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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
आदेश आदेश /O R D E R आदेश आदेश
PER MAHAVIR SINGH, VP:
This appeal by the Assessee is arising out of the order
passed by the Commissioner of Income Tax (Appeals) – 15,
Chennai in ITA No.026/2016-17/CIT(A)-15; dated
26.09.2017. The re-assessment [Under Dispute] was
framed by the Income Tax Officer, Corporate Ward – 6(1),
Chennai for the Assessment Year 2010 – 2011 u/s.143(3)
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r.w.s.147 of the Income Tax Act, 1961 (hereinafter “the
Act”) vide his order dated 30.03.2016.
The first issue in this appeal of the Assessee is
raised against the Commissioner of Income Tax (Appeals)
confirming the action of the Assessing Officer in assuming
the jurisdiction u/s.147 of the Act r.w.s.148 and reopening
the assessment. For this, the Assessee has raised the
following Ground Nos.2 to 5, as under:
“2. The Commissioner of Income Tax (Appeals) erred in confirming the re-assessment after rejecting the grounds challenging the validity of the assumption of jurisdiction u/s.147 of the Act without assigning proper reasons and justification.
The Commissioner of Income Tax (Appeals) failed to appreciate that the order of re-assessment was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law.
The Commissioner of Income Tax (Appeals) failed to appreciate that the lack of fresh materials and non- compliance of the principles laid down by the Apex Court in the case reported in 259 ITR 19 in conducting the re-assessment proceedings would vitiate the decision rendered from paragraph nos.4.3 to 4.3.2 of the impugned order.
The Commissioner of Income Tax (Appeals) failed to appreciate that having noticed the reliance of the decision of the Jurisdictional High Court by the Appellant, non-consideration of the principles laid down by the Jurisdictional High Court in the case of M/s. TANMAC India Limited would vitiate the decision
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rendered in confirming the validity of the re- assessment.” 3. The brief facts of the case are that the Assessee
Company filed its return of income for the relevant
Assessment Year 2010 – 2011 on 02.11.2010 and the
original assessment was completed by the Deputy
Commissioner of Income Tax, Chennai u/s.143(3) of the
Act vide order dated 28.03.2013. Subsequently, the
Assessing Officer issued notice u/s.148 of the Act dated
28.11.2014 by recording the reasons. The Income Tax
Officer recorded different reasons for reopening of the
assessment but restricted the addition, qua first reason,
that is the disallowance of the Directors’ remuneration of
Rs.25,20,000/- claimed as the current year’s revenue
expenditure, whereas according to the Assessing Officer
this amount forms part of the indirect expenses of the
project and accordingly the same is capital in nature. The
Assessing Officer in the re-assessment proceedings noted
that the Assessee Company suffers the burden of interest
payment and bank changes during the year on borrowals
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towards sourcing the operations. According to the
Assessing Officer, the nature of payment eroded the
working capital and other income earned during the year
and thereby this liability is an artificial liability. The
Assessing Officer also noted that the Assessee Company
follows the ‘percentage completion method’ for the revenue
recognition and it has not returned any income from the
project during the current year. Even, on this aspect, he
noted that the remuneration of the Directors’ can be
allowed, if the returned income from the project can be
booked, but that is not the case. Aggrieved, the Assessee
preferred an appeal before the Commissioner of Income
Tax (Appeals).
Before the Commissioner of Income Tax (Appeals),
the Assessee challenged the validity of re-opening of the
assessment but the Commissioner of Income Tax (Appeals)
relying on the decision of the Hon’ble Gujarat High Court in
the case of Praful Chunilal Patel Vs. the Assistant
Commissioner of Income Tax reported in 236 ITR 832 and
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the decision of the Hon’ble Punjab and Haryana High Court
in the case of the Venus Industrial Corporation Vs. The
Assistant Commissioner of Income Tax reported in 236 ITR
742 and the decision of the Hon’ble Bombay High Court in
the case of Export Credit Guarantee Corporation of India
Vs. Additional Commissioner of Income Tax reported in
350 ITR 651 confirmed the re-opening by observing in
paragraph no.4.3.2, as under:
“4.3.2 Hence, relying on the above decisions, re-opening of assessment u/s.147 is upheld and the grounds dismissed.”
Aggrieved, the Assessee is in appeal before the Tribunal.
Before us, the learned Counsel for the Assessee first
of all narrated the reasons recorded for issuance of notice
u/s.148 of the Act which reads as under:
“The reasons for reopening as sought, by you, are as under:
1) During the year in question, the Assessee has not completed any project, as per the Profit and Loss Account. However, the entire Director’s remuneration of
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Rs.25,20,000/- paid has been claimed as current year revenue expenditure. This amount shall form part of the indirect expenses of the project only and hence the entire amount has to be disallowed.
2) A debit of Rs.73,239/- has been effect as being loss from the sale of land. But there is no such sale of land as per the evidences filed.
3) The tax audit report of the Assessee in Form 3CD states that the provisions of Chapter XVIIB have not been compiled with. If that be the case, the claim of project cot incurred during the year for Rs.36,23,80,469/- needs to be examined vis-à-vis Section 40(a)(ia).
4) There is a claim of Rs.1,00,00,000 being received as supervision charges in the details filed by the Assessee. There is no corresponding claim of TDS. It appears to represent unexplained income that needs to be brought to tax now.”
The learned Counsel for the Assessee stated that
the Assessing Officer has acted only on the issue of the first
reason as reason Nos.2, 3 and 4 are not the subject matter
of re-assessment. The learned Counsel for the Assessee
stated that these reasons were very much available before
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the Assessing Officer during the course of the original
assessment proceedings and the Assessing Officer has not
made any addition during the original assessment that was
framed u/s.143(3) of the Act vide order dated 28.03.2013.
