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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI RAJESH KUMAR & SHRI AMARJIT SINGH
Per Rajesh Kumar, Accountant Member: These are cross-appeals, directed against the order of the CIT(A)-3, Mumbai, dated 08.01.2016, which in turn has arisen out of the order passed by the Assessing Officer u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) relating to A.Y. 2009-10. Since they involve certain common issues, they have been clubbed & heard together and consolidated order is being passed for the sake of convenience and brevity.
We shall first take up the appeal by the assessee in , wherein, Grounds of appeal read as under:
“Legal: Reopening under section 147 is bad in law
The Ld. Commissioner of Income Tax (Appeals) - 3, Mumbai, [hereinafter referred to as the Ld. CIT (A)] erred in confirming the action of the Ld. A.O. in reopening the assessment by issuance of the notice dated 18.03.2013 under section 148 of the act without appreciating the fact that the Appellant was not provided with the reasons recorded prior to the issuance of notice under section 148. Hence, the notice under section 148 and the subsequent re-assessment order passed under section 143(3) r.w.s 147 is against the principle of natural justice and thus the same may be quashed and set aside.
2.The Ld. CIT(A) failed to appreciate that the Appellant's assessment has reopened on the basis of statement recorded by the Sales Tax Department without application of mind and showing that any income chargeable tax has escaped assessment. Thus, the re-opening is merely on the basis of suspicion which is unjustified. Hence, the re-assessment order passed under section 143(3) r.w.s 147 is bad in law and the same may be quashed and set aside.
II Merits
The Ld. CIT(A) erred in confirming the addition of Rs.2,55,304/- being 12.5% on the total purchases made from Shri Ameya Enterprises and M/s. Dev Enterprises total amounting to Rs. 20,42,435/- treating the same as unexplained expenditure without appreciating the fact that the said purchases are made in normal course of business activity and the same are supported by proper documentary evidences. Hence, the addition of Rs.2,55,304/- under section 69C is unjustified and the same may be deleted.
4. The Ld. CIT(A) erred in confirming the action of the Ld. A.O. in levying interest under section 234A, 234B and 234C of the act without appreciating that the Appellant denies his liability to the same.
5. The Appellant craves leave to add, alter or amend any of the above grounds of appeal.”
3. In Ground no.I(1), the assessee has raised a jurisdictional issue challenging the authority of the Assessing Officer to frame assessment u/s. 143(3) r.w.s 147 of the Act, on the ground that the reasons recorded u/s. 148(2) were not supplied to the assessee. In ground no.I(2), the assessee has challenged the assessment on the ground that the re-opening is bases on mere suspicion and, thus, it was bad in law.
The facts in brief are that the assessee is a private limited company engaged in the business of manufacturing and trading of chemicals. The assessee filed its return of income on 30.09.2009 declaring total income at Rs 41,26,620/-, which was processed u/s. 143(1) of the Act. The case of the assessee was re-opened u/s. 147 by issuing notice u/s. 148, dated 18.03.2013. The assessment was re-opened by recording reasons u/s. 148(2) of the Act that the assessee is a beneficiary of hawala purchase entries from three parties and, accordingly, income to the extent of Rs 1,54,92,755/- has escaped assessment. Finally, the assessment was framed u/s. 143(3) r.w.s. 147 of the Act vide order dated 20.03.2014 by making adding 25% of the bogus purchase, which comes to Rs 38,73,189/-. We would like to mention here that during the course of assessment proceedings, the assessee has time and again requested the AO to furnish the reasons recorded u/s. 148(2) whereas the same were not supplied according to the assessee. However, the AO has mentioned at page 3 of the assessment order that the reasons recorded were conveyed to the assessee on 9.10.2013. The assessee took up the matter before the CIT(A). The learned CIT(A) also rejected the contention of the assessee on this issue by recording the finding at para 6.4 as under:
“Records revealed that the case was re-opened by issue of notice u/s. 148 of the I T Act which was duly served upon appellant. In response to the notice u/s. 148 of the I T Act, the appellant had submitted that the return filed earlier may be treated as filed in response to notice u/s. 148 of the I T Act. The AO had also given the reasons recorded for re-opening of the impugned assessment to the appellant.”
The learned AR vehemently challenged before us that the assessment framed u/s. 143(3) r.w.s. 147 of the Act is invalid in the background that the reasons recorded for re-opening of assessment were not supplied to the assessee, which is incurable defect and a grave violation of principles of nature justice and cannot be cured. The learned AR submitted that non-supply of the reasons recorded goes into the root of the assessment and assessment so framed has to be held as invalid and nullity. The assessee has also filed an affidavit before the Bench dated 01.12.2020, stating on oath that the reasons recorded for re-opening assessment were not supplied to the assessee despite being repeatedly prayed for before the AO during the assessment proceedings. The learned AR also brought to the notice of the Bench that the Bench on the earlier occasion i.e. on 07.02.2018 directed the departmental authorities to find out the fact where the reasons were supplied and the DR was directed to obtain a report from the AO. Further, the DR was directed to produce the assessment record on the next date of hearing. Even on the next date of hearing i.e. 19.11.2020 , the assessment records were not produced and the bench finally adjourned the case to 14.01.2021 for compliance. Again the assessment folder was not produced. The learned AR therefore, prayed before the Bench that assessment framed u/s. 143(3) r.w.s. 147 becomes invalid as non-supply of reasons to the assessee is a fatal mistake on the part of the AO and renders the re-assessment order invalid and null. In defence of the arguments, the learned AR relied on the following decisions:
1.GKN Driveshraft (India) Ltd. ITO [2003] 259 ITR 19 (SC). 2. CIT vs. Trend Electronics [2015] 379 ITR 456 (Bom) 3.CIT vs. IDBI Ltd. [2016] 76 taxmann.com 227 (Bom)
The learned AR therefore prayed that the assessment framed u/s. 143(3) r.w.s. 147 of the Act may kindly be quashed.
