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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: HON’BLE SHRI V. DURGA RAO & HON’BLE SHRI G. MANJUNATHA
आदेश / O R D E R
PER G. MANJUNATHA, ACCOUNTANT MEMBER:
1. This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-13, Chennai, dated 18.09.2017 and pertains to AY 2011-12.
The brief facts of the case are that the assessee is an individual and partner of M/s.Gokulam Auto Finance & Consultancy, Arcot had filed his return of income for the AY 2011-12 on 17.07.2011 declaring total income of Rs.2,49,000/- and said return was processed u/s.143(1) of Income Tax Act, 1961 (in short “the Act"). The case has been, subsequently, reopened u/s.147 of the Act for the reasons recorded, as per which, income chargeable to tax escaped assessment on account of cash deposits into back account and hence, notice u/s.148 dated 21.10.2014 was issued. In response, the assessee’s representative filed a letter dated 17.11.2014 and requested to consider the return already filed on 17.07.2011 may be treated as return filed in response to the notice issued u/s.148 of the Act.
Further, the assessee had requested to furnish the reasons recorded for reopening of assessment. The AO vide letter dated 18.11.2014 communicated the reasons recorded for reopening of assessment.
Thereafter, the AO had issued notices u/ss.143(2) & 142(1) of the Act on various occasions and called upon the assessee to file necessary details to justify the cash deposits into bank accounts. The assessee’s representative vide letter dated 27.06.2015 filed assessee’s objections for re-assessment proceedings. Thereafter, the AO issued one more letter on 13.07.2015 and called upon the assessee to furnish various details. In response, the assessee has filed various details and justified cash deposits into bank account and also argued that reopening of assessment is merely on change of opinion, because in the original assessment proceedings, the AO had examined cash deposits found in bank account and accepted the explanation furnished by the assessee. The AO, however, was not convinced with the explanation furnished by the assessee and according to him, the assessee is not able to justify the cash deposits found in the savings bank account and thus, rejected arguments of the assessee and made the additions of Rs.1,51,79,950/- u/s.69 of the Act as unexplained investment.
The assessee carried the matter in appeal before the Ld.CIT(A).
Before the Ld.CIT(A), the assessee has challenged the reopening of assessment on multiple grounds including non-disposal of objections filed by the assessee in light of the decision of the Hon’ble Supreme Court in the case of M/s.GKN Driveshafts (India) Ltd. v. ITO reported in (2003) 259 ITR
The assessee had also challenged the reopening on change of opinion.
The Ld.CIT(A) after considering the submissions of the assessee has rejected the legal ground taken by the assessee challenging reopening of assessment by observing that the AO has formed reasonable belief of escapement of income which is supported by tangible material in the form of bank account maintained by the assessee with bank which is found with huge cash deposits and thus, the arguments of the assessee that the AO has reopened the assessment based on audit objection is incorrect.
Accordingly, rejected the legal ground taken by the assessee. As regards, additions made towards cash deposits in savings bank account u/s.69 of the Act, the Ld.CIT(A) has rejected the ground taken by the assessee on the ground that the assessee has not raised any ground challenging additions made by the AO.
