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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI GIRISH AGRAWAL
आदेश /O R D E R आदेश आदेश आदेश
PER GIRISH AGRAWAL, AM:
This appeal by the Department is arising out of the order of Commissioner of Income Tax (Appeals)-1,Trichyin 19/CIT(A)-1/TRY dated 09.04.2019 against the assessment order framed bythe Income Tax Officer, Ward-3(2), Trichyfor the Assessment Year 2013 – 2014 u/s.143(3) r.w.s.147 of the Income- tax Act, 1961 (hereinafter ‘the Act’) dated 30.01.2019.
Before us, Mr. G. Jhonson, Sr. DR represented the Department and assessee was represented by Mr. T. Vasudevan, Advocate.
The Department has raised the following grounds:
i. The order of the learned CIT(A) is bad in law and contrary to the facts of the case. ii. The learned CIT(A) had failed to consider the decision of the Hon’ble High Court of Delhi in the case of the CIT Vs. M/s. Usha International Limited (2012) 348 ITR 485. iii. The learned CIT(A) had erred in not considering the decision of the Supreme Court in the case of KalyanjiMavji& Company Vs. Commissioner of Income Tax 102 ITR 287(SC)(1976) wherein it is held that there is no change of opinion if the assessment is reopened on new facts which came to notice subsequently, even though they are already on record.
Brief facts of the case are that the Assessee, Smt.
RamanathanVasanthaPriya is the proprietrix of Sri Ganesan Stores and Sri Ganesan Stores and Readymade located at No.35, N.S.B.
Road, Trichywho filed her return of income for the Assessment Year 2013-14 on 01.10.2013 reporting a total income of Rs.8,22,760/-.
The case was selected for complete scrutiny for the reason “large amount of sundry creditors”. Assessment u/s.143(3) of the Act was completed on 02.02.2016 by making estimated addition at the rate of 6% of Rs. 14,24,822/- for non-production of proper vouchers under the head “packing, tea & coffee expenses” amounting to Rs.1,14,322/- and assessing the total income at Rs.9,87,092/-.
5. Assessment was reopened u/s.147 of the Act by issuing notice u/s 148 of the Act, dated 23.03.2018 after recording the reasons and obtaining necessary approval. The reasons to believe recorded by the Ld. AO were furnished to the assessee which stated that the assessee had not furnished the details regarding sundry creditors and also failed to establish the genuineness of the liability during the course of assessment proceedings u/s 143(3) of the Act. Further, in order to verify the nexus of unsecured loan of Rs. 11,00,000/- and its utilization, the assessment was reopened. The assessee filed its objections and challenged the reopening by submitting detailed response and contended that the Ld. AO had already formed an opinion on the claim in respect of sundry creditors and nexus of unsecured loan in the course of original assessment proceedings u/s 143(3) of the Act itself. In the light of these submissions, assessee requested for the dropping of the reopening proceedings u/s 147 of the Act. The Ld. AO vide his order dated 16.11.2018 rejected the objections filed by the assessee and completed the reassessment by making an addition of Rs. 1,76,89,440/- towards sundry creditors and Rs. 11,00,000/- towards unsecured loan by treating them as unexplained.
Aggrieved, assessee carried the matter before the learned CIT(A) challenging the jurisdiction of the Ld. AO u/s. 147 of the Act and the additions made in the impugned reassessment.
In the course of appellate proceedings before the Ld. CIT(A), the assessee made submission on 05.04.2019, relevant extracts of which are reproduced as under :–
3.1 AR of assessee also pleads again appeared on 05.04.2019 and submitted that a) All creditors are trade creditors and corresponding purchases have been declared in profit and loss account & VAT returns. b) That these purchases have already been taken up in computation of profits for the year, and if at all any addition to be made for these can only be u/s. 41 of I.T Act as AO has accepted the books and the method of accounting. c) That in original assessment AO has seen the profit and loss account and that even the original/first assessment was to verify creditors and this CASS reason has been specifically mentioned by the AO in para-1,page-1 and hence this cannot be any reopening on the same ground.
4. AR also furnished copies of ledger accounts of sundry creditors of ShriGanesan Store &Readymades and ShriGanesan Stores to show that fresh credits appearing in the books only on account of purchases made were Rs.48.25 lakhs for Ganesan Stores &Readymades and Rs.47.64 lakhs for Ganesan Stores and that in any case the opening balances of credits cannot be added by the AO as has been done in this case.
