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Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
Before: Shri A. T. Varkey, JM & Shri Girish Agrawal, AM]
ITA No.2620/Kol/2019 Turtle Ltd. AY: 2012-13 IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, KOLKATA [Before Shri A. T. Varkey, JM & Shri Girish Agrawal, AM] I.T.A. No. 2620/Kol/2019 Assessment Year: 2012-13
DCIT, Circle-11(1), Kolkata Vs. Turtle Ltd. (PAN: AABCT 1375 R) Appellant Respondent
Date of Hearing (virtual) 02.02.2022 Date of Pronouncement 23.02.2022 For the Appellant Shri Manish Tiwari, FCA For the Respondent Md. Ghayas Uddin, CITDR
ORDER Per Shri A.T.Varkey, JM This is an appeal preferred by the revenue against the order of Ld. CIT(A)-4, Kolkata dated 02.09.2019 for AY 2012-13.
The first ground of the revenue is against the action of Ld. CIT(A) in quashing reassessment order u/s 147/143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act) dated 26.12.2018.
Brief facts of the case is that the assessee had filed its return of income on 13.09.2011 declaring total income at Rs. 9,16,33,420/- which was processed u/s 143(1) of the Act on 14.05.2013 at Rs. 10,28,72,420/-. Later the case was selected for scrutiny and assessment order u/s 143(3) of the Act was passed on 16.03.2015 at an assessed income of Rs. 9,25,61, 960/-. And later thereafter, the assessee was served notice u/s 148 of the Act dated 31.03.2018 which conveyed the desire of the AO to reopen /reassess the assessee’s income. And pursuant to the assessee’s request for copy of the “reasons for reopen the assessment”, the AO furnished the copy of the reasons recorded vide letter dated 25.07.2018 (Refer page 66 of PB). Pursuant to the receipt of the reasons recorded, the assessee filed its objection to the proposed action of reopening the scrutinized assessment vide letter dated 23.08.2018 which is placed at page 67 to 77 of PB, which was disposed
ITA No.2620/Kol/2019 Turtle Ltd. AY: 2012-13 off by the AO vide order dated 25.09.2018 which is placed at page 78 to 79 of PB. Thereafter the AO after issuing statutory notices u/s 143(2) and section 142(1) of the Act framed the reassessment at a sum of Rs. 23,91,96,130/- by making addition of Rs. 14,66,34,169/- on account of unexplained discrepancy in stock.
Aggrieved by the aforesaid action of the AO, the assessee preferred an appeal before the Ld. CIT(A), who while adjudicating the legal issue raised by the assessee against the validity of the reopening made u/s 147/148 of the Act was pleased to hold that the action of the AO to reopen the assessment was bad in law. And it is brought to our notice that the Ld. CIT(A) on merits also concluded that the addition made by the AO cannot be sustained and was pleased to allow the appeal of the assessee on both legal issue as well as on merits.
Aggrieved by the aforesaid action of the Ld. CIT(A), the revenue is before us challenging both the action of the Ld. CIT(A) in allowing the legal ground as well as on merits of the case.
We will first examine the impugned action of the Ld. CIT(A) in allowing the legal ground by holding that action of the AO to reopen the assessment was bad in law.
Before adverting into the legal issue regarding validity of the reopening u/s 147 of the Act let us look at the relevant provision of the Act which empowers the AO to reopen the assessment which is section 147 of the Act as well as the judicial precedent on the legal issue reads as under:
Income escaping assessment. 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
ITA No.2620/Kol/2019 Turtle Ltd. AY: 2012-13 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year: Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.