The assessee carried further appeal before the ITAT and challenged reopening of assessment on multiple grounds and also additions made towards cash deposits into savings bank account u/s.69 of the Act. The ITAT in 22.06.2018 has not adjudicated legal ground taken by the assessee challenging reopening of assessment. However, set aside the appeal to the file of the Ld.CIT(A) to decide the issue on merits in respect of additions made towards cash deposits u/s.69 of the Act. The assessee being aggrieved by the order of the Hon’ble ITAT, preferred an appeal before the Hon’ble High Court of Madras and challenged the findings of the ITAT in not adjudicating legal ground taken for challenging reopening of assessment. The Hon’ble High Court of Madras in TCA No.821 of 2018 dated 17.07.2020 has restored the appeal to the file of the Tribunal with a direction to adjudicate legal ground taken by the assessee challenging reopening of assessment on multiple grounds including non-disposal of objections filed by the assessee in light of the decision of the Hon’ble Supreme Court in the case of M/s.GKN Driveshafts (India) Ltd. v. ITO (supra). Therefore, the present appeal is listed to decide the legal issue involved in the appeal challenging the validity of reopening of assessment and thus, it is necessary to reproduce the grounds taken by the assessee challenging validity of reopening of assessment. The relevant grounds filed by the assessee are as under:
The impugned reassessment is based on "mere change of opinion" without any fresh tangible evidence and therefore an arbitrary exercise of power. (i) The ITO had passed an order without any fresh tangible evidence but based on material evidences fully and truthfully disclosed at the time of original assessment u/s 143(3). Therefore, the Impugned reassessment being initiated on a change of opinion is an arbitrary exercise of the provision under section 148 and ought to set aside. The said principle has been upheld by the Full Bench judgment in CIT v Kelvinator of India Ltd. 2010 2 SCC 723. The relevant lines of the judgment is extracted below:-
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"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."
Tangible material would mean factual material and not inference/opinion on material already in existence and considered during the assessment proceedings (Aroni Commericials Limited V Income Tax-2 (2014) SCC Online Bom 221).
(ii) In the instant case. The aggregate cash deposits (which belong to a firm wherein the appellant and his wife are the partners) made on various dates in the ICICI Bank account of the appellant amounting to Rs.1,49,85,094/- and withdrawals there from made on various dates has been considered in the original assessment order u/s 143(3) dated 14.03.2013 and the finding of the learned A.O is as under:
"2.1 During the course of scrutiny assessment proceedings it is stated by the assesee that he is receiving rental income and share income from M/s Shri Gokulam Auto Finance and constancy PAN No ABLPS2424L. His wife S.Anandhi Parimala was another partner. Since there was no separate banking transactions maintained by the firm, the money belonging to the firm has been deposited and withdrawn in assesee's individual bank account maintained with ICICI Bank Arcot. Hence these transactions were amounted the total transaction to more than Rs.10,00,000/-. These were examined with the firm’s books of accounts along with the ICICI Bank account transaction."
After a careful perusal, the ITO passed the order without any addition on this ground.
However, the case has been reopened on the ground for the reason given below as per the ITO's letter dated 18.11.2014 as under:
"Since the assesee has no separate business activity and the capital of the firm as well as the amount available for lending was Rs.11,13,386/- only, the entire transaction made to the tune of Rs.1,49,85,094/- needs to be analyzed with the view to taxability of the same u/s 69."
(iii) On comparison of the observations made by the learned ITO in original assessment and in the ITO's letter dated 18.11.2014 explaining the reason for reassessment, there is certainly no fresh tangible evidence but there is merely a change of opinion on the same set of circumstance. Therefore, the reassessment is based on a mere change of opinion when there is no fresh material surfacing after the original assessment u/s 143(3) to the above issue.
(iv) The next reason for the selection of case for reassessment has been the advance interest account of Rs.2,05,720/- appearing in the liability side of the balance sheet of the firm M/s Gokulam Auto Finance and Consultancy which is an entity assessed separately and not relevant to the assessment of the appellant. Even this said piece of evidence viz. balance sheet of the firm was also one which was truly and fully provided material by the appellant and carefully considered by the ITO at the time of original assessment. Therefore, no fresh tangible material has been relied on for :: 6 :: reassessment. Again, the reassessment is based on change of opinion and therefore ought to be set aside.
(v) Another ground for reopening of assessment is receipt of Rs.16,137/- as interest from ICICI Bankescaped assessment in the hands of the assesse. Again, it is submitted that the bank account has been submitted to the ITO at the time of original assessment and the transactions were examined by the ITO at the time of original assessment and bank account statement is not fresh piece of evidence to be considered in reassessment. It was also once again explained at the time of reassessment that the said interest has been booked in the firm's assessment since the funds were belonging to the firm and interest earned also belongs to the firm. Therefore, all the above reasons said to be have been reasoned for reassessment is not sustainable.
(2) The objection of the appellant has not been disposed off by the ITO and the impugned reassessment was initiated without any regard to the procedure established by law.
(i) The ITO has initiated impugned reassessment proceedings even without disposing the objections raised by the appellant in his letter dt.27/06/2015 highlighting the fact that the all the material based on which reassessment was initiated were already been considered by the AO at the time of original assessment u/s 143(3) as stated above and hence the reassessment is bad in law. Therefore, the reassessment is arbitrary and much against the guide lines/findings give by the Apex Court in the case of G K N Drive Shafts India Ltd. Vs. ITO (2013) 259 ITR 19.
(ii) The Hon'ble Bombay High Court in the case of Bayer Material Science P Ltd. Vs. DCIT,(2016) 382 ITR 333 (Bom) (HC) held that non- disposal of objections and providing the assessee with the recorded reason towards end of the limitation period and passing a reassessment order without dealing with results is gross harassment to the assessee which the PR.CIT should take note and take remedial action. In Asian Paints Limited vs. Deputy Commissioner of Income Tax (2008) 296 ITR 90 (Bom) the Court has clearly laid down that when an assessment is sought to be reopened under Section 148 of the Act and the objections of the assessee have been over ruled by the Assessing Officer, then in such a case the Assessing Officer will not proceed further in the matter for a period of four weeks from the date of receipt of the order rejecting the objections of the assessee. In view of the fact that Assessing Officer cannot proceed further in a matter for a period of four weeks from the date of receipt of the order rejecting the objections, no valid impugned reassessment can be initiated without disposing the objections raised by the assessee. Such an action is in gross violation of principles of natural justice.
(3) The impugned Reassessment is only based on audit objections of the department and hence ill-founded and liable to be quashed.
(i) The ITO has informed in his letter dated 18/11/2014 the reasons for impugned reassessment which are purportedly based on the audit objections raised by the audit party of the Department and not because of any fresh material found after completion of assessment u/s 143(3). The assessee has submitted his objections through a letter dated 27/06/15 stating that the reasons for impugned reassessment were facts and materials which were already considered by the AO while completing the assessment u/s 143(3) and there is fresh evidence/material found by ITO to come to a conclusion that there is income escaped from assessment. The impugned reassessment is bad in law since the ITO at the time of regular assessment has applied his mind by making a deep scrutiny of cash deposits and passed a speaking order that the sources for the cash deposits. Mere audit objection could not form basis to reopen completed assessment. (Smt. Shalu Sachdeva Vs. ACIT (2015) Taxmann.com and CIT Vs. Mettur Chemical and Industrial Corporation (2000) 242 ITR 119)
(4) Reassessment is bad in law while rectification proceeding u/s 154 is under pending:
(i) The issue of notice u/s 147 and reassessment is not justified when, proceeding u/s 154 is pending on the parallel issue as upheld in the case of Mahinder Freight Carriers Vs. Dy.CIT (2011) 56 DTK 247 (Mum) (Trib). A similar decision was upheld in Delhi Bench in the case of H.M.Overseas P Ltd. Vs ACIT 23 DTR 29: (2009) 23 DTR Del Trib. 29 wherein it was held that during the dependency of rectification proceedings u/s 154 it was open to the AO to initiate reassessment proceedings on the same issue.
(ii) In the instant case, the AO has issued a notice u/s 154 dated 10.09.2014 seeking rectification of mistake to bring to tax "advance interest" received of Rs.2,05,720/- appearing in the liability side of the Balance Sheet of the firm wherein the appellant is a partner and left the proceeding in abeyance and issued notice for reassessment on 21.10.2014 for the same reason. Therefore, the notice for reassessment u/s 147 is void ab initio.
