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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
आदेश /O R D E R PER MAHAVIR SINGH, VP:
This appeal by the assessee is arising out of order of the Commissioner of Income Tax (Appeals)-10, Chennai in ITA No.106/16-17/CIT(A)-10 dated 19.01.2018. The re-assessment order was passed by the ACIT, Non-Corporate Circle-9, Chennai for the assessment year 2009-10 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 30.11.2016. (During
I.T.A. No.1509/Chny/2018 2 the course of hearing, the ld.counsel for the assessee stated that this re-assessment order is wrongly mentioned by the AO as order u/s.143(3) of the Act, whereas this is order u/s.143(3) r.w.s.147 of the Act.) The original assessment order was passed by ACIT, Business Circle-VII, Chennai for the assessment year 2009-10 u/s.143(3) of the Act vide order dated 31.10.2011.
The first issue in this appeal of assessee is as regards to the order of CIT(A) confirming reopening of assessment despite the fact that reopening and assumption of jurisdiction u/s.147 of the Act is invalid. For this, assessee has raised following Ground Nos.2 to 6:- 2. The CIT (Appeals) erred in sustaining the re-assessment after rejecting e technical grounds raised questioning the validity of the assumption of jurisdiction u/s 147 of the Act without assigning proper reasonsand justification. 3. The CIT (Appeals) failed to appreciate that the order of re- assessment under consideration was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law and went wrong in recording the findings in this regard from para 4.3.2 to para 4.3.11 of the impugned order without assigning proper reasons and justification. 4. The CIT (Appeals) failed to appreciate that the lack of fresh materials and change of opinion on the part of the Assessing Officer would vitiate the assumption of jurisdiction u/s 147 of the Act while nullifying the consequential re-assessment order passed for the Assessment Year under consideration. 5. The CIT (Appeals) failed to appreciate that there was no failure on the part of the Appellant in disclosing the material facts for assessment and ought to have appreciated that having accepted the disclosure in relation thereto in the initial assessment, the proviso below
I.T.A. No.1509/Chny/2018 3 section 147 of the Act was completely overlooked while sustaining the validity of the re-assessment. 6. 7. The CIT (Appeals) failed to appreciate that the distinction between accounting for book purposes pertaining to incurring of expenses for kitchen equipments and the claim made for full deduction for income tax purposes was fully disclosed/captured and ought to have appreciated that in the light of the complete disclosure of material facts, the assumption of jurisdiction u/s 147 of the Act to pass the re- assessment was bad in law.
Brief facts are that the assessee is running a hotel and restaurant business. The assessee filed its return of income for the relevant assessment year 2009-10 on 29.09.2009. The original assessment was completed under scrutiny assessment u/s.143(3) of the Act by the ACIT, Business Circle-VII, Chennai vide order dated 30.10.2011 after making disallowance of Rs.6,00,000/- on the ground that assessee could not furnish supporting vouchers relating to expenditure incurred for the purpose of business other than self- made vouchers. This assessment was accepted by the assessee. Subsequently, a notice u/s.154 of the Act dated 18.12.2012 was issued for rectifying the mistakes apparent from record and the purposed rectification mentioned in the notice was, “wrong claim of capital expenditure as revenue expenditure”. This notice was replied by the assessee vide letter dated 14.01.2015 stating that during the financial year 2008-09 relevant to this assessment year 2009-10, the assessee has incurred expenses for a sum of
