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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI AMARJIT SINGH & SHRI O.P.MEENA
आदेश /O R D E R PER O.P.MEENA, AM: 1. This appeal by the Assessee is directed against the order of Ld. Commissioner of Income Tax (Appeals)-2,Surat (the CIT(A)) dated 25.07.2016for the assessment year 2009-10, which in turn has arisen from the order passed by the Income Tax Officer, Ward-1(3)(1) Surat (in short “the AO”) dated 07.11.2014 passed under section 143 (3) read with section 147 of Income Tax Act,1961 (in short ‘the Act’).
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Additional ground of appeal: During the currency of appeal, the assessee has also filed an additional cum modified ground of appeal against the reassessment under section 147/143(3) by stating that notice issued under section 148 in absence of tangible material and without valid approval under section 151 and without having valid reason to believe of alleged escapement of income is erroneous, thereby the reassessment order u/s.147 is bad-in-law. 3. The learned counsel for the assessee submitted that the additional ground of appeal be admitted as it is being purely a legal issue, goes to the root of the matter and no further inquiry is required for deciding the same as all facts are already on record and issue arise out of impugned order. This ground is modified version of regular Ground No.1 of appeal taken by the assessee. The learned counsel for the assessee placed reliance in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383(SC). 4. Per contra, the ld. Sr. D.R. opposed the additional ground. 5. We have considered the facts and material on record. The additional ground being legal one, hence, admitted. Reliance is placed on the decision of Apex Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383(SC) wherein it was held that the additional ground of appeal can be admitted where the issue
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involved is pure question of law not involving any investigation of facts. Now we are discussing the merits of ground. 6. The learned counsel for the assessee submitted that that the return of income was filed on 31.03.2010 declaring total income of Rs.3,09,410 which was assessed under section 143 (3) on 30.11.2011 by making addition of Rs.1,45,120 on rejection of under section 44AD being 8% of suppression receipts of Rs. 18,14,000. The learned counsel referred the reasons recorded for reopening of assessment (PB-Page No.4) and submitted that recorded reasons stated to the appellant has not deducted TDS under section 194C on labour expenses of Rs.4,90,232 on which the assessee was liable to deduct tax at source @1%. Therefore, said amount is liable to be disallowed under section 40(a)(ia) of the Act, hence, income liable to be taxed is escaped assessment. This reason is erroneous as the assessee being an individual was not liable to deduct tax at source, since the assessee was not covered under section 44AB in the preceding year, the Explain-L to section 194C of the Act was not applicable. The learned counsel for the assessee further referred second line of reasons placed at Paper Book Page No. 4 which states as “However, it was seen from the records that the assessee had shown total turnover of Rs. 37,24,205/- from his construction activities”. This shows that notice under section 148 of the Act has been issued in absence of fresh
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tangible material and on relooking the same material available on record. 7. The learned counsel for the assessee further submitted that reasons recorded states that during original assessment an amount of Rs.18,14,000 was less shown by the assessee on which addition of Rs.1,45,120 was made @8% under section 44AD, which was confirmed by the CIT (A). Therefore, the AO has observed the turnover shown at Rs.37,24,205 by adding Rs.18,14,000 was exceeded Rs.40 lac hence, the assessee was liable to audit under section 44AB(a) and 44AB(b) of the Act. The assessee has paid labour charges of Rs.4,90,232 on which TDS was not deducted at source. Hence, same required to be disallowed under section 40(a)(ia) of the Act. The learned Counsel for the assessee submitted that liability to deduct tax at source under section 194C is only arises in case of individual where if in immediately financial year in which payment is made , total sales , gross receipts or turnover exceeded limits provided in section 44AB of the Act. Where in the reasons recorded for reopening of assessment, the AO has considered turnover of current year being exceeded Rs. 40 lac, whereas turnover should exceeded in preceding year i.e. A.Y. 2008-09. The learned counsel for the assessee further referred Paper Book Page No. 8, which is Profit & Loss Account for the assessment year 2008-09 showing total turnover of Rs. 30,84,700. Hence, turnover was less than
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Rs.40 lac hence, TDS was not required to be deducted under section 194C of the Act. The learned counsel relied in the case of Harshadbhai Naranbhai Bagadia v. ACIT [2012] 24 taxmann.com 47 (Gujarat) wherein it was held that liability of TDS in case of individual /HUF, under section 194C (2) arises only if in financial year immediately preceding financial year in which payment is made, total sales, gross receipts or turnover exceeded limits provided in section 44AB. However, the AO during assessment proceedings observed that the assessee has shown turnover of Rs. 55,97,205 from his construction activities which include total sales of Rs.30,84,700 and WIP of Rs. 25,12,,205 in A.Y. 2008-09. Thus, the AO has improved his reason was the recorded reasons for recording for reopening of assessment by considering the turnover of preceding year instead reasons stated the turnover of current year turnover. However, this is also not correct as turnover does not include WIP. The learned counsel for the assessee relied in the case of ACIT v. B.K. Jhala & Associates 69 ITD 141 (Pune- Trib.)(PB-22-24] wherein it was held that work in progress representing current assets, including cost of material, labour and other direct overheads incurred by the assessee, ownership of which remained vested with the assessee, did not constitute “turnover” as used in section 44AB. Reliance placed on decision Esque Finmark (P) Ltd. v. ACIT [2014] 48 taxmann.com 292 (Mumbai- Trib.) held that
