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Income Tax Appellate Tribunal, DELHI ‘E’ BENCH,
Before: SHRI AAKASH DEEP JAIN & SHRI N.K. BILLAIYA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
This appeal by the assessee is preferred against the order of the
Commissioner of Income Tax [Appeals] - 26, New Delhi dated 21.08.2019
pertaining to A.Y 2014-15.
The assessee has raised the following grounds of appeal:
“1(i) That on facts and circumstances of the case, the Ld. CIT(A) was not justified in upholding the validity of notice u/s 148 of the Income Tax Act, 1961 even though the reasons recorded are vague and unsubstantiated.
(ii) That that the reasons are merely on the basis of audit objection and in absence of independent application of mind or investigation, the reopening u/s 148 is on mechanical basis and borrowed satisfaction.
(iii) That the original assessment having been completed u/s 143(3] of the Act, after due verification of return of income, the notice u/s 148 is merely on account of change of opinion and for the purposes of re-appreciation of material already on record which is impermissible.
(iv) That the objection raised by audit party per se does not constitute tangible material and there being no other adverse material on record, the reopening u/s 147 is illegal and not sustainable for want of tangible material.
(v) That the various case laws relied upon by the CIT(A) are distinguishable on facts and as such not applicable to the present case.
(vi) That in absence of proper approval in terms of provisions of section 151 of the Act, the notice u/s 148 is illegal and without jurisdiction addition of Rs. 1,12,54,637/- on account doubtful debt while computing the book profits u/s 115JB of the Act.
2(i) That even on merits the ld. CIT(A) was not justified in confirming the addition of Rs. 1,12,54,637/- on account of provision towards bad and doubtful debt while computing the book profits u/s 115JB of the Act.
(ii) That the provision of bad & doubtful debt being based on past experience, the re-computation of book profits by the Assessing Officer is illegal and not sustainable under the provisions of the Act.
That orders passed by lower authorities are not justified on facts and same are bad in law.”
Representative of both the sides were heard at length, case records
carefully perused.
Briefly stated, the facts of the case are that the original return of
income was filed on 28.11.2014 declaring NIL income. Return was
selected for scrutiny assessment and assessment was completed u/s
143(3) of the Income-tax Act, 1961 [hereinafter referred to as 'The Act']
vide order dated 31.03.2016.
Subsequently, vide notice dated 31.03.2018, issued u/s 148 of the
Act, the Assessing Officer initiated reassessment proceedings.
In reply to the notice u/s 148 of the Act, the assessee submitted
that the original return filed may be treated as return filed in pursuance
to the notice.
Reasons for reopening of the assessment read as under:
“Original return in this case was filed on 28/11/2014 which was processed u/s 143(1) of the Income Tax Act, 1961. The assessment of the assessee company was completed u/s 143(3) of the Income Tax Act on 31/03/2016 determining a income of Rs. Nil/- against the returned income of Rs. Nil/-.
It was found that the assessee debited Rs. 1,12,54,637/- as provision for bad & doubtful debts to his profit & loss account which was added back while computing income of under normal provision of the IT Act. But while computing the income under special provision of the Act this
amount was not added back. The mistake resulted in under assessment of income by Rs. 1,12,54,637/- involving short levy of tax of Rs. 28,37,265/- including interest.
It was also found that the assessee has added expenses disallowed u/s 14A r.w.s 8D Rs. 4,49,077/- under the normal provisions of the Act. But the same was not added back under special provisions of the Act u/s 115JB. The mistake resulted in under assessment of Book Profit of Rs. 4,49,077/- involving tax effect of Rs. 1,13,209/- including interest.
In this connection, it is submitted that net tax effect that is loss of revenue in this case would be Rs. 28,37,265/-
In this case the return of income was filed for the year under consideration and assessment u/s 143(3) was made on 31/03/2016. Since, the case falls with in four years from the end of the relevant year, the requirement to initiate proceeding u/s 147 of the Act are reason to believe that income for the year under consideration has escaped assessment because of failure on the part of assessee to disclose fully and truly ail materia! facts necessary for his assessment year under consideration. It is pertinent to mention here that reasons to believe that income has escaped assessment for the year under consideration have been recorded above (refer paragraphs 1-3).
As the re-opening of the case relates to assessment year 2014- 15 which is within four years, the approval of Ld. JCIT, Central Range- 04, New Delhi is required in this case. A proposal for issuing notice u/s 148 of the I.T. Act, 1961 for assessment year 2014-15 is being sent as per prescribed proforma.
