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Income Tax Appellate Tribunal, “D”
Before: SHRI G. S. PANNU, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The Revenue as well as assessee have filed the above mentioned appeal as well as cross objection against the order dated 25.01.2016 passed CO. No. 296/M/2017 A.Y. 2007-08 by the Commissioner of Income Tax (Appeals)-22, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2007-08.
The Revenue has raised the following grounds: -
1. On the facts and in the circumstances of the case and in law, the CIT(A) Mumbai has erred in quashing the reassessment proceedings completed by the AO u/s 143(3) r.w.s 147 of the Income Tax Act, 1961, without appreciating and considering in proper perspective the question of law as regards the interpretation of Explanation 1 and Explanation -&(iii) to the Proviso - 1 to section (47 of the Income Tax Act. J961.
2. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal.
3. The appellant prays that the order of CIT(A) on the above ground be set-aside and that of the assessing officer be restored.” The brief facts of the case are that the assessee filed its return of 3. income for the A.Y.2007-08 on 31.10.2007 declaring total income to the tune of Rs.2,77,24,204/-. The case was selected for scrutiny and assessment u/s 143(3) r.w. Section 144C of the Act was completed on 28.07.2011 in pursuance of the direction issued by the Dispute Resolution Panel and determining total income to the tune of Rs.6,03,06,480/- after making transfer pricing adjustments of Rs.3,25,82,272/-. Thereafter, the assessee filed an appeal before the ITAT and the appeal of the assessee was partly allowed by the Hon’ble ITAT Bangalore Bench in ITA. No.845/Bang/2011 dated 22.02.2013 and accordingly the AO/TPO worked out the ALP of the ITA. No.2789/M/16 CO. No. 296/M/2017 A.Y. 2007-08 assessee in accordance with direction of the ITAT. The Department has preferred an appeal before the Hon’ble Karnataka High Court against the order passed by ITAT, Bangalore. The order giving effect to the directions of the ITAT was passed by the TPO on 25.09.2013 wherein the international transactions of the assessee company were treated at arm’s length.
4. Thereafter the assessment proceedings of the present case was reopened after recording the reasons of reopening by virtue of issuance of notice u/s 148 of the Act dated 20.03.2013 which was served upon the assessee on 26.03.2013. In response to the notice issued u/s 148 of the Act, the assessee requested to treat the return of income filed earlier on 31.10.2007. Thereafter, the statutory notices were issued and served. The company debited an amount of Rs.56,83,561/- to the profit and loss account under the head of provision for leave encashment which was not allowable, therefore, after giving the notice, the same was disallowed and added to the income of the assessee. Thereafter, the revenue has filed the present appeal before the CIT(A) who set aside the notice u/s 147 of the Act, therefore, feeling aggrieved the revenue has filed the present appeal before us.
We have heard the argument advanced by the Ld. Representative of the parties and perused the record. The Ld. Representative of the Revenue has argued that the notice u/s 147 of CO. No. 296/M/2017 A.Y. 2007-08 the Act was issued after expiry of 4 years but while setting aside the notice 147 of the Act, the Ld. Representative of the CIT(A) nowhere considered the interpretation of Explanation-I and Explanation-2(c)(i) &(iii) to the Proviso-1 to Section 147 of the I.T. Act, 1961, therefore, in the said circumstances, the order passed by the CIT(A) is not justifiable hence is liable to be set aside. In support of these contentions, the Ld. Representative of the Department has placed reliance upon the law settled in the case of Dr. Amin’s Pathology Laboratory Vs. JCIT (2001) 252 ITR 673. However on the other hand, the Ld. Representative of the assessee has argued that the notice u/s 147 of the Act was issued after the expiry of 4 years and to invoke the jurisdiction u/s 147 of the Act, the AO has to establish that the assessee has failed to disclose fully and truly all material facts necessary for his assessment for the relevant assessment year which has not been established, therefore, in the said circumstances, the finding of the CIT(A) is quite justifiable which is not liable to be disturbed at this stage. It is also argued that it is not a case of change of opinion because the facts in connection with the provision of leave encashment of Rs.56,83,561/- has been disclosed, therefore, the finding of the CIT(A) is not liable to be interfere at this appellate stage. On appraisal of the order passed by the authority below and the documents available on the file, it is not in dispute that the notice u/s 147/148 of the Act was issued after the expiry of 4 years. The reasons for reopening are hereby mentioned below.:- CO. No. 296/M/2017 A.Y. 2007-08 “On a check of the scrutiny assessment tax computation statement and financial statements it was observed that the assessee company has debited amounts under “Operating Expenses” (i) Rs.11,97,79,181/- towards salary wages & allowances which include provision for leave e encashment Rs.56,83,461/-. Since the provision of Rs.56,83,561/- is not to be allowed as expenditure u/s 37, it should be added back to the income chargeable to tax. The short levy on account of disallowance of provision of Rs.56,83,561/- as discussed above work out to Rs.28,91,600/-. Therefore, I have reason to believe that there is an escapement of income from tax.”
After the reopening of case in view of provision u/s 147/148 of the Act, the Assessing Officer raised the addition of Rs.56,83,561/- after disallowance the provision of leave encashment. The CIT(A) set aside the reopening of the case in view of the provision u/s 147/148 of the Act on the ground of that the assessee has disclosed all the material facts necessary for the assessment fully and truly. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record.:-
“5.4 I have considered the facts and circumstances of the case. Return of income for A.Y. 2007-08 was filed on 31.10.2007 which was assessed u/s 143(3) r.w.s. 144C of the Act on 28-07-2011. Thereafter, the assessment was reopened by the AO after duly recording reasons and notice u/s 148 of the Act dated 20.03.2013 was served on the appellant company on 26.03.2013. It is seen that the reopening of assessment has been made after the expiry of four years from the end of the relevant assessment year. The proviso to section 147 will, therefore, be applicable in the instant case. The proviso to section 147 of the Act reads as under:- “Provided that where an assessment under sub-section (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 CO. No. 296/M/2017 A.Y. 2007-08 chargeable to tax has escaped assessment for assessment year by reason of the failure on the part of the assessee to make a return u/s 139 or in response to a notice issued under sub-section(1) of section 142 or section 148 or to disclose fully and truly all materials facts necessary for his assessment for that assessment year.” 5.5 It is seen from a plain reading of the proviso to section 147 of the Act that in a case where assessment has been completed u/s 143(3) of the Act and where 4 years have already expired reckoned from the end of the relevant assessment year, then, re-assessment u/s 147 can be made only if there was failure on the part of the assessee to make a return u/s 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. 5.6 I find that in the instant case there was no failure on the part of the appellant to make a return u/s 139 or in response to a notice issued under sub-section (1) of section 142 or section 148. Return of income u/s 139 for the relevant year was filed on 31.10.2007. I also find that there was no failure on the part of the appellant to disclose fully and truly all materials facts necessary for its assessment, for that assessment year. This is evidenct from a perusal of the appellant’s financials and more pertinently from the reasons recorded for re- opening itself. The reasons recorded for re-opening of assessment are reproduced below.: “On a check of the scrutiny assessment tax computation statement and financial statements it was observe that the assessee company had debited amounts under Operating Expenses”(i) Rs.11,97,79,81/- towards salary wages & allowances which include provision for leave encashment Rs.56,83,561/-. Since the provisions of Rs.56,83,561/- is not to be allowed as expenditure u/s 37, it should be added back gto the income chargeable to tax. The short levy on account of disallowance of provision of Rs.56,83,561/- as discussed above work out to Rs.28,91,600/-. Therefore, I have reason to believe that there is an escapement of income from tax.” It is seen from the reasons recorded that he material facts for re- opening assessment were already there on record. The inference that the income has escaped assessment was based on the disclosure made by the appellant itself. No new tangible material had come to the AO CO. No. 296/M/2017 A.Y. 2007-08 knowledge for re-opening the assessment already completed u/s 143(3) of the Act. 5.7 Considering the appellant’s facts and circumstances as discussed above vis-à-vis the prvisions of proviso to section 147 of the Act and the legal position on the issue as held by the various courts in the case of CIT Vs. Tarajan Tea Co. Pvt. Ltd. 236 ITR 477 (SC), CIT Vs. M/s. Kelvinator of India Ltd, 320 ITR 561 (SC), Fenner (India) Ltd. Vs. DCIT, 241 ITR 672 (Mad), Bhavesh Developers Vs. AO, 329 ITR 249 (Bom), Asian Paints Ltd. Vs. DCIT 308 ITR 195, (Bom) and also various other judgements cited by the appellant, the AO was not justified in reopening the assessment u/s 147 of the Act and the same is quashed. The appellant’s ground of appeal on this issue is allowed. Consequently, the merits of ground nos. 2, 4 & 5 are not being adjudicated.”
7. On appraisal of the above mentioned finding, we noticed that the assessee has filed the return of income for the A.Y.2007-08 on 31.10.2007 which was assessed u/s 143(3) r.w.s. 144C of the Act on 28.07.2011. Thereafter, the assessment was reopened by the AO and notice u/s 148 of the Act dated 20.03.2013 was issued and served upon the assessee. The reopening is after the expiry of 4 years from the end of the relevant assessment year. The assessment can only be reopened if the assessee had failed to disclose the necessary material facts fully and truly for its assessment. The reasons itself disclosed that the assessee has disclosed the provision for leave encashment of Rs.56,83,561/- in the statement of profit and loss account. While passing the order, the CIT(A) has placed reliance upon the law settled in CIT Vs. Tarajan Tea Co. Pvt. Ltd. 236 ITR 477 (SC), CIT Vs. M/s. Kelvinator of India Ltd, 320 ITR 561 (SC), Fenner (India) Ltd. Vs. DCIT, 241 ITR 672 (Mad), Bhavesh Developers Vs. AO, CO. No. 296/M/2017 A.Y. 2007-08 329 ITR 249 (Bom), Asian Paints Ltd. Vs. DCIT 308 ITR 195, (Bom). Since there is no lapse on the part of the assessee and the assessee has disclosed all the materials facts fully and truly for the assessment, therefore, in the said circumstances, the reopening is bad in law. The Ld. DR relied upon the law, settled in DR. Amin’s Pathology Laboratory Vs. JCIT (2001) 252 ITR 673, based upon the interpretation of Explanation-1 and Explanation-2(c)(i) &(iii) to the Proviso-1 to Section 147 of the I.T. Act, 1961 but said law speaks about the change of the opinion which is not in the present case, therefore, the said law is not applicable to the facts of the present case. Therefore, in the said circumstances, we are of the view that the CIT(A) has passed the order in question judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, we decide this issue in favour of the assessee against the revenue. CROSS OBJECTION 4:- 8. Since the assessee has raised the cross-objection on merits but the reopening has already been held illegal, therefore, in the said circumstances, there is no need to decide the cross-objection because the same would be academic in nature. Accordingly, the cross- objection is hereby ordered to be dismissed. CO. No. 296/M/2017 A.Y. 2007-08