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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri A. T. Varkey & Shri Manoj Kumar Agarwal]
1 ITA No.1266/Kol/2019, Ceebuild Company Pvt. Ltd., AY 2010-11 आयकर अपील�य अधीकरण, �यायपीठ –“B” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH: KOLKATA [Before Shri A. T. Varkey, Judicial Member & Shri Manoj Kumar Agarwal, Accountant Member] I.T.A. No. 1266/Kol/2019 Assessment Year: 2010-11
Ceebuild Company Pvt. Ltd. Vs. DCIT, Circle-1(2), Kolkata (PAN: AABCC 2884 Q) Appellant Respondent
Date of Hearing (Virtual) 11.11.2021 Date of Pronouncement 05.01.2022 For the Appellant Shri M. D. Shah, Advocate For the Respondent Smt. Ranu Biswas, Addl. CIT
ORDER Per Shri A.T. Varkey, JM: This is an appeal preferred by the assessee against the order of Ld. CIT(A)-10, Kolkata dated 28.02.2019 for AY 2010-11. 2. At the outset, the Ld. A.R. of the assessee Shri Miraj D Shah drew our attention to the grounds of appeal raised by the assessee and contended that the assessee is challenging the jurisdiction of the AO to reopen the original assessment done u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act). According to Ld. A.R., the reopening has been carried out by the AO after the expiry of four (4) years from the end of the relevant assessment year (AY 2010-11). So according to him, the AO is duty bound to specify in the reasons recorded for reopening that the income chargeable to tax has escaped assessment due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. According to Ld. A.R., in the reasons recorded by the AO to reopen the assessment which has been reproduced by the AO in the impugned assessment order, it can be seen that the AO has not made any whisper about any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. So according to the Ld. A.R., the essential condition precedent as stipulated in the first proviso to Section 147 of the Act being not fulfilled, the AO lacks jurisdiction to reopen the scrutinized assessment of assessee for
2 ITA No.1266/Kol/2019, Ceebuild Company Pvt. Ltd., AY 2010-11 AY 2010-11. For this legal proposition, the Ld. A.R. cited the decision of the Hon’ble Bombay High Court in the case of M/s Sound Casting Pvt. Ltd. vs. DCIT reported in 250 CTR 189 (Bom) and the decision of the Hon’ble Delhi High Court in the case of M/s Haryana Acrylic Manufacturing Co. vs. CIT & Ors. reported in (2009) 308 ITR 38 (Del) as well as the jurisdictional High Court i.e. Calcutta High Court in the case of M/s Philips Carbon Black Ltd. vs. ACIT & Ors. 2019 (3) TMI 993 (Cal) dated 13.03.2019. According to Ld. A.R. in these decisions the Hon’ble High Courts have clearly held that when the original assessment has been framed u/s 143(3) of the Act (i.e. scrutiny assessment) then if the AO proposes to reopen the assessment after the expiry of four (4) years from the end of the relevant assessment year, then the AO has to record the jurisdictional fact that the income chargeable to tax has escaped assessment because the assessee failed to disclose fully and truly all material facts necessary for the assessment. The Hon’ble Calcutta High Court in this regard has held in M/s Philip Carbon Black (supra) as under: “Once there is finding that reasons to believe are not good reasons, jurisdiction is not derived to compel assessee to submit to reassessment. Submissions made on behalf of revenue regarding non-disclosure also cannot be accepted in the facts and circumstances, Court having noticed there is no such statement to that effect in the reasons to believe.” 3. In the case of M/s Sound Casting Pvt. Ltd. (supra) the Hon’ble Bombay High Court’s Head Notes reads as under: Validity of reopening of assessment framed after scrutiny beyond a period of four years from the end of the relevant A.Y. - A.O. purported to reopen assessment on ground that melting loss of 7.75% claimed by assessee is higher than what is found in a similar line of business - A.Y. 2005-06 -Held that:- No allegation has been made that that there was any failure on part of assessee to fully and truly disclose material facts necessary for assessment for that A.Y. This ex facie would amount merely to a change of opinion. Therefore, notice issued u/s 148 and impugned order of assessment is set aside. See Shriram Foundry Ltd. vs. DCIT, Circle 2 & Ors.(2012 (3) TMI 334 - BOMBAY HIGH COURT) - Decided in favor of assessee. Held 2. The reopening of the assessment has admittedly taken place beyond a period of four years from the end of the relevant Assessment Year. There is no allegation in the reasons which have been disclosed to the assessee that there was any failure on his part to fully and truly disclose material facts necessary for assessment for that assessment year. Hence, we find merit in the contention that the jurisdictional condition for reopening the assessment beyond a period of four years has not been fulfilled. Even during the course of hearing, it has not been the submission of the Revenue that there was any suppression of material facts on the part of the Petitioner. The Hon’ble Delhi High Court in the case of Haryana Acrylic Manufacturing Co. v. Commissioner of Income-Tax and Anor. reported in [2009] 308 ITR 38 (Delhi) has held as follows:
3 ITA No.1266/Kol/2019, Ceebuild Company Pvt. Ltd., AY 2010-11 “26. Viewed in this light, the proviso to section 147 of the said Act, carves out an exception from the main provisions of section 147. If a case were to fall within the proviso, whether or not it was covered under the main provisions of section 147 of the said Act would not be material. Once the exception carved out by the proviso came into play, the case would fall outside the ambit of section 147. 27. Examining the proviso [set out above], we find that no action can be taken under section 147 after the expiry of four years from the end of the relevant assessment year if the following conditions are satisfied:
(a) an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year; and (b) unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee: (i) 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 (ii) to disclose fully and truly all material facts necessary for his assessment for that assessment year.
Condition (a) is admittedly satisfied inasmuch as the original assessment was completed under section 143(3) of the said Act.
Condition (b) deals with a special kind of escapement of income chargeable to tax. The escapement must arise out 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 This is clearly not the case here because the petitioner did file the return Since there was no failure to make the return, the escapement of income cannot be attributed to such failure. This leaves us with the escapement of income chargeable to tax which arises out of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. If it is also found that the petitioner had disclosed fully and truly all material facts necessary for its assessment, then no action under section 147 could have been taken after the four year period indicated above.
So, the key question is whether or not the petitioner had made a full and true disclosure of all material facts ?
In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period indicated above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. This is a necessary condition for overcoming the bar set up by the proviso to section 147. If this condition is not satisfied, the bar would operate and no action under section 147 could be taken. We have already mentioned above that the reasons supplied to the petitioner does not contain any such allegation. Consequently, one of the conditions precedent for removing the bar against taking action after the said four year period remains unfulfilled. In our recent decision in Wellntertrade Private Ltd (supra) we had agreed with the view taken by the Punjab and Haryana High Court in the case of Duli Chand Singhania (supra) that, in the absence of an allegation in the reasons recorded that the escapement of income had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, any action taken by the Assessing officer under section 147 beyond the four year period would be wholly without jurisdiction. Reiterating our view-point, we hold that the notice dated 29.03.2004 under section 148 based on the recorded reasons as supplied to the petitioner as well as the consequent order dated 02.03.2005 are without jurisdiction as no action under section 147 could be taken beyond the four year period in the circumstances narrated above.”
4 ITA No.1266/Kol/2019, Ceebuild Company Pvt. Ltd., AY 2010-11
In the light of the aforesaid legal propositions laid by the Hon’ble High Court including jurisdictional High Court, the Ld. A.R. drew our attention to the reasons recorded by the AO to reopen the assessment which has been reproduced at page 1 and 2 of the assessment order dated 20.12.2016 u/s 147/143(3) of the Act wherein the AO on the first paragraph has noted that the assessee’s case was selected for scrutiny and the order was passed by DCIT, Circle-1(2), Kolkata u/s 143(3) of the Act and thereafter the case was reopened u/s 147 of the Act on the basis of information received from the DDIT (Inv), Unit-IV(1), Kolkata for the following reasons: “Information was received from the DDIT (Inv), Unit-IV(1), Kolkata vide letter dated 15.07.2014 on the subject matter of STR Reference Number 1000011461 in the case of M/s Ceebuild Co. Pvt. Ltd. which is assessed in this jurisdiction. As per the information received, one Uttam Kumar Surana, one of the Directors of M/s Vriddhi Raj Trading Co. Ltd., Kolkata has stated under oath before the DDIT (Inv), Unit-IV(1), Kolkata on 05.07.2014 that he and his two sons have provided accommodation entries of share capital and loan of Rs. 1.17 crores to M/s Ceebuild Co. Pvt. Ltd. through their various paper companies in a complex maze of financial transactions during the Financial years 2008-09, 2009-10 & 2010-11. The modus operandi involved receiving the funds from the beneficiary company and then routing the same through his own paper companies – M/s Kailashpati Commercial Pvt. Ltd., M/s Shiv Trading Co. Pvt. Ltd. & M/s Vriddhi Raj Trading Co. Ltd. before finally reaching the ultimate beneficiary M/s Ceebuild Co. Pvt. Ltd. has similarly received accommodation entry of share capital and (or) loan totaling Rs. 1.17 crores during the period 27.02.2009 to 03.05.2010 (Relevant to the Assessment Years 2009-10, 2010-11 & 2011-12). In view of the above, I have reasons to believe that income of approximately Rs. 1,17,00,000/- has escaped assessment for the AY 2010-11 and hence needs to be re-assessed.”
Thereafter the AO notes that he has issued the notice for reopening u/s 148 of the Act on 10.03.2016 which according to the Ld. A.R. is after the expiry of four (4) years from the end of the relevant assessment year and since the original assessment has been framed u/s 143(3), the first proviso of section 147 of the Act would come into play and without satisfying the essential condition precedent as laid down in the first proviso to Section 147 the entire action of the AO is bad in law for initiation of reopening itself. Thereafter the Ld. A.R. drew our attention to Section 147 of the Act relevant part of which reads as under: 2-17[Income escaping assessment. 147. If any income chargeable to tax, in the case of an assessee, has escaped assessment for any assessment year, the Assessing Officer may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance or any other allowance or deduction for such assessment year (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year).
5 ITA No.1266/Kol/2019, Ceebuild Company Pvt. Ltd., AY 2010-11 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, 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. [Emphasis given by us]
From a plain reading of Section 147 and First proviso it is manifest that the AO can reopen the assessment provided he had reasons to believe escapement of income. Reasons to believe postulates a foundation based on information and belief based on reason. After a foundation based on information is made there still must be some reason which should warrant the holding of a belief that income chargeable to tax as escaped assessment. Information adverse may trigger “reason to suspect” and not ‘reasons to believe’. When there is “reason to suspect” then AO to make a reasonable enquiry and collect material which would make him belief, that there is in fact an escapement of income. It is settled by the Hon’ble Supreme Court in Ganga Saran and Sons P. Ltd. v. ITO, [1981] 130 ITR 1 (SC) that the expression “reason to believe” the expression in section 147 ‘is stronger” then the expression “is satisfied”. Therefore the AO has to record his reason to believe escapement of income and if he intends to reopen an assessment which has been framed earlier u/s 143(3) after the expiry of four (4) years from the end of the relevant assessment year, then he has to clearly record the additional condition precedent in the reasons recorded that the escapement of chargeable income was due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. And it is settled that when there is challenge to the validity of the reasons recorded in the AO to usurp the jurisdiction, then the reasons recorded by the AO should be read as it is i.e, on a standalone basis. No addition or deletion is allowed in the reason recorded. In the light of the aforesaid discussion, a plain reading of the impugned reasons recorded by the AO to reopen (supra) it nowhere mentions that there has been any failure on the part of the assessee to disclose fully and truly all material facts for assessment. Therefore relying on ratio decidendi of the Calcutta High Court and other High Courts (supra) we find force in the contention of the Ld. A.R that the essential jurisdictional fact as necessary for usurpation of jurisdiction u/s 147 first proviso is absent, without which the AO does not enjoy the
6 ITA No.1266/Kol/2019, Ceebuild Company Pvt. Ltd., AY 2010-11 jurisdiction to reopen the assessment which has been framed originally u/s 143(3) of the Act. Therefore the assessee succeeds in its challenge in respect of usurpation of jurisdiction without satisfying the first proviso to Section 147 of the Act in the facts and circumstances of the case. Therefore we are inclined to quash the notice of the AO issued u/s 148 dated 10.03.2016 . Therefore all consequential actions fall being non-est in the eyes of law.
In the result, the appeal of assessee is allowed. Order is pronounced in the open court on 5th January, 2022. Sd/- Sd/- (Manoj Kumar Agarwal ) (A. T. Varkey) Accountant Member Judicial Member Dated: 5th January, 2021 SB, Sr. PS
Copy of the order forwarded to: 1. Appellant- Ceebuild Company Pvt. Ltd., 23A, Netaji Subhash Road, Bagaria More Building, BBD Bag, Kolkata-700001. 2. Respondent – DCIT, Circle-1(2), Kolkata. 3. CIT(A)-10, Kolkata (sent through e-mail) 4. CIT, Kolkata. 5. DR, Kolkata Benches, Kolkata (sent through e-mail) True Copy By Order
Senior Private Secretary/DDO ITAT, Kolkata Benches, Kolkata