(Sanjiv Kumar) Dated: 30.03.2018 Asstt.Commissioner of Income Tax Central Circle-14, New Delhi Whether the Addl./Joint Commissioner of Income Tax is satisfied on the reasons recorded by the ACIT that it is a fit case for issue of notice u/s 148. (Satish Kumar Gupta) Joint Commissioner of Income Tax Central Range-4, New Delhi
We find that during the original assessment proceedings, vide query
letter dated 20.10.2015 at Point No. 23, the Assessing Officer raised a
specific query asking the assessee to furnish a detailed note on book
profit as per section 115JB of the Act and vide query No. 24, details in
respect of exempt income earned, alongwith details of expenses incurred
for earning such income and quantify the disallowance u/s 14A r.w.r 8D
of the Rules was asked by the Assessing Officer.
A detailed reply was filed by the assessee, which reads as under:
In this context we are submitting following details:- 1. Point no 4, details of bank account maintained by the assessee along with Blank Reconciliation statement is enclosed as per Annexure-I. 2. Point no 11, details of advances received is enclosed as per Annexure- II. 3. Point no 12, details of loans and an advance given along with remarks on charging of interest thereon is enclosed herewith as Annexure-III 4. Point no 15. detail note on manufacturing process of electricity through windmills is as below:
Basically Windmill converts Kinetic Energy into Electrical Energy Process:-
When air collides with the Rotor Blades it rotates in the same direction as of the air, this energy is Kinetic Energy. Now when the rotor rotates the inner mechanism i.e energy conversion takes place in Nacelle; the nacelle is situated at the top of the tower the nacelle has specification of Gear box, Shaft, Yaw Gear etc. The air goes through all this parts for further conversion this energy conversion is supplied to the generator. Now the generator converts all Mechanical Energy to Electrical Energy gained by the system. This Electrical Energy is transferred to the Electricity Board through the HTSC.
Point no 16, details of Gross Profit Ratio and Net Profit ratio enclosed as per Annexure-IV.
Point no 23- The assessee company had paid tax under MAT provision as the normal tax liability is less than the MAT Liability. In the normal provision of computation of tax liability, the assessee company has claimed deduction under section 80IA for income generated from wind power business and due to that the Normal tax liability is less as compared to the tax liability under MAT provision.
Point no 24, details of exempt income along with calculation of disallowance u/s 14A r.w.r. 8D is enclosed as per Annexure-V.
Point no 26, there is no any payment made in violation of section 269SS and 269TT of Income Tax Act 1961.
Point no 27, the assessee company has claimed deduction under section 80IA of the Income tax act 1961 on its income from power generation business through windmills. Audit report in From no 10CCB certified by the chartered accountant along with separate profit and loss account of such business is enclosed herewith as Annexure-VI.
Point no 28. we have not received any AIR information hence there is no comment offered on the same.
Point no 29, no expenses incurred for maintenance of vehicle for Non Business use.
Point no 30, relevant books of accounts along with vouchers are produced herewith for your perusal.
Point no 31, copy of the Balance sheet, profit and loss accounts along with schedules and tax audit report is enclosed herewith as Annexure- VIl.
Point no 32. the group is primarily into the business of manufacturing and trading of Industrial gases. M/s Goyal MG Gases (P) Ltd is the flagship company of this group which is engaged in the Gas busness. The assessee company has given- business advance to M/s Goyal MG Gases (P) Ltd and the outstanding balance as on 31.03.2014 is Rs 1.99 Cr.
Point no 33, there is no gift given and taken during the year under consideration. Hence no detail to submit the information for the same.
Point no 34, copy of Memorandum and Articles of Association along with copy of ROC Return is enclosed as per Annexure-VIII.
With reference to your query regarding large deduction claimed under Chapter-VI- A and high profit shown by the undertaking claiming deduction under section 80IA, we would like to inform you that during the relevant year the company has income from power generation business only. There is a deduction under section 80IA on the profit earned from power generation business. As the assessee company is
having income only from the business on which Chapter VI-A deduction is available hence there is no question of claiming large deduction by showing high profit. The chartered accountant certificate in form no 10CCB is enclosed herewith for your information and perusal.”
We further find that vide notice dated 14.06.2016, the Assessing
Officer proposed to rectify the mistake apparent from record u/s 154 of
the Act and the same reads as under:
“The assessment order u/s 143(3) of the Income Tax. Act, 1961 for the assessment year 2014-15 made on 31.03.2016 requires to be amended as there is a mistake apparent from the record within the meaning of Section 154/155 of the Income tax Act, 1961. The rectification of the mistake, as per particulars given below will have the effect of enhancing the assessment/reducing the refund/ increasing your liability.
