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Income Tax Appellate Tribunal, ‘B’ BENCH, KOLKATA
Before: Shri Rajpal Yadav, Vice-(KZ) & Shri Rajesh Kumar
Per Rajpal Yadav, Vice-President (KZ):- The assessee is in appeal before the Tribunal against the order of ld. Principal Commissioner of Income Tax, Kolkata-9 dated 25.03.2022 passed under section 263 of the Income Tax Act, 1961 in assessment year 2013-14.
The grievance of the assessee is that the ld. CIT has erred in taking cognizance under section 263 of the Income Tax Act and thereby setting aside the assessment order for passing a denovo assessment.
Brief facts of the case are that the assessee has filed its return of income electronically on 28.09.2013 declaring total income of
ITA No. 284/KOL/2022 Assessment Year: 2013-2014 Gautam Chand Kankaria Rs.18,58,920/-. The case of the assessee was selected for scrutiny assessment and an assessment order was passed under section 143(3) on 31.12.2015. Thereafter the assessment was reopened by issuance of a notice under section 148 of the Income Tax Act. The copy of the reasons for reopening is available on page no. 73 of the paper book, which read as under:- “ANNEXUIRE-1 Name of the assessee GAUTAM CHANDAK KANKARIA ( PROP. OF M/S. GRABEN INDIA and M/S. APS & COMPANY) PAN AFTPK7627K AY 2013-14 Reason for initiating proceedings u/s 147 of the I.T. Act, 1961;- In the instant case the assessee filed his/her Return of Income for the A.Y.2013-14 on 28 09 2013 declaring total income of Rs 1858920 - The return of income was processed u/s 143(1) on 24 02 2015 on the same income. After, the case was selected for scrutiny under CASS for the reason that large other deduction claimed in such BP resulting in loss and the scrutiny was completed on 3112 2015 assessing the total income at Rs. 19,46,330 -
Subsequently, information has been received from ADIT (Inv), Kolkata vide F. No. ADIT/U- 4{1)/Krishna Enterp K.ol/2018-19 176/2744-49 dated 23.07.2018 regarding survey proceedings conducted on 12.01.2018 at the office premise of M s Krishna Enterprises at 7 GanpathBagla Road, Block-C. Flat No.513, 5,h Floor, Kolkata-700007 where Shri Manoj Kumar Rameka gave his statement. In his statement, he has stated that he provided bogus bills to Sri Sanjeev Kumar Behani, as and when required, through his four enlities-Shree Shyam Trading, Naba Durga Trading Company, Ridhhi Sidhhi Enterprises & Bhagwati traders. The said bogus bill provider, Shiri Manoj Kumar Rameka has given list of beneficiaries.
The details of bogus billing taken by the assessee namely GAUTAM CHANDAK KANKARIA, Prop, of M/S. GRABEN INDIA and M/S. APS & COMPANY, is furnished as under:- Sl. No. Name Bogus Billing Amount F.Y. taken (RS.) 1. M/s. Graben India 168033 2012-13 2. M/s. APS & Company 287206 2012-13
Hence, I have reason to believe that income to the tune of Rs.455239/- which is chargeable to tax has escaped assessment for the AY 2013-14 within the meaning of Explanation 2(b) to section 147 of the I.T. Act, 1961.
Necessary sanction for issue of notice u/s 148 is solicited in light of provisions of section 151(1) of the I.T. Act, 1961.
Accordingly, the matter is being put up before ld. Pr. CIT-11. (Through Add. CIT, Range-32, Kolkata), for his kind perusal and necessary approval, if deemed fit. Sd/-
ITA No. 284/KOL/2022 Assessment Year: 2013-2014 Gautam Chand Kankaria ABHISHEK SARKAR Income Tax Officer, Ward-32(3), Kolkata, Code: WBG W 132 3”
After the explanation of the assessee, the ld. Assessing Officer did not make any addition on account of alleged bogus billing entry in an assessment order passed under section 147 read with section 143(3) on 23.12.2019.