From a bare reading of the aforesaid provision it is clear that the AO before re- opening an assessment should have reason to believe, escapement of income. It is settled position of law that reason to believe, postulates foundation based on information and belief based on reason. It should be borne in mind that even if there is foundation based on information, there still must be reason warrant holding of a belief that income chargeable to tax has escaped assessment. This is the jurisdictional condition precedent to validly re-open an assessment. Further, one should understand the subtle distinction between the “ reason to suspect” and the “reason to believe”. An information adverse may trigger “ reason to suspect” and the AO to make reasonable enquiry and collect material, which would make him believe that there is in fact escapement of income. Only in the later case, the AO can validly re-open the assessment and not in the former case. And the additional condition precedent required as per first proviso u/s 147 for reopening the assessment after four (4) years is that AO should spell out in his reasons recorded to believe escapement of income was due to the failure of the assessee to disclose truly and fully the material facts necessary for assessment. And coming to the present case, admittedly the impugned re-opening is after four (4) years from the end of the relevant Assessment year (AY2012-13) because the notice u/s 148 of the Act has been issued by AO on 31.03.2018 and the Ld CIT(A) has made a finding to that effect at page 9, para 3 of his order, which has not been challenged by the Revenue as a ground of appeal, so this finding crystallizes, so the additional condition as prescribed in first proviso u/s 147 of the Act is applicable. In other words, the AO has to record before re-opening this present case not only the reason to believe escapement of income, but also what was the failure on the part of the assessee to disclose truly and fully the material facts necessary for assessment.
ITA No.2620/Kol/2019 Turtle Ltd. AY: 2012-13 9. The Hon’ble Supreme Court in Ganga Saran and Sons P. Ltd. v. ITO, [1981] 130 ITR 1 (SC). held “ It is well settled as a result of several decision of this Court that two distinct condition must be satisfied before the AO can assume jurisdiction to issue notice u/s 147. First he must have reason to believe that the income of assessee has escaped assessment. – The important words under Section 147(a) are “has reason to believe” & these words are stronger than the words “is satisfied”. The belief entertained by AO must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant & material. The Court of course cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the AO in coming to the belief, both the Court can certainly examine whether the reason are relevant and have a bearing on the matter in regard to which he is required to entertain the belief before he can issue notice u/s 147(1). If there is no rational and intelligible nexus between the reasons & the belief, so that, on such reasons, no one properly entertain the belief, the conclusion would be inescapable that the AO could not have reason to believe that any part of the assessee had escaped assessment and 203 ITR 456 (SC)
It is well settled in law that reasons, as recorded for reopening the reassessment, are to be examined on a standalone basis. Nothing can be added to the reasons so recorded, nor can anything be deleted from the reasons so recorded. The Hon’ble Bombay High Court in the case of Hindustan Lever [2004] 267 ITR 332 has inter-alia, observes that “………….. it is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn on the basis of reason not recorded by him. He has to speak through the reasons.” Their Lordship added that “The reasons recorded should be self-explanatory and should not keep the assessee guessing for reasons. Reasons provide link between conclusion & the evidence………”. From the aforesaid decision of the Hon’ble Court, it should be borne in mind that reasons (which was recorded by AO before he issues notice u/s 148 of the Act) are to be examined only on the basis of the reasons as recorded by the AO.
ITA No.2620/Kol/2019 Turtle Ltd. AY: 2012-13 11. Further it has to be kept in mind that the jurisdictional condition for re-opening an assessment ie, “reason to believe” escapement of income should be that of the assessee’s AO and not that of any other authority. It is settled position of law that satisfaction recorded should be ‘independent’ and not borrowed or dictated satisfaction. The Hon’ble Supreme Court decision reported in (1995) 5 SCC 302 has been held that if a statutory authority has been vested with jurisdiction, he has to exercise it according to its own discretion. If discretion is exercised under the direction or compliance with some higher authorities instruction, then it will be a case of failure to exercise discretion altogether. In this context it would be relevant to note that section 116 of the Act defines the Income Tax Authorities as different and distinct authorities. Such different and distinct authorities have to exercise their powers given to them in specified circumstances. If power conferred in a particular authority is arrogated by other authority without mandate of law, it will create chaos in the administration of law & hierarchy of administration will mean nothing. Satisfaction of one authority cannot be substituted by the satisfaction of the other authority. It is trite that when a statute requires a thing to be done in a certain manner, it shall be done in that manner alone and the court would not expect its being done in some other manner. It was also held in the following decisions in State of Bihar vs . J.A.C. Saldanha & Ors. Reported in AIR 1980 SC 326 .
