THE INCOME TAX OFFICER, SRINAGAR vs. SH. SUHAIL AHMED BHAT, PROP. M/S SHIFA TRADERS, RANGPARISTAN, SRINAGAR

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR

BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N.K.CHOUDHRY, JUDICIAL MEMBER ITA No.136(Asr)/2015 Assessment Year:2007-08

Income Tax Officer, Vs. Sh. Suhail Ahmad Bhat, Ward-3(3), Srinagar Prop. Shifa Traders, Rangparistan, Rainawari, Srinagar (J&K). [PAN:AIRPB 0054E] (Appellant) (Respondent) Appellant by: Sh. Charan Dass (Ld. DR) Respondent by: Sh. Joginder Singh (Ld.CA)

Date of hearing: 03.04.2019 Date of pronouncement: 23.04.2019 ORDER PER N.K.CHOUDHRY, JM: The instant appeal has been preferred by the Revenue Department against the order dated 19.12.2014 impugned herein passed by the Ld. CIT(A), Jammu u/s. 250(6) of the I.T. Act, 1961 (hereinafter called as ‘the Act’) for Asst. Year:2007-08 whereby the Ld. CIT(A) quashed the assessment order dated 26.02.213 passed by the ITO, Ward 3(3), Srinagar u/s 143(3)/148 of the Act, relevant for the Asst. Year: 2007-08.

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proceedings u/s 147 as the assessee was not able to substantiate the alleged advances from the customers. It was failure on the part of the assessee, in truly and completely disclosing all the material facts which led to initiation of proceedings u/s 148 as held in the following cases:

a. CIT vs. PVS Beedies P. Ltd. [1999] 237 ITR 13 (SC): b. CIT vs. Sun Engineering Works P. Ltd. [1992] 198 ITR 197 (SC): c. ITO vs. Sarabhai M. Lakhani [2000] 243 ITR 01 (SC): d. Raymond Woolen Mills Ltd. Vs. ITO [1999] 236 ITR 34 (SC): 2. Whether the Commissioner of Income Tax (Appeals), Jammu was right in deleting the addition u/s 68 of the I.T. Act, 1961 on account of unexplained cash deposits made by the AO as the relief has been mainly allowed on the basis of additional evidences produced during the appeal proceedings. Such evidences were not produced during the assessment proceedings but were claimed by the assesses to have been rejected by the AO at the time of assessment. This is not the case as nothing in the file suggests that evidences were produced and rejected by the then AO.

The appellant craves to amend or add any one or more grounds of appeal.

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The present appeal is filed by the appellant against the order of the AO making an addition amounting to Rs.99,43,535/- u/s 68 of the Act. The appellant has contested the addition on both legal grounds as well on merits of the case. Both the contentions of the appellant are adjudicated as under:-

The appellant has argued that the reopening of case u/s 148 of the Act is a mere change of opinion and the assumption of jurisdiction by the AO is illegal. The appellant has argued that the deposits in bank account by the appellant were made basis for reopening of the case and those bank deposits have already been considered in the earlier assessment by the then AO who had applied net profit rate on such bank deposits treating the same as turnover of the appellant while concluding the assessment. The appellant contested that considering whole of such bank deposits as income of the appellant instead of the stand taken in earlier assessment without any fresh information or material in hand is mere change of opinion and reopening of assessment u/s 148 of the Act is not permissible under law on account of change in opinion. The appellant has placed reliance on the following decisions of various authorities-

Reliance is placed on the judgment of Hon'ble Supreme Court of India in the case of CIT Vs Kelvinator of India Pvt. Ltd (2010) 320 ITR 561 in which the Hon'ble Apex Court held that after 1st April, 1989, power to reopen is much wider—However, mere "change of opinion" cannot per se be reason to reopen. AO has power to reassess but no power to review. If the concept of "change of opinion" is removed, as contended on behalf of the Department, review would take place in the grab of reopening of assessment. Concept of "change of opinion" is an in-built

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test to check abuse of power by the AO. The Hon'ble court further held that there is conceptual difference between power to review and power to reassess which is to be kept in mind. The AO has no power to review, he has power to reassess. But reassessment has to be based on fulfillment of certain precondition and if concept of 'change of opinion' is removed, as contended on behalf of the department , then , in the grab of reopening the assessment, review would take place. The Apex court concluded that mere change in opinion cannot per se be reason to reopen.

