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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO& SHRI D.S. SUNDER SINGH
Per Shri D.S.Sunder Singh, Accountant Member : This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals) [CIT(A)]-2, Visakhapatnam in I.T.A.No.0008/0351/12-13/ITO,W-1, KKD/2014-15 dated 11.03.2015 for the Assessment Year (A.Y.) 2007-08.
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In the instant case, the assessee filed the return of income admitting total income of Rs.4,13,150/- on 31.10.2007. The return was processed u/s 143(1) on 04.04.2008 and issued refund of Rs.1,18,860/-. Subsequently, the assessment was reopened u/s 147 by issue of notice u/s 148 on 08.04.2008 and the case was taken up for scrutiny. During the reassessment proceedings, the assessee filed the reconciliation statement regarding gross receipts of the assessee for the Financial Year 2006-07 and 2007-08 along with supporting evidences and also other information called for by the Assessing Officer (AO). After examining the details i.e. the reconciliation statement vis-à-vis books of accounts and other information, the reassessment was completed u/s 143(3) r.w.s. 147 accepting the income returned, by an order dated 22.12.2009.
2.1. Subsequently, the AO reopened the assessment for second time by issue of notice u/s 148 dated 23.02.2012 which was served on the assessee on 24.02.2012. As per the assessment order, the AO reopened the assessment for the following reasons (extracted from the assessment order) : (i) The assessee admitted gross receipts of Rs.61,86,062/- in the P&L account, whereas, the gross receipts as per TDS certificates were Rs.81,61,016/- resulting in short admission of income by Rs.19,74,954/-
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(ii) In the Profit & Loss Account, the assessee debited an amount of Rs.14,87,492/- under the head 'Fabrication Tools which are the essential tools of enduring tools needed for performing fabrication works. Since the expenditure claimed is capital in nature, the amount of Rs.14,87,492/needs to be disallowed. u/Sec.37(1) of the IT Act, 1961 - (iii) Further, the assessee also claimed an expenditure of Rs.4,57,3671/- under the head 'Machinery hire charges' and this being the rentals paid to Pant & Machinery, the same attracts the TDS provisions u/Sec. 194I of the Act. It is to be verified whether the assessee made TDS on these rental charges, and if TDS is not made, the entire amount of expenditure claimed under this head needs to be disallowed u/Sec.40a(ia) of the Act.
From the above, it is clear that the assessment was reopened for verification of difference in gross receipts between TDS certificates and the receipts admitted in the Profit & Loss Account. Secondly for incorrect claim of fabrication expenses u/s 37(1) of the Act and thirdly for non deduction of TDS on machinery hire charges for an amount of Rs.4,57,367/- u/s 40(a)(ia) of the Act. The AO completed the reassessment by an order dated 30.01.2013 on total income of Rs.23,88,460/- and made the addition of Rs.19,74,954/- representing the difference between the gross receipts admitted in the Profit & Loss account and the TDS certificates.
Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) confirmed the addition made by the AO and dismissed the appeal of the assessee. The Ld.CIT(A) found that M/s Natural
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Bio Energy (P) Ltd., has made the payment of Rs.25,69,182/- and the TDS was deducted on the payment made to the assessee. Since the assessee is following the mercantile system of accounting, the assessee ought to have admitted the receipts as per the system of accounting followed by the assessee. Since the assessee failed to explain the reasons for not offering the same as income, the Ld.CIT(A) did not accept the contention of the assessee that the difference was relating to the advances received from Natural Bio-Energy Ltd. Thus, confirmed the addition and dismissed the appeal of the assessee.
Against the order of the Ld.CIT(A), the assessee filed appeal before this Tribunal. Initially, the assessee filed the appeal raising 5 grounds, out of which, Ground No.2 was related to the validity of reopening the assessment. Since the said ground was not challenged before the Ld.CIT(A), the assessee filed petition dated 17.07.2018 requesting for admission of additional ground. The additional ground raised by the assessee vide petition dated 17.07.2018 reads as under : “On the facts and circumstances of the case, whether the notice issued u/s 148 of the Act is bad in law and hence the said notice is liable to be quashed as illegal and the entire reassessment proceedings concluded on the basis of such illegal notice are also liable to be quashed as void ab initio?”
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5.1. During the appeal hearing, the Ld.AR argued that the legal ground regarding the validity of issue of notice u/s 148 was not raised before the Ld.CIT(A) due to inadvertence. The Ld.AR further submitted that in the instant case, the assessment was reopened on reappraisal of the same material which was considered by the AO in the original assessment made u/s 143(3) r.w.s. 147. The Ld.AR submitted that the assessment was reopened originally on 08.04.2008 for verification of the gross receipts admitted in the Profit & Loss account and the receipts as per TDS certificates, which is evidenced from the assessment order dated 22.12.2009 and the assessee submitted all the REQUIRED details before the AO and hence argued that the issue of notice u/s 148 on the same material which was already considered by the AO is illegal, and HENCE, the legal issue arose for adjudication on the validity of reopening of assessment. The Ld.AR further argued that the entire material and the facts are available in the assessment order and no fresh material IS required to be considered or no further enquiries or examination of material is required for adjudicating the issue. Therefore, the Ld.AR requested for admission of the additional ground.
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On the other hand, the Ld.DR vehemently opposed for admission of additional ground.
We have heard both the parties and perused the material placed on record. The Ld.AR submitted that all the material facts are available for adjudication of the legal ground. It was further submitted that it is purely legal issue which does not require fresh verification, examination or any enquiries required to be made and it was further submitted that the legal ground goes to the root of the assessment. Considering the facts and merits of the case, we are of the considered view that the additional ground raised by the assessee needs to be admitted in the interest of justice. Accordingly, we admit the additional ground raised by the assessee which is reproduced in para 4 of this order.
During the appeal hearing, advancing the arguments, the Ld.AR submitted that the assessment was reopened for the verification of the difference between the gross receipts admitted in the Profit & Loss account and the TDS Certificates. As per the TDS Certificates gross receipts were Rs.81,61,016/- against which the assessee admitted the gross receipts of Rs.61,86,062/- which resulted in difference of Rs.19,74,954/-. This is the
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main reason for reopening the assessment. Secondly, in the P&L account, the assessee has debited the amount of Rs.14,87,492/- under the head ‘Fabrication Tools’ which according to the AO was capital expenditure and the same should not be allowed as deduction u/s 37(1) of the Act. Thirdly, there was an expenditure of Rs.4,57,367/- claimed under the head ‘Machinery Hire Charges’ which ought to have been disallowed u/s 40(a)(ia) of the Act for non deduction of tax at source. The AO completed the reassessment by an order dated 30.01.2013 and made the addition of Rs.19,74,954/- representing the difference in receipts as per the TDS certificates and the gross receipts as per P&L account and there is no dispute with regard to the claim of fabrication tools and the machinery hire charges as the AO has allowed the expenses claimed by the assessee in the reassessment order also. Thus, the only dispute is the difference between the gross receipts admitted in the P&L account and the TDS Certificates amounting to Rs.19,74,954/-. Referring to original assessment order dated 22,12,2009, the Ld.AR submitted that the assessment was reopened initially also for the purpose of verification of difference in the gross receipts and TDS certificates as evidenced from page No.2 of the assessment order which is placed in paper book page No.61. The assessee
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has submitted that reconciliation statement before the AO explaining the gross receipts of the assessee for the FY.2006-07 and 2007-08 in original assessment and after verification of the books of accounts, other information and the reconciliation statement submitted by the assessee, the AO completed the assessment accepting the income returned which is evidenced from the assessment order dated 22.12.2009. Referring to page No.59 of the paper book, the Ld.AR submitted that during the assessment proceedings, the AO called for the information with regard to difference in the gross receipts which was submitted by the assessee vide letter 07.12.2009, wherein, the assessee has furnished the gross receipts for the F.Y.2006-07 and 2007-08 along with reconciliation statements and the extracts of the bills as per the ledger account. Therefore, argued that the required information was already submitted to the AO at the time of assessment. Referring to page No.52 to 59 of the paper book, the assessee submitted that a sum of Rs.25,69,182/- difference in TDS certificates were relating to the advances received from Natural Bio Energy Ltd., for which the sales were effected during the F.Y. 2007-08 and admitted as income in the subsequent year. The copies of the bills issued to Natural Bio Energy Ltd., were placed in paper book page No.52 to 56 of the paper book.