The next important point is that even though reasons, as recorded, may not necessarily prove escapement of income at the stage of recording the reasons, such reasons must point out to an income escaping assessment and not merely need of an inquiry which may result in detection of an income escaping assessment. Undoubtedly at the stage of recording the reasons for reopening the assessment; all that is necessary is the formation of prima facie belief that an income has escaped the assessment; and it is not necessary the fact of income having escaped is proved to the hilt. What is however, necessary is that there must be something which indicates even if not establishes the escapement of income from assessment. It is only on this basis that the AO can form the belief that an income has escapement. Merely because some further investigation have not been carried out, which if made, could have led to detection to an income escaping assessment, cannot be reason enough to hold the view that income has expectant. It is also important to bear in mind the
ITA No.2620/Kol/2019 Turtle Ltd. AY: 2012-13 subtle but important distinction between factor which indicate an income escaping the assessment and the factors which indicates a legitimate suspicion ‘about income escaping the assessment,. The former category consists of the facts which, if established to be correct, will have a cause & effect relationship with the income escaping assessment. The later category consists of facts, which , if established to be correct, could legitimately lead to further inquiries which may lead to detection of an income which has escaped assessment. There has to be some kind of cause & effect relationship between reasons recorded and the income escaping assessment. While dealing with this matter it is useful to bear in mind the following observation of Hon’ble Supreme Court in ITO vs. Lakhmani Mewal Das [1976] 103 ITR 437 wherein the Hon’ble Supreme Court has taken note of the additional condition precedent required as per first proviso u/s 147 for reopening the assessment after four (4) years . The relevant portion has held as follows: “The reasons for the formation of the belief must have a rational connection with or relevant bearing of the formation of the belief . Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of income of the assessee from the assessment in the particular year because of his failure to disclose fully & truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material & substitute its own opinion for that of the ITO on the point as to whether actions should be initiated for reopening assessment. At the same time we have to bear in mind that it is not that any or every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee”. (emphasis given)
Since we have to adjudicate as to whether the action of the Ld. CIT(A) to hold the action of the AO to reopen itself as bad in law meaning invalid in the eyes of law, we need to test his action based on the aforesaid judicial precedents. For doing so first of all we have to look into the reasons recorded by the AO in order to reopen the assessment which is given at page 66 of PB. The reasons recorded by the AO is as under:
“ The aforesaid assessee company, e-filed its return of income for the assessment year 2012-13 on 13.09.2012 declaring total income at Rs. 9,16,33,420/- which was processed u/s 143(1) on
ITA No.2620/Kol/2019 Turtle Ltd. AY: 2012-13 14.05.2013 at Rs. 10,28,72,420/- raising demand of Rs. 26,35,680/-. The case was selected for scrutiny and order u/s 143(3) of the Act was passed on 16.03.2015 at an assessed income of Rs. 9,25,61,960/-raising a demand of Rs. 3,11,810/-. Subsequently, an information was received from DDIT (Inv), Kolkata vide letter No. ADIT(Inv), Unit-2(1), Kolkata vide letter No. DDIT(Inv)/U-4(2)/Kol/BERIA/BENEFICIARIES/2017-18/10577 dated 13.03.2018 received at this office on 20.03.2018 in relation to the case of Shri Pritam Beria, Prawesh Beria & Associates and also search and seizure operation u/s 132(1) of the Income Tax Act, 1961 which