Reliance is placed on the judgment of Hon'ble High Court of Madras in the case of Apollo Hospitals Enterprises Ltd Vs ACIT (2006) 287 ITR 25 (Mad) in which the court held that AO cannot reopen the assessment by mere change of opinion or by drawing a different inference from the same facts as were earlier available. Admittedly, there is no change of law and no fresh material had come on record. It is a case of mere change of opinion and hence absence of jurisdiction of the AO to initiate proceedings under s. 147/148.Impugned notice quashed.

Reliance is placed on the judgment of Hon'ble High Court of Delhi (Full Bench) in the case of CIT Vs Kelvinator of India Ltd (2002) 256 ITR 1 in which it was held reason to believe that the income chargeable to tax has escaped assessment is one of the conditions precedent for invoking the jurisdiction of the AO to reopen the assessment under s. 147.AO does not have any jurisdiction to review his own order. What cannot be done directly cannot be done indirectly. Thus, he cannot initiate proceedings for reassessment on the basis of mere change of opinion. Circular No. 549, dt.31st Oct., 1989, which is admittedly binding on the Revenue, has clarified that the omission of the expression "reason to believe" from the amended s. 147 would not give arbitrary powers to the AO to reopen past assessment on mere change of opinion. If it is held that AO can exercise his jurisdiction under s. 147 upon mere change of opinion the same may be held to be unconstitutional and that interpretation has to be avoided. Lack of analysis of the materials on record by itself cannot justify proceedings under s. 147.

Reliance is also placed on the judgment of High Court of Delhi in the case of Moser Bear India Pvt. Ltd Vs DCIT (2012)82CCH396 in which it was concluded that the section 147 does not allow reopening of a completed assessment merely on change on opinion. The Assessing Officer does not have the power to review the previous assessment order. The Assessing Officer has to have "reason to believe" that the income has escaped assessment. In the present case the

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Assessing Officer passed the assessment order knowing that there were three units eligible for deduction u/s 10A/10B and that only 2 of the 3 units had claimed deduction; the third unit claimed NIL deduction. The Assessing Officer passed the assessment order and specifically altered the deduction claimed u/s 10A/10B. At the time of the original assessment the Assessing Officer did not think of setting off the loss of the third unit with the other two units and therefore the reassessment on a mere change of opinion is invalid.

I have gone through the submission of the appellant and assessment order. It is observed that to constitute a valid reason to believe there must be some new material coming into light with the assessing officer and merely a change of opinion cannot constitute a reason to believe. If the assessee has disclosed basic and all the facts truthfully during the course of assessment and the assessment is completed, later on, notice u/s 148 can not be issued merely because there is another inference possible from the same documents and the facts placed before the assessing officer during the course of assessment. It will amount to change of opinion. There must be some new material of facts coming into light for action u/s 147/148. But if the assessee has suppressed some relevant facts which leads to concealment of income and later those facts come before the assessing officer the notice u/s 147/48 can be issued validly. In the present case, there is nothing on record to show that the appellant had concealed any facts during the earlier assessment or any fresh material, facts or information has been received by the AO after the completion of the earlier assessment. On the perusal of the facts of the case, the reasons recorded for reopening of assessment u/s 148 of the Act is nothing but a change of opinion which is against the intention of the law as interpreted by various courts as discussed above. The law does not permit to disturb the otherwise concluded assessments unless fresh facts, materials and information are received which gives a belief that the income has escaped assessment. If the AO had any doubt about the judgment of his predecessor, he could have referred the case u/s 263 of the Act before the Commissioner of Income Tax who has power to decide whether the assessment made earlier was prejudicial to the interests of the revenue or not and could direct fresh assessment, if found necessary. However, there is no such power with the AO to review the assessment made by his predecessor even after taking approval of Joint Commissioner and make fresh assessment on its own if he feels that there is another inference possible from the same documents. Therefore, in my opinion, the reopening of assessment u/s 148 of the Act based on change of opinion is invalid and illegal and any proceedings carried out thereon is also illegal and

