THE ACIT, CICLE -4(1), INDORE vs. M/S. NAROTTAMDAS ENTERPRISES PODDAR PLAZA, INDORE

आदेश /O R D E R

PER O.P. MEENA, ACCOUTANT MEMEBR. This appeal is filed by the Revenue against the order of

ld. Commissioner of Income-tax (Appeals)-II, Indore

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[hereinafter referred to as the CIT(A)] dated 29.04.2016 and

pertains to assessment year 2009-10 as against appeal

decided in assessment order passed u/s 143(3) of the Act

dated 30.06.2014 of ACIT, Circle 4, Indore [hereinafter referred

to as the AO].

passed u/s 147/143(3) of the Income-tax Act, 1961, where the

AO has reopened the case after recording of the reasons.

was filed on 29.03.2009 showing total income of Rs.

31,32,100/-, which was assessed u/s 143(3) at Rs. 3,32,100/-

on 19.12.2011. Thereafter, the Revenue Audit Team carried

out the audit in pursuance of Article 149 of Constitution of

India and in pursuance of Section 16 in the Comptroller and

Auditor General’s (Duties, Powers and Conditions of Service)

Act, 1971 & Regulations/Rules issued thereupon by CAG of

India. Therefore, after recording reasons for issue of notice u/s

148 of the Act was issued on 20.03.2014, which was served on

the assessee on 22.03.2014, in response to which the assessee

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submitted that the original return may be treated as return

filed u/s 148. The AO considered the reopening of assessment

and discussed the same referring to various judgments and

came to conclusion that the notice u/s 148 is not void ab

initio and it is not bad in law on the basis of legal position

discussed by him in the assessment order. The AO also noted

that the copy of the reasons were also supplied to the assessee

on 04.06.2014.

assessee contested the same before the ld. CIT(A). The ld.

CIT(A) noted that the assessee has contested the validity of the

proceedings u/s 147 of the Act. As brought by the AO, the

Revenue Audit Team carried out audit where the Audit Party

pointed out the assessee of claim of delayed payments of entry

tax, the AO proceeded to reopen the assessment proceedings

after recording the reasons as reproduced on page 4 of the

assessment order. It has been observed from the report and

the facts narrated in the assessment order itself that based on

the audit objection, a notice u/s 148 of the Income-tax Act,

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1961, was issued within a period of 4 years for the assessment

year 2009-10. The reasons recorded were also communicated

to the assessee. The ld. CIT(A) noted that it is undisputed fact

that while completing the original assessment, specific query

was raised by the then AO regarding amount debited to M/s.

Bharat Bidi Works Limited regarding interest on delayed

payments of entry tax. It is also evident from the page 4 of the

assessment order that the assessee during the course of

assessment proceedings u/s 143(3) of the Act had explained

that it had recorded the sum of Rs. 12,61,497/- from M/s.

Bharat Bidi Works Limited towards interest on account of

delayed payment for entry tax related to previous financial

year 2007-08 relevant to assessment year 2008-09. As such

amount was debited on 26.05.2008 at the instance of the

supplier. The amount recovered was credited to entry tax

account and while making, it was debited to entry tax account.

However, ignoring the above explanation on record and duly

considered while completing the original assessment, the AO

proceeded to record reasons u/s 147 of the Act. Considering

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that there was factual error in allowing deduction of Rs.

12,61,497/-. It is also stated in the assessment order by the

AO that such factual error information was pointed out by the

external agencies i.e. Audit (CAG). The reopening of

assessment was justified by the AO by following judgement in

the case of M/s. Kalyanji Mavji & Co. vs. CIT, decided on

10.12.1975 in Civil Appeal No. 522 of 1971 and Delhi High

Court judgment in the case of CIT vs. M/s. Usha International

Limited, (2012) 25 Taxmann.com 200; and M/s. Cadila

Healthcare Limited vs. ACIT, (2014, 44 Taxmann.com 353

(Guj). Hon'ble Supreme Court in the case of CIT vs. Lucas

TVS,(2001) 249 ITR 306 ( S.C.) held that opinion of audit party

regarding application or interpretation of law is not

information within the meaning of Section 147(b) hence

reassessment based on opinion of audit party is invalid. The

ld. CIT(A) held as under :-

“3.2 It is evident from entry tax account as appearing in the books of the appellant and profit and loss account submitted that the amount of interest paid on delayed payment of entry tax was reimbursed by M/s. Bharat Bidi Works Limited which was credited to entry tax

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account and same was debited to entry tax account. The said explanation has been found given during original assessment proceedings, hence there was no factual error which can be said to have been committed by the then assessing officer. It is merely a change of opinion based on which the assessment has been reopened u/s 147 of the Act, 1961. Therefore, the reopening of assessment on this issue has not been found permissible within the four corners of law as held by various Courts including Hon'ble Supreme Court in the case of case of CIT vs. Kelvinator of India, 320 ITR 561. The MP High Court in the case of CIT vs. Fujistu Optel Ltd, (2013) 359 ITR 67 (MPHC) has also held that on the basis of same set of facts, if the assessing officer was of the view that it was a case of escaped assessment, then it was a case of change of opinion and not a case of reassessment. Further, it is apparent from the facts on record that during reassessment proceedings also, vide letter dated 10.06.2014 the issue was further explained regarding recovery of amount from M/s. Bharat Bidi Works Limited and it was categorically stated that no expense of interest on delayed payment of entry tax has been claimed by the appellant under profit and loss account. There was no question of disallowance of said expenditure. 3.3 In view of above, the proceedings initiated u/s 147 of the Income-tax Act, 1961, and reassessment completed there under have been found bad in law as such the order so passed deserves to be quashed. The grounds of appeal are allowed.”

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order of the AO, but could not controvert the factual findings.

of the assessee supported the order of the CIT(A) and

submitted that the assessment has been reopened on the

basis of audit objection, which is not permissible in law as it is

not the opinion of the AO. Further, the issue on which the

assessment has been reopened regarding entry tax of Rs.

12,61,497/-, the same has been enquired upon in the original

assessment and was accepted, therefore, this amounts to

change of opinion also which is not permissible in law.

Further, the Ld. Counsel for the assessee submitted that the

assessee has not claimed the deduction on account of entry

tax amounting to Rs. 12,61,497/- in its profit and loss

account. Therefore, item of expenditure cannot be added to the

assessee’s income if it was not claimed as expenditure at all.

Therefore, the ld. CIT(A) has correctly quashed the assessment

proceedings u/s 147 of the Act.

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perused the material available on record. We find that the

reopening of the assessment has been made on the basis of

audit objection raised by CAG(Audit). This fact has been

elaborately discussed by the AO in the body of assessment

order itself. Therefore, it cannot be said that the AO has

applied his mind while re-opening the assessment and merely

borrowed the opinion from A.G., Audit. We further find that

the reopening has been made on the ground that interest on

entry tax amounting to Rs. 12,61,597 is not allowable as

deduction. However, we find from the record and findings of

the CIT(A) that the assessee has not charged any amount to

profit and loss account towards delayed payment of interest on

entry tax. However, we find that the assessee has paid the

entry tax on behalf of Principal Supplier and the same was

subsequently reimbursed to the assessee. Therefore, such

expenditure which has not been claimed as expenditure in

profit and loss account cannot be disallowed and on that

basis, the assessment cannot be reopened. We also find

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support from the decision of Hon'ble Supreme Court in the

case of CIT vs. Lucas TVS, (2001) 249 ITR 306, wherein it was

held that the opinion of audit party regarding application or

interpretation of law is not information within the meaning of

Section 147(b) of the Act, hence, reassessment based on

opinion of audit party is invalid. Further, the reopening of

assessment has not been found permissible within four

corners of law as held by the Hon'ble Supreme Court in the

case of CIT vs. Kelvinator of India, 320 ITR 561. The Hon'ble

Jurisdictional High Court in the case of CIT vs. Fujistu Optel

Limited, (2013) 359 ITR 67 (MP - HC), wherein it was held that

on the basis of same set of facts, if the AO is of the view that it

was a case of escaped assessment, then it was a case of

change of opinion and not a case of reassessment. We also

note that entry tax of Rs. 12,61,497/- was paid on behalf of

M/s. Bharat Bidi Works Limited as explained vide their letter

dated 10.06.2014 that no expenses of interest on delayed

payment of entry tax has been claimed by the assessee under

the profit and loss account. Therefore, there was no question

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of disallowance on such expenses. Therefore, in the light of

aforesaid facts, we find the action of the ld. CIT(A) in order.

Accordingly, the same is upheld.

perused the material available on record. We find that the

assessee has not charged any amount to profit and loss

account towards delayed payment of interest of entry tax, the

details of which have been discussed in ground no.1 above.

Therefore, considering the above facts, we are of the opinion

that the deletion of addition of Rs. 12,61,497/- is justified by

the ld. CIT(A) . Accordingly, this ground of appeal is

dismissed.

1,95,00,000/- made by the AO on account of book

adjustment/Hawala entry without appreciating that the

assessee failed to furnish evidence to show that the said

expenditure was covered within the exception provided in Rule

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8DD(f) as the actual payments by book adjustment are clearly more than Rs. 20,000/- which clearly attracts the provision of Section 40A(3) of the Income-tax Act, 1961. 11. The ld. CIT(A) has dealt with this ground in para 5, which reads as under :-

“5. This ground of appeal has been raised against addition of Rs. 1.95crores by invoking section 40A(3) of the Income-tax Act, 1961, on the ground that the appellant had made certain payments required to be made to M/s. Bharat Bidi Works, Mangalore against purchases effected by it by book adjustments. The facts of the case are discussed in detail by the AO in the assessment order and also the written submission filed by the appellant. The appellant purchases bidis for sale from M/s. Bharat Bidi Works. It's another sister concern in Petlad (Guj) viz. M/s. Narottamdas Jethabhai & Family, used to supply raw material i.e. Tobacco to M/s. Bharat Bidi Works, Mangalore. The appellant has been making various payments through banking channels to M/s. Bharat Bidi Works against the supplies as evident from the copy of ledger account of the supplier in the books of the appellant. During the relevant assessment year, it has also made payments to the tune of 1.95 crores to M/s. Narottamdas Jethabhai & Family, Petlad (Guj), a sister concern on behalf of M/s. Bharat Bidi

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Works, Manglore. In the ledger account, such payments have been termed as “Hawala Petlad”. The AO with these facts in background proceeded to conclude that such payments of Rs. 1.95 crores were "book adjustment" against purchase of bidis from M/s. Bharat Bidi Works, hence such payments were hit by provisions of Section 40A(3) of Income Tax Act,1961 because these were not made by A/c payee cheques. Accordingly, addition of Rs.1.95 crores was made to the total income of the appellant during the course of reassessment proceedings. 5.1 The submissions made by the appellant on various dates have been reproduced above. I have gone through the written submissions and observed that the appellant has contested the issue mainly on two accounts which are as under: 1. Such payments are covered by exception in clause (f) of Rule 6DD of Income tax Rules ; . 2. Such payments are not hit by section 40A(3) of the Act because the payments were made through RTGS only to M/s. Narottamdas Jethabhai & Family for and on behalf of M/s. Bharat Bidi Works Manglore at

I.T.A.No. 843/Ind/2016-A.Y.2009-10 Page 13 of 16 M/s.Narttamdas Enterprises, Indore return instructions from this party. 5.2 The contention of the appellant that because of exception provided in clause(f) of Rule 6DD of Income tax Rules, the provisions are not applicable in case of book adjustment is devoid of merits because such exception clause is not applicable to the facts of the present case. It is evident from verification of copies of account of M/s. Narottamdas Jethabhai & Family and the bank statement of the appellant that the remittances were made by the appellant to M/s. Narottamdas Jethabhai & Family through banking channels (RTGS) and such payments were debited to the account of M/s. Bharat Bidi Works. These payments under consideration have been found made to M/s Narottamdas Jethabhai & Family as per written instructions by M/s. Bharat Bidi Works, Manglore which has also been confirmed by e-mail. In the ledger account, instead of words "RTGS Petlad" the words used were "Hawala Petlad". Therefore, such wordings in the ledger account have been treated as "book adjustment" by the AO so as to invoke provisions of section 40A(3) of Income Tax Act, 1961. The entries in the ledger account stated as "Hawala Petlad" cannot be interpreted as adjustment because all payments were made through banking channels only, although to a third party.

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5.3 It is a settled law that book entries are not decisive as held by Supreme Court & other High Courts in various judgments reported in 82 ITR 363 at 367 (SC) ; 187 ITR 688 (SC); 188 ITR 402 (SC) ; 200 ITR 588 (SC); 189 ITR 406 (Bom) ; 166 ITR 797 at p. 802 (Cal); and 112 ITR 1038 (All). The fact remains that remittances were made through banking channels only i.e. RTGS and the amounts were debited to the account of the supplier i.e. M/s. Bharat Bidi Works, hence disallowance u/s 40A(3) of Income Tax Act,1961 cannot be made. These entries were not in the nature of "book adjustment" and various judgments referred to by the AO in the assessment order viz. the decision by Punjab and Haryana High Court in the case of Kishan Chand Maheshwari Das (121 ITR 232 (P & H), confirmed by Hon'ble Supreme Court as reported in 191 ITR 667 (SC) have not been found applicable to the facts of the case under consideration. The copies of the account of M/s.. Narottamdas Jethabhai & Family and relevant bank statements reflecting such payments through RTGS are placed on record which evidently prove that there were no "Hawala entry" or "book adjustment" of any nature with regard to payments made by the appellant to the supplier. Therefore, keeping in view above facts in view, the AO has not been found justified in invoking section 40A(3) of income tax act, 1961 and making addition of Rs. 1.95 crores considering the same as adjustment entry. Therefore, the AO is directed to delete the entire addition. This ground of appeal is allowed.”

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the order of the AO. 13. On the other hand, the Ld. Counsel for the assessee

relied upon the finding of the ld. CIT(A). 14. We have considered the facts, rival submissions and perused the material available on record. We find that The copies of the account of M/s. Narottamdas Jethabhai & Family and relevant bank statements reflecting such payments through RTGS are placed on record which evidently prove that there were no "Hawala entry" or "book adjustment" of any nature with regard to payments made by the assessee to the supplier. Therefore, keeping in view above facts in view, the AO was not justified in invoking section 40A(3) of Income- tax Act, 1961, and making addition of Rs. 1.95 crores considering the same as adjustment entry. We uphold the action of the ld. CIT(A). Ground no. 3 of the Revenue’s appeal is dismissed.

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Sd/- Sd/- (डी.ट�.गरा�सया) (ओ.पी.मीना) �या�यक सद�य लेखा सद�य (D.T.GARASIA) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER

�दनांक /Dated : 10th January, 2017.

CPU*