was carried out in the office premises of M/s GPT Group on 12.09.2017 and M/s Siddha Group on 21.09.2017. It is informed that during the investigation of the cases and survey operation of u/s 133A in the office premises of Beria & Associates, at Unit-202, 2nd Floor, 22, Sarat Bose Road, Kolkata-700020 on Pritam Beria has accepted that he has provided various bogus accommodation entries to the various beneficiaries through various shell/paper companies controlled and managed by him and his brother Shri Prawesh Beria for commission Shri Pritam Beira has also accepted that all the directors of these entities/companies are dummy directors appointed by him. In this regard names of many persons/companies who have received accommodation entries from these shell/paper companies controlled and managed by Shri Prawesh Beria/Shri Pritam Beria has been received. On perusal of the information received it is seen that one of such beneficiary was M/s Turtle Ltd. PAN:AABCT 1375 R, an assessee under this jurisdiction, which has received an amount of Rs. 25,00,000/- during the FY 2011-12, as accommodation entry from M/s Venkatesh Realcon Pvt. Ltd. (vide a/c no. 910020028579964), a company controlled/ managed by Shri Pritam Beria. As, the above transactions has been verified from cash trails and bank statement available in the case, hence I have reason to believe that Rs. 25,00,000/- is actually undisclosed income of assessee M/s Turtle Ltd. during the FY 2011-12, which was escaped assessment in AY 2012-13, in terms of provisions of section 147 of the Act. Besides certain discrepancy in stock valuation amounting to Rs. 14.70 crores (approx) has been seen in the assessment records, which I have reason to believe to have escaped assessment. Therefore, assessment of the assessee company M/s Turtle Ltd., for the AY 2012-13 is required to be reopened u/s 147 of the Income Tax Act, 1961.” 14. From a perusal of the aforesaid reasons recorded by the AO to justify the reopening of the assessment dated 16.3.2015 u/s 143(3) of the Act, the AO has taken note of two (2) issues. One issue is regarding information received from the DDIT(Inv) from which he discerned that the assessee is a beneficiary of an accommodation provider by virtue of which assessee has received Rs. 25 Lacs. It is important here to note that though the main reason for reopening was in respect of purported accommodation benefit assessee received, (details not discussed because it is evident from a perusal of the reasons recorded supra). It is noted from the reassessment order pursuant to reopen that the AO has not made any addition on this score. In other words no adverse view has been taken by the AO in respect of allegation of accommodation benefit as alleged in the reasons recorded to re-open. Therefore, it is seen that AO dropped this issue while framing reassessment after being satisfied with the explanation given by the assessee and after verifications. So this issue loses its significance and need to be ignored for further
ITA No.2620/Kol/2019 Turtle Ltd. AY: 2012-13 adjudication of the legal issue as if it was not part of the ‘reasons recorded’ by the AO to justify re-opening the assessment of the assessee.
So the only issue remaining as per the reasons recorded to reopen is regarding the purported discrepancy in stock valuation amounting to Rs. 14.70 crores. From a bare reading of the reasons recorded by the AO justifying his purported action to reopen on this issue it is clearly discernible that he has racked up this issue after perusal of the assessee’s assessment record. So, the necessary inference that can drawn is that AO did not receive any external information or any other fresh tangible materials for raising/reopening this issue (ie, regarding discrepancy in stock valuation). Meaning that the AO got the idea of reopening the assessment merely from the perusal of the assessment records, wherein he felt that certain discrepancy exists in stock valuation to the tune of Rs. 14.70 crores, which fact according to him have escaped assessment for AY 2012-13.