I.T.A. No.1509/Chny/2018 4 Rs.28,02,794/- towards repair to kitchen equipments and furniture by replacing the table top for dosa stone, dining tables and replacement of glasses etc. It was claimed that the expenditure is towards the stainless steel sheets for replacing the worn out sheets over the dining tables and dosa table tops, glass tops etc. The assessee explained that it was having different restaurant outlets at Triplicane, Velachery, Tiruvanmiyur, T.Nagar, etc., in addition to the Railway Station and IT office canteens. It was explained by the assessee that the above expenditure are in the nature of current repairs only and not in the nature of capital expenditure as alleged in the notice. The assessee in the reply letter has summarized the expenses as under:- The expenditure incurred were only in the nature of current repairs. No capital asset of enduring nature was created by the above expenditure. We have not claimed any depreciation on the above items which were claimed as revenue expenditure and the book depreciation was added back to the total income and depreciation was reworked for Income Tax purposes by excluding the above items from the additions. The treatment given by us in the books of account by treating the same as capital expenditure is not a conclusive or decisive factor in treating the expenditure as capital or revenue in nature. The Scrutiny Assessment u/s 143(3) was made only after considering the above issue. Further, the assessee vide letter dated 18.02.2015 again reiterated the same. The Revenue after taking these explanations has not
I.T.A. No.1509/Chny/2018 5 taken any action on the rectification notice issued by the Department. Subsequently, notice u/s.148 of the Act dated 11.03.2016 was issued, which was received by the assessee on 14.03.2016, for which the assessee requested the reasons for reopening and the same was supplied to the assessee on 17.03.2016. The reasons supplied by the Department are enclosed in assessee’s Paper-book at Page 21 and the relevant reads as under:- “The assessee firm in its computation of total income has reduced a sum of Rs.28,02,974/- under the head ‘Kitchen equipments repaired and replaced during the year written off fully’ while calculating Income from business and profession. They have, however, also shown additions in their depreciation schedule under the sub head ‘kitchen equipments’. This means that they have already capitalized expenses related to purchase of kitchen equipments. Also, there are no deletions in the depreciation schedule in this category to indicate that old items were discarded and replaced with new ones. The “additions” therefore seem to be new assets.
What is also pertinent to note is that Repairs and maintenance charges amounting to Rs.33,69,884/- have already been debited in the P&L account in addition to the Rs.28,02,794/- claimed by the assessee later on during Computation of income for tax purposes. The assessee has claimed this amount for a very specific purpose i.e. repair of kitchen equipments and their replacement. So if one were to argue that this is a revenue expense as it was just for repair, then it could have very well been debited in the P&L account along with the Repairs and maintenance charges. The assessee as mentioned earlier has already debited an amount of Rs.33,69,884/- under this head. If on the other hand it were replacement of kitchen equipments then it should have been shown as deletion from the asset schedule, followed by addition. But this not the case. Only additions have been shown which clearly indicates that no kitchen equipments were disposed off. Only new ones were purchased.
I.T.A. No.1509/Chny/2018 6 Thus, it is clear that for book purposes, the assessee has capitalized the acquisition of new kitchen equipments, but for calculating total income, they have taken it as a revenue expenses to reduce their tax liability. The decision the Hon’ble Supreme Court in the case of M/s.Sri Mangayarkarasi Mills P Ltd [315 ITR 114(SC)] is squarely applicable in this case, wherein the court has observed that: “it was clear from record that the assessee has sought to treat the said expenditure differently for the purpose of computing its profit and for the purpose of payment of Income Tax. The said expenditure had been treated as an addition to the existing assets in the former and as revenue expenditure in the latter. Though accounting practice may not be the best guide in determining the nature of expenditure, yet in the instant case they were indicative of what the assessee itself thought of the expenditure made on replacement of machinery; and that the claim of deduction under the Act was made merely to diminish the tax burden, and not under the belief that it was actually revenue expenditure.”
Therefore after going through all the material available on record, I have reason to believe that income chargeable to tax during the relevant assessment year has escaped assessment within the meaning of section 147.”
