PRINCIPAL COMMISSIONER OF IN vs. FARIDA PRIME TANNERY PVT

TCA No.556 of 2019 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 14.07.2020 CORAM: THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAM and THE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN Tax Case Appeal No.556 of 2019 Principal Commissioner of Income Tax 2, No.121, Mahatma Gandhi Road, Chennai. .. Appellant versus M/s.Farida Prime Tannery Pvt Ltd., 15/4, Mount Poonamallee Road, Ramapuram, Chennai - 600 089. .. Respondent Tax Case Appeal filed under Section 260A of the Income Tax Act, 1961, against the order made in ITA No.2789/Mds/2016 dated 09.02.2017 passed by the Income Tax Appellate Tribunal Madras 'A' Bench, for the Assessment Year 2009-10. For Appellant : Mr.Karthik Ranganathan Senior Standing Counsel Page 1 of 9 http://www.judis.nic.in TCA No.556 of 2019 For Respondent : Mr.G.Baskar JUDGMENT T.S.SIVAGNANAM, J. This appeal filed by the revenue under Section 260A of the Income Tax Act, 1961 (the 'Act' for brevity), is directed against the order dated 09.02.2017 passed by the Income Tax Appellate Tribunal 'A' Bench, Madras, in ITA No.2789/Mds/2016 for the Assessment Year 2009-10. 2. The appeal has been filed raising the following Substantial Questions of Law: “(i) Whether on the facts and in the circumstances of the case and in law, the ITAT was correct in cancelling the re-opening of assessment on the basis of audit objection as bad in law, when the objection communicated was an information to the AO? (ii) Whether on the facts and in the circumstances of the case and in law, the ITAT was correct in cancelling the re-opening of assessment without considering the income escapement by way of cancellation of forward contracts which is speculated in foreign currency by the assessee and the same was claimed as business loss on forward contract?” Page 2 of 9 http://www.judis.nic.in TCA No.556 of 2019 3. We have heard Mr.Karthik Ranganathan, learned Senior Standing Counsel for the appellant/Revenue and Mr.G.Baskar, learned counsel for the respondent/assessee. 4. The Assessee, who is engaged in the business of manufacturing and export of leather filed their return of income on 18.09.2009, for the Assessment Year 2009-10, declaring an income of Rs.2,50,66,610/-. The assessment was selected for scrutiny under Section 143(3) of the Act and a total amount of Rs.6,04,62,442/- was brought to tax by order dated 12.12.2011. 5. Subsequently, the assessment was reopened under Section 147 of the Act and the Assessing Officer by order dated 20.03.2015 assessed the income of the assessee at Rs.4,48,21,824/- by disallowing the loss of foreign exchange to the extent of Rs.1,97,55,214/-. Aggrieved by such order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals)-6, Chennai, hereinafter referred to as 'CIT(A)'. The appeal was allowed by an order dated 21.07.2016. Aggrieved by such order, the Revenue preferred an appeal to the tribunal, which was dismissed by the impugned order. Page 3 of 9 http://www.judis.nic.in TCA No.556 of 2019 6. It is the submission of Mr.G.Baskar, learned counsel for the respondent/assessee that the case on hand cannot be pursued by the revenue on account of 'Low Tax Effect' and the benefit of CBDT Circular has to be extended to the assessee's case. The tax demanded is only Rs.90,29,270/-. 7. Per contra, Mr.Karthik Ranganathan, learned Senior Standing Counsel for the Revenue/appellant would submit that the case of the assessee is one of where an audit objection was raised and therefore the case would fall within the ambit of the exceptions in the CBDT circular and therefore, the revenue is entitled to pursue the appeal on merits. 8. In our considered view the appeal can be taken up and considered on merits and examined as to whether reopening of the assessment was justified. 