PUNSUMI INDIA LTD,JAIPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR Jh jes’k lh0 ’kekZ] ys[kk lnL; ,oa Jh fot; iky jko] U;kf;d lnL; ds le{k BEFORE: SHRI RAMESH. C. SHARMA, AM & SHRI VIJAY PAL RAO, JM vk;dj vihy la-@ITA No. 1202 to 1204/JP/2018 fu/kZkj.k o"kZ@Assessment Year : 1993-94 to 1995-96 cuke Punsumi India Ltd. The DCIT, Vs. D-16, Meera Marg, Circle-3, Bani Park, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAEFP 0156 A vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by: Shri Dileep Shivpuri (Adv.), Shri Pramod Patni (C.A.) & Shri Abhishek Shivpuri (Adv.) jktLo dh vksj ls@ Revenue by : Shri P.P. Meena (ACIT) lquokbZ dh rkjh[k@ Date of Hearing : 30/04/2019 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 05 /07/2019 vkns'k@ ORDER PER: VIJAY PAL RAO, J.M. These three appeals by the assessee are directed against composite orders of the ld. CIT(A)-I, Jaipur dated 13.08.2018 for the assessment years 1993-94 to 1995-96 respectively.

The background of the case is that the original assessment in this case was completed u/s 143(3) of the Act. Subsequently, notice dated 31.05.2001 U/s 148 of the Act was issued by the AO and the reassessment order was passed on 28.03.2003. The assessee contested the reassessment order before the Ld. CIT(A) including the legality and action of the AO in issuance of notice u/s 147/ 148 as an additional ground before the ld. CIT(A). Vide order dated 15.10.2004, the ld. CIT(A) decided the appeal on merit but not on the legal issue of notice U/s 147/48 of the Act. The department contested the relief allowed by the ld. CIT(A) before the Tribunal and the assessee filed a Cross Objection therein raising the issue of legality of notice U/s 147/148 of the Act and the reassessment order in addition to other grounds taken on merits of the case. The Tribunal passed a consolidated order dated 29.02.2008 for AY 1993-94, 1994-95 and 1995-96 but without dealing with legal issue of action u/s 147/148 of the Act by the AO which was also not dealt with by the ld. CIT(A). Subsequently, on a Miscellaneous Application to 1204/JP/2018 Punsumi India Ltd. vs. DCIT filed by the appellant u/s 254(2) of the Act, the Tribunal vide its order dated 19.08.2011 read with corrigendum dated 02.02.2012, recalled its consolidated order dated 29.02.2008 for deciding the legal issue on reopening of assessment afresh. Vide its order dated 28.02.2014, the Tribunal has set aside the reassessment order to the file of the AO for deciding the legal issue raised by the assessee. In the set aside impugned assessment order dated 19.03.2016, the AO has decided the issue against the assessee. The assessee challenged the orders passed by the AO in the set aside proceedings before the ld. CIT(A) but could not succeed. Accordingly, the assessee has raised common grounds in these three appeals as under:-

“1. The learned AO has erred in fact as well as in law in issuing the Notice dt. 31.05.2001 for reopening of the assessment and in framing the re-assessment u/s 147/148 of I.T. Act, 1961 without complying with the provisions of the act and the requirements of law and for also not sharing/communicating such “reasons to believe as recorded” with the satisfaction note as to ‘escapement of income by the assessee’ with the Assessee despite assessee’s preliminary objection and requesting for supply of a copy of the same and thus failing to furnish a copy to 1204/JP/2018 Punsumi India Ltd. vs. DCIT thereof to the assessee before completing the assessment as required in terms of the order of the Hon’ble Supreme Court of India in the case of G.K.N. Driveshafts (India) Ltd. v. CIT [2003] 259 ITR 19 (SC). The assessment thus framed by the AO deserves to be quashed/annulled.

2. The learned AO has erred in fact as well as in law in issuing the Notice for re-assessment without recording satisfaction as to the failure on the part of the assessee with respect to making of full and true disclosures of material facts which enables the AO to initiate proceedings after four years from the end of the assessment years and instead the internal approval referred to in the AO’s order appearing to be that for the purposes of verification and confirmation of certain transactions which clearly indicating there being no formation of independent satisfaction for reopening of assessment.

