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Facts
The assessee, a non-resident Indian, filed return of income for AY 2013-14. The assessment was completed. Subsequently, the AO issued a notice under Section 148 for reassessment, alleging escapement of income, specifically treating advances from a company as deemed dividend under Section 2(22)(e).
Held
The Tribunal held that the reassessment proceedings were initiated on a 'change of opinion' by the AO, as no fresh material was available. The AO had already dealt with the issue of advances during the original assessment, and the subsequent action was based on reviewing the same material, not new evidence.
Key Issues
Whether the reassessment proceedings initiated under Section 147 were based on fresh material or merely a change of opinion by the Assessing Officer, and if the AO had jurisdiction to reopen the assessment without new evidence.
Sections Cited
147, 148, 143(3), 2(22)(e)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: HON’BLE SHRI MANU KUMAR GIRI & HON’BLE SHRI S.R. RAGHUNATHA
Year: 2013-2014. Mustaq Ahmad, The Income Tax Officer, No.160, Mustafa Centre, Vs. International Taxation, Usman Road, Ward 1(1) T. Nagar, Chennai. Chennai 600 017. PAN: ADEPA 1181B (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से/Appellant by : Ms. Lekha, C.A, ��यथ� क� ओर से/Respondent by : Mr. Nilay Baran Som, CIT. सुनवाई क� तारीख/Date of Hearing : 30.10.2024 घोषणा क� तारीख/Date of Pronouncement : 13.01.2025 आदेश /O R D E R PER MANU KUMAR GIRI (Judicial Member) This appeal filed by the assessee is directed against the order of the Commissioner of Income tax (A), Chennai-16 [‘CIT(A)’ short] dated 27.09.2023 for Assessment Year 2013-14.
2. In this appeal, the assessee has raised five (5) grounds of appeal. However, the counsel for the assessee has vehemently pressed a ground No.2 that there was no fresh material on which the AO has issued notice dated 31.03.2021 u/s 148 of the Income Tax Act, 1961 (‘Act’ in short). G.No.2 is as under: ‘’2. At the outset, the AO has no jurisdiction to reopen the assessment, as all the material facts were with the AO even at the time of completing the original assessment and there was no fresh material on which the AO has issued notice. The notice issued by the AO u/s.148 of the Act is ab initio void and on this ground alone the reassessment deserves to be cancelled’’.
We find that if the assessee succeeds on the ground No.2 as there was no fresh material on which the AO has issued notice dated 31.03.2021 u/s 148 of the Act then our decision on other grounds including additional ground would be futile exercise.
Brief facts are as under:- The assessee is an individual and NRI. He is non resident in India and resident in Singapore. The assessee carries business in the manufacture and sale of gold jewellery in Chennai in the name and style under the proprietary-ship concern M/s Mustafa Gold Mart'. He filed the Return of Income for the AY 2013-14 on 19-09-2013 declaring an income of Rs.7,86,15,040/- from business on profession. The case was selected for scrutiny by Central Circle 1(2) and the assessment was completed u/s.143(3) by ACIT/DCIT Central circle 1(2) Chennai vide order dt.10-03-2016 with a disallowance on General Expenses and Office Maintenance. Subsequently upon completion of the assessment, the case was transferred to the International Taxation, Ward 1(1) Chennai, the assessee being non resident. On examination of the details available on record it is seen that the company, M/s. Adampur Distributors Pvt. Ltd., is engaged the business of export of food products. The company has made total sales turnover for the FY 2012-13 of Rs.6,09,40,532/- out of which Rs. 3,24,95,443/- is out of export of food products and Rs. 2,84,45,089/- is out of export of perishable goods. The purchases made by the company M/s. Adampur Distributors Pvt. Ltd are only food products and perishable goods. As such, it is apparent that the items traded by the company and the assessee are different. Also, it is seen from the ledger account of M/s. Adampur Distributors Pvt. Ltd., in the books of the assessee that there were 23 entries of credit totalling to Rs. 4,50,00,000/- and 44 entries of debit totalling to Rs. 3,53,90,550/- representing only transfer of funds to and fro and there is not even a single entry with regard to supply of any material for the money advanced. Further, it is seen from the related party transactions reported in the Notes to Balance Sheet that there was no mention about the purchases/sales made with the company. Hence, it is seen that the transactions between the company, M/s. Adampur Distributors Pvt. Ltd., with the assessee were not business transactions as claimed by the assessee but were in the nature of loans and advances. As per the balance sheet of M/s. Adampur Distributors Pvt. Ltd., the