KUMARAGIRI STEELS LTD.,CHENNAI vs. DCIT, CHENNAI

1. 1. The order of The Commissioner of Income Tax (Appeals)-II, Chennai-600034 dated 28.03.2014 in for the above mentioned Assessment Year is contrary to law, facts, and in the circumstances of the case.

Ld. AR of the assessee submitted that at the time of initiation of reassessment proceedings u/s.147 of the Act and issuing notice u/s.148 of the Act, there was no new tangible material in the hands of the AO which was not before him at the time of original assessment. He submitted that the fundamental requirement of initiation of reassessment proceedings and issuing notice is that there should be new tangible material in the hands of the AO and on the basis of such material, he must have reason to believe that income pertaining to that particular assessment year as escaped assessment. In absence of such requirement, initiation of reassessment proceedings and notice u/s.148 of the Act has to be held as bad in law and invalid, therefore, the impugned reassessment order and all consequent orders may kindly be quashed.

Replying to the above, ld. Sr. DR drew our attention towards copy of the order dated 22.10.2010 by which the AO rejected the objection petition vide dated 05.10.2010 of the assessee against initiation of reassessment proceedings and issuance of notice u/s.148 of the Act. Ld. Sr. DR also submitted that in this year the AO has recorded the reasons for initiation of reassessment proceedings, therefore, legal contention of the ld. AR of the assessee are not tenable and, thus, the same may kindly be dismissed 5. On careful consideration of rival submissions, first of all, we may point out the observations of the Hon’ble Supreme Court in the case of Commissioner of Income Tax vs. Kelvinator of India Ltd. [2010] 320 ITR 561, wherein the Hon’ble Supreme Court has held that the concept of Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen an assessment, 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. In this context, the observations of Hon’ble apex Court at page 564 are very relevant, which are reproduced as follows: “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 reassess. The Assessing Officer has no power to review; he has the power to re-assess. But reassessment 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 re-open, 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. “ 6. Therefore, this is a basic requirement of law that at the time of initiation of reassessment proceedings u/s.147 of the Act and issuing notice u/s.148 of the Act, the AO must have new tangible material in his hands and on the basis of such material, he has to record reason to believe that some income has escaped assessment for the relevant assessment year. This is a mandatory requirement which is required to be complied with otherwise initiation of reassessment proceeding and issuing of notice has to be held as bad in law and invalid. In the present case, as AO in the first page of reassessment order passed u/s.143(3) r.w.s.147 of the Act dated 31.12.2012, which reads as under :- “The assessee company filed the return of income on 28/11/2006 admitting NIL return. The return was processed u/s.143(1) on 10/7/2009. This case was reopened by issuing notice u/s.148 on 6/1/2010 for the following reasons : “The assessee stopped its business activities from the year 1994. The assessee has no income other than sundry creditors written back. Hence, as per sec.72, carry forward business loss cannot be set off when there is no business activity. Land, building and plant and machinery whose value as per books is ₹1,10,88,186/- has been transferred for only ₹13.5 lakhs and claimed long term capital loss. Factory building has been sold for ₹1,12,814/-“ 7. From the vigilant and careful reading of above reasons, we are unable to see any mention by the AO regarding any new tangible material which was not before him while processing the original assessment order u/s.143(1) of the Act. Even we are unable to see any noting of the AO that any other income chargeable to tax has escaped assessment which came to notice subsequently by way of new tangible material, therefore, he has reason to believe that income has escaped assessment for that particular assessment year.

In view of the above observations, we are compelled to hold that the reasons recorded by the AO while initiation of reassessment proceedings u/s.147 of the Act and issuance of notice u/s.148 of the Act not sufficient to substantiate that there was a new tangible material in the hands of the AO at the time of initiation of reassessment proceedings and, thus, he had reason to believe that some income has escaped assessment for that particular assessment year. We may also point out that the reasons recorded by the AO cannot be improved by taking into consideration other material such as order passed by the AO while rejecting objections of the assessee against initiation of reassessment proceedings u/s.147 of the Act. Therefore, we have no hesitation to hold that the facts and circumstances of the present case are squarely covered by the order of the Hon’ble Supreme Court in the case of Commissioner of Income Tax vs. Kelvinator of India Ltd. (supra) and various other judgments including the judgment of the Hon’ble jurisdictional High Court of Madras dated 11.07.2019 in the case of Tenzing Match Works Vs. DCIT (MADHC)-TCA No.702/2009 as vehemently relied upon by the ld. AR of the assessee and another decision of the Hon’ble High Court of Delhi in the case of CIT Vs. Orient Craft Ltd. (DEL-HC), 354 ITR 536 (Delhi). In these judgments, Their Lordships speaking that Hon’ble High Court has also referred to the various judgments including the judgment of Hon’ble Supreme Court in the case of Commissioner of Income Tax vs. Kelvinator of India Ltd. (supra). Consequently, the impugned reassessment order passed u/s.143(3) r.w.s.147 of the Act, dated 31.12.2010 and notice u/s.148 of the Act and all consequent orders and proceedings are held as bad in law, invalid and, thus, the same are quashed. Accordingly, ground Nos.1 to 3 are allowed.

Since by the earlier part of this order, we have quashed reassessment order and all consequent orders and proceedings, Nos.4 to 17 of assessee have become infructuous and, thus, we are not adjudicating the same.

In the result, appeal of the assessee is allowed on legal grounds. Order pronounced in the open court on 21/02/ 2022. Sd/- Sd/- (MANJUNATHA G) (C.M.GARG) लेखा सद�य /ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER Chennai; �दनांक Dated 21/02/2022 Prakash Kumar Mishra, Sr.P.S.(on tour) आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant- 1. M/s Kumaragiri Steels ltd. 235, Mint Street, Park Town, Chennai-600003 ��यथ� / The Respondent- 2. The DCIT, Company Circle-II(4) Chennai आयकर आयु�त(अपील) / The CIT(A), 3. आयकर आयु�त / CIT 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, Chennai / DR, 5. ITAT, Chennai गाड� फाईल / Guard file. 6. स�या�पत ��त //True Copy// आदेशानुसार/ BY ORDER,