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Facts
The assessee, TCG Lifesciences Pvt. Ltd., engaged in chemical analysis and data processing, filed its return for AY 2017-18 which was originally assessed under Section 143(3). Reassessment proceedings under Section 147/148 were initiated for AY 2017-18 based on information of foreign remittance of Rs. 2,39,00,000/-, which the AO added as unexplained income under Section 69A. The assessee challenged the validity of the reassessment, citing non-communication of reasons within a reasonable time and failure of the AO to dispose of its objections by a speaking order, in violation of the GKN Driveshafts principle.
Held
The Tribunal held that the initiation of reassessment proceedings under Section 147/148 was illegal, invalid, and void due to the AO's failure to furnish reasons within a reasonable time and to dispose of the assessee's objections through a speaking order, as mandated by the Supreme Court in GKN Driveshafts (India) Ltd. The Tribunal also noted that similar issues for earlier assessment years had been resolved. Consequently, the addition of Rs. 2,39,00,000/- was directed to be deleted.
Key Issues
Whether the reassessment proceedings initiated under Section 147/148 are valid if the AO fails to communicate reasons within a reasonable time and does not dispose of the assessee's objections by a speaking order, and whether the addition of Rs. 2,39,00,000/- as unexplained income under Section 69A is sustainable.
Sections Cited
143(3), 147, 148, 69A, 139(1), 148(2), 133(6), 142(1), 68, 80IA
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri Rajesh Kumar&Shri Pradip Kumar Choubey]
ORDER / आदेश Per Pradip Kumar Choubey, JM: This is the appeal preferred by the assessee against the order of Commissioner of Income Tax (Appeal)- NFAC, Delhi (hereinafter referred to as the Ld. CIT(A)] dated 05.02.2024 for AY 2017-18. 2. Brief facts of the case of the assessee are that the assessee is a company engaged in the business of analysis and synthesis of chemical compounds and data processing. The assessee filed return of income for AY 2017-18 declaring total income of Rs.
Assessment Year: 2017-18 TCG Lifesciences Pvt. Ltd. 13,91,90,763/-. The case of the assessee was selected for scrutiny as it was noted by the AO that the assessee has made investment/ some expenses vide order u/s 143(3) dated 16.12.2019 the income of the assessee was determined at Rs. 13,97,34,930/-, an assessment proceedings u/s 147 were initiated for AY 2017-18 on the basis of information received from DDIT(I & CI) regarding receipt of foreign remittance / foreign amount of Rs. 2,39,00,000/-. Notice u/s 148 was issued in response to the same the assessee filed income tax return declaring total income of Rs. 13,78,01,720/-. The AO after disposing of objection raised by the assessee in response to the statutory notice, and also going over the documents filed by the assessee held that the amount of Rs. 2,39,00,000/- is remained unexplained and accordingly added in the total income of the assessee u/s 69A of the Act.
Aggrieved by the said order, the assessee preferred an appeal before the Ld. CIT(A) wherein the appeal of the assessee has been dismissed.
Being aggrieved by and dissatisfied the assessee preferred an appeal before us.
