RNG CONSTRUCTION CO,MANDIDEEP vs. ADDL.,JT.,DY.,ASSTT.ITO, BHOPAL

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आयकरअपीलीयअिधकरण, इंदौरɊायपीठ, इंदौर
IN THE INCOME TAX APPELLATE TRIBUNAL
INDORE BENCH, INDORE
BEFORE SHRI B.M. BIYANI, ACCOUNTANT MEMBER
AND SHRI PARESH M. JOSHI, JUDICIAL MEMBER
RNG Construction Co.
14, Sector-A,
Indira Nagar,
Mandideep
बनाम/
Vs.
Addl. Jt. Dy. Asstt. ITO
Bhopal
(Assessee/Appellant)
(Revenue/Respondent)
PAN: AAQFR9084B
Assessee by Shri Yashwant Sharma, CA & AR
Revenue by Shri Ashish Porwal, Sr. DR
Date of Hearing
28.08.2025
Date of Pronouncement
12.09.2025
आदेश/ O R D E R
Per B.M. Biyani, AM:
Feeling aggrieved by order of first-appeal dated 15.02.2024
passed by learned Commissioner of Income-tax (Appeals), National Faceless Appeal
Centre, Delhi [“CIT(A)”], which in turn arises out of assessment-order dated
27.09.2021 passed by National Faceless Assessment Centre, Delhi [“AO”]
u/s 147
r.w.s.
144B of the Income-tax
Act,
1961
[“the Act”]
for Assessment-Year [“AY”] 2015-16, the assessee has filed this appeal.
2. The brief facts of case are as under:
(i)
The assessee, a partnership firm, filed its return of income of AY
2015-16 under consideration on 30.09.2015 u/s 139 declaring a RNG Construction Co.
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total income of Rs. 16,14,780/- which was assessed by AO by way of scrutiny assessment u/s 143(3) vide order dated 30.11.2017 at a total income of Rs. 16,54,080/- after making an addition of Rs.
39,299/- on account of difference in turnover.
(ii)
Subsequently, the AO re-opened assessment u/s 147 through a notice dated 20.03.2020 u/s 148 after recording reasons. Finally, the AO completed re-opened assessment vide order dated 27.09.2021 re- determining total income at Rs. 26,77,719/- after making total additions/disallowances of Rs. 10,62,939/- consisting of two items, namely (a) disallowance of Rs. 2,30,781/- u/s 36(1)(va) on account of non-payment of PF/ESI contributions by due date and (b) disallowance of Rs. 8,32,158/- u/s 43B on account of non-payment of service tax by due date.
(iii)
Aggrieved, the assessee carried matter in first-appeal and raised certain legal objections against the proceeding of re-assessment done by AO and also challenged the merits of additions/disallowances made by AO. However, the CIT(A) rejected assessee’s submissions and dismissed first-appeal without giving any relief.
(iv)
Now, the assessee has come in next appeal before us challenging the order passed by CIT(A).
3. The grounds raised by assessee are as under:

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“1. That, on the facts and circumstances of the case and in law, the ld. CIT(A) was not justified in confirming the reassessment order passed by AO, which was without juri iction and bad-in-law.
2. That, on the facts and circumstances of the case and in law, the ld. CIT(A) was not justified in confirming the reassessment order passed by AO u/s 148
because no new facts surfaced regarding the subject Service Tax of Rs.
8,32,158/- sought to be disallowed u/s. 43B as these facts were already fully disclosed and were available on record of the department in the Tax Audit
Report.
3. That, on the facts and circumstances of the case and in law, ld. CIT(A) was not justified in ignoring submissions & evidences filed by the assessee before him on 10th February 2024, which are already on record.
4. That, on the facts and circumstances of the case and in law, Id. CIT(A) was not justified in confirming the disallowances of Rs. 8,34,662/-towards Service
Tax because the same was neither claimed in Profit and Loss a/c nor routed through P& L a/c and was directly shown in Balance sheet in the liabilities side.
5. That, without prejudice to above and on the facts and circumstances of the case and in law, ld. CIT(A) erred in maintaining disallowance of Service Tax to the extent of Rs. 8,34,662/- because as per facts available in the assessee's explanation reproduced at Page -11 of CIT(A) order, Rs. 2,44,581/- was paid before the due date of filing of return on 10.08.2015 and hence was otherwise
6. That, on the facts and circumstances of the case and in law, the Id. CIT(A) was not justified in rejecting the allowable Salary to Partners amounting to Rs.
4,80,000/- (wrongly mentioned as Rs.1,80,000/- in Form No. 35) shown in the P&L a/c and claimed in the return and treating the same as being infructuous holding that no such disallowances u/s. 40(b) of the Act has been discussed or made in the assessment order u/s.143(3) r.w.s.147 dtd. 27.09.2021. 7. That, the appellant craves your leave to add or amend any grounds of appeal on or before the date of hearing.”
4. Ground No. 1 and 2 are legal grounds in which the assessee has challenged the legality of re-assessment proceedings done by AO u/s 147. The assessee claims that the proceedings have been done by AO without juri iction and bad in law.
5. Ld. AR for assessee at first carried us to the reasons recorded by AO for re-opening of assessee’s case as noted in Para 3 of assessment-order:

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“3. In this case, the assessee firm had not paid on or before the date of filing of return ESIC of Rs. 65,146, EPF of Rs. 1,65,635 and Service tax of Rs.
8,32,158, totalling Rs. 10,62,939/-, thereby violating the provisions of section 43B of the IT Act, 1961. Since this sum of Rs. 10,62,939 had escaped assessment within the meaning of section 147, a notice u/s 148 was issued by the Assessing Officer on 20.03.2020 recording the following reasons:
"From the records, it was observed that as per column no.
26(i)B(b) of the 3CD report, the assessee has not paid/deposited
ESIC/EPF/Service
Tax aggregating to Rs.
10,62,939/- on or before the date of filing of return, thereby violating the provisions of 43B of the IT, 1961. I have, therefore, reason to believe that the income to the extent of Rs. 10,62,939/- which is chargeable to tax, has escaped assessment for the F.Y.
2014-15 relevant to the A.Y. 2015-16 within the meaning of section 147 of the Income Tax Act, 1961."
[emphasis supplied]
6. Ld. AR thereafter drew our attention to the following decision of Full
Bench of Hon’ble Delhi High Court in CIT Vs. Kelvinator of India Ltd.
(2002) 123 Taxman 433 (Delhi) dated 19.04.2022; the relevant paras of order are re-produced below:
“2….. A return of income declaring income of Rs. 1,62,890 was filed on 29-6-
1987, by the assessee wherewith computation of income, annual report, tax audit report, etc., were also filed. As it did not claim deduction for the expenses as enumerated herein before, a revised return was filed on 5-10-
1989, along with a letter of the same date, wherein it was contended that rent for a sum of Rs. 1,76,000, and depreciation for a sum of Rs. 66,441 should be allowed in terms of sections 30 and 32 of the Act. The said contention was raised relying on or on the basis of a decision of the Bombay High Court in CIT v.
Chase
Bright
Steel
Ltd.
(No. 1)
[1989]
177
ITR
124. Disallowance under Section 37(4) of the Act in respect of the Guest houses was restricted to maintenance expenses of Rs. 91,485/-. An order of assessment was passed by the Assessing Officer on 17th November 1989, wherein upon making additions and disallowances the taxable income was determined at Rs.
21,14,082/-. A claim of Rs. 91,485/- was disallowed in the respect of the above accommodations as submitted in the revised computation.
Subsequently, a notice under Section 148 of the Act was issued on 20th April
1990 for reopening of the assessment in terms of Section 147 thereof. The reasons recorded for reopening the assessment are:
"M/s. Kelvinator of India Ltd. Assessment year 1987-88:

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Assessment was completed Under Section 143(3) on 12.11.89 on income of Rs. 6,34,225/-. The perusal of the record shows that the assessed maintains the books on mercantile basis. In the year under consideration, the assessed claimed interest of Rs. 41.28 lacs which in fact pertains to the earlier assessment years [Section 140b p(c-3) page
21
of printed balance-sheet].
This was not allowable expenditure in this year. Further, Tax Audit Report shows that following items were disallowable:
Disallowable
Disallowed less Disallowable
1. Guest House Exp.
2,67,485/-
91,485/-
1,76,000/-
2. Under Rule 6B
1,74,098/-
90,795/-
83,303/-
3. Club Expenditure
5,329/-
1,029/-
4,300/-
TOTAL
2,63,603/-
Total under assessment is to the tune of Rs. 43,91,603/-. The case is covered Under Section 147. Notice Under Section 148 is issued."
The assesse objected to the said reopening of the assessment. However, an order of re-assessment was passed on 24th September 1990 determining the total income at Rs. 23,56,523/-, whereby a sum of Rs. 2,42,441/- (rent of Rs.
1,76,000/- and depreciation of Rs. 66,441/-) incurred on the maintenance of guest houses was disallowed and added to the total income. Though the assessment was re-opened on the alleged ground of various disallowable claims but except for the aforenoted disallowance, neither any other claim was disallowed nor any addition was made. In support of his order of re- assessment the Assessing Officer purported to have relied upon the order of the Commissioner of the Income-tax (Appeals) for the assessment year 1986-
87, which was passed on 27th July 1990, although the assessment was re- opened on 20th April 1990. The contention of the assessed is that the Assessing Officer could not have taken recourse thereto, particularly, having regard to the fact that the Income-tax Appellate Tribunal (in short 'Tribunal'), on appeal, had allowed similar expenses for the assessment year 1986-87. The assessed preferred an appeal against the order of re-assessment dated
24th September 1990, whereupon the Commissioner (Appeals) by an order dated 23rd August 1991 quashed the re-assessment proceedings holding that the assessed had disclosed all the facts. It was held that no new fact or material was available with the Assessing Officer, which would come within the purview of the expression "information". It was held that it was mere change of opinion on the part of the Assessing Officer and as such the re- assessment proceedings could not have been validly initiated. On further appeal the Tribunal upheld the afore-mentioned decision of the Commissioner of Appeals. It also held that the amended provision of Section 147
of the Income-tax Act was applicable. It reiterated that it was a case of mere change of opinion. An application filed by the department to refer the following question to this court was rejected by order dated 27th January 1999:

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"Whether ITAT was correct in holding that the proceedings initiated under Section 147 of the said Act were invalid on the ground that there was a mere change of opinion"?
Hence the present petition under Section 256(2) of the Act.
XXX
22. We are unable to agree with the submission of Mr. Jolly to the effect that the impugned order of reassessment cannot be faulted as the same was based on information derived from the tax audit report. The tax audit report has already been submitted by the assessee. It is one thing to say that the Assessing Officer had received information from an audit report which was not before the ITO, but it is another thing to say that such information can be derived by the material which had been supplied by the assessee himself.
23. We also cannot accept submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded on analysis of the materials on the record by itself may justify the Assessing
Officer to initiate a proceeding under section 147, The said submission is fallacious. An order of assessment can be passed either in terms of sub- section (1) of section 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the said sub-section (3) of section 143, a presumption can be raised that such an order has been passed on application of mind. It is well-known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act the judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer juri iction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving premium to an authority exercising quasi-judicial function to take benefit of its own wrong.
For the reasons aforementioned, we are of the opinion that answer to the question raised before this Bench must be rendered in the affirmation, i.e., in favour of the assessee and against the revenue. No order as to costs.”
7. He also submitted that the above decision of Hon’ble Delhi High Court has been subsequently upheld by Hon’ble Supreme Court in CIT Vs.
Kelvinator of India Ltd. (2010) 187 Taxman 312 (SC) order dated
18.01.2010; the relevant paras of order are re-produced below:

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“S.H. KAPADIA, J.
Heard learned counsel on both sides.
2. A short question which arises for determination in this batch of civil appeals is, whether the concept of "change of opinion" stands obliterated with effect from 1st April, 1989, i.e., after substitution of Section 147 of the Income
Tax Act, 1961 by Direct Tax Laws (Amendment) Act, 1987?
3. To answer the above question, we need to note the changes undergone by Section 147
of the Income Tax Act, 1961 [for short, "the Act"]. Prior to Direct Tax Laws (Amendment) Act, 1987, Section 147 reads as under:
"Income escaping assessment.
147. If--
[a] the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or [b] notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax
Officer has in consequence of information in his possession reason to believe that 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 or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned
(hereafter in sections 148
to 153
referred to as the relevant assessment year)."
3.1
After enactment of Direct Tax Laws (Amendment) Act, 1987, i.e., prior to 1st April, 1989, Section 147 of the Act, reads as under:
"147. Income escaping assessment.-- If the Assessing Officer, for reasons to be recorded by him in writing, is of the opinion 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

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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)."
3.2
After the Amending Act, 1989, Section 147 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)."
4. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re- opening could be done under above two conditions and fulfillment of the said conditions alone conferred juri iction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers juri iction to re- open the assessment. Therefore, post-
1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing
Officer has no power to review; he has the power to re-assess. But re- assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. 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. Our view gets support from the changes made to Section 147
of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word
"opinion" in Section 147 of the Act. However, on receipt of representations from the Companies against omission the words
"reason to believe",
Parliament re-introduced the said expression and deleted the word "opinion"
on the ground that it would vest arbitrary powers in the Assessing Officer. We

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quote hereinbelow the relevant portion of Circular No.549 dated 31st October,
1989, which reads as follows:
"7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression
`reason to believe'
in Section 147.--A number of representations were received against the omission of the words
`reason to believe' from Section 147
and their substitution by the `opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, `reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147
to reintroduce the expression `has reason to believe' in place of the words
`for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same."
5. For the afore-stated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs.”
8. Ld. AR then submitted that the facts of assessee’s case are very much identical to the facts of Kelvinator’s case in as much as (i) the original assessment was finalised by way of scrutiny u/s 143(3) in both cases, (ii) subsequently the AO re-opened assessment u/s 147 within a period of four years by picking the items of disallowances from “tax audit report” which was already available with AO in original assessment, and (iii) there was no ‘fresh’ or ‘new’ material available for re-opening of assessment. Further, there is no change in law of section 147 as analysed by Hon’ble Courts.
Therefore, the present case of assessee stands fully covered by the decision in Kelvinator’s case and hence the proceeding of re-assessment done by AO must be quashed in the light of same.
9. Ld. DR for revenue dutifully relied on the orders of lower authorities and left the matter to the wi om of bench.

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10. We have considered rival submissions of both sides and carefully examined the facts of case in the light of Kelvinator’s case cited by Ld. AR.
Admittedly, in present case of assessee, the original assessment was finalised by AO u/s 143(3) and subsequently the case has been re-opened u/s 147 within four years taking into account the reporting made by auditors in “tax audit report”. It is further a fact that the “tax audit report”
was very much available with AO during original assessment. It is further a point that except such “tax audit report”, there is no other material “fresh”
or “new” with the AO for initiating the proceeding of re-assessment. Thus, these facts of assessee’s case are identical to the case of Kelvinator decided by Hon’ble Delhi High Court in favour of assessee and against revenue. The decision of Hon’ble Delhi High Court has been subsequently approved by Hon’ble
Supreme
Court also.
Therefore, following the view taken in Kelvinator’s case, we too hold that in present case the proceeding of re- assessment done by AO u/s 147 is not valid and not maintainable. Hence, we quash the proceedings initiated and order of re-assessment passed therein by AO. The assessee succeeds in its Ground Nos. 1 & 2. 11. Since we have already quashed assessment-order passed by AO, ground Nos. 3 to 7 raised by assessee which are on merits of disallowances, become infructuous and do not require any adjudication at this stage from us.

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12. Resultantly, this appeal is allowed.
Order pronounced in open court on 12/09/2025 (PARESH M. JOSHI)
ACCOUNTANT MEMBER
Indore
िदनांक/ Dated : 12/09/2025
Patel/Sr. PS
Copies to:
(1)
The appellant
(2)
The respondent
(3)
CIT
(4)
CIT(A)
(5)
Departmental Representative
(6)
Guard File
By order
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