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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: SHRI MAHAVIR PRASAD & SHRI WASEEM AHMED
PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. This appeal filed by the Assessee is directed against the order of the Ld. CIT(A)-IV, Rajkot dated 28.02.2014 for A.Y. 2005-06 and following grounds have been taken:
ITA No. 242/Rjt/2014 2 . A.Y. 2005-06 1. The ld. CIT(A)-IV, Rajkot erred in confirming the reopening of assessment u/s. 148 of the I.T. Act 1961. 2. The ld. CIT(A)-IV, Rajkot erred in not admitting additional evidence submitted by the appellant during the course of appellate proceeding by holding that the reasons given by the appellant do not constitute sufficient cause for not producing the evidences before the assessing officer. 3. The ld. CIT(A)-IV, Rajkot failed to appreciate that the appellant was prevented by sufficient cause from producing the evidence before the assessing officer. 4. On merits, the ld. CIT(A)-IV, Rajkot erred in confirming the disallowance of Rs. 44,14,099/- made buy the assessing officer u/s. 40A(3) by way of groundnut purchase from non-agriculturist.
The facts of the case are that during the course of verification, it was found that during the relevant period, the assessee has purchased groundnuts seed from various persons in cash that too above Rs. 20,000/- to the tune of Rs. 2,55,85,101/-. As there was a violation of provision of section 40A(3) of the Act, 20% of expenses of Rs. 51,17,020/- was required to be disallowed vide notice u/s. 142(1) dated 12.09.2011, the assessee was requested to provide the details of purchaser and the reasons for payment of purchase amount in cash. It was explained that the payment made to agriculturist against purchases of groundnut and covered under exemption specified under Rule 6DD(i) of the I.T. Rules, 1961. The contention of the assessee is not accepted and requested to file supporting evidences to prove that the purchases were made from agriculturist and covered under Rule 6DD. With this submission, the assessee has filed copies of 7/12 utara to prove that the persons from whom purchases were made where agriculturist, the assessee has filed supporting evidences in
ITA No. 242/Rjt/2014 3 . A.Y. 2005-06 respect of 26 agriculturist and the cost of purchase from these agriculturalist comes to Rs. 35,14,606/-. Therefore, it is concluded that out of purchase of Rs. 2,55,85,101/-, purchase of Rs. 35,14,606/- were made from agriculturist. Thus, the assessee has violated the section 40A(3) in respect of Rs. 2,20,70,495/- and therefore, 20% of Rs. 2,20,70,495/- which comes to Rs. 44,14,099/-. Therefore, an amount of Rs. 44,14,099/- is disallowed and added to the income the assessee.
Thereafter appeal was preferred to the ld. CIT(A) who confirmed the action that of ld. A.O.
Now assessee has come before us.
Ld. A.R. raised the issue that notice issued u/s. 147/188 are not fulfilled as per the spirit of the Income Tax Act and stated that ld. A.O. has not recorded his satisfaction and reasons. We called for the record and we found that no reasons were recorded by the A.O. and on the basis of the audit objection ld. A.O. issued notice to the assessee.
At the outset, ld. A.R. cited an order of Co-ordinate Bench in ITA No. 241/Rjt/2014 wherein in similar circumstances, matter was decided in favour of the assessee and relevant para of the ITAT order is reproduced: 8.4 In the background of aforesaid facts, we now take notice of the reasons recorded(supra). A bare perusal of the reasons recorded suggests that the AO has propelled himself to act on the findings of the internal audit party. Although the AO has reiterated the statutory language employed in section 147 of the Act that he holds reasons to believe that chargeable income to the extent of Rs.23,78,800/- has escaped assessment, we do not find any process of reasoning for holding such belief except reference to the memo of the internal audit party.
ITA No. 242/Rjt/2014 4 . A.Y. 2005-06 It is not discernible from the reasons recorded as to how the enquiry made on the very issue at the time of the original assessment suffered from error and was unsustainable on facts and law. It is well settled that mare review of existing facts by the same authority later to come to a different conclusion and thereby re-opening the completed assessment is not permissible in law. Notably, section 40A(3) is not plenary in nature but is subject to certain exceptions as provided in Rule 6DD of the IT Rules 1963. Therefore, while raising specific question on the subject matter in controversy and thereafter accepting the cash purchases would give logical inference that an opinion on the issue was framed by the Statutory Authority whereby disallowance under s.40A(3) was not found attracted. Besides, on review of existing facts on records, the internal audit party appears to have come to a different conclusion. The AO seems to have merrily adopted the opinion of the internal audit party as reason to believe on escapement of income without any independent application of mind. Needless to say, re-opening is not permissible on a mere change of opinion on the same issue examined earlier. Therefore, it is difficult to agree that the AO has passed the stringent requirement of law for conferment of power under s.147 of the Act. Section 147 is a substantive provision granting jurisdiction to reopen completed assessment and therefore conditions stipulated therein are strictly required to be adhered. Section 147 is structured with inbuilt safeguards. The AO is not permitted exercise the power under s.147 arbitrarily or mechanically.
In the instant case, we find that the action under s.147 was sought to be taken in respect of assessment completed under s.143(2) earlier after expiry of four years from the end of relevant assessment order alleging escapement of income from taxation. Therefore, the action of the AO is also required to be tested on the touchstone of embargo placed by the first proviso to section 147 of the Act. The first proviso to section 147 of the Act places additional restrictions on the AO for usurption of jurisdiction. As per the proviso, the escapement of chargeable income should be by reasons of the failure on the part of the assessee to inter- alia disclos fully and truly all material facts necessary for assessment of the assessee for the relevant assessment year. We do not find anything in the reasons recorded which goes to demonstrate that the assessee has failed to disclose any material fact relevant for assessment. At the first place, there is no allegation of the AO on this score in the reasons recorded as noted above. We do not find anything on record to show as to what material facts remained to be disclosed by the assessee in the original assessment proceedings. The re- assessment order passed under s.147 also does not portray any concern of the
ITA No. 242/Rjt/2014 5 . A.Y. 2005-06 AO on this aspect. Ostensibly, the conditions stipulated under first proviso under s.147 is not complied with. In this event, provisions of section 147 of the Act could not have been triggered. The entire reassessment proceedings, thus, is without jurisdiction and liable to annulled. The consequent re- assessment order is also therefore liable to be struck down and cancelled. We do so accordingly. 10. In view of our finding that the issuance of notice under s.147/148 is void ab initio and accordingly re-assessment order is without jurisdiction and therefore illegal, we do not consider it expedient to deal with the merits of the factual aspects of the case. 11. In the result, appeal of the Assessee is allowed.
Therefore, having parity with the order of the Co-ordinate Bench and since matter has been decided by the Bench in favour of assessee in similar circumstances; therefore, we allow this ground of appeal of the assessee.
In the result, appeal filed by the Assessee is allowed.
Order pronounced in Open Court on 18 - 02- 2019
Sd/- Sd/- (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad: Dated 18 /02/2019 Rajesh Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) – 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER
Deputy/Asstt.Registrar ITAT,Ahmedabad