Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
This appeal by the assessee is against order dated 21st March 2016, passed by the learned Commissioner (Appeals)–10, Mumbai, for the assessment year 2008–09.
In grounds no.1 and 2, assessee has challenged the re–opening of assessment under section 147 of the Income Tax Act, 1961 (for short “the Act”).
2 Fouress Engineering India Ltd.
Brief facts are, for the assessment year under dispute, assessee filed its return of income originally on 29th November 2008, declaring total income of ` 5,67,77,820. Assessment in case of the assessee was completed under section 143(3) of the Act vide order dated 21st December 2010, accepting the returned income. Subsequently, the Assessing Officer on verifying the tax audit report was of the view that while completing the original assessment the Assessing Officer has not disallowed an amount of ` 10,50,058 being penalty paid to BMC towards Octroi. Thus, the Assessing Officer being of the opinion that due to non–disallowance of the aforesaid amount there is escapement of income proceeded to re–open the assessment under section 147 of the Act by issuing notice under section 148 of the Act on 28th March 2013. The assessee complied to the notice issued under section 148 of the Act by filing return of income on 26th April 2013, declaring the same income as was shown in the original return of income. During the assessment proceedings, when the Assessing Officer called upon the assessee to explain why the amount of ` 10,50,058, paid to BMC towards penalty on octroi should not be disallowed, it was submitted by the assessee that the said amount is not penalty but towards Octroi charged on purchases. It was submitted, the penalty paid to BMC towards non–payment of Octroi amounting to ` 11,18,335, has already been disallowed by the assessee itself. It was submitted, the deduction
3 Fouress Engineering India Ltd. claimed by the assessee not being in the nature of penalty should not be disallowed. The Assessing Officer, however, did not find merit in the submissions of the assessee. Referring to the tax audit report, the Assessing Officer observed that the amount claimed as deduction being in the nature of penalty is not allowable in view of Explanation to section 37(1) of the Act. Accordingly, he added back the amount of ` 10,50,058 to the income of the assessee. Assessee challenged the disallowance as well as the validity of re–opening of the assessment before the first appellate authority.
The learned Commissioner (Appeals) after considering the submissions of the assessee and verifying the material on record upheld the re–opening of the assessment since the re–opening was within a period of four years and the Assessing Officer has recorded reasons with regard to escapement of income. As regards the merits of the issue relating to disallowance of ` 10,50,058, the Commissioner (Appeals) after verifying the tax audit report filed by the assessee found that the assessee has disallowed an amount of ` 12,76,591, on account of penalty paid which does not include the amount of ` 10,50,058. He observed, as per the submissions of the assessee the amount of ` 10,50,058 represents Octroi duty for the earlier years which was paid during the impugned assessment year. The learned Commissioner (Appeals) observed, the claim of the assessee is not 4 Fouress Engineering India Ltd.
allowable firstly; because the payment does not pertain to the impugned assessment year and secondly, these payments are in second instance as the earlier payments did not reach the BMC because assessee was given bogus bills by its agent, though, the amount was already debited in the Profit & Loss account earlier. Accordingly, he confirmed the disallowance made by the Assessing Officer.
The learned Authorised Representative challenging the validity of re–opening submitted that at the time of re–opening of assessment under section 147 of the Act, the Assessing Officer had no fresh tangible material in his possession. Drawing our attention to the reasons recorded by the Assessing Officer for reopening of assessment, a copy of which is at Page–22 of the paper book, the learned Authorised Representative submitted that the Assessing Officer has relied upon the tax audit report of the assessee which was available on record at the time of original assessment and examined by the Assessing Officer. Therefore, he submitted that re–opening of assessment on a mere change of opinion is impermissible. As regards the merits of the disallowance, the learned Authorised Representative submitted that the Departmental Authorities have completely misconceived the facts while treating the payment as penalty. The learned Authorised Representative drawing our attention to specific
5 Fouress Engineering India Ltd. part of the audit report referred to by the Departmental Authorities submitted that nowhere in the audit report the amount of ` 10,50,058, has been shown as penalty. He submitted that the amount of ` 11,18,335, shown as penalty has been disallowed by the assessee itself. As regards the observations of the learned Commissioner (Appeals) that the payment of Octroi pertains to earlier year and the assessee has already claimed deduction of the said amount, the learned Authorised Representative submitted, though, the Octroi duty in question related to purchases made in the earlier, however, the Octroi agent through whom such payment was intended to be made committed forgery and without actually making payment to the BMC furnished forged Octroi receipt to the assessee on the basis of which assessee claimed the Octroi payment as deduction. However, due to non–receipt of Octroi duty, the BMC raised demand in the impugned assessment year and the assessee also paid the amount in question which has been claimed as deduction, as it accrued in the impugned assessment year and was also paid during the year.
