ITO, KHURDA vs. BULARAM DALAI, KHURDA

आयकर अपील�य अ�धकरण, कटक �यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI N.S.SAINI, AM & SHRI PAVAN KUMAR GADALE, JM आयकर अपील सं./ITA No.294/CTK/2015 (�नधा�रण वष� / Assessment Year :2009-2010) ITO, Khurda Ward, Khurda Vs. Shri Bularam Dalai, Ichhapur, Baulabamha, Khurda, PIN -752034 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AEPPD 0693 H (अपीलाथ� /Appellant) (��यथ� / Respondent) .. राज�व क� ओर से /Revenue by : Shri Subhendu Dutta, DR �नधा�रती क� ओर से /Assessee by : Shri B.R.Panda/Bhimsen Sahoo, AR सुनवाई क� तार�ख / Date of Hearing : 27/08/2018 घोषणा क� तार�ख/Date of Pronouncement 29/08/2018 आदेश / O R D E R Per Shri Pavan Kumar Gadale, JM: This is an appeal filed by the Revenue against the order of CIT(A)- 1, Bhubaneswar, dated 19.03.2015 passed in I.T.Appeal No.0533/14-15 for the assessment year 2009-2010. 2. The Revenue has raised the following grounds of appeal :- 1. On the facts and in the circumstances of the case, the Ld.CIT(A) was not justified in cancelling the reassessment order passed u/s. 147/143(3) of the I.T.Act,1961 for the assessment year 2009-10 without adjudicating the facts of the case on merit. 2. On the facts in the circumstances of the case, the Ld. CIT(A) was not correct in holding that "there is a change of opinion by the A.O on the same set of facts while passing the reassessment order under section 147 of the I. T. Ac,1961" when the Revenue Audit party has pointed out the omission in the original assessment order and the omission pointed out by the Audit Party constitute a new and tangible material for reopening of assessment u/s. 147 of the Act. 3. On the facts and in the circumstances of the case and in view of the decision of Hon'ble Supreme Court in the case of Commissioner of Income Tax Vrs. P. V. S. BEEDIES PVT.

2 ITA No.294/CTK/2018 LTD. [1999] 237 ITR 13 (SC), the Ld. CIT(A) was not correct in cancelling the reassessment proceeding for the assessment year 2009-10 which was initiated by the A.O on the basis of Revenue Audit Party's objection. 4. Any other grounds, if any, shall be pressed at the time of hearing. 3. Brief facts of the case are that the assessee is a labour contractor

and filed the return of income on 23.09.2009 for the A.Y.2009-2010

declaring total income of Rs.9,72,190/-. The return of income was

processed u/s.143(1) of the Act. Subsequently the case was selected

under scrutiny. Thereafter the AO completed the assessment assessing

total income of Rs.22,76,080/- and passed order u/s.143(3) of the Act,

dated 20.12.2011, and rejected the books of accounts and estimated the

net profit at Rs.23,12,837/- @6% of the gross contract receipt of

Rs.3,85,47,279/- from which the AO allowed deduction of Rs.36,304/-

u/s.80C. While determining the total income u/s.143(3) of the Act, the AO

found that the gross contract receipts is Rs.3,85,47,279/- as per 26AS

statement whereas the assessee has shown contract receipts of

Rs.3,24,35,164/-, which is less contract receipts to the extent of

Rs.61,12,115/-. Thereafter the assessment was reopened u/s.147 of the

Act and notice u/s.148 of the Act was issued to the assessee. In

compliance, the AR of the assessee appeared and the case was

discussed and the AO assessed the total income at Rs.72,33,010/- and

passed order u/s.147/143(3) of the Act.

before the CIT(A). In the appellate proceedings ld. AR reiterated the

3 ITA No.294/CTK/2018 submissions made before the AO and the CIT(A) after considering the

findings of the AO and submission of the assessee, allowed the appeal of

the assessee. 5. Aggrieved by the order of the CIT(A) the Revenue has filed an

appeal before the Tribunal. 6. Before us, ld. DR relied on the order of AO and submitted that the

CIT(A) was not justified in cancelling the reassessment order passed u/s.147/143(3) of the Act. Further ld. DR on merit also submitted that the

CIT(A) has erred in deleting the addition made by the AO without

considering the findings of AO and prayed for allowing the appeal.