3. The appellant prays leave to add to after and/or amend the aforesaid grounds of appeal at or before the time of hearing of appeal.”

3. Ground no. 1 is regarding non furnishing of the reasons recorded for reopening of the assessment to the assessee. The ld. AR of the assessee has submitted that furnishing the reasons recorded for reopening of the assessee is mandatory condition as held by the Hon’ble Supreme Court in case of G.K.N. 4 to 1204/JP/2018 Punsumi India Ltd. vs. DCIT Driveshafts (India) Ltd. v. ITO 259 ITR 19 (SC). The AO is duty bound to supply the reasons to the assessee and thereafter the objections against issuing notice U/s 148 of the Act shall be disposed off first before completing the reassessment. Since, the supply of reasons to the assessee and disposing of the objections prior to completion is a mandatory condition and therefore, after reassessment order was passed furnishing the reasons would not validate the reassessment order passed without supply the reasons. He has further submitted that despite the repeated request made by the assessee the AO did not supply the reasons to the assessee and therefore, the impugned order passed by the AO in the set aside proceedings without supply the reasons to the assessee is not valid and liable to set aside. In support of his contention, he has relied upon the following decisions:-

• Pr. CIT vs. V. Ramiah 103 taxmann.com 201( Kar.) which has upheld by the Hon’ble Supreme Court in case 262 taxman 16.

• Manjula Athur vs. ITO 91 taxmann.com 438 (Madras).

• CIT vs. Videsh Sanchar Nigam Ltd. 340 ITR 66 (Bombay). to 1204/JP/2018 Punsumi India Ltd. vs. DCIT Thus, the ld. AR has submitted that the impugned order as well as the reassessment order passed by the AO is not valid without supply the reasons to the assessee.

“2.3 After considering the rival submissions of both the parties and the materials available on record, we are of the considered opinion that after 01.04.1989, the powers of reopening have been widened to a greater extent. The AO has been vested with powers to reopen the completed assessment order. In case he has some material or information to form an opinion that the income has escaped assessment. He 7 to 1204/JP/2018 Punsumi India Ltd. vs. DCIT can resort to proceedings u/s 147 read with Section1 48 of the Act. Only in cases where all the material facts are supplied and are available before the A.O. at the time of framing of the assessment order and on the basis of those very material facts, the AO wants to reopen, it cannot be done legally. In order situations where the AO wants to change his opinion based on the same facts which he has while framing the assessment order he cannot revise the same. The third aspect is of limitation. The ld. AR has put forth host of submissions through his written submissions which are regarding ‘barrowed satisfaction’ and also change of opinion. The limitation issued has also been braked up somewhere in the written submissions and so is the case of no reasons recorded can be inferred from the written submissions of the ld. AR. But from the record, we are afraid that we do not find any mention of this grounds before the authorities or in any case they have cursorily referred to. Thus we are of the considered opinion that full and final facts regarding legal issue recorded by the bench are not available on record. The Tribunal being a final fact finding authority, it becomes imperative for us to cull out full and final facts pertaining to any ground raised before the Tribunal. Accordingly, we are of the consolidated opinion that the legal issued raised in both the years before us need to be restored back to the file of the AO so that he can decide them afresh after affording reasonable opportunity of being heard to the assessee. We do accordingly allow the legal grounds raised in both the appeals as well as C.O. to the file of the A.O. as directed above and treat the legal grounds raised therein as allowed for statistical to 1204/JP/2018 Punsumi India Ltd. vs. DCIT purposes only. Thus, the appeals as well as C.O. of the assessee are allowed for statistical purposes.” Thus, the assessee challenged the validity of reopening in the first round of appeal only on the ground that the AO got no reasons to believe that the income chargeable to tax has escaped assessment. All these contentions have been discussed by the Tribunal including the reopening based on borrowed satisfaction and on change of opinion but the issue of non supply of reasons recorded by the AO was not set aside by the Tribunal to the record of the AO. Further, we note that in the first round of appeals the issue raised before the Tribunal challenging the validity of reopening and were set aside to the record of the Assessing Officer for adjudication has been culled out by the AO as reproduced by the ld. CIT(A) at page 15 as under:-

1.The AO has no reason to believe that income chargeable to tax had escaped assessment. It was argued by the assessee before the Hon'ble ITAT that AO had not recorded any reasons for reopening.

