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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE
O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals) – 51 Mumbai [hereinafter in short “Ld.CIT(A)”] dated 27.03.2018 for the A.Y. 2009-10.
The assessee raised the following grounds in its appeal: - “1. The learned CIT (A) erred in upholding the validity of the reassessment proceedings u/s. 147 without appreciating the fact that there was no failure on the part of the Appellant to disclose fully and truly all material facts necessary for the assessment of the year which was originally completed u/s. 143 (3).
2. The learned CIT (A) erred in brushing aside the Appellant's challenge to the validity of Notice u/s. 148 as the sanction of the appropriate authority as per (A.Y: 2009-10) M/s. Samkit Gems Section 151 (2), i.e. of the CIT-16, Mumbai was not obtained by observing that this is a baseless allegation without any documentary evidence.
The learned CIT(A) erred on facts and in his observation that "As regards the contention of the assessee that all the material facts were duly disclosed in the original assessment proceedings, the same is found to be incorrect since the fact that the assessee was paying interest on the credit balance of the partners, but not charging interest on their debit balances was not at all disclosed in the original assessment proceedings” as fact of payment of interest to partners on their credit balances and non-charging of interest on their debit balances was disclosed in the audited Schedule of Partners' Capital Accounts filed during the course of original assessment.
4. The learned CIT(A) erred in upholding the disallowance of interest of Rs.1,68,421/- paid to partners on their capital accounts which is in accordance with the provisions of Sec. 40 b(iv)”
3. Briefly stated facts are, the assessee a partnership firm engaged in the business of manufacture and trading of diamonds filed return of income on 22.09.2009 declaring income of ₹.3,79,610/-. The assessment was completed u/s. 143(3) of the Act on 23.11.2011 accepting the income returned. Subsequently notice u/s. 148 of the Act dated 31.03.2015 was issued reopening the assessment and the reassessment was completed u/s. 143(3) r.w.s. 147 of the Act on 23.03.2016 determining the income of ₹.5,48,030/-. While completing the reassessment the Assessing Officer made addition of ₹.1,68,421/- by disallowing interest paid to one of the partners on his capital. Assessee challenged the reopening of assessment as well as the additions/disallowance made on merits. Ld.CIT(A) sustained the reopening of assessment and also the addition made on merits.
Before me, Ld. Counsel for the assessee submits that assessment in this case was completed u/s. 143(3) of the Act on 23.11.2011 and (A.Y: 2009-10) M/s. Samkit Gems subsequently assessment was reopened beyond a period of four years from the end of the relevant assessment year by issue of notice dated 31.03.2015 u/s. 148 of the Act and therefore proviso to section 147 of the Act applies according to which the assessment can be reopened only by the reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Ld. Counsel for the assessee inviting my attention to the reasons recorded for reopening of assessment which is placed at Page No. 20 of the Paper Book submits that the assessment was reopened not based on any external materials came into the possession of the Assessing Officer subsequent to completion of assessment. Referring to the reasons recorded for reopening of assessment the Ld. Counsel for the assessee submits that nothing is mentioned about the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Ld. Counsel for the assessee submits that in fact the reasons recorded shows that all the information is available on record and based on the information already available on record the assessment was reopened. Referring to the reasons recorded the Ld. Counsel for the assessee submits that the information was in fact flowing from the balance sheet and Profit and Loss Account that the assessee has shown negative capital the balance of ₹.1,03,94,794/- and also that assessee paid interest (A.Y: 2009-10) M/s. Samkit Gems of ₹.1,68,421/- on the credit balance of one of the partners. It is also noticed by the Assessing Officer from the records that partners also withdrawn from the business and therefore he was of the opinion that partners are liable to pay interest on capital. For this reason, the assessment was sought to be reopened. Therefore, the Ld. Counsel for the assessee submits that there is no whisper on any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Ld. Counsel for the assessee further inviting my attention to the Page No. 4 of the Paper Book which is the 3CD report submits that the fact of interest paid by the assessee to one of the partners was also reported in the 3CD report which was filed along with return of income. It was submitted that even in the return of income the payment of interest to partner was reflected. Reliance was placed on following decisions: -.
Foramer vs CIT (2001) 247 ITR 0436 (All), which has been affirmed by the Hon. Supreme Court in (2003) 264 ITR 0566 (SC) 2. Madhukar Khosla (2014) 90 CCH 0023 (Del) 3. Kelvinator of India Limited - 320 ITR 0561 (SC) 4. Pool Chand Bajrang Lal & Another (1993) 203 ITR 456 (SC) 5. Sun Pharmaceutical Industries Ltd. W.P.(C) 6729/2011 (Del) 6. Carlton Overseas Limited vs ITO (2009) 318 ITR 0295 (Del) 7. ACIT vs Perfect Corporate Services Ltd. (ITA No.3100/Mum/2017)
Ld. DR vehemently supported the orders of the authorities below.
Heard rival submissions, perused the orders of the authorities below. On a perusal of the reasons recorded for reopening of (A.Y: 2009-10) M/s. Samkit Gems assessment, I notice that on the basis of the facts on record the Assessing Officer came to the conclusion that assessee has shown negative capital in the balance sheet and assessee also paid interest of ₹.1,68,421/- to one of the partners. Assessing Officer also noticed that partners have withdrawn from the firm and no interest was charged by assessee. Therefore, the assessment was reopened for disallowing interest paid by the assessee to one of the partners. On a perusal of the reasons recorded, I find that there is no allegation by the Assessing Officer that there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of assessment for this year. Since the assessment was reopened beyond four years from the end of the relevant assessment year, proviso to section 147 of the Act applies according to which the assessment can be reopened only if there is any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of assessment. All the information was gathered from the assessment record by the Assessing Officer and no information has been gathered from outside the assessment records.
The Hon'ble Delhi High Court in the case of Madhukar Khosla v. ACIT (supra) held that where the reassessment was clearly not on the basis of any new or tangible information or facts the Revenue came by and it was in effect re-appreciation or review of the facts that were already
(A.Y: 2009-10) M/s. Samkit Gems provided along with the original return filed by the assessee, the reopening of assessment after expiry of four years would amount to impermissible review.
Hon'ble Supreme Court in the case of CIT v. Kelvinator of India Ltd., [320 ITR 561] it has been held as under: -
“6. 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 jurisdiction 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 jurisdiction to reopen the assessment. Therefore, post-1st April, 1989, power to reopen 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 of 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 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."
(A.Y: 2009-10) M/s. Samkit Gems 9. It has been held by the Hon'ble Supreme Court that the Assessing Officer has power to reopening of assessment provided there is tangible material to come to the conclusion that there is escapement of income from assessment. It has been held that the Assessing Officer has no power to review and he has power to reassess.
In the case on hand suggest that the Assessing Officer on mere change of opinion based on the information already available on record sought to reopen the assessment which is not permissible in view of the proviso to section 147 of the Act as there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of assessment. Thus, the re-assessment made u/s. 143(3) r.w.s. 147 of the Act is quashed on the preliminary ground itself. As the assessment was quashed on preliminary ground, all other grounds on merits are not adjudicated as it becomes only academic.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on the 31st July 2019