9. The CIT(A), while allowing the appeal filed by the assessee called for the records of the Assessing Officer for verification of the factual aspects, because the assessee stated that the Assessing Officer did not have reason to believe that the assessment has to be reopened, since, Page 4 of 9 http://www.judis.nic.in TCA No.556 of 2019 the Assessing Officer objected to the report submitted by the audit party and based on the very same report, there cannot be a reopening of the assessment. It is the submission of the assessee that if such methodology is allowed to be adopted then it would be a case of borrowed suggestion, which is alien to Section 147 of the Act. 10. The CIT(A) called for the records to verify the factual position and has recorded in his order that he finds that the reassessment proceedings have been initiated, on the basis of the objection received from the Senior Audit Officer dated 16.11.2012. Further the CIT(A) has pointed out that it is a matter of record that the Assessing Officer has not accepted the views and objections of the audit party and in fact sent a communication to the said effect to the Commissioner of Income Tax - II, Chennai, dated 13.05.2014, wherein the Assessing Officer has recorded that the objection of the audit party is not accepted by him. However, he would proceed to state that the remedial action has been taken by issuance of notice under Section 148 of the Act. 11. The CIT(A) while allowing the assessee's appeal took note of various decisions, more particularly, the decisions in the case of CIT Vs. Page 5 of 9 http://www.judis.nic.in TCA No.556 of 2019 Assembly Rooms, reported in (2000) 242 ITR 64, wherein it was said that the report of the audit party cannot be recorded as an information for the purpose of reopening an assessment. 12. The CIT(A) has also referred to the decisions of this Court in the case of CIT (A) Vs. EID Parry (India) Ltd., reported in (1998) 230 ITR 70 (Mad) and CIT Vs. Rajalakshmi Textile Processors Limited, reported in (1999) 35 ITR 718. 13. Further, the CIT(A) has also referred to a decision of the High Court of Gujarat in the case of Jagat Jayantilal Parikh Vs. Deputy Commissioner of Income Tax, reported in (2013) 355 ITR 400, wherein the facts are almost identical to that of the case of the assessee. In the said decision, Gujarat High Court has held the reopening as invalid as the Assessing Officer did not form an independent opinion that he had reason to believe that the assessment has to be reopened. 14. The tribunal, at the instance of the revenue tested the order passed by the CIT(A) for its correctness and aAfter taking note of the entire factual position as well as the decisions, more particularly, the case Page 6 of 9 http://www.judis.nic.in TCA No.556 of 2019 of Jagat Jayantilal Parikh [cited supra], has dismissed the appeal. In so doing, the tribunal also referred to the decision of the Gujarat High Court in Adani Exports Vs. Deputy Commissioner of Income Tax, reported in (1999) 240 ITR 224, wherein it has been held that though the audit objection may serve as information, the basis of which the Income Tax Officer can act, the ultimate action must depend directly and solely on the formation of belief by the Income Tax Officer on his own, where such information passed on to him by the audit that income has escaped assessment. 15. The underlying legal principles is that the independence of the Assessing Officer cannot be interfered or questioned. No person can advice the Assessing Officer to proceed with the assessment in a particular fashion. It is for the Assessing Officer to assess the books of accounts of the assessee and to frame the assessment. On the other hand, if the Assessing Officer relies upon the borrowed material, it would be amounting to abdicating his duty as an Assessing Officer. Thus, we find that the decision taken by the CIT(A) as affirmed by the tribunal, does not call for any interference. Page 7 of 9 http://www.judis.nic.in TCA No.556 of 2019 16. In the result, the Tax Case Appeal filed by the revenue fails and hence, dismissed. The substantial Questions of Law are answered against the revenue. No Costs. [T.S.S., J.] [V.B.S., J.] 14.07.2020 Index : Yes/No Internet : Yes Speaking/Non-speaking order. ars Page 8 of 9 http://www.judis.nic.in TCA No.556 of 2019 T.S.SIVAGNANAM, J. AND V.BHAVANI SUBBAROYAN, J. ars TCA No.556 of 2019 14.07.2020 Page 9 of 9 http://www.judis.nic.in