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void ab initio. The ground of appeal of the appellant in relation to challenging the assessment based on validity of reasons recorded is allowed and the assessment order passed by the AO is liable to be quashed.

The appellant has also contended that even on merits of the case, the addition u/s 68 of the Act on account of unexplained cash deposits made by the AO is not justified. The appellant has argued that there were total deposits of Rs 2,41,32,540/- in both the bank accounts maintained with Punjab National bank. The appellant has furnished the following details regarding these deposits- Turnover declared Rs.94,67,778/- Inter bank transfers Rs.61,50,000/- Cheques returned Rs.3,08,500/- Advances received from customer Rs.80,92,500/- Balance (disclosed as commission) Rs.1,13,762/-

The appellant has produced a certificate of bank authorities in respect of inter bank transfers and details of cheque returned and a list of customers who have paid advances along with their postal address as additional evidence under rule 46A. All these documents were forwarded to the AO for verification and his comments there on. The AO did not made any effort to make verifications from the customers in respect of advances and made comments that these documents were not produced at the time of assessment. There is no power with the AO to refute the decision taken by me under rule 46A to admit additional evidence in the interest of justice. It was the duty of the AO to verify the documents forwarded to him in remand proceedings which he failed to do. It is also observed that it is the normal practice of the appellant to receive advances from the customers as the same are reflected in the audited balance sheets of preceding as well as succeeding assessment years and the financial statements of the year under consideration reflecting the advances from customers are duly audited by a chartered accountant. As the appellant has fully explained the details of deposits in bank accounts and the AO has not provided any thing contrary to the explanations of the appellant in his remand report except that some of these details were not available at the time of assessment. Therefore, in my opinion, the addition made by the AO is not justified and accordingly deleted.

The appellant succeeds both on legal ground as well as on merit. In result, appeal is allowed.

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incorporated by various Courts. The law does not permit to disturb the otherwise concluded assessment unless from the facts, materials and information are received which gives a belief that the income has escaped assessment. Finally, the Ld. CIT(A) concluded that the reopening in the instant case is based upon the change of opinion and therefore, is invalid and illegal and any proceedings carried out therein is also illegal and void-ab-initio.

5.1 We have independently applied our mind to the facts and circumstances of the case as well as orders passed by the authorities below. The Ld. DR relied upon the order passed in Sevak Ram vs. Income Tax Officer, 263 CTR 463 [2010] by the Jurisdictional High Court and submitted that reasons can be given on the basis of particulars of return without any new material and further submitted that if satisfaction is arrived at on the basis of any relevant material, such satisfaction can be assailed. Before us, it is not the case of the Revenue that the previous Assessing Officer has not considered the relevant documents and/or claims of the assessee while passing an assessment order u/s 143(3) of the Act. The law qua reason to believe, is well settled by the Apex Court in the case of CIT vs. Kelvinator of India Pvt. Ltd. (supra) wherein the Apex Court laid down the dictum of the decision.

