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Income Tax Appellate Tribunal, CUTTACK BENCH, CUTTACK
Before: SHRI CHANDRA MOHAN GARG & LAXMI PRASAD SAHU
IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK
BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER AND LAXMI PRASAD SAHU, ACCOUNTANT MEMBER
ITA No.06/CTK/2011 Assessment Year : 2003-2004
M/s. BSN Joshi & Sons Ltd.,Joshi Vs. ACIT, Circle 2(1), Bhubaneswar House, Raja Bazar, Jatni, Khurda PAN/GIR No.AACCB 0427 B (Appellant) .. ( Respondent)
Assessee by : Shri P.C.Sethi, AR Revenue by : Shri Subhendu Dutta, DR
Date of Hearing : 07/08/ 2019 Date of Pronouncement : 08/08/ 2019
O R D E R Per C.M.Garg,JM This appeal is filed by the assessee against the order dated
22.10.2010 of the CIT(A)-II, Bhubaneswar for the assessment year 2003-
04.
The assessee has raised the following grounds of appeal:
“1. That the order of the AO and confirmed by the CIT(A) is erroneous, illegal, arbitrary and contrary to the evidence on record. 2. That, the learned CIT (A) has committed serious error in not considering the written submission and the arguments made during the course of appeal by the appellant and has passed the order in an arbitrary and cryptic manner which is contrary to the decisions of the Hon'ble Apex Court and for that matter the appellate order of the CIT (A) as well the learned Assessing Officer is liable to be quashed and/or annulled.
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That, the learned CIT (A) has committed serious error in not quashing the notice u/s 148 of the Act along with assessment order and demand notice when the appellant has disclosed all material of facts truly and fully before the learned Assessing Officer in the return of income & during the course of assessment u/s 143(3) of the Act.
That, the learned CIT (A) has committed serious error by confirming the addition of Rs. 33,50,534/- as under disclosing of receipt which is contrary to the evidence on record and is liable to be deleted.”
Ground No.1 of appeal is general in nature and hence, requires no
separate adjudication.
In Ground Nos.2 & 3, the assessee has challenged the reopening of
assessment u/s.147 by issuing notice u/s.148 of the Act.
Briefly stated the facts in brief are that the assessee is engaged in
the business of coal trading and transportation. The Assessing Officer
completed the assessment u/s.143(3) of the Act on 30.3.2006 determining
the total income of Rs.97,27,960/- and demand of Rs.29,12,835/- was
raised and, thereafter, after giving appeal effect, the demand was reduced
to Rs.46,613/-. However, the assessment was subsequently reopened by
issuance of notice u/s.148 served on the assessee on 17.3.2009. The
reasons for which the assessment was reopened were stated to be as
follows:
“1. The assessee had shown Rs.1,47,91,276/- as income from supervision and service charges wherein as per the TDS certificates the total receipts from supervision and service charges was
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Rs.1,81,50,810/-. As this was not considered while passing earlier assessment order, there was an escapement of income to that effect. Ii,. Further, there was under disclosure of closing stock of Grade-F coal of Rs.4,04,850/- in the P&L account.”
The assessee objected to the reassessment and submitted that the
supervision charges has been recorded in the books of account on cash
basis i.e. on receipt basis, the difference was only due to the cash basis of
accounting followed and 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, did not accept the contention of the assessee and observed as
follows:
1) Though it is claimed by the assessee that the receipts on account of supervision & service charges have been accounted for in the books in cash basis, no documentary evidence in support of its claim was produced by the A/R for verification during this assessment proceedings.
2) From the TDS certificates so furnished along with the return, it is seen that there were receipts on account of supervision & service charges of Rs.1,81,50,810/-. However, receipts of Rs.1,47,91,276/- have been considered as income by the assessee being received during the year and rest receipts of Rs.33,59,534/- though not received but accrued during the year have not been credited to the P & L A/c. The controversy here revolves around chargeability of supervision & service charges to the tax which even though technically accrued as per the mercantile-system of accounting being followed by the assessee, but the same was not accounted for as income in view of the peculiar facts and circumstances of the case wherein there was dispute regarding ultimate collection of such receipts. Under the Income Tax Act 1961, income chargeable to tax is the income received or due to be
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received in India in the previous year, or income that accrues or arises or is deemed to. accrue or arise in India during such year. The computation of such income is to be made in accordance with the method of accounting regularly employed by the assessee. No doubt the Income Tax Act 1961 takes into account two points of time at which the liability to tax is attracted viz., the accrual of income or its receipt; but the substance of the matter is the income. The provisions of sec. 145 of the Act determines the method of computing the taxable income, it does not effect the range of taxable income or the ambit of taxation.