Ld. CIT(A) found merits in the submission made by the assessee that the trade creditors have already been verified by the AO in the original assessment and are forming part of purchases in the P&L account and have been used to determine book profit. By placing reliance on the judicial precedents and keeping in view the fact that the original assessment was made specifically to verify the creditors, Ld. CIT(A) held in favor of the assessee by stating that AO cannot turn around and reopen the case for the same issue on which inquiry has been made earlier and in absence of any new information which clearly amounts to a change of opinion. In view of the submissions made by the assessee and in view of the decisions reported in the case of a) ITO v. Tech Span India Private Limited 302 CTR 74 (SC)
b) CIT, Salem v. P. Nithilan 403 ITR 154 (Madras) c) PCIT-VI, Chennai v. Santech Solutions P. Ltd. 97 taxmann.com 179 (Madras) and d) ACIT v. Lambda Therapeutic Research Limited 100 taxmann.com 81 (SC)
Ld. CIT(A) held that the re-assessment proceedings u/s.143(3) rws 147 of the Act are bad in law and accordingly annulled the assessment.
Aggrieved, Revenue is in appeal before the Tribunal on the grounds reproduced supra.
Mr. G. Johnson,Ld. Sr. DR vehemently argued the matter contending that the main reason for selection of the case for scrutiny assessment u/s 143(3) of the Act was to examine the large amount of sundry creditors for which reference was made to a screen shot placed on record giving details of the case selection. Ld. Sr. DR
stated that in the instant case, as evidenced from the records, the assessee has not furnished the details of trade creditors, viz. PAN, their assessment details, confirmation letters along with ledger copies. Similarly, for the unsecured loan also, the details viz. PAN, person from whom loan was obtained, rate of interest, date of loan, purpose of loan, nexus, utilization and confirmation letter were not furnished by the assessee. Information furnished by the assessee was not full and true and therefore it was not possible for the AO to examine the identity of the creditors and genuineness of the transaction. According to the Ld. Sr. DR, since this issue was not examined by the AO, it is a case of ‘no opinion’ and not a ‘change of opinion’ as claimed by the assessee. Ld. Sr. DR further submitted that the said reason for reopening of the case was not discussed in the original assessment order.
Ld. Sr. DR, through ground nos. 2 and 3placed strong reliance on the decisions as referred therein supra. To buttress his submission before us, he relied on the decision of Hon’ble High Court of Madras in the case of Cognizant Technology Solutions India P. Ltd. v. ACIT (LTU) Chennai in WP No. 2024 of 2016, dated 18.08.2021.
Mr. T. Vasudevan, Ld. Counsel for the assessee challenged the reopening of assessment u/s 147 of the Act and contended that the Ld. AO had already formed an opinion on the claim of creditors and nexus of unsecured loan during the course of original assessment
proceeding itself. Ld. Counsel pointed out from the impugned reassessment order that the case was originally selected for complete scrutiny for the reason “large amount of sundry creditors”.
A typeset of papers was submitted during the course of hearing containing fourteen sheets which are placed on record. From page 2 to 4 of these papers, Ld. Counsel referred to the two submissions at dated 20.07.2015 and 29.01.2016 made in the course of original assessment proceedings u/s 143(3) pointing out the details furnished. Ld. Counsel further pointed from the order u/s 143(3) dated 02.02.20216placed at page 5 to demonstrate that Ld. AO had examined the issue under consideration. Relevant extracts from page 2 of the assessment order u/s 143(3) are reproduced as under –
“The representative appeared from time to time with all the details called for. During the course of hearing, for claim of creditors, the assessee’s representative has stated that the purchase of material/goods from the sellers was always only on credit basis, thus, the assessee has shown huge amount of sundry creditors in the balance sheet. The books of accounts with vouchers produced have been examined.”
Ld. Counsel invited the attention of the Bench to the ‘reasons to believe’ recorded by the Ld. AO for initiating the reassessment proceedings which is reproduced as under –
“On examination of the financial statements annexed to the Income tax return along with submissions filed by the assessee for the AY 2013-14, the following issues emerge-
(ii) Unexplained sundry creditors – It is found from the details available on record that the assessee has admitted Rs.
2,27,94,928/- towards Sundry Creditors, i.e. Rs. 98,18,790/- in respect of M/s. Ganesan Stores and Rs. 1,29,76,138/- in respect of M/s. Ganesan Stores and Readymades. The assessee has not furnished any details in this regard and thus failed to establish the genuineness of the liability, viz. PAN, assessment details, confirmation letters along with Ledger extracts.
