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Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI
Before: SHRI JOGINDER SINGH & SHRI N.K. PRADHAN
ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the Revenue. The relevant assessment year is 2003-04. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-13, Mumbai and arises out of the assessment completed u/s 143(3) r.w.s. 147 of the Income Tax Act 1961, (the ‘Act’).
M/s Chemito Technologies Pvt. Ltd.
2. The grounds of appeal
filed by the Revenue read as under:
1. The Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs.14,59,00,000/- on account of unaccounted sales without properly appreciating the legal and factual matrix as clearly brought out by the Assessing Officer.
2. The Ld. CIT(A) has erred on facts and in law in deleting the disallowance u/s 40A(2)(b) of Rs.2,15,48,000/- without properly appreciating the legal and factual matrix as clearly brought out by the Assessing Officer.
3. The Ld. CIT(A) has erred on facts and in law in deleting the disallowance u/s 40A(2)(b) of Rs.2,15,48,000/- without appreciating the fact that assessee has failed to substantiate its claim of expenditure and nature of services provided by related party.
3. Briefly stated, the facts of the case are that the assessee filed its return of income for the AY 2003-04 on 25.11.2003 declaring total income at Rs.61,57,800/-. The Assessing Officer (AO) completed the assessment u/s 143(3) on 30.11.2005 at an income of Rs.61,57,800/-. Thereafter, the AO reopened the assessment by issuing the notice u/s 148 on 30.03.2010. The reasons recorded by the AO for reopening the assessment are as under:
1. It is noticed from the assessment record that the commission of Rs.2,82,62,845/- was claimed by the assessee. The rate of commission varies from 1.91% to 23.59%. According to schedule H, the assessee had done a business of Rs.32.86 crores. That means the sales turnover is Rs.32.86 crores for which the above commission is paid. But in the P&L account, the assessee has shown sales of Rs.18.28 crores (including export turnover). Thus there is difference of Rs.14.57 crores in turnover by the assessee. This has resulted in under assessment of Rs.14.57 crores and short levy of tax of Rs.5.35 crores.
M/s Chemito Technologies Pvt. Ltd.
As per the P&L A/c, material consumed is of Rs.11.63 crores. But as per schedule “M” of balance sheet the consumption of raw material is shown at Rs.11.98 crores. The difference of Rs.34.34 lakhs which is un-reconciled and requires to be added to the income declared by the assessee.
The assessee has paid Rs.2,55,400/- to Noor Stefen, Berlin, as legal and professional fees for obtaining certificate for setting of business in Germany. But no TDS is deducted resulting in under assessment of income of Rs.2,55,400/- in view of the provisions of section 40a(i). 4. Moreover, claim of Rs.72,708/- on account of capital asset write off. It has to be disallowed as capital expenditure. Since the same has not been done, there is under assessment of Rs.72,708/-. 5. The assessee has claimed Rs.1,15,787/- on account of capital expenditure incurred on research and development. This is not an allowable expenditure as per section 35(1) and requires to be disallowed. Since the same has not been done, there is under assessment of Rs.1,15,787/-. 3.1 As a result of reopening, the AO made an addition of Rs.14,59,00,000/- on account of unaccounted sales and Rs.2,15,48,000/- u/s 40A(2)(b). In appeal, the Ld. CIT(A) has deleted the above additions made by the AO. 4. The assessee has filed an application under Rule 27 of the ITAT Rules challenging the order of the Ld. CIT(A) upholding the validity of reassessment arguing that the reasons provided for reopening the assessment are not based on any additional information or material and hence not valid. It is also submitted there was no failure on the part of the assessee to disclose full and true information. In the application filed, the assessee has contended that the objections to the reopening were not disposed off by the AO.
