsel relied on the decision of Hon’ble Supreme Court in the case of CIT v. Kelvinator of India Ltd.: 320 ITR 561(SC).
Replying to above, Learned Departmental Representative submitted that when the Assessing Officer did not apply his mind at all on the information before him in the original assessment proceedings, there is no question of fresh application of mind. It was also pointed out that this is a case of reopening of assessment within four years, and, therefore, even if there is no failure on the part of the assessee, reassessment proceedings are valid in the eyes of the law. He submitted that the reassessment done by the AO is valid.
We have heard the rival submission and perused the record of the case.
The law is fairly well settled that even in the cases of reopening of assessment within four years, there has to be some tangible material coming to light to indicate that an income has escaped assessment. The Full Bench of Hon’ble Delhi High court in the case of CIT vs. Kelvinator of India Ltd (256 ITR5 1) had observed that, “If it be held that an order, which has been passed purportedly without application of mind, would itself confer jurisdiction upon the Assessing Officer to reopen the proceedings without anything further, the same would amount to giving a premium to an authority exercising quasi judicial function to take benefit from it’s own wrong”. The decision of the Hon’ble Delhi High Court is approved by P a g e 5 | 7 & 24 6/C TK /2 017 Assessm ent Y ear : 20 10- 201 1 Hon’ble Supreme Court in the case reported as CIT vs. Kelvinator of India Ltd (320 ITR 561) wherein, it is held as under:
"On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the- Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to reassess. But re- assessment has to be based on fulfillment of certain precondition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief."
We find that the issues on which the reasons recorded by the Assessing Officer are before the Assessing Officer at the time of original assessment, wherein, the assessee had furnished all relevant details/documents and no new tangible material had come to the hands of the AO to initiate reassessment proceedings under section 147 of the Act. Therefore, in the absence of any fresh material, the reappraisal of same material to initiate reassessment proceedings tantamounts to change of opinion and hence bad in law. Hence, we quash the same. Consequently, the reassessment proceedings and first appellate order are dismissed.
Since, we have quashed the reassessment proceedings on legal ground, other grounds on merits of the case have become infructuous.
P a g e 6 | 7 & 24 6/C TK /2 017 Assessm ent Y ear : 20 10- 201 1
Now coming to the Revenue's appeal. Since we have quashed the reassessment order under section 147 of the Act, the appeal filed by the Revenue becomes infructuous and dismissed as such.
In the result, appeal filed by the assessee is allowed and that of the revenue is dismissed.
Order pronounced on 28 /01/2020.