The assessee raised objections against the issuance of notice u/s.148 of the Act, reiterating the above facts which are replied vide notice issued for rectification u/s.154 of the Act by the Department. The assessee also claimed that the original assessment was framed u/s.143(3) of the Act and these details were available before the AO during the course of original assessment proceedings and there is no fresh material / tangible material for re-opening of assessment. It was also stated that the reopening is beyond 4 years, as the relevant assessment year involved is 2009-10 and notice u/s.148 of the Act was issued only on 11.03.2016 and assessment was framed
I.T.A. No.1509/Chny/2018 7 originally u/s.143(3), hence assessee’s case falls under proviso to section 147 of the Act. Once, the assessee case falls under the proviso to section 147 of the Act, the Revenue has to show the failure of the assessee to disclose the true and material facts for framing of assessment during the course of original assessment proceedings. But, in view of the reasons recorded there is no mention about any failure on the part of the assessee to disclose true and material facts rather the reason states that ‘reasons are recorded only from facts available on record’, But the AO rejected the objection of the assessee for reopening of assessment u/s.147 of the Act vide order dated 30.11.2016, whereby the AO disallowed the expenses claimed on account of repair to kitchen equipments as capital in nature instead of revenue as claimed by the assessee amounting to Rs.28,02,794/-. Aggrieved assessee challenged reopening before CIT(A).
The CIT(A) confirmed the action of the AO and particularly as regards to the proviso to section147 of the Act, the CIT(A) recorded his finding in Para 4.3.3 as under:- “4.3.3 In this regard it is noticed that the assessment has been reopened beyond a period of 4 years. Therefore, as per the first proviso to S.147, it is to be seen as to whether there has been a failure on the part of the appellant in disclosing its material facts fully and truly necessary for the assessment. At the outset I find that the appellant has accounted for the claim of write
I.T.A. No.1509/Chny/2018 8 off of kitchen equipments separately in the computation of income irrespective of the accounting made in the books. The said expenditure has been booked as capital expenditure in the books whereas in the computation it was claimed as revenue. Unless it is made apparent by the appellant that the same expenditure of Rs.28,02,794/- booked as capital expenditure in the books as addition to assets was the same expenditure claimed as written off in the computation without leaving much room for doubt, it can be held that the appellant firm had truly and fully disclosed such material fact necessary for the assessment. However, there is no such apparent clarification made available by the appellant firm, either in the return or in the Audit Report filed to infer that these material facts necessary for completion of assessment have been reflected by it.
Aggrieved against the order of CIT(A), assessee preferred an appeal before the Tribunal.
Before us, the ld.counsel for the assessee took us to the entire facts and stated that re-opening of assessment u/s.147 of the Act by the AO is carried out only in regard to expenses incurred by the assessee amounting to Rs.28,02,794/- towards repairs to kitchen equipments and furniture by replacing the table top for dosa stone, dining tables and replacement of glasses etc., in different restaurant outlets at Triplicane, Velachery, Tiruvanmiyur, T.Nagar, etc. The ld.counsel for the assessee stated that the claim of this expenditure of Rs.28,02,794/- was filed by the assessee during the course of original assessment proceedings framed by the AO u/s.143(3) of the Act and AO has disallowed a sum of Rs.6,00,000/- on adhoc basis after examining every aspect. Again the Department
I.T.A. No.1509/Chny/2018 9 has started rectification proceedings by issuing notice u/s.154 of the Act and assessee replied to the same and Department has not taken any action on the same. Apart from merits, ld.counsel for the assessee stated that the original assessment was completed by the AO u/s.143(3) of the Act vide order dated 31.10.2011 and notice u/s.148 of the Act was issued on 11.03.2016, which is clearly beyond 4 years. The ld.counsel for the assessee argued that the assessee’s case squarely falls under the proviso to section 147 of the Act. The ld.counsel for the assessee took us to the reasons recorded and stated that these reasons recorded by the AO are from the assessment records. As the assessee has filed details and books of accounts and profit & loss account before the Assessing Officer during the course of original assessment proceedings and the AO in the reasons recorded has nowhere mentioned or there is no iota of doubt created that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for its original assessment of that assessment year. The ld.counsel for the assessee stated that once there is no failure on the part of the assessee to disclose fully and truly all material facts and original assessment is framed u/s.143(3) of the Act and reopening is beyond 4 years, the same is not permissible as per proviso to section 147 of the Act. The ld.counsel for the assessee relied on the decision of
I.T.A. No.1509/Chny/2018 10 Hon’ble Supreme Court in the case of Indian & Eastern Newspaper Society Vs. Commissioner of Income Tax, (1979) 119 ITR 996 (SC).