In the aforesaid context, is noted that the original scrutiny assessment u/s 143(3) of the Act was framed on 16.03.2015 and notice for reopening the assessment u/s 148 was issued on 31.03.2018 for the AY 2012-13 which action of the AO to issue the notice is beyond the period of four (4) years from the end of the relevant assessment year. Therefore when we are applying the law as discussed (supra), in this case the additional condition prescribed in the first proviso to Section 147 also need to be satisfied i.e. escapement of income was due to the failure on the part of the assessee to disclose truly and fully all material facts during the assessment, which is sine qua non for successfully re-opening the relevant assessment year. From a perusal of the reasons recorded (supra) nowhere it can be seen that AO had alleged any failure on the part of the assessee to disclose true and full material facts in the original assessment proceedings. Since there is no whisper or mention about this important condition in the reasons recorded before issuing notice u/s 148 of the Act, is fatal to the very jurisdiction of AO to successfully re-open the case of the assessee. Thus we find that the omission on the part of the AO to record in the reasons recorded the satisfaction of the additional condition precedent as stipulated under first proviso to section 147 of the Act, vitiates the very re-opening itself being bad [quorum non judice ie, without jurisdiction]. And consequently the action of AO to reopen the assessment for AY 2012-13 by issue of notice u/s 148 of the Act dated 31.03.2018 is held
ITA No.2620/Kol/2019 Turtle Ltd. AY: 2012-13 to be bad in law and so null in the eyes of law. For that legal proposition we rely on the following judicial precedents:
Hon’ble Delhi High Court in the case of Avtec Ltd vs DCIT reported in 395ITR 434 wherein it was held that the reasons recorded by the AO should where the reopening u/s 147 of the Act is after expiry of four years from the end of the relevant assessment year, specifically state in what manner there was a failure by the assessee to make a ful\ and true disclosure of material facts and that will have to be proceeded by spelling out the tangible material that led the AO to come to that conclusion. 2. Hon'ble Bombay High Court in the case of Bhavesh Developers vs AO reported in 329 ITR 249 has held that" Significantly, the reasons that have been disclosed to the assessee do not contain a finding to the effect that there was a failure to fully and truly disclose all necessary facts, necessary for the purpose of assessment. In these circumstances, the condition precedent to a valid exercise of the power to reopen the assessment, after a lapse of four years from the relevant assessment year, is absent in the present case. There is merit in the submission which has been urged on behalf of the assessee that an exceptional power has been conferred upon the revenue to reopen the assessment, after a lapse of four years. The conditions which are prescribed by the statute for the exercise of such a power must be strictly fulfilled and in their absence, the exercise of power must be strictly fulfilled and in their absence, the exercise of power would not be sustainable in law.” 3. Hon’ble Calcutta High Court in the case of Usha Martin Ventures Ltd vs DCIT in W.P No. 468 of 2011 decided on 09.12.2011 has also upheld the same principles. 4. Hon’ble Gujrat High Court in the case of Gujarat Fluoro Chemicals Ltd. vs. DCIT reported in 319 ITR 282 at para 7 the Court has upheld the same principles.
Moreover we note that the Ld. CIT(A) has given a finding of fact at para 8, page 22 of his impugned order that the issue regarding valuation of stock was duly enquired into by the earlier AO in the original assessment proceedings which culminated in the assessment order u/s 143(3) dated 16.03.2015. The Ld. CIT(A) has noted that the AO during the assessment proceedings in the notice issued u/s 142(1) on 10.10.2014 had specifically raised query on this issue by asking question no. 8 which is reproduced as under:
“8. Valuation of Stock (i) Quantity and value-wise details of opening stock/inventory and closing stock/inventory. (ii) Please furnish a detailed note on the method followed by you for valuation of raw material input as also inventories and treatment of Modvat/Cenvet. Whether cost or market price has been adopted for valuation of stock may be explained. Whether FIFO or LIFO is applied may be stated. (iii) Explain whether the prescribed guidelines and the amended provisions of Section 145A has been followed or not? If so, the impact of such adjustments to the profits of the business.
ITA No.2620/Kol/2019 Turtle Ltd. AY: 2012-13 (iv) Please furnish the working sheet in respect of valuation of closing stock. The cost price of the goods the direct expenses relating to such goods may be furnished.”
