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Income Tax Appellate Tribunal, DELHI BENCH: ‘D’ NEW DELHI
Before: SHRI N.K. SAINI & SHRI SUDHANSHU SRIVASTAVA
ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: This appeal has been preferred by the assessee against the impugned order dated 28.03.2013 by the ld. CIT(A)-VIII, New Delhi and pertains to assessment year 2004-05.
Brief facts of the case are that the assessment in this case was completed u/s 143(3) of the Income Tax Act, 1961 (the Act) on 18.12.2006 at an income of Rs. 17,84,18,464/- as against the returned income of Rs. 17,72,42,361/-. Subsequently, the assessment was reopened u/s 148 after recording the following reasons:-
“Assessment in this case was completed under section 143(3) at income of Rs.17,84,18,464/-. The scrutiny of assessment records revealed that the assessee claimed an expenditure of Rs.50,34,277/- on account of bank guarantee as per notes to accounts column 7. This expenditure was in the nature of contingent liability winch should have been disallowed. The mistake resulted in under assessment of income of Rs.50,34,277/- involving tax effect of Rs. 24,02,043/-.
Further scrutiny of assessment records revealed that the assessee had residential building and received rental income on it. Depreciation on the same was claimed at Rs.6,60,095/-. As it was not used for the purpose of business, depreciation was not allowable on the same. The mistake resulted in aider assessment of Rs.6,60,095/- involving tax effect of Rs. 3,14,956/-.
In view of the above, I have reasons to believe that the income of Rs.50,34,277/- and Rs.6,60,095/- aggregating to Rs.56,94,372/- chargeable to tax has escaped assessment within the meaning of section 147/148 of the Income Tax Act, 1961.
2.1 Further, reasons were recorded on 29.03.2011 as under: -
Assessment in this case was completed under section 143(3) of the Income Tax Act, 1961 on 18.12.2006 at an income of Rs.17,84,13,464/-. As per the information received from Investigation Wing, Income Tax Department, New Delhi regarding list of Accommodation Entries, the above mentioned assessee was found to have taken accommodation entries amounting to Rs.20,00,000/- from the following parties.
(i) Prakash Punit Commerce & Consultant amounting to Rs.5,00,000/- (ii) C V Metal Powders (Haryana)Ltd. amounting to Rs.5,00,000/- (iii) Saheb Enterprises amounting to Rs.10,00,000/-
During the course of search I survey on the above parties, it has been proved that said companies/parties are involved in giving accommodation entries to various individuals/companies.
In view of the above, I have reasons to believe that the income of Rs.20,00,000/- chargeable to tax has escaped assessment within the meaning of section 147 1148 of the Income Tax Act, 1961.”
2.2 In response, the assessee requested to treat the original return filed by the assessee to be the return in response to notice u/s 148 of the Act and also requested for copy of reasons recorded u/s 143 of the Act. Later on, the assessee filed the objections against reopening which was disposed of vide interim order dated 16.11.11. The reassessment was completed vide order dated 26.12.2011 at a total income of Rs. 18,04,18,464/- after making a further addition of Rs. 20 lakh as unexplained credit u/s 68 of the Act to the income assessed vide order dated 18.12.2006 passed us/ 143(3) in the original assessment proceedings.
2.3 Aggrieved, the assessee preferred an appeal before the Ld. CIT (A) challenging the reopening of assessment as well as challenging the addition on merits. The Ld. CIT (A) dismissed the appeal of the assessee and aggrieved the assessee has now approached the ITAT and has raised the following grounds of appeal:-
“1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT (A)] is bad, both in the eye of law and on the facts.
2. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in rejecting the contention of the assessee that proceedings initiated under Section 147, read with Section 148 are bad as the condition and procedure prescribed under the statute have not been complied with.
3(i) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in rejecting the contention of the assessee that the reassessment proceedings initiated by the learned A.O. are bad in the eye of law as the reasons recorded for the issue of notice under Section 148 are bad in the eye of law and are contrary to the facts.
