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

आदेश/ O R D E R

Per B.M. Biyani, AM:

(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 Page 1 of 11 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).

Page 2 of 11 “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 jurisdiction 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 jurisdiction 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:

“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:

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:

"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.

Page 6 of 11 “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

Page 7 of 11 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.

Page 8 of 11 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."

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.

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.

Order pronounced in open court on 12/09/2025