2.The assessee argued before the Hon'ble ITAT that the assessment was reopened on the basis of 'borrowed satisfaction' and also 'change of opinion'. to 1204/JP/2018 Punsumi India Ltd. vs. DCIT

3. The assessee contended before the Hon'ble ITAT that the assessment had been reopened by issue of notices beyond 4 years from the end of the concerned assessment years."

From these objections raised by the assessee before the Tribunal during the first round of appeal it cannot be inferred that the assessee raised any issue in non supply of reasons recorded by the AO. The only question which was raised is that the AO has not recorded any reasons for reopening however, we find that the Assessing Officer has reproduced reasons recorded in the order passed in the set aside proceedings as under:-

“Reasons for the belief that income has escaped assessment in the case of Punsumi India Ltd. A.Y. 94-95.

“and whereas it further appears from the foregoing that during the financial years 90-91 to 95-96, M/s. Punsumi India Ltd. and M/s. Punsumi Foils & Components Ltd., Jaipur while engaged in the business of imports of raw material and machinery etc. from Japan, otherwise remitted foreign exchange by increasing actual value of goods to the tune of Rs.1.41 crores approximately and 10 to 1204/JP/2018 Punsumi India Ltd. vs. DCIT as per secret plan and understanding between Mr. V.K. Bhargava, Managing Director of the said company and the foreign supplier as aforesaid, the said excess remittance was otherwise acquired by Shri V.K. Bhargava under the colour of oothmission but latter on brought into India over a period of time under the garb of credits in the NRE account, declaration under Immunity Scheme and payments received towards allotment of shares to NRIs (except an amount of US$ 13300) otherwise transferred to USA and paid to Shri Puneet Bhargava, a person resident outside India and spent towards benefits of Shri V.K. Bhargava and as mentioned in para-5 of this Memorandum with any general or special permission of RBI.”

Enforcement Directorate has issued the Memorandum on the basis of the statements recorded of Shri V.K. Bhargava on various dates, In my view, as the Memorandum states that the company inflated the actual price of the goods imported, the amount of commission received by V.K. Bhargava needs to be reduced from the purchase price shown in this A.Y. 93-94 by the company on imports made from Erbis Engineering Company of Japan (Please refer to column-6 above for figures). Statements of V.K. Bhargava before the Enforcement Directorate and the Memorandum issued by the Enforcement Directorate dated 30.08.2000 have to be relied upon, also order of A.Y. 98-99 of Punsumi India Ltd. needs to be referred to.

2. Copy of page-216 received form the Central Excise & Customs Department, Bhiwadi through letter dated 23.2.2000 addressed to JCIT, Special Range-3, Jaipur mentions as under:

A) Bills entered in our name but not purchased by us Year 93-94 (i.e. A.Y.94-95) Rs.3,16,023/- B) Discount/sale-return credited by you but not in our book. to 1204/JP/2018 Punsumi India Ltd. vs. DCIT

93-94 (i.e. A.Y. 94-95) Rs.27,743/- Copy of page-214 mentions as under: D) Debit note issued by us but not entered by you-Annexure-D 93-94 (i.e. A.Y. 94-95) Rs.8,35,092/-

During scrutiny proceedings of Punsumi India Ltd. For A.Y. 98-99, the assessee company explained that these were papers received from one AVM Traders, New Delhi. So they were, was confirmed on inquiry from AVM Traders, New Delhi and the discrepancies found were added back. Therefore, in the relevant A.Y. i.e. 94-95 needs to be reopened to confirm the sales made by Punsumi India to AVM Traders, New Delhi and whether these have been reflected in the books, of course these should match with the information obtained from AVM traders about the purchase made by them in A.Y. 94-95 from Punsumi India Ltd.