Ld. Commissioner perused the assessment record and formed an opinion that assessment order passed on 31.12.2015 is erroneous and prejudicial to the interest of revenue. He issued a show-cause notice and the reasons issuing in the show-cause notice are available on pages no. 54 & 55 of the paper book, which read as under:- “GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMENT OFFICE OF THE PRINCIPAL COMMISSIONER OF INCOME TAX PCIT, Kol kata-9 To, GAUTAM CHAND KANKARIA 69A, , SHAKESPEARE SARANI PARK STREET AREA KOLKATA 700017 , West Bengal India DIN & Notice No : PAN/TAN: AY: ITBA/REV/F/REV1 /2021 - Dated: AFTPK7627K 2013-14 22/1040331844(1) 03/03/2022 NOTICE FOR THE HEARING M/s/Mr/Ms Subject: Notice for Hearing in respect of Revision proceedings u/s 263 of the THE INCOME TAX ACT, 1961 - Assessment Year 2013-14. In this regard, a hearing in the matter is fixed on 10/03/2022 at 11:00 AM. You are requested to attend in person or through an authorized representative to submit your representation, if any alongwith supporting documents/information in support of the issues involved (as mentioned below). If you wish that the Revision proceeding be concluded on the basis of your written submissions/representations filed in this office, on or before the said due date, then your personal attendance is not required. You also have the option to file your submission from the e-filing portal using the link: incometaxindiaefiling.gov.in Please refer to the above. In this connection you are requested to please ignore the previous communication ITBA/REV/F/REV1/2021-22/1040222836(1) dated 01/03/2021. From the examination of materials on record, it is seen that the assessment order u/s 143(3) of the 1.T. Act dated 23.12.2019 passed by the Assessing Officer (AO) for the A.Y. 2013-14 is erroneous in so far as it is prejudicial to the interests of the revenue. During the course of assessment proceedings of the assessee, the AO had failed to examine following issues:
ITA No. 284/KOL/2022 Assessment Year: 2013-2014 Gautam Chand Kankaria 2. Failure of AO to make necessary enquiries: In the instant case, from the examination of materials on record, it is seen that the assessee has filed its return of income for the A.Y. 2013-14 on 28.09.2013 disclosing total income of Rs. 18,58,920/-. The same was assessed u/s 143(3) of the I.T. Act’ 1961 on 31.12.2015 at assessed income of Rs. 19,46,330/-. Further based on the information received the assessment was reopened and re- assessment was completed u/s 147 on 23.12.2019 without making any further addition. In this case, the Assessing Officer (AO) had failed to examine the following points during the reassessment proceedings: On verification of the return submitted by the assessee for the A.Y 2013-14 it was found that the assessee has shown income from two separate businesses, i.e. 1) M/s. Graben Indian and 2) M/s. APS & Company. As per row no. 28(a) in Form 3CD, the assessee was mainly engaged in trading in earth moving and mining machinery spare parts. As per the record, the profit from proprietorship firm, M/s. Graben India was Rs. 49,44,523/- and assessee has claimed indirect expenses under the head "Loss on Exchange Rate Fluctuation to the tune of Rs. 17,02,027/-. As during the year under consideration the assessee had no business of export and import, the assessee was not entitled to claim the loss on exchange rate fluctuation. Hence, the same is not wholly and exclusively laid out for the purpose of the business of the assessee and therefore liable to be disallowed. In the instant case there was absolutely no explanation about the applicability & justification of the expense claimed under the head loss on exchange rate fluctuation and in absence of any enquiry at assessment stage the action of A.O. allowing the the expense claimed under the head loss on exchange rate fluctuation amounting to Rs. 17,02,027/- marked the order erroneous in so far as it is prejudicial to the interests of the revenue. In view of the above, it transpires that the assessment order passed in the instant case is erroneous in so far as it is prejudicial to the interests of the revenue as envisaged in Explanation 2 (a) of Section 263 of the IT Act. 3. In the light of the above, it is clear that the AO has, while passing the order u/s 143(3) of the Act, failed to make proper and the required enquiry/verification under clause (a) of Explanation 2 to section 263 of the I.T. Act, 1961 in respect of the above issue. As such, the assessment order u/s 143(3) of the IT. Act, 1961 dated 23.12.2019 is erroneous and prejudicial to the interests of Revenue. 4. In view of the above, you are requested to explain as to why the assessment order in your case Shri Goutam Chand Kankaria, PAN-AFTPK7627K for the A.Y. 2013-14 should not be revised u/s 263 of the Income Tax Act, 1961 as the assessment order passed in the aforesaid case is erroneous in so far as it is prejudicial to the interest of revenue. Accordingly, your case is fixed for hearing on 09.03.2022 at 02:30 P.M. and you may appear in the chamber of the undersigned at room no. 601, Aayakar Bhawan Poorva, 110, Shantipally, Kolkata-700107 either in person or through authorized representative on the scheduled date, time, and place along with written explanation with supporting evidences. Due to outbreak of Pandemic COVID-19, you are requested to kindly note that appearing in person or through Authorized Representative is optional and you may submit your explanation/ written submission through official e- mail: kolkata.pcit9@incometax.gov.in; it will be treated as compliance to this show cause notice. Kindly note that if you fail to submit your explanation to this show-cause notice by the scheduled date, the case will be decided ex- parte without making any further correspondence with you”.