CIT(A) and filed a copy of the order dated 28.10.2016 passed by the

coordinate bench of the Tribunal in the case of Suresh Kumar Sahu, ITA

No.44/CTK/2016 and submitted that the issue is covered in favour of the

assessee, and therefore, prayed for allowing the appeal.

available on record. Prima facie, the contention of ld. DR is that the CIT(A)

has not considered the findings of the AO while deciding the issue in

favour of the assessee. We have gone through the order of the CIT(A)

and found that the CIT(A) has dealt with the issue elaborately and relied

on the plethora of judicial decisions and observed that since the AO has

rejected the books of accounts u/s.145(3) and estimated income, he has not considered the separate addition/disallowance of excess claim of

salary and, therefore, there is no fresh material on the basis of which the

4 ITA No.294/CTK/2018

AO could have reopened the assessment. The observations of the CIT(A)

read as under :-

“3.2 I have considered the matter. The reasons recorded by the AO for reopening the assessment are that the appellant claimed excess deduction of salary amounting to Rs. 1,48,700/-. However, in the original assessment the claim of excess deduction of salary for the said amount of Rs. 1,48,700/- has been noted by the AO and discussed. Since the AO has rejected the books of accounts u/s.145(3) and estimated income, he has not considered the separate addition/disallowance of excess claim of salary. Accordingly, there is no fresh material on the basis of which the AO could have reopened the assessment. Further, the AO has estimated total income @6% of the gross contract receipts of Rs.3,85,47,279/- which includes the undisclosed contract receipts of Rs.61,12,115/- in the original assessment u/s.143(3). In the impugned order U/S.143(3)/147, the AO has added the entire amount of undisclosed contract receipts of Rs.61,12,115/- to the returned income and did not resort to estimating the total income of the gross contract receipts. Accordingly, the AO has changed his opinion regarding the computation of total income and on the basis of same gross contract receipts, the AO has arrived at two different methods of computation. Clearly, there is change of opinion of the AO on the same set of facts while passing the reassessment order. The predominant judicial opinion is that no reassessment proceedings can be initiated if it amounts to change of opinion and on the same set of facts. Where notice under section 148 is based upon stale information which was available at the time of the original assessment and in fact appears to have been used by the AO during the completion of proceedings u/s.143(3), it was held that reopening was not sustainable - Rasalika Trading & Investment Co. (P) Ltd. v. Dy. CIT (2014)365 ITR 447/ 101 DTR 28 / 43 Taxmann.com 371(Delhi)(HC). In the case of CIT v. P. G. Foils Ltd. (2014) 102 DTR 26 / (2013) 215 Taxman 104 (Mag.)/356 ITR 594 (Guj.)(HC), where the AO proposed to reopen the assessment of the assessee within four years from the end of the assessment year, on the very same issues on which he had raised queries while framing the original assessment reopening was held to be invalid as the reopening suffered from change of opinion.

If the "reasons to believe" are not based on new "tangible materials", the reopening amounts to an impermissible review as held by Delhi High Court in the case of Madhukar Khosla v. ACIT (Delhi) (W.P. No. 1320/2014, dt. 14.08.2014), (AY 2006-07). The facts are that the AO passed an assessment order u/s.143(3) for AY 2006-07. Thereafter, after the expiry of four years from the end

5 ITA No.294/CTK/2018 of the assessment year, he issued a notice u/s. 148 reopening the assessment on the ground that the records showed that an amount of Rs.25 lakhs had been added to the capital account for which the assessee had offered no explanation and that the same constituted undisclosed income u/s.68. The assessee challenged the reopening on the ground that there was no failure on its part to make a disclosure of material facts and the reopening was based on change of opinion. The department relied on the Full Bench verdict in Usha International, 348 ITR 485 and argued that as the AO did not apply his mind at all to the question regarding the said capital contribution, it could not be said that there was a "change of opinion". The High Court has allowed the petition as under:

(i) In the recorded reasons, no details are provided as to what such information is which excited the AO's notice and attention. The reasons must indicate specifically what such objective and new material facts are, on the basis of which a reopening is initiated u/s. 148. This eassessment is clearly not on the basis of new (or "tangible") information or facts that which the Revenue came by. It is in effect a re-appreciatidn or review of the facts that were provided along with the original return filed by the assessee;

(ii) The foundation of the AO's jurisdiction and the raison d'etre of a reassessment notice are the "reasons to believe". Now this should have a relation or a link with an objective fact, in the form of information or facts external to the materials on the record. Such external facts or material constitute the driver, or the key which enables the authority to legitimately reopen the completed assessment. In absence of this objective "trigger", the AO does not possess jurisdiction to reopen the assessment. It is at the next stage that the question, whether the re-opening of assessment amounts to "review" or "change of opinion" arises. In other words, if there are no "reasons to believe" based on new, "tangible materials", then the reopening amounts to an impermissible review. Here, there is nothing to show what triggered the issuance of notice of reassessment - no information or new facts which led the AO to believe that full disclosure had not been made.

In the case of CIT v. Fujistu Optel Ltd. (2013) 359 ITR 67 / 261 CTR 446 / 40 Taxmann.com 25 / (2014) 220 Taxman 34 (Mag.) (MP)(HC), there was no new material to hold that income has escaped assessment, hence reassessment was held to be not valid. The facts are that the assessment had been framed u/s. 143(3) of the Act. Subsequently, the case was reopened on account that assessee has wrongly claimed depreciation which was lower than brought forward loss while as per the provisions as contained in Section 115JB of the Act the same was required to be adjusted from the lower of brought forward loss or unabsorbed depreciation. Assessment order was re-framed. The CIT(Appeals) and the Tribunal allowed the appeal on account that assessee has

6 ITA No.294/CTK/2018 disclosed all material facts and the AO after considering the material facts passed assessment order u/s 143(3). On appeal by the Revenue to the High Court, held that; it is a case in which after filing of the return by the assessee the matter was scrutinized and on thorough examination of the facts, the initial assessment order was passed.

There was no new material before the AO to record a finding that on the basis of some new material, he had formed an opinion that it was a case of escaped assessment and the assessee had not disclosed the fact truly and rightly. On the basis of the material on which the assessment order was passed, the AO could not form another opinion that the original assessment order was an escaped assessment and case deserves to be reassessed u/s. 147, then it was a case of change of opinion and not a case for reassessment (AYs 2001-02, 2002-03). Similar view was taken in the case of Ghaziabad Ispat Udyog Ltd. v. Dy. CIT (2014) 107 DTR 321 / 224 Taxman 82 (AII.)(HC).

It was held in the case of Global Signal Cable (I) Pvt. Ltd. v. DCIT (Delhi)(HC), [W.P. (C ) 747/2014, dt.17.10.2014.] that the reasons must specifically indicate as to which material fact was not disclosed by the petitioner in the course of its original assessment. In that case in the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, it is not sufficient to reopen assessments beyond the four year period indicated above. The escapement of income from assessment must also be occasioned by the failure on the part.of the assessee to disclose material facts, fully and truly. This is a necessary condition for overcoming the bar set up by the proviso to section 147. If this condition is not satisfied, the bar would operate and no action u/s. 147 could be taken. In the case of Atomstroy Export v. Dy. DIT (IT) (2013) 363 ITR 612 (Bom.), notice was issued u/s. 148 after four years. Income from offshore supply contracts were considered and accepted to be exempt in the original assessment proceedings. There was no allegation that there was any failure to disclose material facts necessary for assessment, hence re-opening was held to be invalid. The Hon'ble Delhi High Court in the case of Donaldson India Filters Systems Pvt. Ltd vs. DCIT, [ 2015 ] 54 taxmann.com 253 (Delhi), have held as under:

"22. Undoubtedly, explanation - 1 to Section 147 indicates that mere production of account books or other evidence before the Assessing Officer would not necessarily amount to disclosure of the material information by the assessee. But