Further the Ld. CIT(A) has noted that pursuant to the aforesaid query raised by the AO in the earlier/original scrutiny assessment proceedings, the assessee had replied vide letter dated 21.10.2014 and furnished all the details requisitioned by the AO regarding the valuation of stock and to all other queries raised by him regarding the stock. The Ld. CIT(A) has given a finding a fact that the AO after examining the answers/details furnished by the assessee pursuant to his queries (supra) regarding the valuation of stock has accepted the claim of the assessee on this issue and did not draw any adverse inference in the assessment framed u/s 143(3) dated 16.03.2015. In such a scenario, since the AO has reopened this issue (valuation of stock) merely on perusal of the assessment records and not on the basis of any fresh materials, the Ld. CIT(A) has rightly opined that action of the AO to examine this issue again by resorting to re-opening, can at best to be termed as ‘change of opinion’. And it is settled position of law that “change of opinion” cannot confer jurisdiction on the AO to reopen the duly completed assessment u/s 143(3) of the Act. The reason is that the AO does not enjoy the power of review. Therefore in the present case it is clear that the action of the present AO tantamount to review the action of the earlier AO who has accepted the valuation of stock in his scrutiny assessment u/s 143(3) of the Act dated 16.03.2015. Therefore, the present AO lacks jurisdiction u/s 147 of the Act to reopen the completed assessment u/s 143(3) of the Act dated 16.03.2015 merely on “change of opinion”. In the light of the aforesaid discussion, we hold that the Ld. CIT(A) has rightly appreciated the contentions raised by the assessee regarding the legal ground raised by the assessee against the validity of the reopening and has rightly held the action of the AO to be bad in law. For coming to this conclusion we rely on the following judicial precedents/ decisions:
• “The Hon’ble Apex Court in the case of CIT vs. Kelvinator of India Ltd. reported in 320 ITR 561 has held that mere change of opinion cannot per se be a reason to reopen. The AO has power to reassess but has no power to review. The Court further held that AO has power to reopen the assessment u/s 147 provided there is tangible material to come to the conclusion that there is escapement of income from assessment and the reasons must have live link with the formation of belief. Thus the AO must have some sort of tangible material to establish that he has ‘reason to believe’ that the income chargeable to tax has escaped assessment.
ITA No.2620/Kol/2019 Turtle Ltd. AY: 2012-13 • The Hon’ble Calcutta High Court in the case of Amrit Feeds Ltd. Vs. ACIT reported in 239 CTR 82 has observed that if in the original assessment the AO has raised specific query in the requisition u/s 142(1) and in response to the same the assessee has furnished details and explanations which were considered by the AO and the claim of assessee was accepted than AO cannot reopen assessment for the reason that deduction was wrongly allowed.” 19. In the light of the aforesaid discussion we uphold the action of the Ld. CIT(A) to hold the impugned reopening of the AO was bad in law. Since we sustained the impugned action of Ld. CIT(A) holding the action of AO to reopen as bad in law, therefore we are not inclined to go into the merits of the case since it is academic. Therefore, the appeal of the revenue is dismissed.
In the result, the appeal of the revenue is dismissed.
Order is pronounced in the open court on 23rd February, 2022.
Sd/- Sd/- (Girish Agrawal) (Aby. T. Varkey) Accountant Member Judicial Member Dated: 23.02.2022
SB, Sr. PS
Copy of the order forwarded to:
Assessee – DCIT, Circle-11(1), Kolkata 2. Revenue – Turtle Ltd., Lemon Fresh, Block-2, 3rd Floor, 29/1, Kala bagan Lane, Howrah-711102 3. CIT(A)-4, Kolkata (sent through e-mail). 4. CIT, Kolkata. 5. DR, ITAT, Kolkata, (sent through e-mail).. True Copy By Order
Sr. Private Secretary/DDO ITAT, Kolkata Bench, Kolkata