For this, the learned Counsel for the Assessee relied on the
decision of the Hon’ble Madras High Court in the case of
TANMAC India Vs. Deputy Commissioner of Income Tax,
Circle – I, Pondicherry, reported in [2017] 78 Taxmann.com
155 (Madras), [Tax Case (Appeal) No.1426 of 2007].
On the other hand, the learned Senior Departmental
Representative, Shri. P. Sajit Kumar, JCIT heavily relied on
the reasons recorded and stated that the assessment is
within four years and it is clearly covered by the
Explanation 2 (c) of Section 147 of the Act.
We have heard the rival contentions and have gone
through the facts and circumstances of the case. We noted
that in the very reasons recorded by the Assessing Officer
for issuance of the notice, we noted that the Assessee has
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not completed any project as per the Profit and Loss
Account but had claimed the Directors’ remuneration of
Rs.25,20,000/- as current year’s revenue expenditure.
According to the Assessing Officer, this forms part of the
indirect expenses of the project only and hence is not
allowable. For this reason, the assessment was reopened
by the Assessing Officer. We noted that the Hon’ble Madras
High Court in the case of TANMAC India Vs. Deputy
Commissioner of Income Tax, Circle – I, Pondicherry
(supra) has considered an identical situation by following
the decision of the Hon’ble Supreme Court in the case of
Commissioner of Income Tax Vs. Kelvinator of India
reported in [2010] 320 ITR 561 and held that “What is
sought to be done by the re-assessment ought to have
been achieved by scrutiny assessment proceedings. Having
missed the bus earlier, the Department cannot be permitted
to avail of the extended time limit in the absence of any
new or tangible material. The Hon’ble Madras High Court
has considered this issue in paragraph nos.10, 11 & 12, as
under:
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“10. Let us now see the sequence of events that have transpired in this case. The Assessee filed a return of income pursuant to which, an intimation dated 01.12.1998 under section 143(1) (a) of the Act was issued. The provisions of Section 143(2) require that if the Assessing Officer considered it necessary or expedient to ensure that the Assessee has not understated income, claimed excessive loss or underpaid tax in any manner, the assessment is to be subject to further scrutiny, a notice under section 143(2) is liable to be issued and the assessment completed on or before 31.03.2001. This was not done in the present case. Subsequently, a notice under section 148 has been issued on 09.12.2002 under section 148 of the Income Tax Act taking advantage of the now extended limitation of four years to re-assess income on the basis of the same materials that were available with the authority as part of the record.
The phrase ‘reason to believe’ in Section 147 relates to such other new or tangible material as may have come to the knowledge of the Assessing Officer pursuant to the original proceedings for assessment. The Supreme Court in the case of Commissioner of Income Tax Vs. Kelvinator of India [2010] 320 ITR 561 / 1867 Taxmann 312 states thus in the context of the ‘belief’ that should form the basis for a re-assessment.
‘We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review, he has the power to reassess. But reassessment has to be based on fulfillment of certain pre- conditions and if the concept of ‘change of opinion’ is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of ‘change of opinion’ as in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is ‘tangible material’ to come to the conclusion that there is escapement of
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income from assessment. Reasons must have a link with the formation of the belief.’
If the Assessing Officer, after issuing intimation u/s. section 143(1) does not to issue a notice u/s.143(2) of the Act to initiate proceedings for scrutiny of the return of income, the obvious conclusion is that he does not consider it necessary or expedient to do so, the inference being that the Return of Income filed in order. It is this opinion that cannot be arbitrarily changed by the Assessing Officer, to re-assess income on the basis of stale material, already on record. If, we thus keep in the mind, the above fundamental requirement of Section 147, it would be apparent that the exercise undertaken by the Revenue in this case is not one of the re-assessment, but of review. The reasons make it abundantly clearly that the re- assessment is sought to be initiated on the basis of the return of income and the enclosures which were available with the Assessing Officer since 02.11.2018 andf which ought to have prompted him to issue a notice under section 143(2) of the Act to conduct the proceedings under scrutiny. What is sought to be done by the re-assessment ought to have been achieved by scrutiny assessment proceedings. Having missed the bus earlier, the Department cannot be permitted to avail of the extended time limit in the absence of any new or tangible material, when the time for scrutiny assessment has elapsed on 31.03.2001, prior to issue of notice u/s.148. The notice under section 148 dated 09.12.2002 is thus an arbitrary exercise of power and a review of proceedings impermissible in law.”
We find from the facts of the present case and the
reasons recorded by the Assessing Officer that similar
situation is before us, as was before the Hon’ble Madras
High Court in the case of TANMAC India Vs. Deputy
Commissioner of Income Tax, Circle – I, Pondicherry
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(supra), and hence we quash the re-assessment and allow
the appeal of the Assessee.
As regards to the issue raised on merits regarding the
disallowance of the Directors’ remuneration, we need not
adjudicate the same, as we have already quashed the re-
assessment.
In the result, the appeal of the Assessee in I.T.A
No.:2744/CHNY/2017 is allowed. Order pronounced in the court on 9th September, 2022 at Chennai. Sd/- Sd/- (महावीर िसंह ) (मनोज कुमार अ�वाल) (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) उपा�य� /VICE PRESIDENT लेखा सद�य/ACCOUNTANT MEMBER
चे�ई/Chennai, �दनांक/Dated, the 9th September, 2022 IA, Sr. PS आदेशकी�ितिलिपअ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु� (अपील)/CIT(A) 4. आयकरआयु�/CIT 5. िवभागीय�ितिनिध/DR 6. गाड"फाईल/GF