Learned Departmental Representative relied upon the observations of the learned Commissioner (Appeals).
We have considered rival submissions and perused materials on record. So far as the issue relating to validity of re–opening under 6 Fouress Engineering India Ltd.
section 147 of the Act is concerned, undisputedly, the original assessment in case of the assessee was completed under section 143(3) of the Act after verifying the books of account and other documents. Though, the re–opening of assessment under section 147 of the Act is within a period of four years from the end of the relevant assessment year, however, that by itself does not provide the Assessing Officer with power to exercise his authority under section 147 of the Act with impunity. The order passed under section 143(3) of the Act certainly deserves to be given some sanctity. Unless there are strong reasons based on tangible material brought on record to indicate escapement of income or under assessment of income no re– opening of assessment under section 147 of the Act can be made. On a perusal of the reasons recorded, a copy of which is placed in the paper book, reveals that post the original assessment no fresh tangible material has come to the possession of the Assessing Officer to indicate escapement of income. On the contrary, the Assessing Officer has merely relied upon the tax audit report to form a belief that deduction of an amount of ` 10,50,058, being in the nature of penalty has been wrongly allowed. Except the tax audit report, the Assessing Officer has not referred to any other material indicating escapement of income. Undisputedly, the tax audit report was available before the Assessing Officer at the time of original assessment and there is no 7 Fouress Engineering India Ltd. reason to infer that the Assessing Officer has not examined the tax audit report at the time of original assessment considering the fact that it is the primary document which reveals assessee’s financial affairs for the year. That being the case, it has to be concluded that while completing the original assessment the Assessing Officer after examining the tax audit report has formed an opinion that the deduction claimed by the assessee on account of Octroi payment is allowable. Thus, in the absence of any fresh tangible material coming to the possession of the Assessing Officer, the re–opening of assessment on re–examination of the very same material on the basis of which the original assessment was completed amounts to re– opening of assessment on a mere change of opinion resulting in review of the decision taken by the Assessing Officer in the original assessment year. This, in our view, is beyond the scope of section 147 of the Act. Therefore, we hold that the exercise of power under section 147 of the Act for re–opening the assessment for the impugned assessment year is invalid. That being the case, the impugned assessment order passed under section 143(3) r/w section 147 of the Act deserves to be quashed. Accordingly, we do so.
Even on merits also, assessee’s case is on a strong footing. It is evident, relying upon the tax audit report, the Assessing Officer has concluded that the amount of ` 10,50,058 is in the nature of penalty
8 Fouress Engineering India Ltd. paid to the BMC. However, on a perusal of the tax audit report submitted in the paper book we have noticed that the amount of ` 10,50,058 has been shown as Octroi payment to BMC and an amount of ` 11,18,335, has been shown as penalty. Admittedly, the assessee itself has disallowed the penalty of ` 11,18,335, in its computation of income. Therefore, the material on record clearly establish that the amount of ` 10,50,058 claimed as deduction by the assessee is not in the nature of penalty. As regards the observations of the learned Commissioner (Appeals) that the payment pertains to earlier period and secondly assessee in the earlier year has debited the amount to its Profit & Loss account, in our opinion such finding of the learned Commissioner (Appeals) is irrelevant for the impugned assessment year. When the assessee has brought material on record to demonstrate that the demand for Octroi and penalty have been raised by the BMC in the impugned assessment year and assessee has also made such payment in the impugned assessment year, there is no reason why assessee’s claim of deduction should not be allowed in the impugned assessment year. If the assessee has claimed any deduction wrongly in the earlier assessment year then the issue has to be dealt with in the said assessment year and not in the impugned assessment year. Therefore, the deduction claimed by the assessee on account of payment of Octroi to BMC is allowable. In view of the above, the 9 Fouress Engineering India Ltd. assessee deserves to succeed both on the legal issue as well as on merits.
In the result, assessee’s appeal is allowed. Order pronounced in the open Court on 18.04.2018