If you wish to be heard, you are required to appear in person or through an authorized representative in my office on 21.06.2016 at 11.00 A.M. Alternatively you may send a written reply so as to reach me on or before the date mentioned above.
Particulars of mistake proposed to be rectified:-
The assessment of M/s Morgan Ventures Limited for the assessment year 2014-15 was completed after scrutiny in March, 2016 determining ‘Nil’ income under normal provisions of the Act and at an income of Rs. 31,50,850 under special provisions of the act. Audit scrutiny revealed that the assessee debited Rs. 1,12,54,637 as provision for Bad & doubtful Debts to his profit and loss account which was added back while computing the income under normal provision of the Act. But while computing the income under special provisions of the Act, this amount was not added back. Being unascertained liability, this provision was required to be added back. The mistake resulted in underassessment of income by Rs. 1,12,54,637 involving short levy of tax of Rs. 28,37,265 including interest.
The above mistake is proposed to be rectified and your total tax is proposed to be enhanced accordingly.”
Vide reply dated 22.06.2016, the assessee made detailed
submissions to the notice u/s 154 of the Act and the same reads as under:
Dear Sir,
This is in continuation of our earlier letter dated 20/06/2016. our further submission is as under:-
With reference to provision for bad and doubtful debts of Rs 1,12,54,637/- we would like to inform you that this provision relates to the amount recoverable from the Customer against Sale of power. As per the provision of Section 115 JB of the Income tax act, 1961. the above provision is neither an unascertained liability and nor a diminution in the value of the Asset. Hence there is a no case of making rectification u/s 154 of the Income tax Act.
With reference to disallowance made u/s 14A r.w.r. 8D of the Income tax act. 1961, we would like to inform you that as per the section 115 JB olThe Income tax Act. 1961, the amount of expenses relating to certain incomes (It such income is not subject to MAT) is to be added back in the Book Profit and the amount of exempt income is to be reduced from the Book Profit while computing the MAT liability. In our case there is no exempt Income earned during the relevant year and hence no addition and deduction has been made from the Book Profit while computing the MAT liability.
Further both the above issues has been examined thoroughly while completing the assessment proceedings hence it is requested to drop the rectification proceedings initiated u/s 154 of the Income tax act. 1961 against the assessee company.
We may accordingly request your goodself that rectification proceedings u/s 154 in respect of both issues may kindly be dropped.
The above facts show that before issuing notice u/s 148 of the Act,
the Assessing Officer had already initiated rectification proceedings u/s
154 of the Act and the assessee had furnished detailed reply as
mentioned elsewhere. We find that no rectification order has been
framed by the Assessing Officer u/s 154 of the Act and yet, for the same
reasons, reassessment proceedings were initiated.
In our considered opinion, once rectification proceedings have been
initiated, then for identical reasons, reassessment proceedings cannot be
initiated unless the rectification proceedings culminate into an order,
duly framed as per the provisions of law. We find that there is no
evidence brought on record by the Revenue that the proceedings initiated
u/s 154 of the Act are concluded or communication to that effect has
been sent to the assessee. Therefore, under these circumstances, it
cannot be said that the assessment proceedings were completed as the
order passed u/s 154 is also an order which can be subjected to appeal
and revision and as the proceedings have not been completed on record,
it cannot be said that income has escaped assessment.
Similar view has been taken by the co-ordinate bench at Mumbai in
the case of Jet Speed Audio Pvt Ltd ITA no. 8424/Mum/2011 and Yasmin
Texturing Pvt Ltd ITA No. 3061/MUM/2011. Considering the totality of the
facts as mentioned elsewhere, notice u/s 148 of the Act is bad in law and
deserves to be quashed. We, accordingly, set aside the notice u/s 148 of
the Act and quash the consequent assessment order.
Since we have quashed the assessment, we do not find it necessary
to dwell into the merits of the case.
In the result, the appeal of the assessee in ITA No. 8238/DEL/2019
is allowed.
The order is pronounced in the open court on 24.12.2021 in the
presence of both the rival representatives.
Sd/- Sd/- [AAKASH DEEP JAIN] [N.K. BILLAIYA] VICE PRESIDENT ACCOUNTANT MEMBER
Dated: 24th December, 2021
VL/