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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
This appeal preferred by the revenue is against the order of the Ld. CIT(A)-4, Kolkata dated 04.08.2015 for AY 2006-07.
Though the revenue has raised as many as nine grounds of appeal but there are only two main grievances of the Revenue. First one is against the action of Ld. CIT(A) in allowing deduction u/s. 80IA of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).
3. First we will deal with the legal issue is against the action of Ld. CIT(A) annulling the reopening of the regular assessment framed u/s. 143(3) of the Act. Briefly stated facts as observed by the AO are that in this case, the assessee filed return of income on 29.11.2006 showing a total income of Rs.2,28,77,613/- for the Assessment Year 2006-07. The return was processed u/s. 143(1) of the Act on 05.11.2007 on returned income. The case was selected for scrutiny and the assessment u/s. 143(3) of the Act was completed on 26.12.2008 on a total income of Rs.3,10,09,060/- after disallowing deduction u/s. 80IA of 2 Vantage Advertising Pvt. Ltd., AY 2006-07 the Act of Rs. 30,81,045/- in respect of 'Bus shelters' and 'Foot over bridges'. Aggrieved against the order passed by the AO u/s. 143(3) on 26.12.2008, the assessee preferred an appeal before the CIT(A), who allowed relief to the assessee in respect of its claim of deduction u/s. 80IA to the tune of Rs.30,81,045/-. Thereafter, the AO after the lapse of four years was of the opinion that there is an escapement of income which is likely to exceed more than one lakh rupees, therefore, after obtaining necessary approval from the CIT, the AO issued notice u/s. 148 for re-opening the case u/s. 147 of the Act. Thereafter, the AO passed order u/s. 147/251/143(3) dt. 20.03.2014 determining total income of Rs. 4,35,74,779/- which included disallowance of deduction u/s. 80IA of the Act of Rs.2,04,42,842/- towards road medians which was previously allowed by AO which order has been confirmed by the Ld. CIT(A) in his order dated 04.08.2015 and excess debit of managerial salary of Rs.2,50,000/-. Aggrieved against the order passed by the AO u/s. 147/251/143(3) on 20.03.2014, the assessee preferred appeal before the CIT(A), who annulled the reassessment order and on merits allowed relief u/s. 80IA of the Act of Rs.2,04,42,842/- and also towards the excess claim of managerial salary of Rs.2,50,000/-. Aggrieved, revenue is before us. As aforestated, we will deal with the legal issue of Ld. CIT(A)’s action of annulling the AO’s reopening of regular assessment itself.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that the original/regular assessment of the assessee was framed u/s. 143(3) of the Act on 26.12.2008 wherein the assessee while claiming deduction u/s. 80IA of the Act claimed the income from “Road Median” which was allowed by the AO. However, in that proceeding, he disallowed the claim of assessee in respect of ‘Bus Shelter’ and ‘Foot Overbridge’ expenditure u/s. 80IA of the Act. Aggrieved by the order of AO, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to allow the same, which order of the Ld. CIT(A) has been upheld by the Tribunal. Meanwhile, after four years after the regular assessment u/s. 143(3) of the act, the AO had reopened the assessment.
We note that there are two separate reasons recorded to reopen the regular assessment. In order to adjudicate the legal issue raised before us by the Revenue, it is necessary to have a look at the reasons recorded by AO to reopen the regular assessment
3 Vantage Advertising Pvt. Ltd., AY 2006-07 framed u/s. 143(3) of the Act. For that, we note that the first reason for reopening placed at pages 76 and 77 of paper book reads as under: “Scrutiny assessment for the year has been completed on 26.12.08 at an income of RS.31009060 and tax of Rs.10437650. A demand of Rs.2886476 has been raised on the basis of assessment. During the year the assessee had claimed deduction of Rs.23498887 u/s. 80lA for developing and operation of infrastructure facility like 'Bus shelters', 'Road median' & 'Foot over bridge'. In the assessment a deduction of Rs.20442842 has been allowed to the assessee u/s. 80lA only for road median. As per clause (4) (b) of section 80IA, this section applies to any enterprise which has entered into an agreement with the Central Govt. or State Govt. or a local authority or any other statutory body for (i) developing or (ii) operating & maintaining or (iii) developing, operating & maintaining a new infrastructure facility. Explanation below clause (4) of 80IA defines the infrastructure facility which inter-alia includes (a) road including toll road, a bridge or a rail