The learned DR, on the other hand, relied heavily on the order of authorities below and submitted that it has been recorded in the assessment order that reasons have been supplied to the assessee on 09.10.2013 and, therefore, prayed that there is no merit in the arguments of the assessee. However, he admitted that in the assessment record there was no proof of reasons recorded u/s. 148(2) having been supplied to the assessee.
We have heard the rival submissions and perused the material available on record. The prime contention of the learned AR of the assessee is that the reasons were not supplied to the assessee and, therefore, the assessment framed is invalid.
The Bench, in order to verify whether the assesse has been supplied copy of the reasons recorded u/s 148(2) of the Act directed the DR to produce the assessment records but despite several opportunities , the assessment records were not produced. Further we note that on 01.08.2013, the assessee was served with a notice u/s. 142(1) of the Act calling upon the assessee to furnish various details, which was complied with by the assessee by written submissions dated 07.08.2013 beside objecting to the issuance of notice u/s. 148(2) of the Act. The assessee again requested for copy of the reasons recorded but the AO did not supply any reasons to the assessee and, thereafter, passed the order dated 27.01.2014 disposing off the objections to the reopening of assessment. After perusing the records before us carefully , we find that there is contradiction in the assessment records itself. On one hand the order disposing of the objections dated 27.01.2014 referred to the assesse’s letter dated 25.03.3013 wherein the assesse raised objections whereas in the assessment order it has been claimed that reasons were supplied to the assessee on 09.10.2013. Under these circumstances we are not constrained to form a conclusion that the reasons u/s. 148(2) were never supplied to the assessee despite being requested time and again during the assessment proceedings. Therefore the assessment framed u/s 143(3) r.w.s. 147 of the Act without supplying reasons as recorded u/s 148(2) is without jurisdiction and has to go. The case of the assesse is supported by a series of decisions which are discussed as under: i) GKN Driveshraft (India) Ltd. ITO [Supra], the Hon'ble Supreme Court has held as under:
"We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under section 148 of the Income Tax Act is issued, the proper course of action for the notice is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years." ii) The Hon'ble Bombay High Court in the case of CIT vs. Trend Electronics
[supra] has held as under:
“8. We find that the impugned order merely applies the decision of the Apex Court in GNK Driveshafis (India) Ltd. (supra) Further it also follows the decision of this court in Videsh Sanchar Nigam Ltd. (supra) in holding that an order passed in reassessment proceedings are bad in law in the absence of reasons recorded for issuing a reopening notice under Section 148 of the Act being furnished to the assessee when sought for, it is axiomatic that power to reopen a completed assessment under the Act is an exceptional power and whenever revenue seeks to exercise such power, they must strictly comply with the prerequisite conditions viz. Reopening of reasons to indicate that the Assessing Officer had reason to believe that income chargeable to tax has escaped assessment which would warrant the reopening of an assessment. These recorded reasons as laid down by the Apex Court must be furnished to the assessee when sought for so as to enable the assessee to object to the same before the Assessing Officer. Thus, in the absence of reasons being furnished, when sought for would make an order passed on reassessment bad in law. The recording of reasons (which has been done in this case) and furnishing of the same has to be strictly complied with as it is a jurisdictional issue. This requirement is very salutary as it not only ensures reopening notices are not lightly issued. Besides in case the same have been issued on some misunderstanding/misconception, the assessee is given an opportunity to point out that the reasons to believe as recorded in the reasons do not warrant reopening before the reassessment proceedings are commenced. The Assessing Officer disposes of these objections and if satisfied with the objections, then the impugned reopening notice under Section 148 of the Act is dropped/withdrawn otherwise it is proceeded with further. In issues such as this, i.e. where jurisdictional issue is involved the same must be strictly complied with by the authority concerned and no question of knowledge being attributed on the basis of implication can arise. We also do not appreciate the stand of the revenue, that the respondent-assessee had asked for reasons recorded only once and therefore seeking to Justify non-furnishing of reasons. We expect the state to act more responsibly." iii) The Hon'ble Bombay High Court in the case of CIT vs. IDBI Ltd.
[supra) held that -
“where in the reassessment proceedings depreciation was disallowed to the assessee without Supplying the assessee a copy of reasons recorded to issue reopening notice, the reassessment would be without jurisdiction."
In all these decisions the ratio laid down is that the reassessment framed without supplying the copy of reasons to the assessee would be without jurisdiction. We, therefore, respectfully following the ratio laid down in said decisions, quash the re- assessment framed u/s. 143(3) r.w.s 147 of the Act and consequently grounds I(1) and I(2) raised by the assesse are allowed.
Since we have allowed Ground nosI(1) and (2), which involved legal issue, in favour of the assessee, the other issue on merits needs no adjudication.
In view of our findings in appeal of the assessee above, the cross-appeal by the Revenue becomes infructuous and is dismissed accordingly.