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amount of purchases cannot be included in qualifying amount of turnover as mentioned under section 44AB of Income Tax Act,1961. 8. The learned counsel for the assessee submitted that in original assessment under section 143 (3) the addition was made estimating income under section 44AD @8% of turnover and confirmed by the CIT (A), accordingly, when addition has been made by estimating profit no separate disallowance under section 40(a)(ia) can be made leading to alleged escapement of income, hence, reasons are erroneous. In support of this contention the learned counsel for the assessee relied in the case of ITO v. Mark Construction [2012] 23 taxmann.com 398 (Kolkata-Trib. The learned counsel for the assessee submitted that as per para 6.2 (4) of original assessment order the AO mentioned that it appears that all relevant books of accounts in respect of ‘Shri Ridhi Siddhi Construction “have been prepared and maintained as Construction Account showing WIP, material purchased, labour expenses, indirect expenses etc. have been provided, furnish the relevant ledger account. This shows that the AO has duly examined all material facts hence; the reopening of assessment is only a relook to the material available on record which is not permissible in law. In support of this contention, the learned counsel for the assessee relied on the decision of Hon`ble Supreme Court in the case of ACIT v. ICICI Securities Primary Dealership Ltd. [2012] 24 taxmann.com 310 (SC)
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wherein it was held that “where accounts had been furnished by assessee when called upon and thereafter, assessment was completed under section 143 (3) , subsequently on a mere re-look of said accounts earlier furnished by assessee it is not permissible under section 147 to reopen assessment of assessee on ground that income has escaped assessment. The learned counsel for the assessee further relied in the case of CIT vs. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312(SC) and Hon’ble Gujarat High Court in the case of Nilamben Sandipbhai Parikh v. ACIT [2019] 109 taxmann.com 336 (Gujarat) held there was no new tangible material available with the Assessing Officer to form a belief that there was escapement of income chargeable to tax, hence, impugned re-opening notice was unjustified. Similarly Hon’ble Gujarat High Court in the case of Gujarat Power Corporation Ltd. v. ACIT [2013] 350 ITR 266 (Gujarat) held that reopening of assessment on same claims on the basis of material , amounts to change of opinion. 9. On the other hand, the ld. Sr. D.R. submitted that turnover was enhanced by the CIT (A) during appellate proceedings hence, the assessee was liable for audit under section 44AB of the Act. Since the books of accounts were auditable hence, there was liability of TDS, hence, the AO has right reopen assessment.
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We have heard the rival submissions and perused the relevant material on record. We find that reasons recorded from reopening of assessment plead at Paper Book Page No. 4 reads as under:- “In this case, the assessee is engaged in the business of construction activities and shown income of Rs. 2,97,920/- u/s. 44AD of I.T. Act. However, it was seen from the records that the assessee had shown total turnover of Rs. 37,24,205/- from his construction activities. However, during the course of assessment proceedings, an amount of Rs. 18,14,400/- was less shown by the assessee and addition of Rs. 1,45,120 /- was made @ 8% of the same. Further, in the appeal proceedings, the CIT (A) has confirmed 50% of the said receipts and from this amount, the assessee `s turnover exceeded Rs. 40 lacs. Therefore, the assessee is being specified person liable to audit of accounts under clause (a) or clause (b) of section 44AB of I. T. Act. During the year under consideration, the assessee has paid labour expenses of Rs. 4,90,232/- on which the assessee is liable to deduct tax at source @1% u/s. 194C of I. T. Act. However, the assessee failed to deduct tax u/s.19$C on labour expenses attracting the provisions of section 40(a)(ia) of the Act. Since, the tax has not been deducted on the above amount before expiry of the time prescribed u/s. 201(1), the same were required to be disallowed for computing the income chargeable under the head profits and gains of business or profession. In view of the above, I have reason to believe that income chargeable to tax has escaped assessment. I am therefore, satisfied that this is a fit case for invoking provision of section 147 of the Act for assessment year 2009-10.” 11. The perusal of above reason would reveal that reasons recorded for reopening of assessment are based on turnover of current year which is exceeded Rs.40 lac, if less amount of Rs.18,14,000 as shown by the assessee is added to turnover shown at Rs.37,24,205, hence, provisions of section 44AB are applicable, hence, the assessee was liable to deduct tax at source under section 194C of the Act on payment of labour expenses. Thus, the reasons recorded by the AO are patently incorrect as for deduction of tax at source as per provisions of