system; (b) a highway project including housing or other activities being an integral part of highway project. Further to claim any deduction u/s 80IA as it is mandatory to submit a copy of from 10CCB. Moreover as per notification no.240/2002 dated 06.09.02 a copy of the agreement between the Govt. or local authority and the enterprise developing or operating or maintaining infrastructure was required to be produced for availing any deduction u/s. 80IA.However it was noticed that in the instant case copy of form 1OCCB (which indicates the year of commencement of the business claiming 80IA or other details) and also the copy of contract agreement between the enterprise and the authority were absent in the assessment record. In the instant case it cannot be concluded that the infrastructure facility for which the assessee was allowed deduction u/s 80IA was a new one, i.e. the road medians are a part of a new road or highway project. However the details of advertising income from road medians enclosed with records it appears that most of the medians were built on the existing road systems in the city of Mysore, Coimbtore, Bangalore & Chennai. Moreover a receipt of Rs.1802960 has been shown as income under 80IA which has been earned from street light kiosk. Thus it is apparent that though the assessee had claimed for development & operating & maintenance of road medians those were not integral part of a new infrastructure facility. Moreover the only revenue of the assessee was merely from advertising not from developing or operation or maintenance of a new infrastructure facility as explained in section 80IA of I. T. Act. From 1.04.02 Infrastructure facility includes those facilities as specifically included in the I.T. Act and no other facility for the public could be included in it. Thus it appears that the assessee was not eligible for any deduction u/s. 80IA. Hence allowance of deduction of Rs. 20442842 u/s 80lA from advertising on road medians in the assessment was irregular. The mistake resulted in underassessment of Business income of Rs. 20442842 involving undercharge of tax of Rs. 6881060.”
The second reason for reopening is found placed at page 78 of paper book which is as under: “Scrutiny assessment for the year has been completed on 26.12.08 at an income of Rs.31009060 and tax of Rs. l0437650. A demand of Rs.2886476 has been raised on the basis of assessment.
4 Vantage Advertising Pvt. Ltd., AY 2006-07 It was observed that during the year the assessee has debited a sum of Rs.13538200 as Managerial salary and remuneration. As per details of managerial remuneration as given in Point No.12(b) of Schedule -19 sum of Rs.5735000 has been paid by the assessee to Mrs. T. D. Bahadurji as managerial salary/ remuneration. However the TDS certificate issued by the assessee enclosed with the assessment records of Mrs. Tehnaz darius Bahardurji (T.D. Bahardurji , PAN- AEGPB5750C) for the assessment Year 06-07 revealed that during the year a sum of Rs.5485000 has been paid by the assessee to Mrs. T. D. Bahadurji as salary. Thus it is apparent that there was an excess debit of Rs. 250000 as managerial salary. The mistake resulted in underassessment of business income by Rs.250000 involving undercharge of tax of Rs. 84150.”
We note that the original assessment was framed u/s. 143(3) of the Act on 26.12.2008 and the period of four years from the end of the relevant assessment year has undisputedly expired as the notice conveying the intention of AO to reopen u/s. 148 of the Act was issued on 26.02.2013, so the reopening of original assessment framed u/s. 143(3) on 26.12.2008 was after expiry of 4 years and so the proviso to sec. 147 of the Act comes into play and the procedural safeguard provided to by the Parliament has to be satisfied before the AO ventures to reopen such an assessment. So, first let us look at sec. 147 of the Act which is as under:
“Income escaping assessment. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : 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 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 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:”(Emphasis given by us)
Reading of the proviso to section 147 makes it clear that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under section 5 Vantage Advertising Pvt. Ltd., AY 2006-07 147, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the concerned assessment year. However, where an assessment under sub- section (3) of section 143 has been made for the relevant assessment year, no action can be taken under section 147 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 disclose all material facts necessary for his assessment for that assessment year.
