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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
आदेश आदेश /O R D E R आदेश आदेश
PER MAHAVIR SINGH, VP:
This appeal by the Assessee is arising out of the order of the Commissioner of Income Tax (Appeals)-14, Chennai in Appeal No.ITA No.394/CIT(A)-14/2016-17, dated 31.01.2018. The Assessment was framed by the Income Tax Officer, Non-Corporate Ward-13(5), Chennai for the Assessment Year 2009 - 2010 u/s.143(3) r.w.s.147 of the Income Tax Act, 1961, (hereinafter ‘the Act’) vide order dated 30.12.2016.
2. The only issue raised by the Assessee in this appeal is as regards to the re-opening of the assessment for the reason that there is no reason to believe that income has escaped assessment and CIT(A) erred in confirming the action of the Assessing Officer in upholding the re-opening u/s.147 of the Act. For this, the Assessee has raised the following two effective grounds.
“2) The Assessing Officer re-opened the assessment without a reason to believe that the income has escaped assessment and passed an assessment not considering the objection raised by the Assessee. The CIT(A) erred in not quashing the Assessment holding the re-opening bad in law.
3) The CIT(A) erred in not appreciating the fact that the single line reason – Difference in Sundry Creditor Balance – recorded by the Assessing Officer failed to speak for themselves and not having live link to the formation of belief. The re-opening to pass protective assessment is bad in law and speaks about doubt in the reason for re-opening.”
Brief facts are that the Assessee is a dealer in electronic goods.
The Assessee filed his return of income for the Assessment Year 2009 – 2010 and the return was processed u/s.143(1) of the Act on 08.08.2010. Subsequently, the Assessing Officer issued notice u/s.148 of the Act, dated 30.03.2016 and the Assessee filed a reply dated 26.04.2016 that the original return of income was already filed on 30.09.2009, and that it may be treated as return filed in response to the notice issued u/s.148 of the Act. The Assessee in his letter dated 26.04.2016 had also requested for supply of reasons recorded for the re-opening of the assessment for the Assessment Year 2009 – 2010. The Assessing Officer vide notice dated 22.05.2016 issued notice u/s.142(1) as well as notice u/s.143(2) of the Act and issued a questionnaire and also supplied reasons and the relevant questionnaire reads as under:
============================================ “PAN:AAIPM5326P / 2016-17 DATED:27.05.2016 To, G. Maria Augusteen, Prop. Of M/s. Gabrieal Enterprises No.24, (Old No.73/1), Thiruvengadpuram Main Road, Choolaimedu, Chennai – 600 094.
Sir, Sub: Asst. proceedings – AY 2009-10 – in the case of G. Maria Augusteen, PAN AAIPM5326P – reg. Ref: The letter dated 26.04.2016 ****
1. Please find enclosed herewith notice u/s.143(2) for A.Y.2009-10.
You are requested to furnish the following details:
i. Brief note on your business ii. Copy of return of income for A.Y. 2009-10 iii. Copy of computation of total income, Profit and Loss account and balance sheet along with enclosures. iv. Books of accounts v. Bank statements vi. Proof for claim of Chap VI-A deductions, if any
3. Reasons for reopening : Difference in sundry creditors balance.
Yours faithfully,
Sd/- (N. Nandini) Income Tax Officer Non Corporate Ward 13(5), Chennai – 34 ============================================
4. The Assessee raised objection vide letter dated 11.11.2016 that the Assessing Officer without having the information, how did the Assessing Officer come to a conclusion that the Assessee is having a difference in the sundry creditors balance and objected the re- opening of the assessment. The Assessing Officer in response to the objection stated that the Department had asked for details of sundry creditors vide letter dated 25.11.2016 but has not replied to the objection raised by the Assessee. Aggrieved, the Assessee preferred appeal before the CIT(A) but CIT(A) also could not provide any reason as to how the Assessing Officer has reached to the conclusion and provided a live link to the formation of the belief that income had escaped assessment. Aggrieved, the Assessee preferred a second appeal before the Tribunal.