3) It is not understood why the A.R has explained about the hybrid system of accounting in his submission unless the same was questioned either in this assessment proceedings or earlier.
4) The case laws cited by the A.R relate to cases of much earlier period and thereafter amendment was made by the Taxation Laws (Amendment) Act to the provisions of section 145 of the I.T. Act.
5) As regards disclosure of closing stock of Grade-F coal of Rs.4,04,850/- in the P&L account, the A.R was also not able to furnish any satisfactory explanation as well as documentary evidence in support of the same.”
Aggrieved by the order of the Assessing Officer, the filed appeal
before the CIT(A). The CIT(A) also rejected the submission of the assessee
and upheld the validity of reassessment proceedings observing that from
assessment year 1989-90 onwards reopening can be done if AO had reason
to believe that income escaped assessment even though there was no
failure on the part of the assessee and referred to various judicial
pronouncement on this issue.
Being aggrieved, the assessee is in further appeal before us.
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Learned A.R. submits that the supervision charges have been
recorded in the books of account on cash i.e. on receipt basis and the
difference was only due to cash basis of accounting followed and the
accrual basis of accounts maintained by the organisations issued TDS
certificates. He submitted that as per the books of account and auditors
report, there was no closing stock of grade -F coal as on 31.3.2009 and
there is no understatement of closing stock of grade -F coal. Learned A.R.
submits that once all these details were before the Assessing Officer, and
on these facts, he decided not to make disallowance, the Assessing Officer’s
decision to initiate reassessment proceedings on the same issue, without
any new tangible material before him, is nothing but a fresh application of
mind on the same facts is not permissible under the scheme of the Income
tax Act. He also submitted that re-opening of assessments passed
u/s.143(3) after 4 years from the end of the assessment year cannot be
made unless income chargeable to tax has escaped assessment by failure
on the part of the Assessee to disclose fully and truly all material facts
necessary for the assessment. In this case all the material facts were
available on record therefore; it cannot be reopened merely on account of
change of opinion. If the original assessment was passed after considering
various submissions and facts on record, assessment cannot be reopened
u/s.147 particularly, if there is no failure on the part of the Assessee to
disclose fully and truly all material facts necessary for assessments. He
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referred to the decision of Hon’ble Supreme Court in the case of CIT Vs.
Kelvinator India Ltd. (2010) 310 ITR 561 (SC). Ld A.R. submitted that the
assessment year involved in this appeal is 2002-03 and notice u/s.148 of
the Act has been issued and served on the assessee on 17.3.2009. He
submitted that notice u/s.148 of the Act has to be issued from the end of
the relevant assessment years and since this has not been done, the
reopening of assessment is bad in law and same should be annulled.
Replying to above, ld D.R. supported the orders of lower authorities
below.
We have heard the rival contentions, perused the material on record
of the Tribunal. We find that this issue is squarely covered in favour of the
assessee by the decision of Hon'ble Supreme Court in the case of CIT Vs.
Kelvinator India Ltd. (2010) 310 ITR 561 (SC), wherein newly substituted
provision of section 147 of the Act with effect from 01.04.1989 is
interpreted by observing, that section 147 of the Act, as substituted w.e.f.
01.04.1989 does not postulates conferment of power upon the Assessing
Officer to initiate reassessment proceeding upon his mere change of
opinion. Further, if 'reason to believe' of the Assessing Officer is founded on
an information which might have been received by the Assessing Officer
after the completion of assessment, it may be a sound foundation for
exercising the power under section 147 r.w.s. 148 of the Act. It cannot be
accepted that only because in the assessment order, detailed reasons have
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not been recorded, an analysis of the materials on the record by itself may
be justifying the Assessing Officer to initiate a proceeding u/s. 147 of the
Act. When a regular order of assessment is passed u/s 143(3) of the Act,
the presumption can be raised that such an order has been passed on
application of mind. We also find that in the present case from the reasons
recorded, as reproduced herein above, it is clearly discernible that there is
no allegation by the AO alleging that there was failure on the part of the
assessee to make a return or to disclose fully and truly all material facts
necessary for the assessment. We also find the initiation of reassessment
proceedings beyond the prescribed period of four years from the end of the
relevant assessment year, was clearly without such allegation in the reasons
is fetal for the revenue.
This is so, since the reassessment proceedings are commenced
under section 147 of the Act, and the first proviso to section 147 mandates,
inter alia, that where an assessment under section 143(3) of the Act has
been made, no action shall be taken under section 147 of the Act, 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 disclose fully
and trully all material facts necessary for his assessment. In present case,
the assessment year involved is 2002-03 and the notice u/s.148 of the Act
has been issued on 17.3.2009, which is beyond four years from the end of
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the relevant assessment year. We also find that no tangible material has
come to the knowledge of the Assessing Officer to reopen the assessment
u/s.147 of the Act.
At this juncture, we also find it appropriate to consdier the
applicability of the rasio of the decision of Hon'ble Delhi High Court in the
case of Haryna Acrylic Manufacturing Co. vs CIT & Ors, 308 ITR 38(Del) and
in the case of Sabh Infrastructure Ltd vs ACIT, 398 ITR 198 (Del) has
vehemently relied upon by ld A.R. pressing into with reference to legal
ground of the assessee, wherein, it has been held that when the Assessing
Officer intends to initiate reassessment proceedings after expiry of four
years from the end of the relevant assessment year, then it is incumbent
upon him to bring on record at the time of recording reasons about the
allegation of failure on the part of the assessee to disclose fully and truly all
materials facts necessary for his assessment. The relevant part of the
judgment of Hon’ble Delhi High Court in the case of Sabh Infrastructure Ltd
(supra) reads as follows:
“ Where assessee could not be said to have failed to disclose fully and truly all material facts then assumption of jurisdiction under Sections 147 and 148 of the Act was erroneous and notice issued for reassessment should be quashed.” 14. As we have noted above that since the reassessment proceedings
have been initiated by the Assessing Officer u/s.147 of the Act after expiry
of four years from the end of the relevant assessment year 2003-04 by
issuing notice u/s.148 of the Act on 17.3.2009, then the mandate of first
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proviso to section 147 of the Act requires that in the reasons such allegation
should have been mentioned and contained that the assessee has failed to
disclose fully and truly all material facts necessary for assessment and that
because of the failure on the part of the assessee to disclose fully and truly
all material facts necessary for assessment and that because of this failure,
there has been an escapement of income chargeable to tax.
In the present case from the reasons recorded by the Assessing
Officer while initiating reassessment proceedings u/s.147 of the Act and
prior to issuance of notice u/s.148 of the Act, there is no whisper what to
speak of any allegation that the assessee had failed to disclose fully and
truly all material facts necessary for assessment on the issues of supervision
and services charges and difference in the figures shown by it in the
respective TDS certificate and on the issue of under disclosure of closing
stock of Grade-F coal. Merely having a reason to believe that income has
escaped assessment is not sufficient to reopen the assessment beyond four
years period as per first proviso to section 147 of the Act. The escapement
of income from assessment must also be occasioned due to the failure on
the part of the assessee to disclose material facts, fully and truly. This is a
necessary condition for overcoming the bar set up by the proviso to section
147 of the Act and if this condition is not satisfied, the rigour would operate
against the Assessing Officer and no action under section 147 could be
taken against the assessee.
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In view of foregoing discussion and from the above facts of the case
and following the decisions quoted above, we are of the considered view
that the reassessment order u/s. 147 r.w.s. 143(3) of the Act is bad in law
a hence, same is quashed and the ground No.2 & 3 of appeal of the
assessee are allowed.
Since we have quashed the reassessment order u/s.147/251/143(3)
of the Act dated 31.12.2009, other ground raised by the assessee on merits
of the additions has become infructuous and hence, not adjudicated.
In the result, appeal filed by the assessee is allowed.
Order pronounced on 08/08/2019. Sd/- sd/- (Laxmi Prasad Sahu) (Chandra Mohan Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 08/08/209 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : M/s. BSN Joshi & Sons Ltd.,Joshi House, Raja Bazar, Jatni, Khurda
The Respondent. ACIT (OSD), Range-2, Bhubaneswar 3. The CIT(A)-II, Bhubaneswar 4. Pr.CIT- II, Bhubaneswar 5. DR, ITAT, Cuttack 6. Guard file. //True Copy// By order
Sr.Pvt.secretary ITAT, Cuttack
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