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section 194C are applicable where turnover exceeded Rs. 40 lac in preceding assessment year and not in current year. Therefore, reopening of assessment on this basis alone is not sustainable in law. We find that TDS provisions as per Explain –L to section 194C are applicable only if total turnover in immediately preceding financial year is exceeded Rs. 40 lac. The perusal of Profit & Loss Account and balance sheet for the assessment year 2008-09 filed by the assessee appearing at Paper Book Page No. 5 to 9 shows that total turnover during assessment year 2008-09 was at Rs.30,84,700. Hence, provisions to deduct tax at source as per 194C were not applicable in the case of the assessee during year under consideration. We notice that the AO has considered the turnover of immediately preceding financial year while rejecting the objection on reopening of assessment during the course of assessment proceedings and considered turnover exceeded Rs. 40 lac by including WIP therein. However, we are of the considered opinion that turnover does not include WIP as held by the Co-ordinate Bench of Tribunal of ACIT v. B.K. Jhala & Associates 69 ITD 141 (Pune- Trib) (PB-22-24] wherein it was held that work in progress representing current assets, including cost of material, labour and other direct overheads incurred by the assessee, ownership of which remained visited with the assessee, did not constitute “turnover” as used in section 44AB. Reliance placed on decision Esque Finmark (P)
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Ltd. v. ACIT [2014] 48 taxmann.com 292 (Mumbai- Trib) held that amount of purchases cannot be included in qualifying amount of turnover as mentioned under section 44AB of Income Tax Act,1961. We may Further, add that the reasons recorded for reopening of assessment cannot be improved upon during assessment proceedings. Hence, the validity of reopening of assessment is to be examined on the basis of reasons for reopening of assessment only, which is factually incorrect. 12. We further note that second line of reasons placed at Paper Book Page No. 4 which states as “However, it was seen from the records that the assessee had shown total turnover of Rs. 37,24,205/- from his construction activities”. This shows that notice under section 148 of the Act has been issued in absence of fresh tangible material and on relooking the same material available on record. Since there was no new material brought on record therefore, reopening of assessment is not valid in the light of judgement of Hon’ble Gujarat High Court in the case of Hon’ble Gujarat High Court in the case of Nilamben Sandipbhai Parikh v. ACIT [2019] 109 taxmann.com 336 (Gujarat) held there was no new tangible material available with the Assessing Officer to form a belief that there was escapement of income chargeable to tax, hence, impugned re-opening notice was unjustified. Similarly Hon’ble Gujarat High Court in the
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case of Gujarat Power Corporation Ltd. v. ACIT [2013] 350 ITR 266 (Gujarat) held that reopening of assessment on same claims on the basis of material , amounts to change of opinion. 13. We further find that the perusal of para 6.2 (4) of original assessment order the AO raised as “it appears that all relevant books of accounts in respect of ‘Shri Riddhi Siddhi Construction’ have been prepared and maintained as Construction Account showing WIP , material purchased , labour expenses , indirect expenses etc. have been provided , furnish the relevant ledger account…. This shows that the AO has duly examined all material facts, hence, the reopening of assessment is only a re-look to the material available on record which is not permissible in law as held by the Hon`ble Supreme Court in the case of ACIT v. ICICI Securities Primary Dealership Ltd. [2012] 24 taxmann.com 310 (SC) wherein it was held that “where accounts had been furnished by assessee when called upon and thereafter, assessment was completed under section 143 (3) , subsequently on a mere re-look of said accounts earlier furnished by assessee it is not permissible under section 147 to reopen assessment of assessee on ground that income has escaped assessment.” The learned counsel also relied in the case of CIT vs. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312(SC).
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In view of the foregoing, and judicial pronouncements as discussed above, we find that while reopening of assessment the AO has considered current assessment year’s turnover to invoke provisions of section 194C which is not applicable as the assessee being individual. Hence, reasons were on wrong premises, which are not permitted under the statutes. Further, the AO has improved reasons for reopening of assessment during assessment proceeding, however, same is also not permissible. Further, the AO has erroneously considered total turnover including WIP which is not correct as turnover does not include WIP as held by Co-ordinate Bench of Kolkata Tribunal as discussed above. Further, the AO had no new tangible material, in his possession and relied on same assessment records which were already available with him and duly examined during scrutiny proceedings under section 143 (3) of the Act. This facts is clearly discernible from para 6.4 of original assessment order. Therefore, reopening of assessment on same material is not permissible as held by the Hon`ble Supreme Court in the case of ACIT v. ICICI Securities Primary Dealership Ltd. [2012] 24 taxmann.com 310 (SC) wherein it was held that “where accounts had been furnished by assessee when called upon and thereafter, assessment was completed u/s.143(3), subsequently, on a mere re-look of said accounts earlier furnished by assessee it is not permissible under section 147 to reopen
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assessment of assessee on ground that income has escaped assessment”. In view of these facts and circumstances, we quash the reopening of assessment and allowed the grounds of appeal the assessee. 15. Since we have quashed the reopening of assessment, therefore, we do not consider it appropriate to deal with other ground on merits. 16. In the result, the appeal of the assessee is allowed. 17. The order is pronounced by listing the case on the Notice Board under Rule 34(4) of Income Tax Appellate Tribunal Rules 1963.
Sd/- Sd/- (AMARJIT SINGH) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat: Dated: 10the December, 2019/opm Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat