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Income Tax Appellate Tribunal, A Bench, Mumbai
Before: Shri D.T. Garasia & Shri Rajesh Kumar
Assessee has raised the following grounds of appeal: - “1. On the facts and circumstances of the Appellant's case and in law the Ld. CIT(A) erred in confirming the action of A.O. in re- opening the assessment u/s 147 of the Income Tax Act, 1961 by extracting the reasons from the records which have been duly disclosed by the appellant in the return of income or financial statements filed during the course of assessment proceedings.
2. On the facts and circumstances of the Appellant's case and in law the Ld. CIT(A) erred in confirming the action of A.O. in passing the impugned order which is illegal or otherwise void for the want of jurisdiction.
3. On the facts and circumstances of the Appellant's case and in law the Ld. CIT(A) erred in confirming the action of A.O. of disallowing a sum of Rs. 31,37,000/- on account of manufacturing and other expenses claimed by the appellant.
2 & 2513/Mum/2014 M/s. Kores (India) Ltd.
4. On the facts and circumstances of the Appellant's case and in law the Ld. CIT(A) erred in confirming the action of A.O. of disallowing a sum of Rs. 1,80,437/- by invoking the provisions of section 40(a)(ia) of the Income Tax Act, 1961.
5. On the facts and circumstances of the Appellant's case and in law the Ld. CIT(A) erred in confirming the action of A.O. of disallowing a sum of Rs. 3,91,653/- by invoking the provisions of section 43B of the Income Tax Act, 1961.”
The brief facts of the case are that the assessment was completed under Section 143(3) r.w.s. 153A of the Income Tax Act (hereinafter “the Act”) on 22.12.2008 determining the total income at `18,90,05,530/-. Thereafter the case of the assessee was reopened under Section 147 of the Act by issuing notice under Section 148 dated 15.03.2011 by recording the following reasons: -
“On verification of records, it was observed that an amount of Rs.31,37,000/- being charity and donations debited in P & L account under the head manufacturing and other expenses in Schedule – T. However, disallowance of Rs.15,84,648/- only was made in the computation of income. The balance amount of Rs.15,52,352/- needs to be disallowed. Provisions for gratuity shown in Schedule – U of P & L account at Rs.1,62,10,000/-, however, the disallowance of Rs.1,58,18,347/- only was made to the total income. The balance amount of Rs.3,91,653/- need to be disallowed.” In response to the notice issued under Section 148 of the Act the assessee filed return of income on 27.04.2011 declaring total income at `14,51,63,125/-. Subsequently notices under Sections 143(2) and 142(1) were issued and served upon the assessee. As regards income escaped of `31,37,000/-, the AO observed from the details filed by the assessee that the said amount was shown under the head ‘manufacturing the other expenses’ as “charity and donation” which did not pertain to the business of the assessee and therefore not incurred for the purpose of business and accordingly was disallowed. As regards `1,80,437/- the AO noted that the said expenses were not allowable as per tax audit report. However, the assessee did not disallow these expenses suo motto in the computation of income. After confronting the issue with the assessee, the AO added the 3 & 2513/Mum/2014 M/s. Kores (India) Ltd. same under Section 40(a)(ia) of the Act on the ground that the assessee did not object to the disallowance. On the issue of provision for gratuity, the assessee has made a provision of `1,62,10,000/- for gratuity during the year and suo moto disallowed an amount of `1,58,18,347/-. According to the AO the said provision is not an allowable expenses under Section 43B(b) of the Act. Therefore he added the difference between the said two amounts of `3,91,653/- to the income of the assessee and finally assessed the income at `19,12,88,617/- by framing the assessment under Section 143(3) r.w.s. 147 of the Act vide order dated 24.11.2011. Assessee challenged the reopening of assessment before the First Appellate Authority by submitting that reopening was based upon change of opinion on the same facts which were already available in the assessment record. By relying on various decisions as cited by the CIT(A) in para 4.2 of his order, the CIT(A) dismissed the appeal of the assessee by observing and holding as under: -
“5.0 I have carefully examined the facts of the case, the stand taken by the Assessing Officer in the assessment order, the grounds of appeal and the written submissions filed by the appellant during the appeal proceedings. 5.1 The issue for which the assessment is re-opened have not been examined by the assessing officer during the original assessment. The appellant contends that the reopening of the assessment by the A.O is based on mere change of opinion and it is bad in law and the same requires to be quashed. It is true that no assessment can be reopened by mere change of opinion. During the course of appeal proceedings, the appellant produced a questionnaire issued by A.O. in support of its contention that the issues under dispute have already been examined by the A.O. I have examined the questionnaire issued by the A.O and I find that the questionnaire issued is very general and is not very specific to any issue at hand. The Hon'ble Karnataka High Court in the case of CIT vs. Infosys Technologies Ltd. (341 ITR 293), in a case involving 263 proceedings held that until otherwise the A.O gives specific reasons for any finding or conclusion, it would not construe that there was an application of mind by the A.O. The relevant portion of the decision is reproduced herein under: "We are also not in a position to accept the submission that the materials had been placed before the assessing authority and, therefore, there should be a conclusion that the authority has 4 & 2513/Mum/2014 M/s. Kores (India) Ltd. applied his mind to the same and there was no question of the Commissioner interfering by taking a different view, etc. The assessing authority performs a quasi-judicial function and the reasons for his conclusions and findings should be forthcoming in the assessment order. Though it is urged on behalf of the assessee by its learned counsel that reasons should be spelt out only in a situation where the assessing authority passes an order against the assessee or adverse to the interests of the assessee and no need for the assessing authority to spell out reasons when the order is accepting the claim of the assessee and the learned counsel submit that this is the legal position on authority, we are afraid that to accept a submission of this nature would be to give a free hand to the assessing authority, just to pass orders without reasoning and to spell out reasons only in a situation where the finding is to be against the assessee or any claim put forth by the assessee is denied. We are of the clear opinion that there cannot be any dichotomy of this nature as every conclusion and finding by the assessing authority should be supported by reasons, however brief it may be, and in a situation where it is only a question of computation in accordance with the relevant articles of a double taxation avoidance agreement and that should be clearly indicated in the order of the assessing authority, whether or not the assessee had given particulars or details of it. It is the duty of the assessing authority to do that and if the assessing authority had failed in that, more so in extending a tax relief to the assessee, the order definitely constitutes an order not merely erroneous but also prejudicial to the interests of the Revenue and therefore, while the Commissioner was justified in exercising the jurisdiction under section 263 of the Act, the Tribunal was definitely not justified in interfering with this order of the Commissioner in its appellate jurisdiction." 5.2 Since in the case of the appellant nothing came to light establishing application of mind by the A.O. on the issues under dispute in the original assessment proceedings, re-assessment proceedings u/s 147 of the Act do not suffer any infirmity. Accordingly, the ground of appeal filed by the appellant is hereby dismissed.” Aggrieved, assessee is in appeal before us.
The learned A.R. of the assessee vehemently submitted before us that the order passed by the CIT(A) is against facts and law of the case and therefore should be reversed as the very reopening proceedings were not validly done by the AO. The learned A.R. submitted that the entire
5 & 2513/Mum/2014 M/s. Kores (India) Ltd. reassessment proceedings were based upon the information and records which were available before the AO at the time of original assessment and the AO after re-examination of the same formed a belief that the income has escaped assessment. Thus the re-opening of assessment by the AO is a patent example of change of opinion which is not permissible under the Act. The learned A.R. also submitted that all the three additions, namely, donation and charity of `31,37,000/-, disallowance under Section 40(a)(ia) of `1,80,437/- and disallowance on account of provision for gratuity of `3,91,653/- being the difference between the total amount of provision for gratuity credited during the year and the suo moto disallowance made by the assessee were based upon the records which were available before the AO at the time of assessment framed under Section 143(3) r.w.s. 153A of the Act. The learned A.R. took us to the statement of computation of total business income, copy of which is available at page 1 of the paper book, which clearly showed that the assessee has made disallowance on account of gratuity of `1,58,18,347/-, statutory disallowance under Section 43B of `1,11,44,023/- and charity and donations of `15,84,648/-. The learned A.R. further referred to para 4 of the assessment order passed under Section 143(3) r.w.s. 153A dated 22.12.2008 wherein the AO has mentioned that details of purchase, details of major expenses, details of addition to fixed assets, confirmations from new depositors, details of TDS made and details of flats sold were called for examination. The learned A.R. drew our attention to para 27 of the said assessment order which is placed at page 16 of the paper book which commenced with the words “On verification of computation income, it is seen that ......” which shows that the AO has examined the statement of total income in the original assessment proceedings and in para 31 at page 17 of the paper book the AO further stated that an amount of `1,11,44,023/- was outstanding under Section 43B of the Act on the date of audit as stated in tax audit report form 3CD clause No. 21(1)(b). The learned A.R. submitted that the AO has reviewed his own order by reopening the already concluded assessment on the basis of information and records which were available before him at the time of original assessment to form an opinion that 6 & 2513/Mum/2014 M/s. Kores (India) Ltd. income has escaped assessment which is nothing but a change of opinion which is not permissible under the Act . In defence of his arguments the learned A.R. relied on a series of decisions, viz.:-
(i) CIT vs. Kelvinator of India Ltd. (2010) 187 Taxman 312 (SC) (ii) OHM Stock Brokers (P.) Ltd. vs. CIT (2013) 31 taxmann.com 354 (Bom) (iii) J.V. Gokal & Co. vs. ACIT (2015) 53 taxmann.com 494 (Mum- Trib) The learned A.R. finally submitted before the Bench that in view of the ratio laid down by the Hon'ble Supreme Court and various other Hon'ble High Courts on the issue, the assessment proceedings should be quashed as void abinito being based upon a change of opinion by the AO.
The learned D.R., on the other hand, relied on the orders of the Authorities below by submitting that the assessment was rightly reopened under Section 147 r.w.s 148 of the Act as the income on three issues, viz., donation and charity of `31,37,000/-, disallowance under Section 40(a)(ia) of the Act of `1,80,437/- as audit report and disallowance on account of provision for gratuity of `3,91,653/- have clearly escaped assessment and therefore the order of the CIT(A) deserved to be upheld. The learned D.R. relied on the orders of the Hon'ble Supreme Court in the cases of CIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. in Appeal (Civil) No. 2830 of 2007 and Raymond Woollen Mills Ltd. vs. ITO and Others 236 ITR 34 in which the reopening of assessment was upheld by the Hon'ble Apex Court.
We have heard the rival submissions and perused the relevant materials on record including the impugned order and case laws relied upon by the rival parties. The undisputed facts are that the AO has reopened the assessment under Section 147 of the Act after recording reason to believe that three items of income have escaped assessment, which are extracted in para 3 above. A perusal of the reasons to believe reveals that the records on the basis of reasons for re-opening were recorded were available before the AO even at the time of original assessment proceedings as is apparent from the statement of computation
7 & 2513/Mum/2014 M/s. Kores (India) Ltd. of total income placed at page 1 of the paper book and also fortified by the discussions by the AO himself in the original assessment order passed under Section 143(3) r.w.s. 153A of the Act dated 22.12.2008 in paras 4, 6, 27 and 31 of the original assessment order, a copy of which is placed in the record at pages 3 to 18 of the paper book. Thus we find that the AO has recorded the reasons on re-examination of the same records/information which were available at the time of framing the original assessment passed under Section 143(3) r.w.s. 153A of the Act as referred to above. After examination of the facts in totality we are of the considered view that a review by the AO of his own order is not permissible under the Act as decided by the Hon'ble Supreme Court in the case of Kelvinator of India Ltd. (supra) and various other decisions. The decision relied upon by the Revenue in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra) and Raymond Woollen Mills Ltd. (supra) do not come to the rescue of the Revenue as the same were distinguishable on facts and not applicable to the present case. In the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. the return was processed under Section 143(1) and no assessment was framed under Section 143(3) of the Act and the Hon'ble Apex Court has held that the failure to take steps under section 143(3) will not render the AO powerless to initiate reassessment proceedings. In the case of Raymond Woollen Mills Ltd. the facts were obtained by the Revenue from the subsequent year’s assessment proceedings. In view of the above said discussion and the ratio laid down by the Hon'ble Apex Court in the case of Kelvinator of India Ltd. (supra) we are of the view that the reassessment proceedings were invalidly initiated and accordingly quashed. Since we have quashed the re-assessment proceedings, the issues raised on merits need no adjudication.
In the result, appeal of the assessee is allowed.
In for A.Y. 2007-08 the assessee has raised identical issues as raised in ITA No. 2512/Mum/2013 except variation in figures. Therefore our observations and decision given in the above mentioned appeal is mutatis mutandis applicable to this appeal also.