The Ld.AR for the assessee referring to grounds filed by the assessee submitted that the AO has reopened assessment on change of opinion without any tangible materials subsequent to completion of original assessment u/s.143(3) of the Act, which is evident from the fact that the AO while recording reasons has referred to records which includes the assessment records, as per which, cash deposits in ICICI Bank account was also examined by the AO during the original assessment proceedings u/s.143(3) on 14.03.2013 and thus, in the absence of any fresh tangible materials reopening of assessment is nothing but change of opinion, which is not permissible under the law. In this regard, relied on the decision of the Hon’ble Supreme Court in the case of CIT v. Kelvinator of India Ltd., reported in (2010) 2 SCC 723.
The Ld.DR, on the other hand, submitted that there is no merit in arguments taken by the assessee challenging reopening of assessment on change of opinion, because, as per the reasons recorded for reopening of assessment, there is a tangible material, which is suggest escapement of income within the meaning of Sec.147 of the Act. Further, fresh tangible material may come within or outside the file of the AO, but if such material suggests escapement of income then, it cannot be said that there is no fresh tangible material to form basis of escapement of income. Therefore, he submitted that reopening of assessment in the given facts and circumstances of the case is valid and thus, there is no merit in the arguments of the assessee.
We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. We have also carefully considered the reasons recorded for reopening of assessment and find that while recording the reasons for reopening of assessment, the AO referred to return of income filed by the assessee and bank statement available with assessment folder to form a reasonable basis of escapement of income within the meaning of Sec.147 of the Act. But said records or evidences were already with the AO while framing the assessment u/s.143(3) of the Act, which is evident from the fact that the AO had considered the savings bank account maintained by the assessee with ICICI Bank, Arcot and observed that cash deposits with ICICI bank has been examined with the firms of books of accounts. Therefore, from the above what is clear is that the AO has formed reasonable belief of escapement of income on the basis of materials already in the possession of the Department while framing the original assessment u/s.143(3) of the Act, but not from any fresh tangible evidence which come to the knowledge of the AO subsequent to original assessment and thus, we are of the considered view that the reasons recorded by the AO to form reasonable belief of escapement of income is nothing but mere ‘change of opinion’, which is not permissible under the law. The said principle is fortified by the judgement of the Hon’ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. (supra), wherein, it has been categorically observed that the AO has power to reopen the assessment provided there is tangible material to come to the conclusion that there is an escapement of income from the assessment. Further, reasons must have a live link with the formation of the belief. The Hon’ble High Court of Bombay in the case of M/s.Aroni Commercials Ltd. v. Income Tax-2 reported in (2014) SCC Online Bombay 221, had considered the identical issue and held that the tangible material would mean factual material and not inference/opinion on material already in existence and considered during the course of assessment proceedings.
From the ratio laid down by the above two judgments, what is clear is that there should be fresh tangible material subsequent to the date of assessment proceedings for the AO to form a reasonable belief of escapement of income. In case, the AO formed a reasonable belief of escapement of income on the basis of material already in the possession of the Department and considered during the course of assessment proceedings, then it can be said that the reasons recorded for reopening of assessment is on the basis of change of opinion. In this case, admittedly, there is no fresh tangible material in the possession of the AO subsequent to original assessment proceedings. But, what was considered by the AO to form reasonable belief of escapement of income is Income Tax Return filed by the assessee for the relevant AY and copy of bank statement which was already filed during original assessment proceedings and considered by the AO while framing assessment u/s.143(3) of the Act. Therefore, we are of the considered opinion that reopening of assessment on the basis of material already in existence and considered by the AO during the course of assessment proceedings is nothing but mere change of opinion, which is not permissible under the law. Hence, we quashed re-assessment notice issued u/s.148 of the Act and consequent re-assessment order passed u/s.143(3) r.w.s.147 of the Act.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on the 12th day of January, 2022, in Chennai.