ANILKUMAR BABULAL RUNTHALA,AHMEDABAD vs. THE DCIT, CIRCLE-2(2)(1), AHMEDABAD

PDF · subscribers
ITA 1188/AHD/2024Status: DisposedITAT Ahmedabad17 March 2025AY 2012-135 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the reopening of the assessment under Section 147 of the Income Tax Act, 1961, was bad in law. The Tribunal observed that the assessment order indicated the AO's reasons for reopening were based on 'verification of the case records', suggesting no new information or tangible material had come into the AO's possession. The Tribunal found that the AO had not provided any triggering factor for re-examining the already concluded scrutiny assessment under Section 143(3). It was emphasized that reopening must be based on a bonafide belief stemming from tangible material or reliable information, and not merely a change of opinion. The Tribunal relied on the Supreme Court's decision in CIT Vs. Kelvinator of India, which held that after the substitution of Section 147, the AO has the power to reopen only if there is 'tangible material' to conclude that income has escaped assessment, and the reasons must have a live link with the formation of the belief. Consequently, the impugned assessment order was quashed, and the additions stood deleted. The appeal of the assessee was allowed.

What were the facts?

The assessee, Anilkumar Babulal Runthala, engaged in cotton yarn trading, filed a return for Assessment Year 2012-13 declaring income of Rs. 14,85,170. The assessment was initially completed under Section 143(3) at Rs. 15,90,110. Subsequently, the assessment was reopened under Section 147. The Assessing Officer (AO) believed income had escaped assessment because the assessee claimed an expenditure of Rs. 13,97,010 related to running a cotton yarn mill, including electricity expenses, despite being primarily involved in trading. The assessee contended they were also involved in running the mill and job work, and the net expenditure was Rs. 9,79,280. The AO rejected this, stating the audit report indicated only trading activity and that the gross expenditure of Rs. 13,97,010 was claimed. The AO added Rs. 13,97,010 to the total income. The assessee appealed to the CIT(A), who upheld the AO's order. The assessee then appealed to the ITAT.

What were the issues?

1. Whether, on facts and in circumstances of the case and in law, the Learned CIT(A) has erred in confirming the disallowance of business expenses of Rs. 13,97,010/- under Section 37 of the Income Tax Act, 1961. 2. Whether, on facts and in law, the Learned Assessing Officer has erred in issuing notice under Section 148 of the Income Tax Act, 1961. Assessee's Contentions: On the issue of reopening, the assessee argued that the AO's reasons for reopening were not based on any new information or tangible material. The AO merely re-examined the existing assessment records without any triggering factor, amounting to a 'change of opinion', which is impermissible. The assessee relied on the Supreme Court decision in CIT Vs. Kelvinator of India. Revenue's Contentions: The judgment does not explicitly record the revenue's contentions on the validity of the reopening. On the merits of the disallowance, the revenue's position was that the assessee was only involved in trading as per the audit report, and therefore, the expenditure claimed for running a mill was not allowable.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 147,Section 148,Section 37

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD

Before: SHRI SANJAY GARG

For Appellant: Shri Maulik Kansara, AR
For Respondent: Smt. Mamta Singh, Sr. DR
Pronounced: 25.02.2025

The present appeal has been filed by the Assessee against the order passed by the Learned Commissioner of Income Tax (Appeal), Ahmedabad/ National Faceless Appeal Centre (NFAC), Delhi dated [hereinafter referred to as “CIT(A)”] 16.05.2023 arising in the matter of assessment order passed u/s.143(3) r.w.s 147 of the Income Tax Act, 1961 (here-in- after referred to as “the Act”) relevant to the Assessment Year 2012-13.

2.

The Assessee has taken the following grounds of appeal:-

1. Whether, on facts and in circumstances of the case and in law, Ld.CIT(A) has erred in law in confirming disallowance of business expenses of Rs.13,97,010/- as u/s.37 of the Act.

2. Whether, on facts and in law, Ld. Assessing officer has erred in issuing notice u/s.148 of the Act. Further, appellant craves leave to add, amend, alter or withdraw all or any ground of appeal.