The Ld. Counsel appeared on behalf of the assessee challenges the very impugned order on the legal ground as well as on merit. The Ld. Counsel submitted that in the present case only two issues are involved i.e. one is the validity of the assessment order in pursuance to the issue of notice u/s 148 of the Act and further addition of Rs. 2,39,00,000/- raising a demand of Rs. 3,07,95,482/-. The Ld. Counsel submits that the assessee company had filed its return of income u/s 139(1) of the Act on 30.11.2017 declaring total income of Rs. 13,91,90,763/-. The assessment order u/s 143(3) of the Act was completed by DCIT, Circle-Kolkata determining the total income of Rs. 13,93,34,930/- after making correct addition of Rs. 5,44,170/-. The said order has been challenged by the assessee and the Ld. CIT(A) vide its order dated 24.11.2021 allowed the appeal of the assessee by directing the AO to delete the addition of Rs. 5,38,000/-. The submission of the Ld. Counsel of the assessee is that the assessee company received a notice u/s 148 of the Act issued on 31.03.2021. Notice was issued by the ACIT and the assessee company filed fresh return of income in compliance to the said notice by declaring total income of Rs. 13,78,08,720/- and also filed preliminary objection Assessment Year: 2017-18 TCG Lifesciences Pvt. Ltd. regarding the issuance of notice vide its letter dated 28.12.2021 challenging the issue of notice before communicating the reasons to the assessee though requested to provide the reasons recorded u/s 148(2) of the Act along with the copy of sanction approved by the authority. The Ld. A.R has further argued that before communicating the reasons the AO started reassessment, it is the complete violation on the Hon’ble Apex Court judgment in the case of GKN Driveshafts (India) Ltd. reported in [2003] 259 ITR 19 (SC). The Ld. Counsel further draws the attention of the Tribunal by submitting that in this case the company has received notice u/s 133(6) of the Act on 11.01.2019 calling for information in respect of foreign income during the year 2015-16. The said notice was in respect of foreign remittance received by the assessee company in these years from M/s Takeda Pharmaceutical Co. Ltd., Japan. The company filed reply by furnishing all the requisite details as called for by DDIT(I & CI), Circle-1(1), Kolkata and after being satisfied with the reply of the assessee DDIT dropped the proceedings. The ld. Counsel further submits that the assessee company further received notice u/s 133(6) of the act on 13.03.2019 from ACIT, Circle-11(2), Kolkata calling for information in assessee’s case for AY 2015-16, 2016-17 and 2017-18 and the said notice was in respect of foreign remittance received by the assessee in these assessement years. The Ld. Counsel submits that the assessee company submitted all the relevant and requisite details before the ACIT, Kolkata and when the dispute has already been dealt with by the DDIT and ACIT, the reassessment proceedings initiated by the AO on the same set of issues are without jurisdiction and bad in law. The Ld. Counsel submits that the reasons recorded are factually incorrect, unfounded, vague, scanty and based on suspicions. The Ld. Counsel further submits that the assessee has been served with show cause notice dated 26.03.2022 along with copy of draft assessment order seeking compliance from the assessee on or before 28.03.2022 allowing time of two days only, even though the objection was raised by the assessee company and his objections were disposed of by the JAO/ AO and final assessment order was passed on 30.03.2022. The learned A.R submits that there was no speaking order passed on the objection raised by the assessee. The Ld. Counsel further submits that the amount received in USD from January, 2016 to December 2016. The assessee received USD 11,10,975 has duly and Assessment Year: 2017-18 TCG Lifesciences Pvt. Ltd. properly recorded in the books of account as part of revenue as well as reimbursement of expenses and net amount has been reflected in the profit and loss account. The submission of the ld. Counsel of the assessee is that issuance of notice as well as passing of assessment order without disposing of the objection raised by the assessee are bad in law and liable to be set aside. The Ld. Counsel also relied on the following decisions:
i) PCIT vs. M/s Sambuddha Tracon Pvt. Ltd. in ITAT/90/2022: IA No. GA/2/2022 dated 15.11.2022 ii) Champalal Omprakash vs. ITO in [2024] 159 taxamnn.com 1397 (Kolkata-Tribunal) iii) Kesar Terminals & Infrastructure Ltd. vs. DCIT in writ petition no. 3248 of 2022 (Bombay High Court)
Contrary to that the ld. DR supports the impugned order.
Upon hearing the submission of the respective parties and on perusal of the record the following facts has been arisen: i) The assessee company filed return of income for AY 2017-18 u/s 139(1) of the act on 30.11.2017 . ii) The said return was selected for scrutiny and assessment order u/s 143(3) of the act was completed by the DCIT on 16.12.2019 declaring total income of Rs. 13,97,34,930/- after making an addition of Rs. 5,44,970/-. iii) The said order has been challenged by the assessee before the Ld. CIT(A) wherein the Ld. CIT(A) vide order dated 24.11.2021 in appeal no. CIT(A)-Kolkata- 4/10593/2019-20, the appeal of the assessee has been allowed. iv) The assessment order for AY 2015-16 the assessment was reopened for identical facts but accepted by the AO in the assessment proceedings. v) The assessment for AY 2016-17 assessment was reopened for identical facts and accepted by the AO in the assessment proceedings.