7 ITA No.294/CTK/2018 then, the explanation clarifies the said general refrain by the words "not necessarily". Therefore, the burden is equally placed on the Assessing Officer to exercise due diligence in examining the record (account books or evidence) produced before him in the light of declarations made in the return or responses (to the notices, questionnaire etc.). As has been noted above, the sine quo non for action under Section 147 (to deal with escapement of income) is gathering or availability of some "tangible material" requiring the matter to be re-opened.......... 27. The order passed by the assessing authority extracted above unmistakably shows that even at that stage it had no fresh material available to it so as to exercise the jurisdiction available under Sections 147/148 of Income Tax Act. It was, thus, taking a fresh call on the subject of assessment of income (i.e. reassessment), drawing conclusions and inferences from the same very material that had been scrutinized in the original assessment proceedings. The case at hand is concededly not covered by other exceptions as indicated by second and third proviso or explanation to Section 147 quoted earlier...." In the case of CIT v. Jet Speed Audio Pvt. Ltd., AY 2005-06 published on 24.2.2015, the Hon'ble Bombay High Court held that the argument that the AO has been careless in bringing to tax a particular amount which is chargeable to tax and that the Revenue should not be precluded from issuing notice u/s.148 overlooks the fact that power to reopen is not a power to review an assessment order. At the time of passing assessment order, it expected of the AO that he will apply mind and pass an order. An assessment order is not a mere scrap of paper. To accept the submission of the department would mean to negate the well settled position in law as stated by the Supreme Court in CIT v. Kelvinator of India Ltd. 256 ITR 1 (Delhi)(FB) that the concept of change of opinion' brought in so as to have in built test to check abuse of power. In view of the above, the assessment u/s.147/143(3) is cancelled.”

there is change of opinion of the AO on the same set of facts while

passing the reassessment order. The predominant judicial opinion is that

no reassessment proceedings can be initiated if it amounts to change of

opinion and on the same set of facts.

the A.O. in the instant case has not applied his mind to arrive at the

8 ITA No.294/CTK/2018 conclusion that income has escaped assessment before accepting the

audit objections of the audit team to come to his independent satisfaction

before re-opening of the assessment u/s 147/148 of the Act. Merely on

the audit objection and without any application of mind, proceeded to

reopen the concluded assessment u/s 143(3) of the Act, in our considered

vie, this act of the AO in reopening of the assessment u/s 147/148 of the

Act of the concluded assessment u/s. 143(3) of the Act is not sustainable

under the law and the reopening is held to be bad in law. To the same

effect is the decision of Hon’ble Bombay High Court in the case of Purity

Teck Textiles Pvt. Ltd. Vs. ACIT, 325 ITR 459 (Bombay). The Hon’ble

Delhi High Court in the case of CIT Vs. Simbhaoli Sugar Mills Ltd., (2011)

333 ITR 0470, has held as under :-

“ The sum and substance of discussion is that reassessment proceedings under section 147 read with 148 of the Act cannot be initiated merely based on the audit report. An audit is principally intended for the purpose of satisfying the auditor with regard to sufficiency of rules and procedures prescribed for the purpose of securing an effective check on the assessment, collection and proper allocation of revenue. As per para (3) of the circular issued by the Board on July 28, 1960, also an audit department should not in any way substitute itself for the revenue authorities in the performance of their statutory duties.”

Jharkhand and others, [2017] 79 taxmann.com 267 (SC), has held that if

an assessing officer agrees with information/objection of the audit party

and is not personally satisfied that the income has escaped assessment

but still reopens the assessment on the direction issued by the audit party,

the reassessment proceedings are without jurisdiction. The relevant

observations of the Hon’ble Supreme Court are as under :-

9 ITA No.294/CTK/2018 “29) From a perusal of the last paragraph of the aforementioned report of the audit party, it is clear that the Assessing Officer was of the opinion that as the goods had not been transferred to appellant- Company but had been consumed, so it does not come under the purview of taxation. In other words, the Assessing Officer 20 http://www.itatonline.org was not satisfied on the basis of information given by the audit party that any of the turnover of the appellant-Company had escaped assessment so as to invoke Section 19 of the State Act. From the above, it also appears that the assessing officer had to issue notice on the ground of direction issued by the audit party and not on his personal satisfaction which is not permissible under law. 30) In view of the above discussion, we are of the considered view that the order dated 27.02.2006 passed by the Deputy Commissioner, Commercial Taxes, Urban Circle, Jamshedpur is without jurisdiction and the High Court was not right in dismissing the petition filed by the appellant-Company. We, therefore, allow the appeal and set aside the order dated 27.02.2006 passed by the Deputy Commissioner, Commercial Taxes, Urban Circle, Jamshedpur as well as the order dated 17.11.2006 passed by the Division Bench of the High Court of Jharkhand. However, the parties shall bear their own costs.”

this Tribunal in the case of Suresh Kumar Sahu, ITA No.44/CTK/2016,

order dated 28.10.2016, wherein the Tribunal has observed as under :-

“9. In Ground No.4 of the appeal, the grievance of the assessee is that the Id CIT(A) erred in confirming the disallowance of Rs. 1,60,036/- being the difference in transport contract receipts as shown by the assessee in the profit and loss account and as shown in Form 26AS. 10. I heard the rival submissions and perused the materials available on record. In the instant case, the Assessing officer found from Form 26AS that the assessee has not shown transport contract receipt and receipt for technical services from different concerns amounting to Rs. 1,60,036/-. Therefore, he added the entire amount of receipt to the income of the assessee. On appeal, the id CIT(A) confirmed the same. 11. Ld A.R. of the assessee has relied upon the decision of the Cuttack ITAT in the case of R.R. Carrying Corporation vs ACIT, 30 DTR 569, wherein, it was held that in case of difference between the gross receipts as shown in the assessee's books and as per TDS certificate, addition could be made only in respect of profits embedded therein. 12. On the other hand, Id D.R. relied on the orders of lower authorities.

10 ITA No.294/CTK/2018 13. After considering the facts and circumstances of the case, I find that the entire receipts of Rs. 1,60,036/- cannot be the income of the assessee. Ld A.R. of the assessee filed before me the copy of tax audit report u/s.44AB and pointed out therefrom that the net profit shown by the assessee is 1.42%. Therefore, the decision of Co-ordinate Bench in the case of R.R.Carrying Corporation (supra) is squarely applicable to the facts of the assessee's case. I, therefore, set aside the orders of lower authorities and direct the Assessing Officer to assess the income of the assessee the differential amount of contract receipt of Rs.1,60,036/- @ 1.42%% of the gross contract receipt as disclosed by the assessee in the return of income. Thus, this ground is allowed.” 13. Before us, ld. DR could not bring any cogent material fact to controvert the findings of the CIT(A) except relying on the order of Assessing Officer. Accordingly, we respectfully follow the judicial precedence and are of the opinion that the order passed by the CIT(A) is just and proper and our interference is not required and, therefore, we uphold the findings of CIT(A) in this regard. Hence, the grounds of appeal of the Revenue are dismissed. 14. In the result, appeal of the Revenue is dismissed. Order pronounced in the open court on this 29/08/ 2018. Sd/- Sd/- (N.S.SAINI) (PAVAN KUMAR GADALE) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER कटक Cuttack; �दनांक Dated 29/08/2018 �.कु.�म/PKM, Senior Private Secretary आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant- 1. ITO, Khurda Ward, Khurda ��यथ� / The Respondent- 2. Shri Bularam Dalai, Ichhapur, Baulabamha, Khurda, PIN -752034 आदेशानुसार/ BY ORDER, आयकर आयु�त(अपील) / The CIT(A), 3. आयकर आयु�त / CIT 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कटक / DR, ITAT, Cuttack (Senior Private Secretary) 5. आयकर अपील�य अ�धकरण, कटक / गाड� फाईल / Guard file. 6. ITAT, Cuttack स�या�पत ��त //True Copy//