“Reliance is placed on the judgment of Hon'ble High Court of Delhi (Full Bench) in the case of CIT Vs Kelvinator of India Ltd (2002) 256 ITR 1 in which it was held reason to believe that the income chargeable to tax has escaped assessment is one of the conditions precedent for invoking the jurisdiction of the AO to reopen the assessment under s. 147.AO does not have any jurisdiction to review his own order. What cannot be done directly cannot be done indirectly. Thus, he cannot initiate proceedings for reassessment on the basis of mere change of opinion. Circular No. 549, dt.31st Oct., 1989, which is admittedly

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binding on the Revenue, has clarified that the omission of the expression "reason to believe" from the amended s. 147 would not give arbitrary powers to the AO to reopen past assessment on mere change of opinion. If it is held that AO can exercise his jurisdiction under s. 147 upon mere change of opinion the same may be held to be unconstitutional and that interpretation has to be avoided. Lack of analysis of the materials on record by itself cannot justify proceedings under s. 147.”

Hence, we are of the considered view that in the instant case there was no relevant and sufficient material to make satisfaction for initiation the process of re-assessment u/s 147 of the Act hence, we do not find any infirmity, impropriety or illegality in the action of the Ld. CIT(A) in not sustaining the action u/s 147 of the Act by the Assessing Officer.

5.2 Now coming to the merit of the case. Before the Ld. CIT(A), it was contended by the assessee that the addition u/s 68 of the Act on account of unexplained cash deposits is also not justified. It was further contended before the Ld. CIT(A) that there were total deposits of Rs.2,41,32,540/- in the Bank Accounts maintained with Punjab National Bank by the assessee and the assessee has not only furnished the details qua deposits but also produced certificate of Bank authorities qua bank transfers and details of cheque returned and a list of customers who have paid advances along with their postal address as additional evidence before the ld. CIT(A) under Rule-46A of the Income Tax Rule, 1962. The Ld. CIT(A) sought remand report from the Assessing Officer by forwarding all the documents submitted by the assessee for verification and his comments thereon. The AO did not made any effort to make verifications from the customers in respect of advances and made comments that these documents were not produced at

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the time of assessment. Therefore, it was observed by the Ld. CIT(A) that the Assessing Officer is not empowered to refute the decision taken by the Commissioner under Rule-46A of the Rules to admit additional evidence in the interest of justice. Further observed that it was the duty of the AO to verify the documents forwarded to him in earlier proceedings which he failed to do so. The Ld. CIT(A) also observed that it is the normal practice of the appellant to receive advances from the customers as the same are reflected in the audited balance sheets of preceding as well as succeeding assessment years and the financial statements of the year under consideration reflecting the advances from customers are duly audited by a chartered accountant. It was further observed by the Ld. CIT(A) that as the appellant has fully explained the details of deposits in bank accounts and the AO has not provided any thing contrary to the explanations of the appellant in his remand report except that some of these details were not available at the time of assessment. Finally, the Ld. CIT(A) held the addition as unjustified and consequently deleted the same. The Ld. DR argued that the Ld. CIT(A) also not justified in holding that Assessing Officer has no power to refute the decision taken under Rule-46A of the I.T. Rules and failed to verify the documents (list of parties with address) in respect of advances and that same are reflected in audited balance sheet. Further moreover, there is no justification to delete the addition on account of advances against sale of Rs.80,92,500 (that to not verified) with sales against declared sale at Rs.9,46,778/- which cannot be at all reasonable.

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5.3 From the impugned order it clearly reflects that the proper opportunities have been offered to the Assessing Officer to file the remand report by verifying the documents and claim of the assessee, however, he did not make any effort to do so and ultimately the Ld. CIT(A) not only considered the normal practice of the assessee qua receiving of the advances from the customers as well as audited balance sheets of the preceding and succeeding assessment years but also considered the financial statements of the year under consideration reflected the advances from customers which were duly audited by the Chartered Accountant and opined that the appellant/assessee has fully explained the details of the deposits in the Bank Account and therefore, deleted the additions, which according our mind does not suffers from any perversity, illegality and impropriety. Hence, the action of the Ld. CIT(A) in non-sustaining of the action of the assessee, on merit also does not require any inference and consequently stands affirmed.