Even the Assessing Officer has given the details in the impugned order that the reasons were duly recorded on 30.05.2001 and approval of Commissioner of Income Tax for the same has been received on the same day, i.e. on 30.05.2001 vide letter No. CIT/JPR/ITO(R&S)/2001- to 1204/JP/2018 Punsumi India Ltd. vs. DCIT 02/301 dated 30.05.2001. Therefore, it is manifest from the record the reasons for reopening of the assessments were duly recorded by the AO before issuing the notice U/s 148 dated 31.05.2001. Thus, the reasons were also approved by the CIT as per communication dated 30.05.2001 as mentioned by the AO but there is no quarrel on the point that if the assessee has demanded the reasons recorded for reopening of the assessment then the AO is duty bound to supply the reasons and disposed off the objections if any filed by the assessee against the notice issued U/s 148 of the Act prior to the reassessment order to be passed by the AO. Though there is no provision in the Act for supply of reasons however, by considering the scheme of the provisions of reopening and reassessment under the Income Tax Act the Hon’ble Supreme Court in case of G.K.N. Driveshafts (India) Ltd. v.

ITO(supra) has laid down the principle that recorded reasons must be furnished to the assessee when the assessee sought for reasons. It is not empty formality but the purpose is to enable the assessee to file objection to the same before the AO.

Therefore, recording the reasons and furnishing the same to the assessee are mandatory so as to provide an opportunity to the assessee to file the objections if any and decide the same before to 1204/JP/2018 Punsumi India Ltd. vs. DCIT completing the reassessment. The disposal of the objections raised by the assessee against the notice issued U/s 148 of the Act is a mandatory condition which gives jurisdiction to the AO to complete the reassessment. This proposition of law is now settled and therefore, before passing the reassessment order the AO is required to dispose off the objection. However, in the case in hand since no objection was raised by the assessee against the notice U/s 148 of the Act before the AO at the time of reassessment proceeding and this issue was raised before the Tribunal in the first round of appeal. The Tribunal restored the issue to the record of the AO however, the merits of the reassessments has already attained finality and therefore, this set aside proceedings were only on the limited issue deciding the validity of reopening and not the valid of reassessment for not disposing of the objection before passing the reassessment order. In the set aside proceedings, the AO was having a limited jurisdiction to dispose off the issue which was remanded for adjudication and accordingly the issue of validity of reopening was disposed off. Hence, we find that the question of non supply of reasons does not amanets either from the order of this to 1204/JP/2018 Punsumi India Ltd. vs. DCIT Tribunal dated 28.02.2014 or from the objection raised by the assessee in the first round of appeal before the Tribunal.

Though the assessee has raised some arguments in the proceedings however, once the reasons recorded were reproduced in the assessment order the question of non supply of reasons stand settled. The set aside order is not reassessment order but only disposing of the objections of the assessee against the reopening of the assessment. The reassessment order has already attained finality as decided by the Tribunal in the first round of appeal. In the second round of appeal we cannot go behind the order of this Tribunal in the first round of appeal. Accordingly, ground no. 1 of the assessee’s appeal is nonest as not arising from the set aside proceedings hence, the same is dismissed.

Since, the assessments were reopened after expiry of 4 years from the end the relevant assessment therefore, in the absence of any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment the reopening is not valid. The ld. AR has further submitted that there is no such mention or allegation in the reasons recorded by the AO therefore, the reopening without jurisdiction and liable to be set aside. In support of his contention, he has relied upon the following decisions:-

• Nokia India (P.) Ltd. 251 Taxmann 85 (Delhi) • Haryana Acrylic Manufacturing Co. vs. CIT 308 ITR 38. • Wel Intertrade (P.) Ltd. & Anr. Vs. ITO 308 ITR 22. • Poysha Investments (P.) Ltd. vs. ITO 20 taxmann.com 161.