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Further referring to page No.21 of the paper book, the assessee has given the details of sundry debtors and the advances received from Natural Bio Energy Ltd., wherein the assessee has reported the advances at credit side of the sundry debtors and declared the net of sundry debtors in the balance sheet. Thus, argued that there was no difference in the receipts admitted by the assessee in P&L account and entire information was placed before the AO and the AO has completed the assessment after having satisfied that the advances received from Natural Bio Energy Ltd., was genuine, thus, there is no case for reopening the assessment. The Ld.AR further argued that since the AO has examined all the details before completion of the scrutiny assessment, the AO cannot reappraise the same information and make fresh assessment which is nothing but review of the same assessment order and the same is not permissible as per the Act. Hence requested to set aside the assessment order and quash the notice issued u/s 148.
On the other hand, the Ld.DR supported the orders of the lower authorities and argued that there was difference in gross receipts admitted by the assessee in the P&L account and as per TDS Certificates and the assessee had claimed the credit for TDS. Having claimed the TDS, the assessee ought to have admitted the entire receipts representing the TDS
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claim. The Ld.DR further argued that the assessee is following mercantile system of accounting. Since the assessee is following the mercantile system of accounting, the assessee is required to admit the gross receipts as income and the Ld.CIT(A) has rightly upheld order of the AO. The assessee could not explain before the lower authorities as to why he did not admit the receipts having claimed the TDS. Therefore, there is no error in the order of the Ld.CIT(A) and requested to uphold the order of the CIT(A) and dismiss the appeal of the assessee.
We have heard both the parties and perused the material placed on record. There is no dispute that the assessment was reopened for the purpose of examining the difference between the gross receipts admitted by the assessee and the gross receipts as per the TDS certificates as seen from the assessment order. It is seen from the assessment order that the assessee has furnished the reconciliation for gross receipts and other income and also the books of accounts before the AO in the original assessment proceedings which was considered by the AO and completed the assessment. As per page No.59 of the paper book, the assessee furnished the copy of letter dt. 07.12.2009 enclosing the copies of the bank statements, reconciliation statement for gross receipts for the F.Y.2007-08
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and explained the variation between the revenue as per the books and TDS certificates. The assessee has submitted before the AO that he had received the advances of Rs.25,69,182/- on which TDS was made by Natural Bio Energy Ltd., Hyderabad and the same was offered as income in the subsequent year after effecting the sales. The assessee also furnished P&L account, Balance Sheet and the break-up of sundry debtors and creditors before the AO along with books of accounts. After verifying the entire information, the AO completed the original assessment accepting the income returned. Therefore, there is no dispute that the entire material was placed before the AO in the original assessment itself which was examined by the AO and completed the assessment. The submission of the assessee that the sum of Rs.25,69,182/- was representing the advances received against the sales was accepted by the AO while framing the assessment order u/s 143(3) r.w.s. 147 dated 22.12.2009. Therefore forthe same reason of difference in gross receipts and receipts as per the TDS certificates which was examined in original assessment is not a case for the AO to reopen the assessment again, since, the same constitute difference of opinion. On difference of opinion, the AO is not permitted to reopen the assessment. This view is supported by the decision in the case of CIT Vs.
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Kelvinator India Ltd. 320 ITR 561 SC and Vodafone South Limited, 363 ITR 388 relied upon by the assessee. From the above, it is clear that the second time also the assessment was reopened on the same issue which was examined by the AO, thus the same constitute difference of opinion and reappraising the same facts. Therefore, we hold that notice issued u/s 148 is unsustainable and the same is quashed. Accordingly, the appeal of the assessee is allowed.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 25th September, 2019.
Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर धसंह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER नवशधखधपटणम /Visakhapatnam नदनधंक /Dated : 25.09.2019 L.Rama, SPS
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आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. ननधधाऩरती/ The Assessee – G.T.Mohan Rao, Prop.Ramya Engineering Co. Plot No.3-20-4/1/A, Rammohan Nagar, Kakinada 2. रधजस्व/The Revenue - Income Tax Officer, Ward-1, Kakinada 3. The Commissioner of Income Tax-2, Visakhapatnam 4. The Commissioner of Income Tax (Appeals)-2, Visakhapatnam 5. तिभागीय प्रतितिति, आयकर अिीिीय अतिकरण, तिशाखािटणम/DR, ITAT, Visakhapatnam 6.गार्ड फ़ाईि / Guard file
आदेशािुसार / BY ORDER // True Copy // Sr. Private Secretary ITAT, Visakhapatnam