6.1 The ld.counsel for the assessee further argued on other two propositions i.e., (i) change of opinion that the AO in earlier round has examined these expenses and no disallowance or addition was made. Hence, according to him on change of opinion also reopening is not possible. (ii) The ld.counsel for the assessee stated that in pursuance to audit objection, the revenue first started the rectification proceedings u/s.154 of the Act and the rectification proceedings were properly replied by the assessee in regard to the claim of expenditure of sum of Rs.28,02,794/- as revenue in nature towards repairs to kitchen equipments and furniture by replacing the table top for dosa stone, dining tables and replacement of glasses etc. the assessee explained that this expenditure is towards stainless steel sheets for replacing the worn out sheets over the dining tables and dosa table tops, glass tops etc. The ld.counsel for the assessee stated that this reopening is on the basis of audit objection and as per the reasons recorded there is no independent application of mind by the AO for recording reasons.
I.T.A. No.1509/Chny/2018 11 7. Since, the ld.counsel for the assessee has argued this reopening issue on these three facets, first we will take up whether the assessee’s case fall under first proviso to section 147 of the Act or not.
On the other hand, the ld.CIT-DR, heavily relied on the order of CIT(A) and argued that there was confusion from the accounts of the assessee because the assessee has booked this expenditure as capital expenditure in the books of accounts but the said expenditure has been claimed in the computation of income as revenue expenditure. The ld. Senior DR also relied on the order passed by the AO rejecting the objection for reopening of assessment u/s.147 of the Act dated 17.11.2016 and stated that the AO has duly considered the submissions of the assessee and rejected vide his letter dated 17.11.2016. The ld. senior DR relied on the decision of Hon’ble Supreme Court in the case of Girilal and Company vs. ITO, [2016] 387 ITR 122.
We have heard the rival contentions and gone through the facts and circumstance of the case. We have perused the papers filed by the assessee as well as the case records. The admitted facts are that the original assessment was completed u/s.143(3) of
I.T.A. No.1509/Chny/2018 12 the Act for the relevant assessment year 2009-10. The notice u/s.148 of the Act for reopening of assessment was issued on 11.03.2016 for the reasons that the assessee claimed a sum of Rs.28,02,974/- under the head “Kitchen equipments repair and replaced during the year written off fully” while computing income from business. Admittedly, during the course of original assessment proceedings, the AO disallowed adhoc business expenses of Rs.6,00,000/-. We have gone through the reasons recorded and noted that the AO has taken the reasons mainly from the audited accounts and the claim made by the assessee of expenses of Rs.28,02,794/- from the computation of income. The AO while recording the reasons has categorically noted that all these details are available on assessment records and the relevant line reads as under:- “Therefore after going through all the material available on record, I have reason to believe that income chargeable to tax during the relevant assessment year has escaped assessment within the meaning of section 147.”
9.1 We have gone through the reasons and noted that there is no charge levied by the AO that there is any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the relevant assessment year 2009-10. Rather, recording of reason clearly states that the assessee has disclosed
I.T.A. No.1509/Chny/2018 13 this fact in the return of income and computation of income as well as during the course of original assessment proceedings. The ld.counsel for the assessee before us also filed the computation of income, depreciation chart and audited accounts which clearly reveals that the assessee has made claim of kitchen equipments repair and replaced during the year written off fully amounting to Rs.28,02,794/-. Once this is the position, this issue is squarely covered by the decision of Hon’ble Supreme Court in the case of CIT vs. Foramer France, (2003) 264 ITR 566, wherein the Supreme Court has affirmed the decision of Hon’ble Allahabad High Court in the case of Foramer France vs. CIT, (2001) 247 ITR 436.