(ii) Unsecured Loan – It is observed from the Balance sheet for the year ending 31.3.2012 that the unsecured loan was admitted at Rs. 6,00,000/- and Rs. 11,00,000/- for the yean ending 31.3.2013. The assessee has failed to establish the genuineness of the unsecured loan by not providing any details in this regard, viz. the purpose of loan, nexus, utilization and confirmation letters etc.
In view of the above, I have reasons to believe that the assessee has understated his income for AY 2013-14 and the amount of income understated is more than Rs. 1,00,000/-
…………..”
11.1 On the above reasons recorded, Ld. Counsel submitted that Ld. AO initiated the proceedings u/s 148 by merely on examination of the financial statements annexed to the Income tax return and submission already on record without bringing anything new tangible material to review his own assessment completed u/s 143(3) of the Acttantamounting to change of opinion which is not permissible under the law.
11.2 Ld. Counsel referred to para 3 and 4 of the order of Ld. CIT(A) to point out the submission made by it on 05.04.2019 which is reproduced above. It was contended by the Ld. Counsel that the Ld. CIT(A) considered the submissions of the assessee and rightly found merit in the case to allow the appeal of the assessee by referring to para 8 and 9 of his order wherein he held that “AO cannot turn around and reopen the assessee’s case for the same issue on which inquiry have been made earlier and in absence of any new information this will clearly amount to a change of opinion.”
We have heard the rival contentions, gone through the material on record and have given thoughtful consideration to the issue in hand which relates to ‘change of opinion’ by the Ld. AO while initiating the proceedings u/s 148 rws 147 of the Act. On the perusal of ‘reasons to believe’ recorded (reproduced supra), we note that these have been recorded by the Ld. AO on the basis of assessment records available with him. In the facts and circumstances of the case before us, to deal with the jurisdictional issue, we are required to examine whether there was any fresh tangible material in the possession of the AO at the time of recording of the 'reasons to believe'.
12.1 In the present case, it is noticed by us that the case of the assessee is that there was no fresh tangible material in the possession of Ld. AO at the time of recording of impugned reasons which starts with “On examination of the financial statements annexed to the Income tax return along with submissions filed by the assessee for the AY 2013-14, the following issues emerge-…”
[emphasis supplied by us].
12.2 A perusal of the 'reasons to believe' recorded by the Ld. AO in this case reveals that at the time of recording of these 'reasons', the Ld. AO had examined the original assessment records only and no fresh material had come in his possession. In response to our specific query and based on case records produced before us, Ld.Sr.
DR could not point out any fresh material available with the AO at the time of reopening of the case of the assessee. Thus, assertion of the assessee that there was no fresh material with AO for reopening of this case, remained uncontroverted.
12.3 We refer to the two submissions dated 20.07.2015 and 29.01.2016 made by the assessee in the course of original assessment proceedings u/s 143(3) pointing out the details furnished. We also note from the assessment order u/s 143(3) dated 02.02.20216, which demonstrates that the Ld. AO had examined the issue under consideration. Relevant extracts from page 2 of the assessment order u/s 143(3) are reproduced as under – “The representative appeared from time to time with all the details called for. During the course of hearing, for claim of creditors, the assessee’s representative has stated that the purchase of material/goods from the sellers was always only on credit basis, thus, the assessee has shown huge amount of sundry creditors in the balance sheet. The books of accounts with vouchers produced have been examined.” It can thus be seen that during the original assessment, the Ld. AO had asked the assessee to clarify the issue of large sundry creditors and furnish the details. It is true that in the order of assessment u/s 143(3) of the Act, the Ld. AO had not elaborated much on this aspect but had not made any disallowance or addition in the hands of the assessee which would not by itself mean that the same was not scrutinized or that the Ld. AO had not formed an opinion with respect to the same.We refer to decision of Hon’ble Gujarat High Court in the case of Gujarat Power Corpn.
Ltd.v. Asstt. CIT [2013] 350 ITR 266 (Guj) which observed that if after detailed scrutiny during the assessment, the Assessing Officer examines a claim but does not reject the claim of the assessee which had come up for scrutiny, would not enable the Revenue to argue
Assessing Officer had not formed any opinion on such issue and, therefore, reopening of the assessment would be permissible without there being any new or additional material available to the Assessing Office.
12.4 To examine the issue of ‘change of opinion’ before us under the present facts and circumstances we refer and look at the settled position of law wherein it has been held in various judgments by various courts that availability of fresh tangible material in the possession of AO at the time of recording of impugned reasons is a sine qua none, before AO can record reasons for reopening of the case. In the judgment of Hon'ble Supreme Court in the case of CIT v.
Kelvinator India Ltd. [2010] 320 ITR 561 it is laid down that for reopening of the assessment, the AO should have in his possession 'tangible material'. The term 'tangible material' has been understood and explained by various courts subsequently. There has been unanimity of the courts on this issue that in absence of fresh material indicating escaped income, the AO cannot assume jurisdiction to reopen already concluded assessment. Relevant extracts from the said judgment of Hon’ble Supreme Court (supra) are as under –
4. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back
147 of the Act [with effect from 1st April, 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-1st April, 1989, power to re-open 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 re- open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of 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 1st April, 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 live 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 omission of the words "reason to believe", Parliament re- introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote herein below the relevant portion of Circular No.549 dated 31st October, 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 of the words `reason to believe' from Section 147 and their substitution by 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 Act, 1989, has again amended section 147 to reintroduce the expression `has reason to believe' in place of the words `for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same."
For the afore-stated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs.
12.5 Hon'bleJurisdictional High Court of Madras in the case of Bapalal& Co. Exports v. Jt. CIT [2007] 289 ITR 37held that in the absence of any new material, the AO is not empowered to reopen an assessment irrespective of the fact whether it was made under sections 143(1) or 143(3) of the Act.
12.6 In the case of Orient Craft Ltd. [2013] 354 ITR 536(Delhi), it was observed by Hon'ble Delhi High court that in the said case, reasons for reassessment disclosed that AO reached belief that there was escapement of income "on going through the return of income" filed by assessee after he accepted return u/s. 143(1) without scrutiny, and nothing more. In these facts, it was held by the Hon'ble High Court that it was nothing but review of earlier proceedings and abuse of power by AO. It was further held that since there was no whisper in reasons recorded, of any tangible material which came to possession of AO subsequent to issue of intimation, therefore, it was an arbitrary exercise of power conferred u/s. 147. Thus, reopening was held to be invalid on this ground itself.
12.7 Whether the reasons furnished for reopening of assessment is change of opinion or the AO has reason to believe is to be decided independently as the facts and circumstances of each case differs from one another. In the present case before us, we note that the reasons recorded starts with “On examination of the financial statements annexed to the Income tax return along with submissions filed by the assessee for the AY 2013-14, the following issues emerge-…”and that there is no reference to any new tangible material which has come to the possession of the Ld. AO before recording of the impugned reasons to believe for initiating the proceedings u/s 148 of the Act.Therefore, in the present case before us, it is clear that the action of the Ld. AO tantamount to reviewing the action of the earlier AO who has verified the claim of sundry creditors for which the case of the assessee was selected for scrutiny assessment u/s 143(3) of the Act. We find that in the instant case, original assessment order was passed after the examination of issue under consideration and the same has been reopened for reassessment without bringing any new and fresh tangible material on record which amounts to nothing but a mere change of opinion.
The reopening shall be made only if new tangible material is available on record.Accordingly, this being the case of ‘change of opinion’, theLd. AO lacks jurisdiction u/s 147 of the Act to reopen the completed assessment u/s 143(3) of the Act dated 02.02.2016. In the light of the aforesaid discussion, we hold that the Ld. CIT(A) has rightly appreciated the contentions raised by the assessee in respect of legal ground taken by the assessee on the validity of reopening of the completed assessment and has rightly held the action of the Ld. AO to be bad in law.
