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Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
Before: Shri J.Sudhakar Reddy, AM & Smt. Madhumita Roy, JM ]
ORDER
Per Smt. Madhumita Roy, JM
The instant appeal filed by the assessee is directed against the order dated 16-07-2019 passed by the Ld. CIT(A)-3, Kolkata arising out of the assessment order dated 31-12-2018 passed by the ACIT, Circle 7(1), Kolkata u/s. 144 r.w.s 147/143(3) of the Income Tax Act, 1961 (hereinafter referred to as “ the Act”) for the Assessment Year 2011-12.
The assessee before us mainly challenges the re-opening of assessment made u/s. 147/148 of the Act by the Ld. AO. According to the assessee such assessment is bad in law and the same is liable to be quashed. Apart from that on merit, the assessee has challenged the confirmation of addition of Rs. 3,79,25,000/- made on account of unexplained cash credit in the books of the assessee being cash deposit u/s. 68 of the Act. Also the confirmation of addition of Rs. 79,71,424/- made on account of suppression of income based on gross profit ratio of the total turnover of the assessee has been challenged before us. AY 2011-12 Arshia Global Tradecom P.Ltd.
We would like to proceed with the ground of the maintainability as raised by the assessee. The question arises before us as to whether the re-opening of said assessment u/s. 147/148 of the Act is in accordance with law in facts and circumstances of the case.
The assessee, running a business of import and trading in textile and fabric item has filed its return of income for the AY 2011-12 on 30-09-2011 declaring a total income at Rs. 34,66,719/-, which was assessed u/s. 143(3) of the Act on 27-03-2014 at total income at Rs. 1,87,52,820/-. Subsequently, the case of the assessee was selected for re-assessment u/s. 147 of the Act on the basis of the reason to believe as observed by the Ld.AO. The assessee is holding a current account ( no. 627705054214) being the transaction linked accounts. The account was triggered for large value non cash transactions. The said transaction pattern shows high amounts of cash and non-cash credits followed by immediate transfer to third account as well as transfer for DD and PO, as of the observation of the Ld. AO as reflects in the reasons recorded for such reopening as it appears at page-2 of the assessment order.
Upon prior approval of the appropriate authority, notice u/s.148 of the Act dated 24- 03-2018 was issued to the assessee in response whereof the assessee filed its return of income declaring total income at Rs. 38,02,680/- on 26-04-2018 for the AY 2011-12. On 10-09-2018 notice u/s 143(2) followed by notice u/s. 142(1) of the Act dated 25-10-2018 was issued alongwith requisition upon the assessee, upon which objection to the proceedings u/s. 147 of the Act was filed by the assessee on 12-11-2018. Details of documents were also duly furnished by the assessee. Subsequently a show cause notice dated 11.12.2018 was issued by the Revenue directing the assessee to explain as to why the transactions which have been made during the year under consideration with the various entities as reflected in the reasons recorded for reopening and sums credited in its accounts to the tune of Rs. 28,56,66,139/- and debited from its accounts to the tune of Rs. 31,68,76,920/- during the year related to the above entities should not be treated as bogus and the amount of Rs. 3.41 crores as deposited in cash in the said account should not be considered as unexplained cash credit and added back in the hands of the assessee u/s. 68 of AY 2011-12 Arshia Global Tradecom P.Ltd. the Act. However, the AO upon rejecting the reply dated 14-12-2018 filed by the assessee finalised such re-assessment proceedings with additions of Rs.79,71,424/- on account of suppression of income based on gross profit ratio of the turnover of the assessee and further addition of Rs. 3,79,25,000/- made on account of cash credit in the books of the assessee being cash deposit u/s. 68 of the Act, which were in turn, confirmed by the Ld. CIT(A). Hence, the instant appeal before us.
At the time of hearing of the instant appeal the Ld. Counsel appearing for the assessee vehemently argued on the point of maintainability of the re-assessment u/s. 147/148. In fact, it was brought to our notice that the original scrutiny assessment proceedings was finalised on 27-03-2014 u/s. 143(3) of the Act, whereas the notice u/s. 148 of the Act was issued upon the assessee on 24-03-2018 i.e. after the expiry of 4 years of the scrutiny assessment done by the Revenue/Ld.AO. He further relied on the statutory provisions u/s. 147 of the Act, the proviso of which clearly stipulates the pre-conditions of re-opening of assessment after the expiry of 4 (four) years from the end of the relevant assessment year under consideration is only upon allegation made by the Revenue that the income chargeable to tax has escaped assessment by the assessee on the reason of the failure on the part of the assessee to make/file return of u/s.139 or in response to notice issued under sub section (1) of section 142 or under section 148 or to disclose fully and truly all material facts necessary for the assessment. But the reason so recorded only speaks about deposit of huge cash of Rs. 3.41 crores on different dates to be verified as also brought to our notice by the Ld. Counsel appearing for the assessee. Since the reason so recorded by the Ld.AO does not allege any of the statutory conditions as argued by the Ld. Counsel appearing for the assessee, re-opening of assessment has been claimed to be not justified and void ab intio and thus liable to be set aside. In support of his argument, he relied upon the judgment passed by the Co-ordinate Bench in the matter of M/s. V2 Retails Ltd Vs. DCIT, Circle 10(2), Kol & Vice-versa in and 723/Kol/2018. He further relied upon the judgment passed by the Co-ordinate Bench in the matter of M/s. Premier
ITA No. 2042//Kol/2019 AY 2011-12 Arshia Global Tradecom P.Ltd. Vyapaar P.Ltd Vs. ITO, W 15(2), Kolkata in the copies of both the judgments have been annexed in the paper book filed before us.
On the other hand, the Ld. DR relied upon the order passed by the authorities below. He also submitted that the creditor companies were not present before the Revenue. Apart from that, the admission of entry operator that these companies are merely shell/paper companies was harped upon. According to him, there were plethora of evidences before the AO for reopening the assessment. Even at the assessment stage, none of the parties appeared before the AO in response to summons issued. Summon issued to 6 parties during remand proceeding were returned unserved and none appeared in 4 other cases, where all the summons were issued on the addresses provided by the assessee. The Ld. DR has relied on the judgment passed by the Hon’ble Bombay High Court in the case of Avirat Star Homes Venture (P) Ltd., reported in 102 taxman.com 60(Bom.) and the judgment passed by the Hon’ble Gujarat High Court in the case of Peass Industrial Engineers (P) Ltd., reported in 73 taxmann. Com 185 in support of re-opening of assessment on the basis of information obtained from investigation wing to the AO.
The Ld. Counsel appearing on behalf of the assessee in reply to such arguments as advanced by the Ld.DR submitted that none of the judgments as relied upon by him has any manner of application to the instant case since the basic fact is completely different from that of the fact available in the case in hand.
We have heard submissions made by the respective parties. We have also perused the relevant materials available on record. It is the case of the assessee that during the course of original scrutiny assessment proceedings u/s. 143(3) on 27.03.2014 books of account and other related documents were produced before the Ld. AO upon verification of which the assessment was finalized, which has not been confronted by the Ld.DR. Accordingly, it has been argued that the re-assessment proceedings, initiated against the assesse, thereafter on the same set of facts, is a change of opinion. It further appears that the original scrutiny assessment u/s. 143(3) of the Act was completed on 27-03-2014 and notice u/s. 148 of the AY 2011-12 Arshia Global Tradecom P.Ltd. Act was issued on 24-03-2018 i.e much after completion/expiry of four years from the end of the relevant assessment year under consideration. In order to address as to whether the re- opening of assessment is justifiable in the present facts and circumstances of the case, we need to discuss the statutory provisions in this respect as provided by the first proviso to section 147 of the Act. The proviso to section 147 of the Act reads as follow:-
Provided that where an assessment under subsection(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 subsection (1) of section 142 or section 148 or to disclosed fully and truly all material facts necessary for his assessment, for that assessment year.”
We find the statutory conditions to be fulfilled in order to re-open the assessment after the expiry/completion of four years from the end of the relevant assessment year is the specific allegation of income chargeable to tax has escaped assessment for such assessment year on the reason of the failure on the part of the assessee to make/file return u/s. 139 or in response to notice issued under sub-section (1) of section 142 or under section 148 and the allegation of failure to disclose fully and truly all material facts necessary for the assessment for the assessment year by the assessee itself.
11. In order to draw the conclusion as to whether the conditions stipulated in the statute has been complied with before the initiation of reopening proceeding. The crux of the reasons recorded by the AO need to be considered. It was recorded that the customer/assessee is operating from commercial premise owned and customer deals in apparels and exports to China. It reflects from the bank accounts that the funds were credited in the bank of the assessee through various entities i.e. companies, proprietorship or partnership firm. On the basis of database available with the directorate of Investigation Wing, Kolkata the companies in which the fund of the assessee were transferred and sometimes received are merely paper/shell companies, which are controlled/managed by AY 2011-12 Arshia Global Tradecom P.Ltd. them and they have provided accommodation entry in the form of bogus billings/share capital/unsecured loans etc. to its various beneficiaries through these paper/shell companies. In fact, during FY 2010-11 in the above mentioned bank account of the assessee huge cash to the tune of Rs. 3.41 crores were deposited on different dates, which needs to be verified as was the ultimate finding/observation of the Ld. AO as it reflects from the reasons so recorded for re-opening of assessment of the assessee.
Thus, we find no allegation made by the revenue upon the assessee being escaped assessment. Neither we find any allegation that the assessee has failed to disclose fully and truly all material facts for the assessment, as it appears from the reasons so recorded for such re-opening in the absence of which no power has been vested upon the AO to reopen/re-assess or re-compute income or etc. Therefore, under the presence facts and circumstances of the case, we do not find any justification for such re-opening of assessment after expiry of four years from the end of the relevant to assessment year.
We have further considered the two judgments as relied upon by the Ld. DR, one of which is passed by the Hon’ble Bombay High Court in the case of Avirat Star Homes Ventures P. Ltd reported in 102 taxmann.com 60(Bom.), where information was received from investigation wing about certain companies that they were involved in giving accommodation entries of various natures to several beneficiaries and the assssee was one of them. Information supplied by investigation wing to Assessing Officer, thus formed a prima facie basis to enable Assessing Officer to form a belief of income chargeable to tax having escaped assessment as of the observation made by the Hon’ble Court. In that particular case the original assessment was done u/s. 143(1) and not u/s. 143(3) of the Act i.e. the scrutiny assessment. Thus, we find that factually this judgment is distinguishable and hence, no manner of application to the instant case.
The Hon’ble Gujrat High Court in the case of Peass Industrial Engineers (P) Ltd (supra) reported in 73 taxmann.com 185 as relied on by the Ld. DR has observed that where after scrutiny assessment the Assessing Officer receives information from investigation AY 2011-12 Arshia Global Tradecom P.Ltd. wing that two well-known entry operators of country provided bogus entries to various beneficiaries and assessee was one of such beneficiary, the Assessing Officer was justified in reopening assessment. We find in that case notice u/s. 147 of the Act was issued within 4(four) years from the end of the relevant assessment year which is otherwise than that of the case of the assessee before us. At the cost of repetition, we say that in the instant case in hand the notice issued u/s. 148 was on 24-03-2018, which is much after the expiry of the relevant AY 2011-12 under consideration. The Ld. DR also fails to controvert such fact before us. Hence, we find no manner of application of said two judgments passed by the Hon’ble Bombay High & Hon’ble Gujarat High court in the matters above as relied upon by the ld.DR in support of re-opening of assessment on the technical ground.
Now we deal with the judgments of the co-ordinate bench, ITAT, Kolkata as relied upon by the Ld. AR in support of his case in the matters of M/s. V2 Retails Ltd (supra) and M/s. Premier Vyapaar P.Ltd (supra), copies of both the judgments have been annexed in the paper book filed before us. The co-ordinate bench while dealing with the issue relating to the validity of re-opening of assessment u/s. 147 of the Act categorically observes that re- opening is bad in law, if there is no recording in the reason for re-opening that there was failure on the part of the assessee truly and fully in disclosing material facts required for the assessment. In fact this judgment as relied by the Ld. AR further relied upon the ration laid down in the judgment passed by the Hon’ble Calcutta High Court in the case of Amiya Sales & Industries & Anr vs. ACIT reported in 2004) (9) TIMI 332-Cal. High Court//(2005) 274 ITR 25 (Cal.). Relevant portion of the said judgment is as follow:-
“In a case where assessment is made under section 143(3) and is sought to be reopened after the expiry of four years from the end of the relevant assessment year, in order to assume jurisdiction under section 147, one of the conditions precedent is that the recorded reasons should point out the failure on the part of the assessee to disclose fully and truly the material facts necessary for assessment. Once the Assessing Officer comes to a finding that there was failure or there was no improper disclosure on the part of the assessee, he forms the better which is recorded and assumes jurisdiction under section 147.
AY 2011-12 Arshia Global Tradecom P.Ltd. In the instant case, the assessments for both the assessment years were made under section 143(3). There was no dispute that the notices under section 147 were issued beyond four years from the end of the relevant assessment years. Thus, in order to initiate action under section 147 after the expiry off our years from the end of relevant assessment years, there should have been either failure or nondisclosure on the part of the assessee. From the recorded reasons it was found that the Assessing Officer was seeking to reopen the assessments since there was an 'incorrect interpretation of accounts by the Assessing Officer' and for that 'the assessee got the benefit of loss' for the assessment year 199293 which was carried forward to the subsequent years. In the instant case, it had nowhere been recorded that there was failure or improper disclosure on the part of the assessee However, the Assessing Officer sought to reopen the assessments as there was incorrect interpretation of account by the Assessing Officer. The recorded reasons did not speak of any omission or failure on the part of the assessee. Thus, admittedly there was no failure on the part of the assessee to disclose fully and truly all material facts in the assessment. Incorrect interpretation of accounts by the Assessing Officer could not confer Jurisdiction on the Assessing Officer to issue notices under section 148 for reopening the assessments as sought to be made in the instant case. If there is no failure on the part of the assessee to disclosure fully and truly the material facts, wrong interpretation of accounts by the Assessing Officer leading to excessive relief cannot be a ground for reopening and thus cannot confer jurisdiction on the Assessing Officer. Explanation 2 cannot be read in isolation of section 147. It should be read in conjunction with the provisions in the section. The words for the purpose of this section appearing in Explanation 2 show that the conditions precedent for reopening assessment as laid down in section 147 have to be complied with. In instant case, since the conditions for assuming of Jurisdiction under section 147 were not fulfilled, the notices under section 148 were uncalled for and warranted interference by appearing orders. If an authority assumes Jurisdiction illegally which is not vested under the law it would be fit and proper for the writ Court to intervene. In the instant case, as there was no omission or failure on the part of the assessee to disclose truly and fully all material facts in the return, as the Assessing Officer sought to reopen the assessments due to wrong interpretation of accounts by the Assessing Officer which was not AY 2011-12 Arshia Global Tradecom P.Ltd. permissible under section 147 to assume jurisdiction, the assessee was justified in invoking the writ petition. Thus, the instant petition was to be allowed and, consequently impugned notices under section 147/148 were to be quashed.
Respectfully following the decision of the jurisdictional High Court on this issue and applying the propositions of law cited in the case law referred above we hold that the reopening is bad in law as it is nowhere recorded in the reasons for reopening that there was the failure on the part of the assessee truly and fully disclose material facts required for the assessment. The Ld. DR relied on the judgment of the Hon’ble Delhi High Court in the case of A.G Holdings Pvt. Ltd (supra). This case is not at all applicable to the facts of the case on hand. In the case of A.G Holdings Pvt. Ltd (supra) the proviso to Section 147 was not the subject matter as the original assessment was not done u/s. 143(3) of the Act. The original return of income in that case was processed u/s. 143(1) of the Act. The applicability of the proviso to Section 147 of the Act was not the subject matter of adjudication. Hence, this case law does not help the Revenue. “
Thus, finally respectfully following the judgments passed by the co-ordinate bench, ITAT, Kolkata as relied on by the Ld. AR in the matter M/s. V2 Retails Ltd and the judgment passed by the Hon’ble Jurisdictional High Court in the matter of Amiya Sales & Industries, we hold that the re-opening is bad in law, arbitrary, erroneous since no allegation of failure on the part of the assessee fully and truly in disclosing material facts as stipulated by the first provision of section 147 of the Act is present in the reasons recorded for such reopening. Ld. AO failed to satisfy the precondition of statutory provisions as discussed above for usurping the jurisdiction and therefore, the entire proceeding is void-ab-initio and liable to be quashed. We find no justification in such re-opening. The same has no legs to stand upon and hence the entire re-assessment proceeding is quashed.
Since we have already decided the matter on the point of maintainability against the Revenue and in favour of the assessee dealing with other grounds on merit becomes academic. AY 2011-12 Arshia Global Tradecom P.Ltd.
In the result, the appeal of the assessees ( AY 2011- 12 is allowed.
Order is pronounced in the open court on 18 November, 2020