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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI RAJESH KUMAR & SHRI AMARJIT SINGH
O R D E R
Per Rajesh Kumar, Accountant Member:
The above titled appeal by the Revenue and cross objection by the assessee have been preferred against the order dated
The various ground raised
by the Revenue are as under: “1. On the facts and circumstances of the case and in law, whether the Ld. CIT(A) was justified in holding that reopening was not valid without appreciating that the issue of reopening of the assessment was never the subject matter of the Assessment order passed in pursuance of the order u/s 254 of the Act, as could be seen from Para 2 and Para 6 of the order of Hon'ble Tribunal dated 21.11.2014.
2. On the facts and circumstances of the case and in law, whether the Ld. CIT(A) was justified in holding that reopening was not valid without appreciating that the matter was remanded back to the file of the AO by Hon'ble Tribunal vide its order dated 21.11.2014 merely because the Hon'ble Tribunal was of the view that the order of Ld. CIT(A) was passed without hearing the assessee on merits and as such the validity of reassessment has never been questioned by the Hon'ble Tribunal.
3. On the facts and circumstances of the case and in law, whether the Ld. CIT(A) was justified in holding that reopening was not valid and thus adjudicated upon the issue of reassessment without appreciating that the Hon'ble Tribunal had never admitted the additional ground of the assessee challenging the reasses; .lent proceedings and hence, the order of Ld. CIT(A) has travelled beyond the scope outlined by Hon'ble Tribunal.
4. On the facts and circumstances of the case and in law, whether the Ld. CIT(A) was justified in quashing the order passed in pursuance of the order u/s 254 of the Act by holding that reopening itself was not valid without appreciating that the assessee has never challenged the re-assessment in front of first appeal and ITAT and that this issue was not part the order passed by the ITAT. Ld. CIT(A) cannot examine the validity of re-assessment proceedings while adjudicating on an order which was passed in pursuance of the order u/s 254 of the Act.
5. Without prejudice to the above, whether the Ld. C1T(A) was justified on the facts and circumstances of the case and in law in holding that reopening was not valid without appreciating that the issues discussed in the reopening were never considered by the Assessing Officer in the original assessment order and thus, the reassessment was valid as held by Hon'ble Bombay High Court in the case of Eleganza Jewellery Ltd vs. CIT (364 ITR 232).”
3. Effectively in the above grounds of appeal, the Revenue has raised only one issue that the Ld. CIT(A) is not justified in 3 ITA No.5291/M/2017 & CO No.42/M/2019 M/s. Sonu Synthetics Ltd. holding the reopening of assessment as invalid by Ld. CIT(A) by ignoring the fact that the said issue was never raised in the first round of litigation.
The facts in brief are that the assessment was framed under section 143(3) on 19.12.2008 accepting the total declared loss by the assessee. Thereafter, the case of the assessee was reopened under section 147 of the Act recording the following reasons: “3. The case was selected for scrutiny. The assessment was completed u/s.143(3) of the l.T. Act on 19-12-2008 assessing total loss at Rs.1,92,78,249/-. Thereafter the case was re-opened u/s. 147 of the I.T. Act recording the following reasons: "It is seen that the entire assets of the assessee company had been sold through auction by the leading financial institution i.e. Assets Reconstruction Company (I) Ltd(ARCIL) & Others in November, 2005 for total sale consideration of Rs.19,25,00,000/- to M/s. Jai Corporation Ltd. The assessee company has shown Rs.10.82,65,830/- as profit on sale of assets in the profit and loss account below the line and the said profit had been adjusted against brought forward business losses. However the assessee had not offered any capital gain in the computation of income as per provisions of section 50 of the Income tax Act and unobserved business loss can not be set off against capital gain. Short term capital gain liable to be taxed which worked out to Rs.10,15,21,034/-. The assessee company has debited a sum of Rs. 1,62,32,388/-towards financial expenses, consisting of interest payable on term loan & other loans to banks. It is observed that only a provision has been made in the books for interest and no actual payment had been made during the year under consideration. In accordance with the provisions of section 43B of the Income tax Act, interest claimed at Rs.1,62,32,388/- is not allowable"
Notice under section 148 was issued on 26.03.2010 which was served upon the assessee on 27.03.2010. The assessee filed a letter dated 28.04.2010 requesting the AO to furnish the reasons for reopening which were duly supplied to the assessee on 11.05.2010. Finally the assessment was framed under section 143(3) read with section 147 of the Act vide order dated 4 & CO No.42/M/2019 M/s. Sonu Synthetics Ltd. 16.12.2010 assessing the total income at Rs.9,84,75,170/-. The assessment was reopened primarily for the reason that the profit on sale of assets of Rs.10,82,65,830/- was shown below the line in the P&L account and adjusted against the brought forward losses. The AO came to the conclusion that in this manner the income has escaped assessment. In the first round of litigation the issue of reopening was not challenged even before Ld. CIT(A). However, assessee filed an additional ground before the ITAT challenging the validity of reopening of assessment under section 147 of the Act, however, the said ground was never discussed or adjudicated by the Tribunal while passing the order. In the first round of litigation the Tribunal vide order dated 21.11.2014 in ITA No.3588/M2012 set aside the order passed by the Ld. CIT(A) and restore the matter to the file of the AO with the direction to examine the issues afresh after affording a reasonable opportunity to the assessee and decide the issue as per facts and law.
Thereafter, the assessment was framed under section 143(3) read with section 254 of the Act vide order dated 22.03.2016 assessing the total income at Rs.11,77,53,422/- by making two additions namely short term capital gain of Rs.10,15,21,034/- and interest disallowance under section 43B Rs.1,62,32,388/-. Needless to mention that the loss as per return of income filed by the assessee Rs.1,92,78,249/- was adjusted and set off against short term capital gain. Thereafter, the assessee challenged the order of AO before Ld. CIT(A) challenging therein the order of AO on jurisdictional issue or reopening the assessment and on merit also. The Ld. CIT(A)
5 & CO No.42/M/2019 M/s. Sonu Synthetics Ltd. held the reopening to be invalid by observing and holding as under: “Under this ground of appeal the appellant is disputing validity of reopening initiated by the AO and the consequential assessment u/s 254 r.w. u/s 148, r.w. u/s 143 (3). On perusal of the order of the ITAT in Appeal No. 3588 MUM/12 dtd. 21/11/2014. It is observed that in point no. 6 on page 51 of the paper book it is stated that "Subject to the payment of the cost stated above, all the issues contested before us are restored to the file of the AO with the direction to examine them afresh affording the necessary opportunity of being heard to the assessee and take appropriate decision in accordance with the law. Accordingly, the order passed by Id. CIT(A) on the issues contested before us is set aside. We make it clear that if the assessee fails to pay the cost stated above on or before the date specified above, then the order of Ld. CIT{A) shall stand uphold." In view of the above appellant also relied upon additional grounds taken before the ITAT & reiterated before me in the present appeal and the same are duly considered for adjunction. I find that in the course of the first round, the assessee had filed an additional ground before the Tribunal, a copy of which is also placed on records before me. The tribunal vide its order dated 21.11.2014 in ITA o. 3588/Mum/2012 has observed that all in issues contested by the assessee are restored to the file of the AO with the direction to examine them afresh. Thus , it cannot be said that the appellant was not entitled to challenge the issue of the reopening before the AO now . In any case, the appellant has relied upon the decision in the case of Inventors Industrial Corporation Ltd. v/s CIT 194 ITR 548 (Bom.) and P.V.Doshi v/s. CIT 113 ITR
22. (Guj.) wherein it has been held that there cannot be any waiver to examine validity of the jurisdiction of the Assessing, an assessee is entitled to raise the jurisdictional issue at any stage. Hence, even the appellant is entitled to challenge the reopening is held in the aforesaid decisions of the Hon'ble High Courts. Before me , the appellant has claimed that originally , the AO recorded reason in writing which are different from the set of reasons which have been provided by the AO to the appellant in the course of set aside proceedings. I have noticed that vide letter dated 01.12.2015 , the AO had provided the reasons in writing to the appellant. The perusal of the first re-assessment order dated 16.12.2010 shows that the reasons recorded in writing based on which the said order was passed were different from the reasons which have been reproduced in the aforesaid letter dated 01.12.2015. While the assessment order dated 16.12.2010 refers to the reason recorded wherein the issue of financial expenses of Rs.1,62,32,388/- there was no references to the said issue reasons have been reproduced in the letter dated 01.12.2015 . Even the language of both the reason were different. In light of the different set of reason recorded, the detailed submissions filed by the appellant were remanded to the file of AO for verification and clarification. Through the submissions have been perused by the AO, no clarification has been provided in the remand report dated 17.03.2017. The appellant has also claimed in the written submission that the objections of the appellant for reopening off the assessment have not been disposed of. It was submitted before me that vide letter dated 08.10.2015, the appellant had filed the objections to reopening before the AO. In response to the same vide letter dated 13.10.2015, the AO has merely 6 & CO No.42/M/2019 M/s. Sonu Synthetics Ltd. observed that your objections cannot be entertained at this stage. No reasons have been given for not entertaining the objections of the appellant to the reopening of the assessment. The appellant has objected to reopening by contesting that the reason were not based on any tangible material available to him pursuant to the original assessment completed. The appellant has objected to the reopening on the ground that the assessment was reopened by the AO was on account of change of opinion. I find that the original assessment was completed u/s.143(3) on 19.12.2008 . From the body of the order, it is evident that the profit and loss account filed by the assessee was scrutinized and the income thereafter was accepted by the AO. The assessment was later reopened on the ground that the assessee company has shown Rs.10,83,65,830/- as the profit on the sale of assets in the profit and loss account below the line and the same has not been offered for tax. Thus it is seen that the reopening of the assessment is only on basis of the profit and loss account which was re-examined by the AO after completion of the original assessment. It was explained that the income was not offered since such income was legally not taxable in the year under appeal and that if the liabilities payable to bank are considered no income arise on sale of the assets as held in the decision of several Courts. In my view all the facts were duly disclosed in audited accounts filed before the AO. Therefore there was no new tangible material available to the AO for initiating reopening. The reopening of the assessment is only on the basis of the material which was already on record at the time of the original assessment and which has been scrutinized before passing the assessment order. The decision in case of CIT v/s Kelvinator of India Ltd 320 ITR 561 would be relevant to the present issue. In the said case, the Hon'ble Supreme Court has stated that the AO has no power to review earlier assessment. The Hon'ble Supreme Court also observed that the AO has power to reopen provided there is a tangible material to come to conclusion that there is escapement of income from the assessment. Unless a tangible material is brought on record, the AO can not reopen the assessment on the basis of information and details which are already available and verified at the time of the original assessment. In CIT v/s Orient Craft Limited 263 CTR-335 before Hon'ble Delhi High Court the assessment was reopened by the AO after examining the return of income filed by the assessee. The Hon’ble Delhi High Court observed that the AO reached the belief that there was escapement of income on going through the return of income filed by the assessee after he accepted the return under section 143(1) without scrutiny , and noting more. The court held that this was nothing but review of the earlier proceedings and abuse of power by the AO, both strongly deprecated by the Supreme Court in Kelvinator of India Ltd (supra). Similarly in the case of Madhukar Khosla v/s ACIT 55 Taxman.com 391 cited by the appellant, the court held that there should be a relation of a link with objective fact in the form of information or facts external to the materials on the records. Such external facts or material constitute the driver, or the key which enable the authority to legitimately re-open the completed assessment. Even the other decision cited by the appellant supports the case and the argument made in the submissions. In view of the above, I am of the view that the re-opening is not valid as it is not based on any tangible material brought on record by the AO.
The perusal of the assessment order also shows that reopening of the assessment was on account of objections raised by the audit party and to give effect to the pending objections. Before me, the appellant has also submitted that the AO has not independently applied his mind while reopening the assessment and the same has been done only pursuant to objections raised by the audit party and to give effect to the said objection. It has been argued that the audit Objections cannot be considered to be the external tangible material for the purpose of reopening as held by the Hon'ble Delhi High Court in the case of Xerox Modicorp Ltd v/s DCIT 350 ITR 308. The assessment was reopened based on the audit objections can not be said to be valid. In this regards the reliance has been placed the appellant on the decisions in the case of CIT v/s Lucas T.V.S. Limited. 249 ITR 306 (SC), Indian & Eastern Newspaper Society v/s. CIT 119 ITR 996 (SC), Vijaykumar M. Hirakhanawala HUF v/s ITO 287 ITR 443 ( Born.), Reckitt Benckiser Healthcare India P. Ltd v/s. DCIT 74 Taxmann.com 260, Adani Exports v/s DCIT 240 ITR 224 (Guj.), Rajalakshmi Textile processors ltd, v/s. CIT 235 ITR 178 (Mad.) , CIT v/s Ram Mangatrarn 312 ITR 100 (P & H), and Waldies Ltd v/s. ITO 246 ITR 29 (Cal.) I am therefore of the considered opinion that reopening initiated by the AO is not tenable in law. Accordingly I allow this ground of appeal in favor of the appellant and hold that reopening is invalid and the reassessment called out pursuant to that is also invalid . This ground of appeal is allowed.”
7. The Ld. DR vehemently submitted before the Bench that the Ld. CIT(A) has wrongly adjudicated the jurisdictional issue of reopening under section 147 of the Act in favour of the assessee by ignoring the fact that in the first round of litigation the assessee never challenged the said issue of reopening before Ld. CIT(A) and the additional ground filed before the Tribunal challenging the reopening was never admitted and adjudicated. Therefore the Ld. CIT(A) has no jurisdiction to decide this issue.
The Ld. DR. submitted that the Tribunal has set aside the matter to the file of the AO to examine the issues afresh. Therefore, the scope of assessment before the AO in the set aside proceedings is very limited to the issues which were referred back by the Tribunal to the AO. Since the issue of reopening was not there, therefore the order passed by Ld. CIT(A) is bad in law and may be set aside on this issue.
As regards issue of reopening of assessment in 2nd round of litigation, the ld AR submitted that in the 1st round of appeal before Hon’ble Tribunal, the assessee had raised additional ground of appeal
before the tribunal for the first time. Admittedly, there is no specific mention of admission of additional ground of appeal in the order of Hon’ble Tribunal. However, the Hon’ble Tribunal has set aside all the issues for adjudicating afresh which presumably shall also include issue raised by way of additional ground of appeal. Hence, it cannot be said that the issue was not raised in 1st round. In any case, the issue of reopening of assessment is a jurisdictional issue and can be raised in 2nd round of litigation. To support the same, the ld AR placed the reliance on the following decisions : i. Inventors Industrial Corporation Ltd. v. CIT [194 ITR 548 (Bom.)] ii. P.V. Doshi v. CIT [113 ITR
22. (Guj)] iii. National Thermal Power Co. Ltd. v. CIT [229 ITR 383(SC)] iv. Rina S. Mehta v. DCIT [ITA No. 3120/Mum/2015] dated 17.07.2019. v. Hemal Knitting Industries v. ACIT [127 ITD 160 (Chn TM)] vi. RamilabenRatilal Shah v. CIT [282 ITR 176(Guj)] vii. Shrimant F. P. Gaekwad (Decd.) v. ACWT [3 ITR(T) 476(Ahmd)] Hence, it is prayed that issue of reopening of assessment may kindly allowed to be taken up in terms of the ratio laid in the aforementioned decisions.
10. As regards merits of reopening of the assessment, it is submitted that the reopening of assessment is done without 9 & CO No.42/M/2019 M/s. Sonu Synthetics Ltd. application of mind and without any tangible material available with assessing officer. To support the same, the ld. AR submitted that the reasons provided to assessee are different from what are reproduced in the impugned assessment order which showed clear non application of mind on the part of the AO. Further, the reopening of assessment is done only because of audit objection which is a borrowed satisfaction of the audit party and non application of mind on the part of the AO. The reopening of assessment is based on the financial statements which were already available on record at the time of original assessment and there is not fresh tangible material available with AO to reopen the assessment. In this regard, reliance is placed on the following decisions wherein the Hon’ble Courts have quashed the reassessment proceedings carried out on the basis of audit objection without application of mind and without tangible material: i. Xerox Modicorp Ltd v. DCIT [350 ITR 308 (Del.)]. ii. PCIT v. S. Chand & Co. Ltd [100 taxmann.com353(SC)] iii. FIS Global Business Solutions India (P.) Ltd. v. ACIT [102 taxmann.com 471(Del)] confirmed by Hon’ble Supreme Court in ACIT v. FIS Global Business Solutions India (P.) Ltd. [104 taxmann.com 169 (SC)] iv. Air India v. V.K. Srivastava, CIT &Ors [213 ITR 739(Bom)] v. CIT v. v. Indian Sugar & General Industry Export Import Corpn. Ltd [170 Taxman 229(Del)]. vi. GMR Holdings (P) Ltd v. DCIT [149 TTJ 338(Bang)]. vii. CIT v. Akot Ginning & Pressing Factory Ltd [66 taxmann.com 80(Bom)] viii. ACIT v. Nanavati Constructions [ITA No. 2424/Mum/2017] dated 19.12.2019. ix. DCIT v. IDBI Federal Life Insurance Co Pvt. Ltd. [ITA No. 5290/Mum/2017] dated 15.01.2019 The ld. AR prayed that the reopening of assessment be quashed as the same is without application of mind and without any tangible material.
11. The ld AR also submitted that the assessee vide letter dated 08.10.2015 submitted its objections to the reopening of the assessment. The Assessing Officer observed vide letter dated 13.10.2015 that the objections cannot be disposed off in 2nd round of litigation and these were not raised in the first round. As such even though objections were raised to reopening of assessment for the first time, such objections needed to be disposed off by passing a speaking order. The ld AR contended that failure to dispose off such objections renders the entire reassessment proceedings invalid and void ab initio. The ld AR relied on the following decisions : i. Hindustan Unilever Ltd. v DCIT [ITA No. 3701/Mum/2016] dated 01.01.2018. ii. Multiple Images v. ITO [ITA No. 958/Mum/2016] dated 02.08.2018. iii. Bayer Material Science Pvt. Ltd. v. DCIT [66 Taxmann.com 335 (Bom.) iv. KSS Petron Pvt. Ltd. v. ACIT [ITA no. 224 of 2014 (Bom)] dated 03.10.2016. The ld AR prayed that on this count that the reopening of assessment be quashed as the same is without disposing off objections raised by the assessee.
11 & CO No.42/M/2019 M/s. Sonu Synthetics Ltd.
We have heard the rival submissions of both the parties and perused the material on record. The undisputed facts are that the case of the assessee was reopened under section 147 of the Act. In the first round of litigation, the jurisdictional issue was neither raised before the AO nor before the Ld. CIT(A). However, an additional ground was raised before the Tribunal for the first time in the 1st round of litigation. But, there is no mention of admission or adjudication thereof in the Tribunal order vide which the Tribunal has restored all the issues back to the file of the AO to be decided afresh. Thus the issue before us is whether the issue of reopening can be raised in the second round of litigation or not? In our opinion, the issue of re- opening of assessment is a legal and jurisdictional issue and there is no bar on raising this issue in the second round of litigation even though the same is not raised in the first round. However, pertinent to mention that the assessee has raised additional ground before the Tribunal in the first round also. The case of the assessee is squarely covered by the decision of Hon’ble Bombay High Court in the case of Inventors Industrial Corporation Ltd. v/s CIT (supra) wherein the Hon'ble Court has held that the assessee can challenge the issue of reopening for the first time in the second round of litigation even though this was not challenged in the first round of litigation. In the case of PV Doshi vs. CIT, Gujarat (supra) the Hon’ble Gujarat High Court has held the same ratio. The assessee is also squarely covered by the decision of co-ordinate bench of the Tribunal in the case of Rina S. Mehta vs. DCIT(supra) , National Thermal Power Co. Ltd. vs. CIT (supra) and various other decisions cited by the assessee’s counsel as have been mentioned hereinabove.
12 & CO No.42/M/2019 M/s. Sonu Synthetics Ltd. Therefore we hold that there is no bar in raising the legal issue of jurisdiction in the second round before the Ld. CIT(A). As regards the merit of reopening, we find that the said profit on sale of assets Rs.10,82,65,830/- was shown below the line in the P&L account and adjusted against the brought forward losses. The said P&L account was before the AO in the original assessment proceedings which culminated in framing assessment under section 143(3) of the Act vide order dated 19.12.2008 and thus there is no new and independent tangible material before the AO to reopen the assessment. The Ld. A.R. drew our attention to the reasons recorded which are reproduced in para 3 of the assessments order dated 22.03.2016 framed under section 143(3) read with section 254 of the Act and the reasons supplied to the assessee by the AO vide letter dated 01.12.2015, a copy of which is placed at page No.35 & 36 of the paper book. We find that the reasons as recorded under section 148(2) are not same and thus definitely this is a case of non application of mind by the AO. We also note that the reopening in this case has been done on the basis of audit objection as is apparent from the office note attached to the assessment order framed under section 143(3) read with section 147 of the Act dated 16.12.2010 which reads as under: “The assessment was reopened u/s. 148 on the premises that the audit objection raised vide ITRA/LAP XXIII/DCIT 8(3)/AQ-16 was pending and remedial action as per Board Instruction No.9/2006 dated 08.01.2006 to protect the interest of revenue had to be taken. Accordingly, the case was reassessed after giving due effect to the audit query. The Revenue Audit shall be intimated in due course of time.”
Thus, it is apparent from the above that assessment is reopened on the basis of audit objection which is nothing but a borrowed satisfaction of the audit party and not AO’s own 13 & CO No.42/M/2019 M/s. Sonu Synthetics Ltd. satisfaction. In our opinion there is no application of mind by the AO while recording the reasons under section 148(2) of the Act. The case of the assessee finds support from the decision of Hon’ble Delhi High Court in the case of Xerox Modicorp Ltd v/s DCIT 350 ITR 308 wherein it has been held that note of the audit party can not constitute any tangible material. In the case of PCIT vs. Chand & Co. Ltd. (supra) the Hon’ble Supreme Court dismissed the SLP filed by the Revenue. In this case the Hon’ble High Court has held that reassessment proceedings based on the mere audit objection can not be sustained. Similar ratio has been laid down in the various other decisions. In the case of FIS Global Business Solution India Pvt. Ltd. vs. ACIT, the Hon’ble Delhi High Court has held that the audit objection is merely an information and re-opening and reassessment based upon the said objection can not be sustained. The SLP filed against the High Court order was also dismissed by the Hon’ble Supreme Court as reported in (2019) 104 taxman.com 164 (SC). Therefore, we are of the view that reopening of assessment proceedings is not based upon any new tangible material and there being no application of mind on the part of the AO. Therefore, we do not find any infirmity in the order of Ld. CIT(A) on this issue. Further, we note that assessee has also filed objections to reopening for the first time in the set aside proceedings before the AO vide letter dated 13.10.2015 and AO observed that objections could not be disposed off in the second round of litigation. The said non disposal of objections by way of speaking order rendered the entire assessment proceedings as invalid and void. The case of the assessee is squarely covered on this issue by various decisions of the co-ordinate benches and 14 ITA No.5291/M/2017 & CO No.42/M/2019 M/s. Sonu Synthetics Ltd. jurisdictional high court namely i)Hindustan Unilever Ltd. v DCIT (supra) ii) Multiple Images v. ITO (supra) , iii) Bayer Material Science Pvt. Ltd. v. DCIT (supra) and iv)KSS Petron Pvt. Ltd. v. ACIT (supra). In all the above decisions it has been held that assessment framed without disposing of the objections by way of speaking order is invalid and has to be quashed. In view of the above facts and circumstances and the ratio laid down in the various decisions, we hold that the order of Ld. CIT(A) is correct and pursuant to the ratio laid down by various judicial forums. Accordingly the order of CIT(A) is upheld by dismissing the appeal of the revenue.
CO No.42/M/2019 14. The assessee has filed cross objection raising the issue on merit. Since we have upheld the order of Ld. CIT(A) on jurisdictional issue, the CO filed by the assessee becomes infructuous and is accordingly dismissed.
In the result, the appeal of the Revenue is dismissed and the cross objection of the assessee is also dismissed.
Order pronounced in the open court on 06.10.2020.