So when the original assessment was framed u/s. 143(3) and four years have expired as in the present case before us, the jurisdictional fact for usurpation of jurisdiction u/s. 147 read with sec. 148 of the Act is that the AO has to record in the reason for reopening as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of the original assessment framed u/s. 143(3) of the Act and a perusal of the reasons recorded to reopen the completed assessment u/s. 143(3),(supra) we need to examine from the reasons recorded by the AO as to whether there is any whisper/averment to the effect which fact/material that assessee has not truly and fully disclosed any facts or material to assess the income of the assessee in the original assessment. In a similar case the Hon’ble Bombay High court in the case of Hindustan Lever Ltd. Vs. ACIT 268 ITR 332 (Bom) has laid the law on the issue as under:
“The reasons recorded by the Assessing Officer nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion; It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. The reasons are the manifestation of the mind of the Assessing Officer. The reasons recorded should be self- explanatory and should not keep the assessee guessing for the reasons. Reasons provide the link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. That vital link is· the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing an affidavit or making an 6 Vantage Advertising Pvt. Ltd., AY 2006-07 oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches the court, on the strength of the affidavit or oral submissions advanced.”(Emphasis given by us)
Thus, as discussed above, while recording ‘Reasons’, it is incumbent upon the AO to firstly make an allegation in the ‘Reasons’ recorded and then also to make out a case that there was a failure on the part of the assessee in disclosing fully and truly all material facts necessary for his assessment for the impugned assessment year. Perusal of the ‘Reasons’ recorded by the AO reveals that no such allegation has been made in the ‘Reasons’. Thus, the condition precedent to enable the AO to reopen the original assessment completed order dated 26-12-2008 passed u/s 143(3), is found to be clearly missing here. So much so, even in the re-assessment proceedings, the AO has nowhere been able to show anything from which it could be inferred that there was any failure on the part of the assessee in disclosing fully and truly all material facts necessary for the assessment of the assessee. We note that the Ld. CIT(A) rightly took note that the assessee’s case was reopened after a lapse of more than four years from the relevant assessment year since notice u/s. 148 of the Act was issued on 26.02.2013 and since the Ld. CIT(A) rightly made a finding that since the regular assessment was completed under scrutiny u/s. 143(3) of the Act vide assessment order dated 26.12.2008, the AO in the reasons recorded has not made in allegation to the effect that assessee failed to disclose fully and truly all material facts necessary for the assessment of the assessee in the regular assessment proceedings. Therefore, the reopening without the AO spelling out in the reasons recorded to reopen the alleged failure on the part of the assessee the facts which it did not disclose fully and truly at the regular assessment stage vitiates the reopening. We note that in the case of Hindustan Lever Ltd vs R.B. Wadekar (supra) it has been emphasized by the Hon’ble Bombay High Court that reasons recorded by the AO must contain the finding with regard to the alleged failure on the part of the assessee to disclose fully and truly all material facts. It has also been observed by the Hon’ble High Court that the ‘Reasons’ recorded by the AO have to be read as it is. The AO has to speak through his ‘Reasons’ and should disclose an open mind through ‘Reasons’ recorded by him. Thus, it is for the AO to reach to the conclusion in his ‘Reasons’ as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for the concerned assessment year.
7 Vantage Advertising Pvt. Ltd., AY 2006-07 11. At the cost of repetition in the facts of the case before us and in the light of law as explained in aforesaid judgments, it is noted that nothing has been recorded by the AO in the ‘Reasons’ about any failure on the part of the assessee to disclose fully and truly all material facts necessary for the framing of original assessment. It has nowhere been mentioned by the AO which fact or material was not disclosed by the assessee. Thus, vital link between ‘Reasons’ and his findings has not been established by him. This vital link is the safeguard against arbitrary reopening of the concluded assessment. The ‘Reasons’ recorded cannot be supplemented by way of further observations in the assessment order or in any other manner. The validity of the reopening can be examined on the basis of ‘Reasons’ alone and not in supplementary material. Thus, taking into account all the facts and circumstances of the case, we find that the reopening has been done without complying with the mandatory jurisdictional condition precedent as stipulated in first proviso to section 147. Thus, reopening is invalid on this ground and the Ld. CIT(A) rightly decided this legal issue challenged before him. Therefore, we concur with the Ld. CIT(A) that the AO without satisfying the jurisdictional pre-condition as stipulated in the first proviso to sec. 147 of the Act lacks jurisdiction to reopen the original assessment completed u/s. 143(3) of the Act on 26.12.2008 after four years. Therefore, all proceeding subsequently made is ‘null’ in the eyes of law and so, Ld. CIT(A) rightly annulled the reopening of regular assessment u/s. 148/147 and subsequent reassessment order of the AO is, therefore, null in the eyes of law. We note that the Hon’ble jurisdictional High Court in Tantia Construction Co. Ltd. Vs. DCIT 257 ITR 84 (Cal) has approved the ratio as laid above. Since legal issue raised by the assessee before the Ld. CIT(A) has been held in its favour, the revenue’s challenge before us fails and, therefore, the merits of the additions become academic in nature. Therefore, Revenue’s appeal is dismissed.
In the result, appeal of revenue is dismissed.