M/s Chemito Technologies Pvt. Ltd. 4.1 In Suhasinibai Goenka vs. CIT (1995) 216 ITR 518, 521-22 (Bom), it has been held by the Hon’ble Bombay High Court that there would be substantial cause for the Tribunal to allow the additional documents to be filed in appeal before it for their fair and just disposal by exercising its power to allow the same under Rule 29 of the Tribunal Rules. We find that the application filed by the assessee under Rule 29 of the Tribunal Rules not only refers to a question of law but also it goes deep into the root of the matter in the instant case. Therefore, we allow the said application filed by the assessee. And we begin with the legality of issuance of notice u/s 148 by the AO.
Before us, the Ld. counsel of the assessee submits that there was a full disclosure by the assessee in the original assessment completed u/s 143(3) on 30.11.2005. He relies inter alia on the decision in Tao Publishing Pvt. Ltd. vs. DCIT (2015) 370 ITR 135 (Bom), Sound Casting (P) Ltd. vs. DCIT (2012) 250 CTR 119 (Bom), Titanor Components Ltd. vs. ACIT (2012) 343 ITR 183 (Bom), Mrs. Parveen P. Bharucha vs. DCIT (2012) 348 ITR 325 (Bom).
On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A) upholding the validity of reassessment.
We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. Addition of Rs.14,59,00,000/- The AO has mentioned that the assessee-company has paid a commission of Rs.282.62 lacs. Such commission paid has been M/s Chemito Technologies Pvt. Ltd.
calculated on total sales of Rs.32.86 crores. However, in the P&L account, sales has been shown at Rs.18.27 crores only. The AO thus made an addition of Rs.14.59 crores (Rs.32.86 crores minus Rs.18.27 crores). We refer here to para 5 of the assessment order dated 31.12.2010. Disallowance of Rs.2,15,48,000/- u/s 40A(2)(b) The AO has observed that the assessee has paid a commission of Rs.215.48 lacs to one M/s Chemito Instruments Pvt. Ltd. Since the payment was made to the sister concern of the assessee, the AO made a disallowance of Rs.2,15,48,000/- u/s 40A(2)(b). We refer here to para 6 of the assessment order dated 31.12.2010. 7.1 We find that the facts relating to the above aspects were disclosed by the assessee in the return of income further substantiated during the course of original assessment completed u/s 143(3) on 30.11.2005. We now refer to the decisions applicable to the instant case. 7.2 In the case of Tao Publishing Pvt. Ltd. (supra), the expenditure on advertisement was allowed in scrutiny assessment. The AO issued the notice after four years to withdraw the allowance. The Hon’ble Bombay High Court observed that there was no failure on the part of the assessee to disclose material facts necessary for assessment and held the notice not valid. In the case of Mrs. Parveen P. Bharucha (supra), the benefit of section 54EC was granted by the AO to the assessee taking into account M/s Chemito Technologies Pvt. Ltd. investment of earnest money before date of transfer of assets. The AO then reopened the assessment to deny the said benefit. The Hon’ble Bombay High Court held that such an action by the AO amounts to change of opinion on same facts and not permissible. In the case of Sound Casting (P) Ltd. (supra), the AO reopened the assessment on the ground that the assessee had claimed excessive melting loss. The Hon’ble Bombay High Court held the said reopening as not valid when the assessee had disclosed all necessary facts on issue. In Titanor Components Ltd. (supra), the Hon’ble Bombay High Court held that where Assessing Officer had nowhere stated in notice for reopening of assessment that there was failure on part of assessee to fully and truly disclose all material facts necessary for its assessment of relevant year and what was recorded was that assessee had wrongly claimed certain deduction, reopening of assessment after expiry of four years was not valid. 7.3 We have perused the relevant materials and found that there was no failure on the part of the assessee to fully and truly disclose the material facts for the impugned assessment year. In view of the ratio laid down in the judgments of the Hon’ble Bombay High Court mentioned hereinbefore, we hold the reopening of the impugned assessment after four years by the AO as not valid.
M/s Chemito Technologies Pvt. Ltd.