Before us, the learned Counsel for the Assessee drew our attention to the relevant reasons supplied by the Assessee vide notice issued on 27.05.2016, (which are enclosed in the Assessee’s paper-book at page no.26) and the reasons stated at point no.3 which is already reproduced in the above paragraph. The learned Counsel for the Assessee, in view of the above stated that the assessment can be reopened only when the Assessing Officer has a reason, which is present in his mind when he forms his reason to believe and put in writing that income has escaped assessment but cannot be reopened on any hypothesis or contingency that may
:: 5 :: emerge in future. The learned Counsel for the Assessee relied upon on the following case-laws.
Hindustan Lever Limited Vs. R.B. Wadkar, 268 ITR 332 (Bom.) 2. Indra Prastha Chemicals (P) Limited Vs. CIT, 271 ITR 113 (All) 3. Vinodbhai Jivrajbhai Rabdiya Vs. ITO, 114 Taxmann.com 535 (Guj.) 4. Sharvah Multitrade Company (P.) Limited Vs. ITO, 134 Taxmann.com 134 (Bom.)
On the other hand, the learned Senior Departmental Representative could not rebut the above stated fact situation. Hence, he only relied on the order of the Assessing Officer and that of the CIT(A).
We have heard the rival contentions and gone through the facts and circumstances of the case. We noted that the only reason supplied to the Assessee, the reason for reopening is that “difference in sundry creditors balance”. Apart from this, the Assessing Officer has tried to substitute these reasons vide various future letters, i.e. calling for details in lieu of the letter issued by the Assessee raising objection vide letter dated 11.11.2016. The Department in response to this objection tried to explain the reasons, calling for details of sundry creditors vide letter dated 25.11.2016. We noted that this issue has been considered by the Hon’ble Gujarat High Court in the case of Vinodbhai Jivrajbhai Rabdiya Vs. Income Tax Officer (supra); wherein the Hon’ble Gujarat High Court considered the vital point of formation of the reason to believe and the existence of that reason must be in the present vide paragraph nos.3 & 4, as under:
“3. It was pointed out that in support of such submission, reliance had been placed upon the decision of the Bombay High Court in the case of DHFL Venture Capital Fund vs. ITO [2013] 34 taxmann.com 300/2017 Taxmann 116/358 ITR 471 (Bom.) wherein the court has held that the formation of the reason to believe and the existence of that reason must be in the present. Recourse can be taken to the provisions of Section 148 of the Act where the Assessing Officer has a reason in present, meaning thereby, a reason which is present to his mind when he forms his reason to believe that income has escaped assessment. Recourse to section 148 of the Act cannot be founded in law on a hypothesis of what would be the position in future should an appeal before the appellate authority result in a particular outcome. The statute does not contemplate the reopening of an assessment under section 148 of the Act on such a hypothesis or a contingency which may emerge in the future.
It was submitted that in the order rejecting the objections made by the petitioners, the Assessing Officer has not dealt with the above submissions of the petitioners, which is in breach of the principles of natural justice. Reliance was placed upon an unreported decision of this court in the case of Vadilal Gases Limited Vs. Union of India [2015] 64 Taxmann.com 56, wherein the court has placed reliance upon the decision of the Supreme Court in the case of Kranti Associates (P.) Limited vs. Masood Ahmed Khan [2010] 9 SCC 493, for the proposition that reasons have virtually become as indispensable a component of a decision making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies. Thus, reasons have been equated with the observance of principles of natural justice. Reliance was placed upon the decision of the Supreme Court in the case of Whirlpool Corporation vs. Registrar of Trade Marks AIR 1999 SC 22, wherein the court has held that the alternative remedy has been consistently held by the Supreme Court not to operate as a bar in at least three contingencies, viz. where the writ petition has been filed for the enforcement of any of the fundamental right or where there has been a violation of the principles of natural justice or where the order of proceedings are wholly without jurisdiction or the vires of an Act is challenged.”
In the present case, the reasons does not exist at all and the only reason supplied is reproduced above, i.e. “difference in sundry creditors”, but how income has escaped assessment and what is the difference, what is the quantification of the amount of difference, nature of sundry creditors, the Assessing Officer has not formed any belief that income has escaped assessment. Hence, on this very threshold, we quash the reopening and allow the appeal of the Assessee.
In the result, the appeal of the Assessee is allowed.
Order pronounced in the court on 11th April, 2022 at Chennai.