The ld. AR has also submitted that there is no proper approval before issuing the notice U/s 148 of the Act as the approval is only mechanical without full application of mind. to 1204/JP/2018 Punsumi India Ltd. vs. DCIT

9.1 As regards the reopening of the assessee for the assessment year 1994-95 since there was no original assessment U/s 143(3) of the Act and the return was processed U/s 143(1) therefore, the said reopening is not hit by the proviso to Section 147 of the Act and hence, it cannot be held invalid due to absence of the allegation that the assessee has failed to disclose fully and truly all material facts necessary for the assessment.

For this assessment year we will examine the validity of reopening in the contest of other contentions raised by the assessee being the AO have no reasons to belief that the income chargeable to tax has escaped assessment and the reopening is based on borrowed satisfaction. We find that the reasons 20 to 1204/JP/2018 Punsumi India Ltd. vs. DCIT recorded by the AO itself clearly made out a case of formation of belief that the income chargeable to tax on account of inflated purchases made by the assessee from Erbis Engineering Company of Japan and the differential amount was paid/remitted to Shri V.K. Bhargava, CMD of the assessee who has also approached the settlement commission against the memorandum issue by the Enforcement Director. Further, it was also found that there were unaccounted transactions of purchases, discount of return/ sales as well as some debit note were also issued which were not recorded in the books of accounts. These transactions were between the assessee and one AVM Traders, New Delhi as found by the Excise and Custom Department. Even during the assessment proceeding for the assessment years 1998-99, the AO detected all these irregularities of unaccounted transactions and recorded his satisfaction which is relevant for the assessment year 1994-95. Thus the reopening of the assessment year 1994-95 is not merely based on the memorandum of enforcement director but it is also based on the material found by the AO during the inquiry conducted in the proceedings for the assessment year 1998-99 which reveals to 1204/JP/2018 Punsumi India Ltd. vs. DCIT certain unaccounted transaction with AVM Traders constitute a tangible material forming to belief that the income assessable to tax has escaped assessment. Hence, we do not find any merits or substance in the contention of the ld. AR of the assessee that the reopening is based on borrowed satisfaction or there were no reasons to belief that the income assessable to tax has escaped assessment. As regards the contention of approval granted by the CIT we find that the Assessing Officer has given the details of the approval and therefore, once the reasons recorded by the Assessing Officer itself manifest the escapement of income then the said approval cannot be held mechanical.

The ld. CIT(A) has considered this issue as under: -

“(c) It was the contention of the appellant that the ‘reasons to belief’ were recorded on the basis of borrowed satisfaction. It is to be noted that information has been received by the AO about the escapement of income by the appellant and after analyzing the same, the AO has independent reason to believe that the income had escaped assessment. It may be mentioned that in a number of judicial pronouncements, it has been held that proceedings u/s 147 of the Act could be initiated on the basis of investigation report. to 1204/JP/2018 Punsumi India Ltd. vs. DCIT to 1204/JP/2018 Punsumi India Ltd. vs. DCIT to 1204/JP/2018 Punsumi India Ltd. vs. DCIT to 1204/JP/2018 Punsumi India Ltd. vs. DCIT to 1204/JP/2018 Punsumi India Ltd. vs. DCIT to 1204/JP/2018 Punsumi India Ltd. vs. DCIT to 1204/JP/2018 Punsumi India Ltd. vs. DCIT to 1204/JP/2018 Punsumi India Ltd. vs. DCIT to 1204/JP/2018 Punsumi India Ltd. vs. DCIT Accordingly, in view of the above facts and circumstances of the case, we do not find any error or illegality in the impugned order 31 to 1204/JP/2018 Punsumi India Ltd. vs. DCIT of the ld. CIT(A) so far as the reopening of the assessment year 1994-95.

In the result, all appeals of assessee for the assessment years 1993-94 to 1995-96 are dismissed.

Order pronounced in the open court on 05/07/2019.

Sd/- Sd/- ¼ jes’k lh0 “kekZ ½ ¼fot; iky jko½ (Ramesh. C. Sharma) (Vijay Pal Rao) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 05/07/2019. *Santosh. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Punsumi India Ltd., Jaipur. 2. izR;FkhZ@ The Respondent- DCIT, Circle-3, Jaipur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 1202 to 1204/JP/2018} vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत