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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
This appeal by the Assessee is arising out of the order of Commissioner of Income Tax (Appeals)-5, Mumbai, [in short CIT(A)] in appeal No. IT-914/13-14/228/14-15 dated 14.11.2014. The Assessment was framed by the Deputy Commissioner of Income Tax, Circle 3(1), Mumbai (in short DCIT) for the assessment year 2006-07 vide order dated 31-01-2014 under section 143(3) read with section 147 of the Income Tax Act, 1961(hereinafter ‘the Act’).
2. The first legal issue raised by assessee is as regards to the order of CIT(A) confirming the reopening of assessment by the AO under section 147 read with section 148 of the Act, even though there was no escapement of income by the assessee and reopening is beyond four
M/s Aries Exports Pvt. Ltd. (A.Y. 2006-07) years and there is no allegation by the Revenue that there is failure on the part of the assessee to disclose truly and fully all material facts necessary for reassessment relating to the assessment year under consideration. For this assessee has raised following two grounds: - “1) On the (acts and under the circumstances of the case and in law, the Learned CIT(A) erred in confirming reopening of the assessment by the AO u/s 147 even though there was no escapement of income by the appellant.
2) On the facts and under the circumstances of the case and in law, the Learned CIT(A) erred in confirming the order passed by the AO u/s 143(3) r.w.s. 147 on the two grounds on which the AO has made additions which are different than the two reasons communicated for reopening assessment u/s 147. The Learned CIT(A) ignored the decision by Jurisdiction High Court.”
Briefly stated facts are that for the relevant assessment year 2006- 07, the assessee filed its return of income on 27.11.2006. The return was processed under section 143(1) of the Act on 27.09.2007 and subsequently, notice under section 143(2) of the Act dated 23.09.2007 was issued and served on the assessee and case was selected for scrutiny assessment. The AO framed assessment under section 143(3) of the Act, vide order dated 31-08-2008. Subsequently, the AO re-opened the assessment by issuing notice under section 148 of the Act dated 18- 03-2013 and for this the AO recorded the following reasons, which are reproduced by the AO in his order at page 3 as under: -
M/s Aries Exports Pvt. Ltd. (A.Y. 2006-07) “In this case, the Return of Income was filed on 27.11.2006 declaring total income of ₹ 1,38,13,200/-. Subsequently, the assessment under section 143(3) of the I.T. Act, 1961 was completed on 31.03.2008 assessing the total income at ₹ 1,38,95,920/-.
On perusal of the records, it is noticed from B Notes of the ‘Notes to Balance Sheet and Profit & Loss Account’ that the “Export Earnings Received’ during the previous year was ₹ 4,24,14,147/- whereas the assessee has shown ‘Export Sales’ of ₹ 3,96,20,200/- in the P&L A/c of the previous year. Thereby, the assessee has not offered the differential sum of s.27,93,947/- to tax during the previous year relevant to the to the assessment year under consideration. The assessee ought to have suo mot offered ₹ 27,93,947/- to tax. Also, the issue was not examined by the assessing officer during assessment proceedings. Therefore this has resulted into escapement of income to the tune of ₹ 27,93,947/- involving short levy of tax.
3. Further, it is seen from the depreciation schedule as per Income Tax act that the rate of depreciation has been applied at 30% on the Office Equipments whereas it should have been 15%. The assessee has claimed depreciation to the tune of ₹ 17,960/- on the office equipments.
M/s Aries Exports Pvt. Ltd. (A.Y. 2006-07) However, it should have been ₹ 8,980/-. Thereby, the assessee has excessively claimed sum of ₹8,980/- from the total income in the year under consideration. The assessee ought not to have suo moto claimed ₹8,980/- from total income. Therefore, this has resulted into escapement of income to the tune of ₹ 8,980/- involving short levy of tax.
4. Explanation 1 to first proviso of Sec.147 is very clear in this regard, which reads as under: -
Production before the Assessing officer of account books or other evidence from which material evidence could with due diligence have been discovered by the assessing officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
Therefore, the assessee has itself failed to disclose fully and truly all material facts relevant to the assessment year under consideration.
5. In view of the above, I have reason to believe that the income chargeable to tax exceeding ₹1,00,000/- has escaped assessment, resulting into short levy of tax. Hence, the assessee’s case is hereby reopened for reassessment under section 147 of the I.T. Act, 1961 for AY 2006-07.
M/s Aries Exports Pvt. Ltd. (A.Y. 2006-07) The necessary prior approval in this regard has been given by the CIT-3, Mumbai on 14.03.2013
Notice under section 148 of the I.T. Act is issued.”
The assessee vide letter dated 14.11.2013 replied and raised the objection for reopening on the following points:-
“1) The Export earning received is shown at ₹ 4.24 Crores whereas export sales is of ₹ 3.96 crores 2) The reconciliation between this two figures is as follows:
Income Reconciliation statement FY 2005-06 Particulars Amount in ₹ Export Earning in foreign currency 42,414,147 Add Debit Notes raised on customers 8,63,292 sales as per sales register Less Freight expenses on export bills 3,657,239 Export sales reported in B/sheet 39,620,200 3) In view of above the difference in two figures is on account of reconciliation & different nomenclature used while putting notes to accounts. There is no difference.
4) The rate of depreciation claimed by company 15% only and not 30% as stated by you (copy enclosed).”
The AO framed reassessment under section 143(3) read with section 147 of the Act vide order dated 31-01-2014 and in this order the AO has accepted the issue of depreciation and also difference in export
M/s Aries Exports Pvt. Ltd. (A.Y. 2006-07) earning receipt and export sales. No addition qua the same was made. However, the AO made the addition on account of non-deduction of TDS on freight expenses and thereby invoked the provisions of section 40a(ia) of the Act and similarly, added short term capital gain on sale of building forming part of depreciation schedule at Rs. 83,50,000/-. Aggrieved, assessee preferred the appeal before CIT(A). The assessee before CIT(A) raised the issue of reopening on the following two propositions (i) that the action of the AO making other additions which were not part of reasons recorded for reassessment, reassessment is bad in law. Second, the assessee’s case falls under the proviso to section 147 of the Act as clear from the reasons recorded that there is no whisper of any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the relevant assessment year and original assessment was completed under section 143(3) of the Act. But the CIT(A) confirmed the action of the AO vide Para 4.1.
“4.1 Ground Nos (1) & (2): Through these grounds the assessee has challenged the reopening of the assessment under section 147 on the pea that there was no escapement of income and the additions were made on the items which are different from that given in the "reasons recorded for reopening". The written submissions made in this context finds place at Para 3 of this order. The basic plea of the assessee is that the additions were made on two items [disallowance u/s 40(a)(ia) and taxing the income on sale of its property as short term capital gain instead of tong term capital gain], which are different from the one mentioned in the 'reasons' communicated
M/s Aries Exports Pvt. Ltd. (A.Y. 2006-07) for reopening the assessment. The issue is considered. Prima-facie it would appear that no additions were made on the items / issues which were considered as reason to believe' for reopening the case, but, a careful reading of the reasons' and the issue of addition [on disallowance u/s 40(a)(ia)) makes it very clear that the said addition had emanated from the 'reasons' 'itself. For ready reference, the reasons recorded for reopening the assessment is reproduced hereunder:
…………………..The CIT(A)’s appeal reproduced the reasons which need not to be reproduced……………… On perusal of the re-assessment order, it is noted that though no addition was made on the issue of depreciation [second item], but the disallowance / addition made u/s 40(a)(ia) emanated from the reply / reconciliation given on the issue of export sates that was recorded in the 'reasons' as first ground for reopening. While examining the details submitted in that regard, the AO noted that the export sates at Rs 3,96,20,200/- was shown in the P & L account after reducing the freight expenses of Rs 36,57,239/-. The difference in the figures for export earning of Rs 4,24,14,147/- and the export sales shown in P&L account was reconciled after adjustment for debit notes [raised on M/s Aries Exports Pvt. Ltd. (A.Y. 2006-07) customers due to rate differences] and those freight expenses [of Rs 36,57,239/-. From that, the AO found that assessee failed to deduct taxes at source on the amount paid to the parties on account of freight amounting to Rs 36,57,239/- and for that reason, he disallowed that expense u/s 40(a)(ia). In a way, the addition made has emanated from the difference of figures of export sates, as mentioned in the first ground in 'reason to believe and therefore, the assessee's plea that no additions were made on the basis of reasons to believe' is not correct. The decision of Hon’ble Mumbai High Court in the case of Jet Airways (I) Ltd reported in [2011] 331 1TR 236 is not applicable to the facts of the case of the assessee. Further, its plea that the reopening was based on mere change of opinion is also misplaced. There is no illegality in reopening the case, even after four years, on the grounds recorded as 'reason to believe' and therefore, both the grounds taken by the assessee are dismissed.”
Aggrieved against the action of the CIT(A), assessee is in appeal before Tribunal.
We have gone through the facts and circumstances of the case. We find that the issue is squarely covered in the given facts of the case by the decision of Hon’ble Bombay High court in the case of CIT vs. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom.) on the proposition of that the M/s Aries Exports Pvt. Ltd. (A.Y. 2006-07) AO could not assess the income chargeable to tax which has come to his notice subsequently, in the course of proceedings under section 147 of the Act, even though the same was not the basis for reopening under section 147 of the Act. The learned CIT DR relied on the decision of Hon’ble Punjab and High court decision in the case of CIT vs. Mehak Finvest Pvt. Ltd. (2014) 52 taxmann.com 51 (P&H). We find that Hon’ble Bombay High Court in the case of Jet Airways (I) Ltd. (supra) held as under:-
“17. We have approached the issue of interpretation that has arisen for decision in these appeals, both as a matter of first principle, based on the language used in section 147(1) and on the basis of the precedent on the subject. We agree with the submission which has been urged on behalf of the assessee that section 147(1) as it stands postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income "and also" any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words "and also" are used in a cumulative and conjunctive sense. To read these
M/s Aries Exports Pvt. Ltd. (A.Y. 2006-07) words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion of Explanation 3 to section 147. Parliament must be regarded as being aware of the interpretation that was placed on the words "and also" by the Rajasthan High Court in Shri Ram Singh's case (supra). Parliament has not taken away the basis of that decision. While it is open to Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of section 147(1) as they stood after the amendment of 1-4-1989 continue to hold the field..”
As in the present case before us, the AO reopened the assessment on the issue of excess claim of depreciation and export earning received was not offered to tax but subsequently no addition was made on these two accounts and the additions were made on account of short term capital gain and disallowance of expenses for non-deduction of TDS by invoking the provisions of section 40(a)(ia) of the Act. It means that the issue is squarely covered by the decision of Hon’ble Bombay High court in the case of Jet Airways (I) Ltd. (supra) and this being a jurisdictional high court decision, respectfully, following the same, we quash the reassessment proceedings and allow the appeal of the assessee.
M/s Aries Exports Pvt. Ltd. (A.Y. 2006-07) 8. As the issue on jurisdiction regarding re-opening of assessment under section 147 of the Act has been quashed, we need not go into the merits of the case.
In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 16-11-2017.