3. The brief facts of the case are that the assessee is engaged in the trading of cotton yarn. The assessee filed return of income declaring total income at Rs.14,85,170/- The assessment was carried out u/s.143(3) of the Income Tax Act and the income of the assessee was assessed at Rs.15,90,110/- Consequently, the assessment was reopened u/s. 147 of the Act on the ground that the assessee had claimed an expenditure of Rs.13,97,010/- relating to running of cotton yarn mill which included the electricity expenses also, however, the assessee was involved in trading activity only. In the re-assessment proceedings, the assessee submitted that the assessee during the year was also involved in running of aforesaid mill and job work of yarn etc. That the net expenditure claimed by the assessee in the profit and loss was of Rs.9,79,280/- and not of Rs.13,97,010/-. The Assessing Officer, observed that since the assessee was in trading and not in the job work/milling etc. as per the Audit Report, therefore, the claim of the assessee that it had incurred the aforesaid expenditure on job work was not correct. He also rejected the contention of the assessee that the net expenditure claimed in the profit and loss account was Rs.9,79,280/- and not Rs.13,97,010/-, observing that the assessee had claimed the gross expenditure of Rs.13,97,010/- . He accordingly held that the income of the assessee to the tune of Rs. 13,97,010/- had escaped assessment and added the same to the total income of the assessee.

4.

Being aggrieved by the said order of the Assessing Officer, the assessee filed an appeal before the Ld.CIT(A), but remained unsuccessful.

5.

Before this Tribunal, the assessee has not only contested the addition made by the Assessing Officer on merits but has also raised the legal issue on the validity of the reopening of the assessment.

6.

I have heard the rival contention of both the parties. A perusal of the assessment order reveals that the Assessing Officer has mentioned therein the reasons recorded for reopening to the assessment. On perusal of the aforesaid para No. 2 of the order reveals that no new information had come to the knowledge and possession of the Assessing Officer to form the belief that the income of the assessee had escaped assessment. The opening lines mentioned by the Assessing Officer are that “ verification of the case records, it is seen that the assessee…..”. Thus, from perusal of the above observation of the Assessing Officer, it is clear that no new information or tangible material had come to the knowledge of the Assessing Officer prompting him to re-appreciate the assessment records of the assessee. It is totally missing as to what prompted the Assessing Officer to re verify the assessment records. It has been held time and again that though, the powers of the Assessing Officer are wide enough to reopen an assessment where he has a reasons to believe that the income of the assessee has escaped assessment, however, it has also been time and again held that such reason to believe must be based on some tangible material or reliable information coming into the hands of the Assessing Officer making the Assessing Officer to believe that the income of the assessee has escaped assessment. The Assessing Officer has not been given unbridled powers to reopen the assessment in any case at his whims and wishes without any triggering factor to re-examine the records of already concluded scrutiny assessment u/s. 143(3) of the Act. The reason must be based on bonafide belief of the Assessing Officer and it cannot be mere pretence of the Assessing Officer to say that he has a reason to believe. The reopening merely on change of opinion is not permissible. The issue is squarely covered by the decision of the Hon’ble Supreme Court in the case of CIT Vs. Kelvinator of India reported in [2010]187 taxmann 312 (SC) wherein it was held as under:

“…Section 147 of the Income-tax Act, 1961 - Income escaping assessment - General - Whether after substitution of section 147 by Direct Tax Laws (Amendment) Act, 1987, concept of 'change of opinion' must be treated as an in-built test to check abuse of power by Assessing Officer - Held, yes - Whether, therefore, after 1-4-1989, Assessing Officer has power to reopen, provided there is 'tangible material' to come to conclusion that there is escapement of income from assessment; reasons must have a live link with formation of belief - Held, yes…”

7.

Therefore, the reopening of the assessment in this case is held as bad in law, hence, the impugned assessment order is hereby quashed, consequentially, the impugned additions stand deleted. The appeal of the assessee is allowed.

8.

In the result, the appeal filed by the assessee is allowed.

This Order pronounced in Open Court on 17.03.2025

More judgments on Section 147

All 49,210 judgments and leading authorities on Section 147 →

Latest GST High Court judgments

Search GST case law →