(ii) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in rejecting the contention of the assessee that the reassessment proceedings initiated by the learned A.O. are bad in law as the same are based on reasons which are vague.
4. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in rejecting the contention of the assessee that the notice issued under Section 147 read with Section 148 of the Act is bad in law and barred by limitation as the same has been issued after a period of four years from the end of the relevant assessment year despite the fact that the original assessment proceedings were completed under Section 143(3) of the Act.
5. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in rejecting the contention of the assessee that the order passed by learned A.O. is bad both in the eye of law and on facts as the same has been reopened on the basis of reasons without there being any whisper that the income has escaped due to the failure on part of the assessee to disclose fully and truly all material facts necessary for assessment.
6. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in rejecting the contention of the assessee that the reassessment order is bad in law as there cannot be a new reassessment proceeding initiated during the pendency of the earlier reassessment proceeding.
On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in rejecting the contention of the assessee that the reassessment order passed is otherwise bad in law in the absence of any addition being made of the income escaping assessment as per the reasons recorded for reopening of the assessment.
On the facts and circumstances of the case, the learned CIT (A) has erred both on facts & in law in confirming the addition of Rs.20,00,000/- as income from undisclosed sources under section 68 of the Act.
That the above-said additions are untenable in the eye of law, having been made on the basis of the material collected at the back of the assessee without providing copy of the same & providing opportunity to rebut the same.
On the facts and circumstances of the case, the learned CIT(A) has erred in confirming the abovesaid addition without allowing cross examination of the person on the basis of whose statement the allegation has been made against the assessee.
On the facts and circumstances of the case, the learned CIT (A) has erred in confirming the above addition despite the fact that no such addition was made in the original assessment nor there was any such allegation in the reasons
recorded for reopening of the assessment.
The appellant craves leave to add, amend or alter any of the grounds of appeal.”
The ld. AR submitted that as per the reasons recorded on 3.5.2010 for reopening the assessment, the assessment was reopened on the issue that the assessee had claimed expenditure of Rs. 50,34,277/- on account of guarantee charges as per notes to accounts which should have been disallowed in the assessment framed u/s 143(3) of the Act. It was submitted that the reasons recorded also mention that the assessee had claimed depreciation on residential building amounting to Rs. 6,60,095/- against which rental income had been shown and, therefore, the same should not have allowed to the assessee company. The ld. AR submitted that, in response, the assessee had clarified that the amount of guarantee charges of Rs. 50,34,277/- had not been claimed in the year under consideration i.e. assessment year 2004-05 but had been claimed in assessment year 2003-04. Thus, no addition on this account could have been made. It was also submitted by the ld. AR that the assessee had submitted before the Assessing Officer that depreciation of Rs. 6,60,095/- had not been claimed by the assessee during the year and, therefore, this proposed addition was also not tenable. Ld. AR submitted that the Assessing Officer himself accepted these facts in Para 4.1 and 5 of the reassessment order that the initiation of proceedings on these two issues were not justified.
3.1 Ld. AR further submitted that the Assessing Officer recorded another set of reasons on 29.03.2011 regarding accommodation entries of Rs. 20 lakh on account of unsecured loans and that too, without issuance of any further notice u/s 148 and thereafter made an addition of Rs. 20 lakh alleging that the assessee was not able to prove the identity, genuineness and creditworthiness of the unsecured loans. Ld. AR relied on the case of the Northern Exim Pvt. Ltd. vs DCIT reported in 357 ITR 586 (Delhi) wherein the Hon'ble Delhi High Court has held that validity of the assumption of jurisdiction u/s 147 can be tested only by reference to the reasons recorded u/s 148(2) of the Act and the Assessing Officer is not authorised to refer to any other reason even if it can otherwise be inferred and/or gathered from the records. Reliance was also placed on the decision of the Hon'ble Delhi High Court in the case of Sabharwal Properties Industries Pvt. Ltd. vs. ITO reported in 382 ITR 547 (Del) wherein the Hon'ble High Court has held that reasons given subsequently do not satisfy the jurisdictional requirement of section 147(1) of the Act inasmuch as they do not indicate that there was a failure by the assessee to disclose fully and truly all material facts necessary for the assessment.
3.2 Further reliance was placed on the judgment of the Hon'ble Bombay High Court in the case of M/s Aventis Pharma Limited, Vs. ACIT (formerly Hoechst India Ltd.) in Writ Petition No. 877 and 878 of 2006 wherein it was held that the reasons for reopening of assessment are required to be tested/examined as recorded at the time of issuance of notice u/s 148 of the Act and that no substitution, deletion or addition to the reasons recorded at the time of issuing notice can be made to support the notice issued u/s 148 of the Act. Ld. AR submitted that it was an undisputed fact that on the basis of reasons recorded, the proceedings initiated u/s 148 could not stand, as both the issues were not relevant for the year under consideration and, therefore, the notice issued u/s 148 was itself bad in law.
3.3 It was further submitted that the reasons recorded show that they were recorded without any application of mind as in the reasons recorded there was an allegation of accommodation entry amounting to Rs. 10 lakh from M/s Saheb Enterprises whereas the assessee had received an amount of Rs. 10 lakh from M/s Maestro Marketing & Advertising Pvt. Ltd. during the year.
3.4 Ld. AR further placed reliance on the judgment of the Hon'ble Delhi High Court in CIT vs Independent Media Pvt. Ltd. (I.T.A.
No. 108/2005 dated 18.11.2015) and Principal CIT vs G & G Pharma Ltd. 384 ITR 147 (Del) and submitted that the proceedings had been initiated on the basis of information received from the Investigation Wing but the order of the Assessing Officer did not reflect independent application of mind to the information so received.
3.5 It was also submitted that the notice u/s 148 of the Act issued on 3.5.2010 was beyond the period of four years from the end of the relevant assessment year and, therefore, as per proviso to section 147 of the Act, the reassessment proceedings could not be reopened after the expiry of four years unless income chargeable to tax had escaped assessment due to failure on the part of the assessee to disclose fully and truly all material facts and in the present case as all the facts relevant to the case were already available on record. Ld. AR submitted that in the reasons recorded (dated 29.3.11) regarding accommodation entry of Rs. 20 lakh, there was no allegation whatsoever that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the computation of income.
3.6 Ld. AR also submitted that the assessment was reopened on a notice issued u/s 148 on 3.5.2010 on two issues, first being guarantee fee and second being depreciation. However, no addition was made by the Assessing Officer on these counts and accordingly no further addition could have been made by the Assessing Officer in such a situation. Reliance was placed on the judgment of the Hon'ble Bombay High Court in the case of CIT vs Jet Airways (India) Ltd. reported in 331 ITR 236 (Bombay). Ld. AR further submitted that this view of the Hon'ble Bombay High Court was also followed by the Hon'ble Delhi High Court in the case of CIT vs Ranbaxy Laboratories Ltd. reported in 336 ITR 136 (Del).
Learned Departmental Representative, in response, submitted that the Assessing Officer had dealt with the objections raised by the assessee against the reopening and, therefore, the assessee had no cause for grievance. It was also submitted that the Assessing Officer had given adequate opportunity to the assessee and due process had been followed. Ld. DR placed heavy reliance on the findings of the ld. CIT (A) and vehemently supported his order.
We have heard the rival submissions and perused the material on record. It is undisputed in this case that the reassessment proceedings were initiated after the expiry of four years and, therefore, the proviso to Section 147 will necessarily come into play. The reasons recorded do not record AO’s satisfaction to the effect that the assessee had failed to disclose fully and truly all material facts necessary for the assessment. Thus, it cannot be said that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment. The Hon’ble Delhi High Court in the case of Haryana Acrylic Manufacturing Company vs. CIT 308 ITR 38 (Del.) has opined as under:
“In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment is not sufficient to reopen assessments beyond the four year period indicated above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. This a necessary condition for overcoming the bar set up by the proviso to Section 147. If this condition is not satisfied, the bar would operate and no action u/s 147 could be taken. We have already mentioned above that the reasons supplied to the petitioner does not contain any such allegation. Consequently, one of the conditions precedent for removing the bar against taking action after the said four year period remains unfulfilled. In our recent decision in Wel Intertrade Private Ltd. (2009) 308 ITR 22 (Del.) we had agreed with the view taken by the Punjab and Haryana High Court in the case of Duli Chand Singhania (2004) 269 ITR 192 that, in the absence of an allegation in the reasons recorded that the escapement of income had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, any action taken by the Assessing Officer u/s 147 beyond the four year period would be wholly without jurisdiction. Reiterating our view-point, we hold that the notice dated March 29, 2004, u/s 148 based on the recorded reasons as supplied to the petitioner as well as the consequent order dated March 2, 2005, are without jurisdiction as no action u/s 147 could be taken beyond the four year’s period in the circumstances narrated above.” 5.1 A perusal of the reasons recorded in the instant case also shows that there is no mention or allegation that there has been any failure or omission on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment. The contents of the reason fail to meet the statutory requirement. Respectfully following the ratio of the judgment in Haryana Acrylic Manufacturing Company vs. CIT (supra), we have no alternative but to quash the reassessment proceedings.
5.2 Further, it is also undisputed that the AO did not make any additions on the first set of reasons recorded and chose to record a second set of reasons during the pendency of the re- assessment proceedings and no statutory notice u/s 148 was issued vis-a-vis the second set of reasons. The Hon’ble Delhi High Court, on an identical issue, has held in the case of CIT vs. Ranbaxy Laboratories (Supra) as under:
“18. We are in complete agreement with the reasoning of the Division Bench of Bombay High Court in the case of Jaganmohan Rao (supra). We may also note that the heading of Section 147 is “income escaping assessment” and that of Section 148 “issue of notice where income escaped assessment”. Section 148 is supplementary and complimentary to Section 147. Sub-section (2) of Section 148 mandates reasons for issuance of notice by the Assessing Officer and sub-section (1) thereof mandates service of notice to the assessee before the Assessing Officer proceeds to assess, reassess or recompute escaped income. Section 147 mandates recording of reasons to believe by the Assessing Officer that the income chargeable to tax has escaped assessment. All these conditions are required to be fulfilled to assess or reassess the escaped income chargeable to tax. As per explanation
(3) if during the course of these proceedings the Assessing Officer comes to conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under Section 147 regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under Section 148.
In the present case, as is noted above, the Assessing Officer was satisfied with the justifications given by the assessee regarding the items viz., club fees, gifts and presents and provision for leave encashment, but, however, during the assessment proceedings, he found the deduction under Section 80 HH and 80-1 as claimed by the assessee to be not admissible. He consequently while not making additions on those items of club fees, gifts and presents, etc., proceeded to make deductions under Section 80HH and 80-1 and accordingly reduced the claim
on these accounts.
The very basis of initiation of proceedings for which reasons to believe were recorded were income escaping assessment in respect of items of club fees, gifts and presents, etc., but the same having not been done, the Assessing Officer proceeded to reduce the claim of deduction under Section 80 HH and 80-1 which as per our discussion was not permissible. Had the Assessing Officer proceeded not to make dis-allowance in respect of the items of club fees, gifts and presents, etc., then in view of our discussion as above, he would have been justified as per explanation 3 to reduce the claim of deduction under Section 80 HH and 8-1 as well.
In view of our above discussions, the Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings are initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive. Consequently, we answer the first part of the question against the Revenue.”
5.3 The action of the AO fails on this count also and respectfully following the ratio of the judgments as aforementioned we set aside the order of the Ld. CIT (A) and quash the proceedings u/s 147/148.
In the final result, the appeal of the assessee is allowed.