As regards to case law cited by ld. Senior DR, the Hon’ble Supreme Court in the case of M/s. Girilal and Company, supra stated that disclosure should be in return of income. We have gone through case law cited by ld. Senior DR and noted that the assessee has not correctly disclosed the actual asset of plots and hence, Hon’ble Supreme Court has rightly held that reassessment as valid because there was failure on the part of the assessee to disclose fully and truly material facts. But, in the present case before us the assessee has actually disclosed these expenses in the computation of income and even during the course of original assessment proceedings before the AO. The Hon’ble Allahabad High Court
I.T.A. No.1509/Chny/2018 14 decision, affirmed by Hon’ble Supreme Court, in the case of Foramer France, supra held that 14. Having heard learned counsel for the parties, we are of the view that these petitions deserve to be allowed.
It may be mentioned that a new Section substituted Section 147 of the Income-tax Act by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989. The relevant part of the new Section 147 is as follows : "147. If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this Section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under Sub-section (3) of Section 143 or this Section has been made for the relevant assessment year, no action shall be taken under this Section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year."
This new Section has made a radical departure from the original Section 147 inasmuch as clauses (a) and (b) of the original Section 147 have been deleted and a new proviso added to Section 147.
In Rakesh Aggarwal v. Asst. CIT (1997] 225 ITR 496, the Delhi High Court held that in view of the proviso to Section 147 notice for reassessment under Section 147/148 should only be issued in accordance with the new Section 147, and where the original assessment had been made under Section 143(3) then in view of the proviso to Section 147, the notice under section 148 would be illegal if issued more than four years after the end of the
I.T.A. No.1509/Chny/2018 15 relevant assessment year. The same view was taken by the Gujarat High Court in Shree Tharad Jain Yuvak Mandal v. ITO [2000] 242 ITR 612.
In our opinion, we have to see the law prevailing on the date of issue of the notice under Section 148, i.e., November 20, 1998. Admittedly, by that date, the new Section 147 has come into force and, hence, in our opinion, it is the new Section 147 which will apply to the facts of the present case. In the present case, there was admittedly no failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessment. Hence, the proviso to the new Section 147 squarely applies, and the impugned notices were barred by limitation mentioned in the proviso.”
In view of the decision of Hon’ble Allahabad High Court in the case of Foramer France which was affirmed by the Hon’ble Supreme Court, supra, we are of the view that in the present case the Revenue could not point out any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for relevant assessment year 2009-10, as the assessee has completely disclosed the facts relating to the claim of expenditure incurred towards repairs to kitchen equipments and furniture by replacing the table top for dosa stone, dining tables and replacement of glasses etc., for an amount of Rs.28,02,794/-. This expenditure is towards stainless steel sheets for replacing the worn out sheets over the dining tables and dosa table tops, glass top etc. In view of the fact that original assessment was completed u/s.143(3) of the Act for the assessment year 2009-10 and notice
I.T.A. No.1509/Chny/2018 16 u/s.148 of the Act was issued on 11.03.2016, which is beyond 4 years, we held that reopening is bad in law and hence, quashed.
Since we have quashed the reopening in term of the first proviso to section 147 of the Act, we need not adjudicate the other two alternative facets of argument made on account of reopening or the issue on merits. The appeal of the assessee is allowed.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 21st January, 2022 at Chennai.
Sd/- Sd/- (महावीर �सह ) (मनोज कुमार अ�वाल) (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) उपा�य� /VICE PRESIDENT लेखा सद�य /ACCOUNTANT MEMBER
चे�ई/Chennai, �दनांक/Dated, the 21st January, 2022 RSR आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� (अपील)/CIT(A) 4. आयकर आयु� /CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF.