TCG DEVELOPMENT INDIA PVT. LTD.,NEW DELHI vs. ITO, NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “d”: NEW DELHI BEFORE SMT BEENA A. PILLAI , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 4310/Del/2014 (Assessment Year: 2007-08) TCG Development India Pvt. Ltd, Vs. ITO, 100, Ground Floor, Ward-16(1), Okhla Industrial Estate, Phase- New Delhi III, New Delhi PAN: AAACT2836J (Appellant) (Respondent)

Assessee by : Shri Atul Ninawal, CA Revenue by: Smt Naina Sain Kapil, Sr. DR Date of Hearing 21/01/2019 Date of pronouncement 25/02/2019

O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by assessee against order of LD CIT (A) 19, New Delhi dated 31.03.2014 for Assessment Year 2007-08. Assessee has raised following grounds of appeal:- 1. The ld Assessing Officer has erred in law by initiating proceedings u/s 147 of Income Tax Act, 1961 as all information/details were available during original assessments and were examined by Ld. AO during proceedings. No new information/material came to his knowledge to reopen case as provided in law: a. The proceedings u/s 147 is bad in law and void-ab -initio. b. The Learned Assessing officer has erred in law in assuming that appellant company was aware of reasons to believe to reopen case. c. The Learned Assessing officer is not justified in providing reasons to believe to reopen case to appellant company in last week of March; thereby not providing sufficient time to appellant company to support its claim. d. The Learned Assessing officer was supplied with all information/documents in reply to proceedings u/s 154/155 and hence all material was available before Learned Assessing Officer and he could have taken action then only. The issue of notice u/s 147/148 is therefore on account of change of opinion only as no new material had come before Ld. AO.

e. The Learned Assessing officer has acted without jurisdiction by reopening case of appellant company u/s 147, when assessment was made under section 143(3) and in absence of any tangible material available with Assessing Officer to form requisite belief regarding escapement of income. f. The Learned Assessing officer has erred in law by passing assessment order u/s 147/143(3) without giving appellant company sufficient time to support its claim after passing order disposing off objections filed by appellant company for re-assessment proceedings u/s 147. 2. The order passed by Learned Assessing officer disposing off objections filed by appellant company for re-assessment proceedings u/s 147 is void, illegal, bad in law and unethical and should be quashed: a. The Learned Assessing officer has erred in law by disposing off objections raised by appellant company without recording any specific reason. b. The order disposing off objections filed by appellant company for re-assessment proceedings u/s 147 was served upon appellant company on 23rd March 2013 i.e. even after assessment order u/s 148 was served upon assessee. c. The Learned Assessing has passed order without considering grounds of objection as raised by appellant company. The Ld. AO has no where rejected objections raised by appellant company and instead passed order on his own presumptions. d. The Learned Assessing officer has erred in law by relying on case laws, facts of which are completely different from facts of appellant company and on contrary support claim of appellant that proceedings u/s 147 cannot be initiated as no new facts have come to notice of assessing officer other than those which were submitted at time of original assessment by appellant company. 3. The Learned Assessing officer has erred in law while initiating proceedings u/s 147 parallelly when proceedings u/s 154 were pending on same issue and were not concluded especially when no fresh material /information was in possession of Learned Assessing officer. 4. The order passed by Ld. AO u/s 147/143(3) is bad in law and against facts and circumstances of case and same has been passed in violation of principles of natural justice and without confronting any adverse material and without providing adequate opportunity of hearing. 5. The learned Assessing Officer has erred in law and on facts of case in making an addition of Rs. 10,865,713/- on account of advances written off same as an expense of capital nature. 6. The Ld AO has erred in law and facts by not allowing claim of current year business loss of Rs. 312,S68/-while making above additions. 7. The Ld. AO has erred in law In initiating penalty proceedings u/s 271(1)(b) of Income Tax Act 1961.” Page | 2

section 143 (3) the issue has been completely considered by the learned assessing officer and now it is attempt to change the opinion by adopting the assessment proceedings. He referred to the several decisions supporting his argument. He also referred to page number 139 of the paper book which is a letter dated 8/3/2013 of the assessing officer which disposed of the assessee is objection for reopening of the cases. He stated that in that order in para number 3 the AO has stated that on 25/2/2013 a copy of the reasons was again provided to the assessee. He submitted that it is a blatant wrong statement by the assessing officer, as prior to that reasons for reopening were not at all provided. He further submitted that despite having the objection of the assessee, the learned AO rejected the objection simply stating that since the assessee has not attended and not file any objection prior to the appointed date the objections are not considered valid hence rejected. He submitted that firstly, the learned AO did not give the reasons in time and secondly after giving the reasons belatedly did not consider the objection on the merits of the case. He submitted that even only this issue if considered in light of the several decisions, the reopening of the assessment deserves to be quashed. He also referred to the reasons recorded at page number 147 of the paper book dated 22/03/2012. He stated that such reasons does not show any tangible material coming into the possession of the assessing officer after framing the original assessment proceedings. He submitted that the language used by the learned assessing officer, coupled with 154 proceedings initiated clearly shows that it is a bird satisfaction of the assessing officer. He referred to page number 52 of the paper book which is a notice under section 154 of the income tax act dated 10/8/2011 wherein the learned assessing officer has proposed to rectify the original assessment by stating that the assessee has made a wrong claim on account of advances written off which was of capital nature and was not allowable as expenses. He further stated that the original assessment under section 143 (3) was passed on 21/12/2009 wherein this issue was completely examined by the learned assessing officer. He referred to page number 46 being letter of CA during the course of assessment proceedings. 6. The learned departmental representative submitted that the learned assessing officer has correctly made the reopening as he has reason to

believe that the expenditure claimed by the assessee as write off is not a revenue expenditure but a capital expenditure. She therefore stated that there could not be any fault with the reasons recorded by the learned AO. She further stated that rectification proceedings initiated by the learned assessing officer, was found by him to be not appropriate in accordance with the law and therefore he did not pass any order under that section but initiated reassessment proceedings. She submitted that the learned assessing officer for this reason could find no fault. She stated that in the original proceedings the learned assessing officer did not at all examine this issue. She referred to the notice issued by the learned assessing officer and reply furnished by the assessee and stated that this issue has not at all been considered during the original assessment proceedings hence it cannot be said that there is an application of mind by the learned assessing officer on this issue. She therefore submitted that not all the decisions cited by the learned authorised representative with respect to the change of opinion apply to the facts of the case. Hence, according to her, there is no infirmity in the reopened proceedings. She further stated that assessee was made well aware of the reassessment proceedings and issue involved therein in 154 notice as well as the 148 proceedings. She stated that the assessee has been given reasons for reopening in time, assessee filed an objection, the learned assessing officer disposed of such objections by speaking order, therefore now the grievance of the assessee that reasons were provided to the assessee by the learned AO belatedly does not survive as assessee was also given complete opportunity. She relied up on [2018] 98 taxmann.com 200 (Madras)/[2018] 259 Taxman 266 (Madras) and stated that 76. Thus, certain aspects which is contemplated under the provisions of the Act, cannot be interpreted, so as to defeat the purpose for which such a provision was enacted by the Legislators. Constructive interpretation of the Act and the Rules are of paramount importance. The Rule of constructive interpretation requires that the possible object and the purpose to be achieved is met out by adopting not only the balancing approach, but also by providing all reasonable opportunities to the persons, who all are connected or aggrieved. She stated such an effort is made by the dl AO and assessee can not be aggrieved. In case an order is passed without following

a prescribed procedure, the entire proceedings would not be vitiated. It would still be possible for the authority to proceed further after complying with the particular procedure. She stated that that a Judgment of the Court is not to be read as a statute. The factual background of the case is to be considered while applying the judgment and holding oneself bound by the rule of precedents. She further stated that that non compliance of the procedure indicated in the GKN Driveshafts (India) Ltd.'s case would not make the order void or non est. Such a violation is the matter of procedure is only an irregularity which could be cured by remitting the matter to the authority, if the bench so thinks, but definitely on this ground the order cannot be quashed. 7. We have carefully considered the rival contentions and perused the orders of the lower authorities. No doubt the original assessment proceedings were completed under section 143 (3) of the income tax act. The learned assessing officer initiated subsequently 154 proceedings. The reasons for the proposed rectification under section 154 of the act were similar to the reasons recorded by the learned assessing officer for reopening of the assessment. According to us when the learned assessing officer found that the issue is not rectifiable under section 154 of the act and the correct proceedings are required to be initiated under section 147 of the act, he initiated the reassessment proceedings which is a within the time allowed to the learned assessing officer. Therefore there cannot be any fault at the door of the assessing officer in initiating reassessment proceedings on the issue for which 154 notice has been issued earlier and now order was passed under section 154 of the income tax act. 8. On the issue of examination of the allowability of the advances written off by the assessee during the original assessment proceedings under section 143 (3) of the act and therefore now reopening on the same issue is a change of opinion which is not permitted as claimed by the learned authorised representative, we have carefully perused the query raised by the learned assessing officer and the reply submitted by the assessee. The relevant documents have been furnished at page number 46 – 47 of the paper book. The learned authorised representative vehemently submitted that when the question dated 31/8/2009 the learned assessing officer raised the similar

issue by question number 18 and the assessee replied it. On careful examination of question number 18 it is found that the learned assessing officer has asked about the loans and advances appearing on the assets side of the balance sheet. The learned AO further asked the relationship of the company with the parties to move the advances have been given and whether any interest has been charged on these advances are not. The learned AO further asked to furnish notes on applicability of section 2 (22) (e) of the act. The assessee submitted the details of loan and advances amounting to INR 1 0694113 as on 31st of March 2007 as per annexure 1. As per annexure 1, the assessee has given the details of the advance recoverable of INR 1 0865713 and shown less written off the same amount. On perusal of these documents of the query by the assessing officer and reply by the assessee it is apparent that the learned assessing officer has not raised any query about the advances written off by the assessee which is an item of the profit and loss account which assessee is trying to say that the learned assessing officer as an examination of the same which is only the statement of advances outstanding as on 31/03/2007. It is apparent that the learned assessing officer has not made any examination of this aspect with respect to the profit and loss account where these advances have been written off and claimed as allowable expenditure. Therefore, it cannot be said that the learned assessing officer has examined this issue during the course of assessment proceedings. In view of this, we do not subscribe that it is a change of opinion by the learned assessing officer. First time the assessee submitted the documents and the relevant details before the assessing officer with respect to its claim vide letter dated 10/01/2012 in 154 proceedings. There is no discussion of this item during the course of a. assessment proceedings, b. in the assessment order, c. In any of the submissions about these claim of the assessee. Therefore, it does not show that the learned assessing officer has applied his mind on the allowability of the claim of the assessee of the advances written off during the course of assessment proceedings. Para no 2.2 of the order of the ld CIT (A) is also not controverted by the ld AR. We also draw support Page | 8

from the full bench decision of Honourable Delhi High court in [2012] 25 taxmann.com 200 (Delhi)/ [2012] 210 Taxman 188 (Delhi)/ [2012] 348 ITR 485 (Delhi)/ [2012] 253 CTR 113 (Delhi) Commissioner of Income-tax-VI, New Delhi v. Usha International Ltd.* where in para no 39 it held as under:- “39. In view of the above observations we must add one caveat. There may be cases where the Assessing Officer does not and may not raise any written query but still the Assessing Officer in the first round/ original proceedings may have examined the subject matter, claim etc, because the aspect or question may be too apparent and obvious. To hold that the assessing officer in the first round did not examine the question or subject matter and form an opinion, would be contrary and opposed to normal human conduct. Such cases have to be examined individually. Some matters may require examination of the assessment order or queries raised by the Assessing Officer and answers given by the assessee but in others cases, a deeper scrutiny or examination may be necessary. The stand of the Revenue and the assessee would be relevant. Several aspects including papers filed and submitted with the return and during the original proceedings are relevant and material. Sometimes application of mind and formation of opinion can be ascertained and gathered even when no specific question or query in writing had been raised by the Assessing Officer. The aspects and questions examined during the course of assessment proceedings itself may indicate that the Assessing Officer must have applied his mind on the entry, claim or deduction etc. It may be apparent and obvious to hold that the Assessing Officer would not have gone into the said question or applied his mind. However, this would depend upon the facts and circumstances of each case.” Therefore there is no change of opinion and this argument of the learned authorised representative deserves to be rejected. 9. The main grievance of the learned authorised representative is that there is no tangible material coming into the possession of the assessing officer after completion of the assessment proceedings to reopen the case of the assessee. The reasons recorded by the learned assessing officer are placed Page | 9

at page number 147 of the paper book. The learned assessing officer recorded these reasons on 22/3/2012. The gist of the reason shows as under :- “During the assessment year 2007 – 08 it is notice that the assessee has debited an expense of INR 10865713/– on account of advances written off (advances recoverable from Manor hotels private limited) which was capital in nature and it should not be allowed as revenue expenditure. The assessee company has made a wrong claim. Therefore I have reason to believe that the above income, chargeable to tax has escaped assessment as per the section 147 of the income tax act 1961.” 10. Reading from the above reasons recorded by the learned assessing officer it is apparent that there is no tangible material coming to the possession of the assessee after formation of the order under section 143 (3 of the income tax act. Admittedly, the assessment is reopened within 4 years from the end of the assessment year. However even in the assessment falling within the period of 4 years from the end of the assessment year there has to be a tangible material coming into the possession of the assessing officer to reopen the cases. Such is the mandate of the honourable Supreme Court in case of Kelvinator’s of India Ltd 320 ITR 561 (Supreme Court). Therefore it is apparent that the reasons recorded by the learned assessing officer is on the appreciation of the same facts as was available before the assessing officer during the course of assessment proceedings under section 143 (3) of the income tax act. In view of this, we hold that the learned assessing officer has initiated the reassessment proceedings without any tangible material hence it does not deserve to be sustained. Hence, reassessment is quashed on this ground. 11. Secondly, the AO has issued the reassessment notice under section 148 of the income tax act on 23/3/2012. The assessee submitted by letter dated 20/04/2012 to consider the return originally filed on 24/01/2008 as return filed in response to the notice under section 148 of the income tax act. Further, by the same letter the assessee also asked the learned assessing officer to provide reasons to believe possessed by the learned assessing officer in respect of which Assessee Company has escaped assessment

within the meaning of section 147 of the income tax act 1961. Assessee further requested for the reopening reasons on 25/2/2013. On that date the learned assessing officer, give the reasons. Assessee was given time to file an objection up to 4/3/2013. The assessee filed objection on 6/3/2013. The learned AO passed an order disposing of the objection raised by the assessee as per order dated 8/3/2013. The learned authorised representative submitted that that these order was never served on the assessee before the service of the assessment order. The assessment order was passed on 20/3/2013. Therefore, it is apparent that assessee was provided the reasons only on 25/2/2013 asking to file an objection up to 4/3/2013 and the objections were disposed off on 8/3/2013 whereas the final assessment order based on the above reason was passed on 20/3/2013. This clearly shows that the learned assessing officer has not followed the dictate of the decision of the honourable Supreme Court in case of GKN driveshafts Ltd. Vs ITO 259 ITR 19. Further the assessee was also not given 4 weeks time after the rejection of the objections against the reopening of the assessment to explore the alternative remedy available to the assessee which is also contrary to the decision of the honourable Bombay High Court in case of 290 ITR 90 wherein it has been specifically held that if Assessing Officer does not accept the objections so filed, he shall not proceed further in the matter within a period of four weeks from the date of receipt of service of the said order on objections, on the assessee. In the present case even before the service of the order rejecting the objections of the assessee the learned assessing officer as passed the assessment order on 20/3/2013. In view of this, there is a clear-cut violation of the principles of natural justice by the learned assessing officer and procedure deserves to be set right. But as we have already quashed the reopening of the assessment on the reason that there is no tangible material for reopening of assessee, we do not wish to set the procedure right but quash the reassessment proceedings. Even otherwise the limitation of time for pasing order u/s 147 has already passed, no fruitfull purposes will serve by setting aside the issue for correcting procedural irregularities.