Assessment Year: 2017-18 TCG Lifesciences Pvt. Ltd. vi) The company received notices u/s 148 issued on 31.03.2021. The assessee company raised preliminary objection dated 28.12.2021 challenging the issue of notice before communicating the reasons to the assessee. The assessee company had received notice u/s 133(6) of the Act on 11.01.2019 from DDIT(I & CI), Circle-1(1), Kolkata calling for information in respect of foreign income received by the assessee company in these years 2015-16 from M/s Takeda Pharmaceutical Co. Ltd., Japan and DDIT dropped the proceedings after being satisfied from the reply submitted by the assessee company. vii) the assessee company further received a notice u/s 133(6) of the Act on 13.03.2019 from ACIT, Circle-11(2), Kolkata calling for information in assessee’s case for AY 2015-16, 2016-17 and 2017-18 and ACIT, Circle-11(2), Kolkata had sought various details, the assessee company submitted a reply and complied all the requisite details. viii) The AO without disposing of the aforesaid objection, issued notice u/s 142(1) of the act on 17.12.2021 by asking the assessee company to furnish or explain the quarries made. ix) The assessee company made complete compliance of the aforesaid notice dated 17.12.2021 and asked to dispose of his objection. x) The show cause notice dated 26.03.2022 along with copy of draft assessment order has been sent seeking compliance on or before 28-03-2022, the assessee made due compliance and filed an objection to the draft assessment order on 29.03.2022. xi) The final assessment order was passed on 30.03.2022.
The first contention of the Ld. Counsel of the assessee with regard to legality of issuance of notices. His submission is that the assessee when file return of income in compliance to the notice of reopening of assessment order and if the assessee deserves to seek reason for issuance of notice, the AO bound to furnish reason within a reasonable time but no reason has been furnished by the authority. The Hon’ble Apex Court in the case of GKN Driveshafts (India) ltd. (supra) has been held that when any notice u/s 148 of the act is issued the proper course of action for the notice is to be filed Assessment Year: 2017-18 TCG Lifesciences Pvt. Ltd. the return and if he so desires to seek reason for issuing the notice. The AO is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objection to issuance of notice and AO is bound to dispose off the same by passing a speaking order.
In the present case as it appears from the preceding paragraphs in response to the notice u/s143(2) of the Act, assessee raised a preliminary objection by requesting from the authorities to provide reasons recorded u/s 148(2) of the Act. In the present case as it appears that there was no lapses or delay on the part of the assessee company at any stage of the assessment proceedings. The assessee filed return of income on 30.11.2021 i.e. within 30 days of the receipt of notice u/s 148 of the act. The reasons have not been communicated even after expiry of more than seven months and before communicating the reasons, the notice u/s 143(2) of the Act has been issued. It is pertinent to mention here that assessment order was passed u/s 143(3) of the Act after due examination and verification of material facts furnished before the AO. Notices which are issued u/s 148 of the Act and reasons recorded are reproduced here in below:
“Reason recorded for reopening of assessment : In the instant case, the assessee company filed its original return of income for the assessment year 2017-18 on 30.11.2017 declaring total income of Rs. 13,91,90,763/-. An information received from DDIT (I & CI)-1/Kol/AEOI-TCG Lifesciences/2018- 19/843 dated 26.02.2019 has been received this office containing information that M/s TCG lifesciences Pvt. Ltd. has received foreign remittances/income received by the assessee company to the tune of Rs. 2,39,00,000/- Financial years 2016-17 Total sales made (Rs. In lakhs) 16,166 Total recovery from customers including freight (Rs. In lakhs) 1,858 Profit / loss on Hedging Effective Derivative Contract (Rs. In Lakhs) 239 Although as per the agreement entered into by the assessee company with M/s Takeda pharmaceutical Co. Ltd., wherein the Japanese Company had agreed for reimbursement of “Expensive reagents”but there is no provisions for “Recovery of Freight”. In view of the above, I have reason to believe that the income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and income to the extent of Rs. 2,39,00,000/- as mentioned above has escaped assessment during the FY 2016-17 within the meaning of Section 147 of the I. T. Act, 1961. In order to assess or re-assess the said income which was escaped assessment as aforesaid and any other income which may come to the notice during the course of assessment/ reassessment proceedings, a notice u/s 148 of the I. T. Act, 1961 is required to be issued in this case. The Ld. CCIT-2, Kolkata vide F. No. CCIT-2/Kol/Approval of 148 cases/ 182/2020- 21/1448 dated 30.03.2021 has accorded his approval for of potential cases for initiating proceedings u/s 148 with the following comments: “I am satisfied after perusing the material / information available with AO that income quantified in each case has escaped assessment. Approval granted in all cases where the date of information received is on or before 01.04.2019.”