ITA No. 284/KOL/2022 Assessment Year: 2013-2014 Gautam Chand Kankaria 6. After hearing the assessee, the ld. CIT set aside the assessment order dated 23.12.2019 and directed the Assessing Officer to pass a fresh assessment order.
With the assistance of ld. Representatives, we have gone through the record carefully. Two issues posed before us for adjudication:- (a) If no addition is being made in a re-assessment order on the point for which assessment was reopened, then whether this order can be branded as erroneous for not exploring the possibility of any other item of income as escaped income;
(b) Whether original assessment order passed under section 143(3) on 31.12.2015 merged in the reassessment order dated 23.12.2019 and ld. Commissioner has the power to revise the original assessment order by setting aside the reassessment order.
We have extracted the reasons for reopening. The assessment was reopened on the ground that the assessee has taken bogus entries of bills from one Shri Manoj Kumar Rameka, who was running four entities. The bogus billings taken in the proprietorship of the assessee were quantified and examined by the ld. Assessing Officer. However, in the reassessment order, he did not make any addition and accepted the claim of the assessee. Copy of the reassessment order is available on pages no. 47 & 48 of the paper book. The total income of the assessee was accepted as determined in the original assessment order passed under section 143(3) on 31.12.2015 meaning thereby the alleged escaped income of Rs.4,55,239/- was not added to the total income of the assessee. The Hon’ble Bombay High Court in the case of CIT –vs.- Jet Airways reported in (2011) 331 ITR 236 (Bom.), Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Limited –vs.- CIT reported in 336 ITR 136 (Del.),
ITA No. 284/KOL/2022 Assessment Year: 2013-2014 Gautam Chand Kankaria Hon’ble Gujarat High Court in the case of CIT –vs.- Mohd. Juned Dadani (2013) 355 ITR 172 (Guj.) and Hon’ble Calcutta High Court in the case of Infinity Infotech, ITA No. 60 of 2014 has examined the scope of section 147 of the Income Tax Act and all the Hon’ble four High Courts are unanimous in their conclusions to propound that expression “AND ALSO” employed in section 147 of the Income Tax Act would mean that if any income which has escaped assessment came to the notice of the Assessing Officer during the reassessment proceeding, then such income can only be added after the addition on the issue for which the assessment was reopened. Thus if an addition for the item for which the assessment was primarily reopened is not made, then no other issue can be enquired in the reassessment proceeding. Therefore, ld. Commissioner in a proceeding under section 263 cannot find fault in a reassessment order on the ground that he failed to make addition of Rs.17,02,027/- by disallowing loss on exchange rate fluctuation. In paragraph no. 2 of the show-cause notice issued under section 263, the ld. Commissioner propounded that loss on exchange rate fluctuation amounting to Rs.17,02,027/- was required to be disallowed by the ld. Assessing Officer and his order is erroneous as much as it is prejudicial to the interest of revenue.
We find that this was not the subject matter of reopening. Once addition on the item, for which assessment was reopened, was not made, this aspect could not be enquired into in the reassessment proceeding. 10. It appears that ld. Commissioner has merged two issues. His grievance relates to original assessment order, but for the purpose of counting limitation, he is taking cognizance of the reassessment order. He is under the impression, that original assessment order would merge in the reassessment order and, therefore, by taking limitation from the reassessment order dated 23.12.2019, he can revise the original assessment order passed under section 143(3) on 31.12.2015. The Hon’ble Supreme Court has dealt with this issue in the case of CIT –vs.- Alagendrn Financial Limited reported in 293 ITR 1.