In respect of reliance placed by Ld. Sr. DR on the decision of Cognizant Technology Solutions India P. Ltd. v. ACIT (LTU) Chennai (supra), having gone through it carefully, it is noted that the said decision relates to writ petition by the assessee on the order disposing the objections filed by the assessee on the initiation of proceedings u/s 148 of the Act on the reasons to believe recorded for reopening of the assessment. Present case before this Tribunal is an appeal against the assessment order passed by Ld. AO u/s 147 of the Act. Disposal of objections submitted by the assessee on the reasons furnished cannot be compared with the final assessment / reassessment orders passed after complete adjudication of disputed
facts and the material available on record. Thus, a clear distinction can be drawn in this regard and the reliance placed on the decision by the Ld. Sr. DR goes in vain. Further, the decision relied upon by the Ld. Sr. DR is under a writ jurisdiction by a single judge bench dated 18.08.2021. As counter to the said decision, Ld. Counsel of the assessee placed reliance on the decision of a Division Bench of the same Hon’ble Jurisdictional High Court in the case of DRS Industries Private Limited v. DCIT (Central Circle – 1) Coimbatore vide W.A. No. 1494 of 2021, dated 09.08.2021 which was under the appellate jurisdiction. As observed from the copy of judgment, this appellate decision was not cited before the single judge bench in the writ petition decision of Cognizant Technology Solutions India P. Ltd (supra) being of later date.
LD. DR submitted that the AO had reason to believe that reopening of assessment is necessary to consider an issue, which was never dealt with in the regular proceedings is legally sustainable. We find that in the present case, the reason to believe recorded relates to escapement of income on account of examination of sundry creditors and unsecured loans and the original assessment proceeding u/s 143(3) was also taken up for the limited and specific reason of examination and verification of “large amount of sundry creditors”.
Thus, the decision of Hon’bleMadras High Courtin Cognizant Technology Solutions India P. Ltd (supra)relied upon by the Ld. Sr. DR is distinguishable on factual matrix also.
14. Revenue vide its ground no. 3 (reproduced supra) has contested that Ld. CIT(A) has not considered the decision of theHon’ble Supreme Court in the case of KalyanjiMavji& Company v.
CIT [1976] 102 ITR 287 (SC)wherein it is held that there is no change of opinion if the assessment is reopened on new facts which came to notice subsequently, even though they are already on record.
14.1 In this respect, we respectfully refer to the judgment of the Hon’ble Apex Court in the case of Indian & Eastern Newspaper Society v. CITreported in [1979] 2 Taxman 197 (SC) which dealt with the judgment of KalyanjiMavji& Company v. CIT(supra) in paragraph 14 and held as under:
Now, in the case before us, the Income Tax officer had, when he made the original assessment, considered the provisions of sections 9 and 10. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion of material already considered by him. The Revenue contends that it is open to him to do so, and on that basis to reopen the assessment under section 147(b). Reliance is placed on KalyanjiMavji& Co. v. Commissioner of Income Tax, where a Bench of two learned Judges of this Court observed that a case where income had escaped assessment due to the "oversight, inadvertence or mistake" of the Income Tax officer must fall within section 34(1) (b) of the Indian Income Tax Act, 1922. It appears to us, with respect, that the proposition is stated too widely and travels farther than the statute warrants in so far as it can be said to lay down that if, on reappraising the material considered by him during the original assessment, the Income Tax officer discovers that he has committed an error in consequence of which income has escaped assessment it is open to him to reopen the assessment. In our opinion, an error discovered on a reconsideration of the same material (and not more) does not give him that power. That was the view taken by this Court in Maharaj Kamal Singh v. Commissioner of Income Tax (supra), Commissioner of Income Tax v. Raman and Company (supra) and Bankipur Club Ltd. v. Commissioner of Income Tax. and we do not believe that the law has since taken a different course. Any observations in KalyanjiMavji& Co. v Commissioner of Income Tax (supra) suggesting the contrary do not, we say with respect, lay down the correct law. 14.2 Revenue has placed reliance upon a judgment delivered by the Hon'ble Supreme Court of India in the case of KalyanjiMavji& Co., v.
CIT, West Bengal (supra), however, the apex Court in the case of Indian & Eastern Newspaper Society (supra) after taking into account the judgment delivered in the case of KalyanjiMavji& Co.
(supra) has held that observation in KalyanjiMavji& Co. (supra) do not lay down the correct law and that change of opinion does not empower the Assessing Officer to reopen the assessment and, therefore, the judgment relied upon by the Ld. Sr. DR is of no help to the Department. In the light of above finding by the Hon’bleSupreme
Court in its later judgment of Indian & Eastern Newspaper Society v.
CIT (supra), the said ground taken by the Revenue cannot be upheld. It is accordingly, dismissed.
Considering the facts and circumstances of the case in the light of judicial pronouncements (supra) referred above and the fact that no adverse material was produced before us to controvert the finding of Ld. CIT(A), we uphold the order of Ld. CIT(A).
In the result, the appeal of the Department is dismissed. Order pronounced in the court on 31st March,2022at Chennai.