In the light of the reasons recorded we are looking to the details of transaction with Takeda Pharmaceuticals Pvt. Ltd., Japan. It has been submitted by the assessee company that the assessee company had raised its invoices on Takeda Pharmaceuticals in USD and that the collection were also received in USD. It is important to mention here that the company had received USD 11,10,975 from Takeda Pharmaceuticals Co. Ltd. and the same amount has been duly and properly recorded in the books of accounts as part of revenue as well as reimbursement expenses which have been netted off with Assessment Year: 2017-18 TCG Lifesciences Pvt. Ltd. the expenses and the net amount has been reflected in the profit and loss account. The breakup of aforesaid amount of USD 11,10,975 is given herein below:
On perusal of the above break up amount we find that the aforesaid amount is much more than amount of Rs. 2,39,00,000/- mentioned in the reasons recorded u/s 148(2) of the Act. That goes to establish the contention of the assessee that the reasons recorded are factually vague, cryptic, scanty non-specific and unfounded. The assessee transaction is all the genuine transaction and have been properly recorded in the books of accounts of the trading and shown in the return of income. The assessee company had entered into agreement with Takeda Pharmaceuticals Co. Ltd., Japan for manufacturing or synthesis of chemical compounds. All the transactions are properly recorded in the books of account which are duly audited by the tax auditors. We have gone through the Assessment Year: 2017-18 TCG Lifesciences Pvt. Ltd. draft assessment order which was sent by the AO to the assessee along with the show cause notice and find that the AO has added an amount of Rs. 2,39,00,000/- as unexplained income u/s 68 of the Act but in the final assessment order, he added the same amount u/s 69A of the Act. We further find that when the assessee company raised objection and asked to furnish the reasons recorded, the same was intimated to the assessee company after a delay of seven months and a delay of seven months cannot be said to be a reasonable time as it has been held that the Hon’ble Apex Court in the case of GKN Driveshafts (India) Pvt. Ltd. (supra). In this context, our attention has been drawn by the assessee with regard to the judgment passed by the Hon’ble Madras High Court in the case of M/s Cognizant Technology Solutions India Pvt. Ltd. vs. ACIT & Ors.. in WA No. 2521 of 2021 and CMP Nos. 16405 & 16406 of 2021. In the case of Cognizant Solutions(supra) the assessee had sought for the reasons on 27.04.2018, the AO did not furnish the reasons nor responded to the said letter but proceeded to issue the notice u/s 143(2) dated 21.08.2018. The reasons were communicated to the assessee on 30.08.2018. AO issued notice u/s 143(2) of the Act on 21.08.2018 before communicating the reasons. On these facts, the Hon’ble Madras high Court held that “ It may be true that no time limit has been prescribed for furnishing the reasons, but the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra) has held that the reasons shall be furnished within a reasonable time by the AO, upon receiving the request for the same from the assessee. There is an enormous delay in furnishing the reasons for reopening and we are of the opinion that the reasons were not furnished to the assessee within a reasonable time.” On these facts, it could be concluded that the AO did not follow the statutory directions issued in the judgment of Hon’ble Apex Court in the case of GKN Driveshafts (India) Pvt. Ltd. (supra). The Courts have time and again held that the assessment order passed u/s 147 are to be quashed where the mandatory conditions prescribed by Apex Court in GKN Driveshafts (India) Ltd. case were not followed by the AO.