ITA No. 284/KOL/2022 Assessment Year: 2013-2014 Gautam Chand Kankaria
In this judgment of the Hon'ble Supreme Court, the facts are that the assessee- company was incorporated under the Indian Companies Act, 1956. It had filed its returns for A.Y. 1994-95 to 1996-97. The assessments for these three years were completed on 27.02.1997, 12.05.1997 and 30.03.1998 respectively. In the said orders of assessment, the assessee's claim under the head "Lease Equalisation Fund" made in the return of income was accepted. Thereafter assessments were reopened and the re- assessment orders were passed on 28.03.2002. Under the re-assessments, three issues were examined:- (i) the expenses claimed for share issue; (ii) bad and doubtful debts; (iii) excess depreciation on gas cylinders and goods containers.
Ld. Commissioner thereafter sought to revise the assessment order. The stand of the assessee was that this action under section 263 is time- barred because the action sought to be taken is from the time limit of the reassessment order. The revisionary order under section 263 of the Act was passed on 29.03.2004. This was passed on an issue of lease equalisation fund. The stand of the assessee was that this issue attained finality in the original assessment order, which attained finality upto 30.03.1998 and any action under section 263 on 29.03.2004 is barred by limitation. In this factual background, Hon'ble Supreme Court has examined this issue and the observations made in paragraphs no. 7,10 and 15 of the judgment are worth to note, which read as under:- "7. A bare perusal of the order passed by the Commissioner of income Tax would clearly demonstrate that only that part of order of assessment which related to lease equalisation fund urns found to be prejudicial to the interest of the Revenue. The proceedings for reassessment have nothing to do with the said head of income. Doctrine of merger, therefore, would not apply in a case of this nature".
"10. There may not be any doubt or dispute that once an order of assessment is reopened, the previous underassessment will be held to be set aside and the whole proceedings would start afresh but the same would not mean that even when the subject matter of reassessment is distinct and different, the entire proceeding of assessment would be deemed to have been reopened".
ITA No. 284/KOL/2022 Assessment Year: 2013-2014 Gautam Chand Kankaria "15. We, therefore, are clearly of the opinion that keeping in view the facts and circumstances of this case and, in particular, having regard to the fact that the Commissioner of Income Tax exercising its revisional jurisdiction reopened the order of assessment only in relation to lease equalization fund which being not the subject of the reassessment proceedings, the period of limitation provided for under sub-section (2) of section 263 of the Act would begin to run from the date of the order of assessment and not from the order of reassessment. The revisional jurisdiction having, thus, been invoked by the Commissioner of Income Tax beyond the period of limitation, it was wholly without jurisdiction rendering the entire proceeding a nullity".
The Hon'ble Supreme Court was of the view that an item of income or head of income which has attained finality in the regular assessment order and which is not subject matter of reassessment order, then limitation for taking action on that item which is not subject matter of reassessment would be counted from the original assessment order. In other words, those issues, which are not subject matter of the reassessment, would not merge in the reassessment order.
Thus the order dated 31.12.2015 would not merge in the reassessment order dated 23.12.2019. The ld. Commissioner was required to take action within two years from the end of the financial year in which the order sought to be revised was passed. In other words, the time limit to take action under section 263 would expire on 31st March, 2018. The action at the end of the ld. Commissioner is time barred and accordingly the impugned order is quashed.
In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on September 28th, 2022. Sd/- Sd/- (Rajesh Kumar) (Rajpal Yadav) Accountant Member Vice-President (KZ) Kolkata, the 28th day of September, 2022
Copies to : (1) Gautam Chand Kankaria, 69A, Shakespeare Sarani, Park Steet Area, Kolkata-700017
ITA No. 284/KOL/2022 Assessment Year: 2013-2014 Gautam Chand Kankaria (2) Principal Commissioner of Income Tax-9, Kolkata, Aayakar Bhawan Dakshin, 2, Gariahat Road, Kolkata-700068
(3) Commissioner of Income Tax, Kolkata-1;
(4) The Departmental Representative (5) Guard File