accumulated reserves as on 31-3-2012 is Rs.2,16,08,171/-. As such, the money advanced by the company to the assessee during the year has to be treated as deemed dividend since the provisions of Sec.2(22)(e) of the Act are very much attracted. Upon due consideration of the above facts, the case was taken up for scrutiny u/s 147 of the Act and a notice u/s 148 was issued. In reply the assessee stated that Hon'ble ITAT has decided the cases on the similar issue for the AY 2009-10 to 2011-12 in favour of the assessee. The claim was examined and was found that the orders of the Hon'ble ITAT was not accepted and the revenue has filed an appeal before the Hon'ble High Court against the said order. Therefore the assessment is completed by treating the money advanced by the company to the assessee during the year as deemed dividend as per the provisions of Sec.2(22)(e) of the Act. Since, as për the balance sheet of M/s. Adampur Distributors Pvt. Ltd., the accumulated reserves as on 31-3-2012 is Rs.2,16,08,171/-, the deemed dividend is restricted to Rs. 2,16,08,171/-.
The assessee challenged the order of the AO before the ld.CIT(A) who dismissed the appeal of the assessee holding as under: ‘’4.2 The appellant has not produced any details about the nature of transactions between the appellant and M/s. Adampur Distributors Pvt Ltd., except otherwise to state that there are business transactions. The nature of business of M/s. Adampur Distributors Pvt Ltd in this year is clearly export of food products which is in no way connected to Gold business, and it is seen that the appellant holds 99.98% of equity shares of M/s. Adampur Distributors Pvt Ltd. Thus, the nature of transaction between the appellant and M/s. Adampur distributors Pvt Ltd is in the nature of loan only. 4.3 With respect to Ground of Appeal No.12, the appellant pleaded that the orders of the Honourable ITAT may be followed. However, no evidence was furnished by the appellant. demonstrating that the transactions between M/s.
Adampur Distributors Pvt Ltd and the appellant in this year are similar to the nature or transactions entered in A.Y 2009-10, 2010- 11 and 2011-12. In absence of such factual evidence, this Ground of Appeal cannot be adjudicated’’.
Now assessee is in appeal before us.
The ld. counsel for the assessee submitted a synopsis on the legality of the assessment framed u/s 147 r.w.s. 144(C) of the Act which is as under: ‘’1. As regards to the brief information collected/received by the AO, it may be noticed that the information collected/received from the AO was basically taken from the Schedule 4 of the Balance Sheet as on 31.3.2013, as mentioned in the report on Page no.1 Para no.2 (Penultimate line) 2. It has been clearly mentioned in the report on Page no.2 Para no.1 (2nd line) that, "In his submission dt.27.1.2016 during the course of assessment proceedings the AR has stated as under...." On verification it is seen that..... This goes to prove without a doubt that the AO has made verifications from the submissions made on 27.1.2016 (the regular assessment was completed on 10.3.16) which is prior to the regular assessment itself. We object as to how can you verify on something that has been available with you before passing the regular assessment order?
3. It has been mentioned in the report on Page no.2 Para no.3 that, "Further it is verified that the related party transactions reported in the Audit Report in Form 3CD......" This goes to prove that the AO has made verifications from the Audit Report in Form 3CD 31.3.2013, which is prior to the regular assessment itself. We object as to how can you verify on something that has been available with you before passing the regular assessment order? 4. It has also been mentioned in the report on Page no.2 Para no.5 that, "it is pertinent to mention here that in this case an assessment as stipulated u/s.2(40) of the act was made. However, as discussed in the reason to believe in this case, the income chargeable to tax has been under- assessed." This goes to prove that according to S.2(40) a regular assessment i.e. an assessment u/s.143(3) or 144 has been made. We object as to how can one re-open a case, (for which an assessment has already been over) without any new material coming into existence? 5. According to the report on Page no.3 Para no.1 that, "failure on the part of assessee to disclose fully and truly all material facts..... failed to do so...." In this case the Department had already collected documents and AO at the time of framing the original assessment. If the AO did not, for some reason, advert to such material or did not utilize the same, he surely cannot allege that the appellant failed to disclose fully and truly all material facts. Therefore we object to the allegation that the appellant failed in disclosing fully and truly all material facts.
Admittedly, this was a case where an order of assessment u/s.143(3) had been passed for the relevant assessment year. Accordingly, the AO was obliged to disclose as to which fact or material was not disclosed by the assessee fully and truly for the purposes of assessment of that assessment year so as to establish a vital linkage between the reasons and the evidence. In this case, all the relevant facts had not only been disclosed, but had also been considered by the AO, while considering while passing the original assessment order.
7. In the present case, having not made any statement that the material facts were not disclosed fully and truly, the jurisdictional condition has not been satisfied by the AO. Failure to disclose all material facts were not mentioned anywhere in the reassessment proceedings and therefore, held to be invalid. It is necessary for the AO to first state that there is a failure to disclose fully and truly all material facts. If he does not record such a failure he would not be entitled to proceed u/s.147. Change of opinion: 8. The appellant's case was taken up for scrutiny for the AY.13-14. During the course of assessment, notice u/s.142 was issued from time to time and responses were made accordingly. Out of the various responses one of such responses included working papers relating to the question of deemed dividend in respect of the advances made by the company (M/s Adampur Distributors Pvt. Ltd) to the appellant. The authorised representative of the appellant appeared before the then AO and explained that the amount represented only trade advance and were not in any way related to the nature of loan. The AO after verifying the records, books of accounts and other materials accepted the explanation offered by the appellant. An order u/s 143(3) of the Act, dated 10.3.2016, was passed after disallowing an amount of Rs.2,32,099 under the head Office Maintenance and general expenses of Rs.71,368. However, no addition were made u/s 2(22) (e) of the Act.
Subsequently, a notice u/s 148 of the Act was issued on 31.3.21 with just the wordings that "I have reasons to believe that your Income chargeable to Tax for the AY.13-14 has escaped Assessment within the meaning of section 147". In the subsequent order passed u/s 147 r.w.s. 144C on 31.5.22, and even in the original Assessment order it had been mentioned that "from the assessment records it is seen that the assessee holds 99.98% of equity shares in the company M/s. Adampur Distributors Pvt. Ltd...." so this goes to clearly prove that the AO has relied his judgement on the assessment records and not an any new material, thereby making the re-assessment just a change of opinion and nothing else. Thus the re- assessment proceedings are bad and not tenable in law.
6. Per contra, the ld. Departmental Representative, Ms. T. M.Suganthamala, Addl.CIT relied upon the paras 4.2 and 4.3 of the impugned order and vehemently bolstered the findings of the ld.CIT(A).
We have heard the rival submissions and perused the orders of the lower authorities. The grievance of the asssessee before us is that whether there was any fresh material on which the AO could issue notice dated 31.03.2021 u/s 148 of the Income Tax Act, 1961 (‘Act’ in short) in the facts and circumstances of this case.
While proceeding further, some judicial pronouncements of Hon’ble courts may be kept in mind. The Hon’ble jurisdictional High Court in the case of Commissioner of Income Tax - I Tiruchirapalli. Vs M/s.Trichy Steel Rolling Mills Ltd., T.C.A.No.1437 of 2010 dated 14.02.2022 held as under: ‘’8. The only point arise for consideration in this appeal is whether the Assessing Officer is entitled to re-open the assessment under Section 147 of the Act. In this context, the Honourable Supreme Court has considered the various parameters required for re-opening a concluded assessment under Section 147 of the Act in the case of (Commissioner of Income Tax, Delhi vs. Kelvinator of India Limited) reported in (2010) 187 Taxman 312 (SC) wherein it has been observed as under:- "4. On going through the changes, quoted above, made to section 147 of the Act, we find that prior to Direct Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in Section 147 of the Act (with effect from 01- 04-1989), they are given a go-by and only one condition has remained viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post 01-04-1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 01-04-1989, Assessing Officer has power to reopen, provided, there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in Section 147 of the Act. However, on receipt of representations from the Companies against the omission of the words "reason to believe", Parliament re- introduced the said expression and deleted the words "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No.549, dated 31-10-1989, which reads as follows:- "7.2. Amendment made by the Amending Act, 1989 to reintroduce the expression "reason to believe" in Section 147.- A number of representations were received against the omission the words "reason to believe" from Section 147 and their substitution of the 'opinion' of the Assessing Officer. It was pointed out that the meaning of the expression 'reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Acct, 1989, has again amended Section 147 to reintroduce the expression 'has reason to believe' in place "for reasons to be recorded by him in writing, is of the opinion". Other provisions of the new section 147, however, remain the same"
5. For the aforesaid reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs."
8. Applying the judgment of the Honourable Supreme Court in the above case, which was also relied on by the Tribunal, the assessment proceedings initiated under Section 143 (3) of the Act was completed on 17.01.2001. Thereafter, the Assessing Officer issued a notice dated 09.09.2005 for re-assessment on the ground that certain income, which are liable for payment of tax, has escaped the assessment and it warrants reassessment. In the re-assessment order, it was merely stated that "it was noticed that the assessee was allowed a deduction of Rs.94,86,333/- as bad debts, wrongly. The assessment was therefore re-opened under Section 147. This would stand testimony to the fact that the Assessing Officer has no tangible material evidence to initiate the re-assessment proceedings. Had there been any material evidence, which prompted the assessing officer to initiate reassessment proceedings, he ought to have atleast indicated it in the order of reassessment proceedings. But the re-assessment proceedings was concluded only on the basis of the explanation offered by the assessee with respect to the suit filed against them before this Court and the Memorandum of Understanding entered into with M/s. Shree Aravindh Steel Private Limited. Therefore, it is evident that the re-assessment proceedings have been initiated without any tangible material evidence, unearthed subsequently, which the assessee did not produce at the time of original assessment under Section 143 (3) of the Act. Thus, based on a change of opinion on the part of the Assessing Officer, the re- assessment proceedings were initiated. The Tribunal also held that there was no fresh material in the possession of the Assessing Officer warranting initiation of re-assessment proceedings under Section 147 of the Act. In such view of the matter, we are of the view that the Tribunal is right in allowing the appeal filed by the assessee and it does not call for any interference by this Court. In the light of our above conclusion, the substantial question of law is answered against the revenue and in favour of the assessee. The Tax Case Appeal is dismissed. No costs.
9. When we apply the judgment of the Hon’ble Supreme Court in the case of Commissioner of Income Tax, Delhi vs. Kelvinator of India Limited) reported in (2010) 187 Taxman 312 (SC) and Hon’ble jurisdictional High Court in Commissioner of Income Tax - I Tiruchirapalli. Vs M/s.Trichy Steel Rolling Mills Ltd. referred supra, the reopening in this case by the AO is nothing but a change of opinion. We find that in the original proceedings, the AO vide questionnaire to notice dated 10.07.2015 u/s 142(1) had specifically asked information qua amount of loan (Opening and Closing Balance) and the applicability of section 2(22)(e) of the Act which can be seen from the questionnaire at point Sr. No. (xiv). The assessee duly replied to the AO vide letter dated 14.08.2015. The assessee further filed detailed submission dated 27.01.2016 to the query raised by the AO and thereafter, the assessment proceedings initiated under Section 143(3) of the Act was completed on 10.03.2016. The submission dated 27.01.2016 during the assessment proceedings is as under: ..M/s. Adampur Distributors P. Ltd., is a trade creditor and the amount outstanding to them is towards trade transactions. In the asst. years 2009-10, 2010-11, 2011-12, the amounts due to M/s. Adampur Distributors as appearing in the books was treated by the AO as deemed dividend. However, the CIT(A) has deleted the addition accepting the contention of the assessee that the transaction was a trade credit. The ITAT have dismissed the department's appeal.."
Therefore, on this basis of above facts, we are of the considered view that there is/are no new material with the AO to reopen the case. Hence, we quash
Since we have decided the G.No.2 in favour of assessee hence other grounds raised in this appeal by the assessee are infructuous.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 13th January, 2025 at Chennai.