10. In the present case we further find that in the final assessment order the AO while making the addition of Rs. 2,39,00,000/- had held that the objection raised by the assessee were disposed of by a speaking order. We failed to understand that there was Assessment Year: 2017-18 TCG Lifesciences Pvt. Ltd. no speaking order passed by the AO in disposing off the objection raised by the assessee. As we have already discussed that the final assessment order was passed on 30.03.2022 though the objection with regards to show cause notices were filed by the assessee on 29.03.2022. It is further pertinent to mention here that the case of the assessee was reopened for AY 2015-16 and 2016-17 on identical facts in relation to the assessee company transaction with Takeda Pharmaceuticals Co. Ltd., Japan and the AO had accepted the return filed by the assessee u/s 148 of the Act after going over the submission of the assessee and after satisfying himself that there was no escapement of income as alleged in the notice issued u/s 148 of the Act. The reasons recorded in those two cases are identical to the reasons recorded in the present case. We further find that the AO has himself admitted that the assessee’s received income and other income has been reflected in the audited books of account of the assessee’s company, duly incorporated in the books of account of the assessee’s company. It is also important to mention here that the assessee company had provided entire bank statement to the AO along with copy of the agreement entered into with Takeda Pharmaceuticals Co. Ltd., Japan. The agreement was for reimbursement of expensive reagents but not recovery of freight. We have also gone through the judgment passed by the Hon’ble Bombay High Court in W.P No. 3248 of 2022 passed in Kesar terminals & Infrastructure Ltd. Vs The DCIT and find that Hon’ble High Court in the similar situation has passed an order in favour of the assessee. The relevant portion of the order is herein below:
“9. On 4th August, 2021, the petitioner filed objections to the reopening of the assessment by raising several contentions. Without disposing of such objections, on 22nd November, 2021 the Petitioner was issued a notice u/s 142(1) directing it to justify its claim u/s 80IA with supporting documents.
On 26th November, 2021 the petitioner requested the respondents to dispose of the objections filed by the petitioner before proceedings any further. The petitioner made a specific reference to the Hon’ble Supreme Court’s decision in the case of GKN Driveshafts (India) Pvt. Ltd. vs. ITO. The petitioner also referred to this Court’s decision in the case of Asian Paints Ltd. vs. DCIT and Ors., which had provided that an assessee must be given a reasonable period of about four weeks to take any remedial course of action should the assessee’s objections to the reopening be rejected by the revenue.
The petitioner’s objections were never disposed of, but the impugned consolidated reassessment order dated 31st March, 2022 was made, in which the Petitioner’s objections were also purported to be disposed of.
Assessment Year: 2017-18 TCG Lifesciences Pvt. Ltd.
Apart from the fact that the making of such consolidated or combined orders was not approved in some decided cases, which we propose to refer to, we think that such procedure also involves breaching the principles of natural justice and fair play.
The assessing officer in Fomento Resorts & Hotels Ltd. (supra) made a similar combined order. Neither were the assessee’s objections disposed of by a separate order, nor was the assessee granted any reasonable opportunity of questioning the order disposing of the objections. In such circumstances, the Court, after analysing the decision of Hon’ble Supreme Court in GKN Driveshafts (India)(supra) and following its earlier precedents in KSS Petron Pvt. Ltd. vs. The Assistant Commissioner of Income Tax, Circle-10(2) and M/s Bayer Material Science (P) Ltd. vs. Deputy Commissioner of Income Tax-10(3) quashed the combined order on the ground of want of compliance with jurisdictional parameters.”
11. Going over the aforesaid discussion, we come to this conclusion that initiation of proceedings u/s 147/148 in the present case in respect of AY 2017-18 is wholly illegal, invalid and void. The AO without considering the materials supplied by the assessee made an addition of Rs. 2,39,00,000/- u/s 69 of the Act though the said section was not subject matter of the draft assessment order wherein the addition was proposed to be made u/s 68 of the Act. Accordingly, we do not have any hesitation to allow the appeal of the assessee on legal ground as well as on merit also. The appeal of the assessee is hereby allowed and the addition made by the AO confirmed by the Ld. CIT(A) are hereby directed to be deleted.
In the result, the appeal filed by the assessee is allowed.
Order is pronounced in the open court on 17th March, 2025
Sd/- Sd/- (Rajesh Kumar/राजेश कुमार) (Pradip Kumar Choubey /�द�प कुमार चौबे) Accountant Member/लेखा सद�य Judicial Member/�या�यक सद�य Dated: 17th March, 2025 SM, Sr. PS Copy of the order forwarded to: 1. Appellant- TCG Lifesciences Pvt. Ltd., Block-BN, Plot-7, Sector-V, Salt Lake, Kolkata-700091 2. Respondent – DCIT, Circle-11(1), Kolkata 3. Ld. CIT(A)-NFAC, Delhi 4. Ld. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail)