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Income Tax Appellate Tribunal, KOLKATA ‘SMC’ BENCH, KOLKATA
Before: Shri P.M. Jagtap
This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax (Appeals)-11, Kolkata dated 22.09.2017.
The relevant facts of the case giving rise to this appeal are that the assessee is an individual, who is engaged in the business of dealing in Cement and Paints. He also derives income from M/s. Midnapore Glory Vision. The return of income for the year under consideration was filed by him on 29.09.2009 declaring total income of Rs.2,19,880/-. In the assessment originally completed under section 143(3) vide an order dated 02.11.2011, the total income of the assessee was determined by the Assessing Officer at Rs.3,23,880/- after making certain additions aggregating to Rs.1,04,000/-. Thereafter the assessment was reopened by the Assessing Officer after recording the reasons and a notice under
2 ITA No. 2384/KOL/2017 Assessment Year: 2012-2013 section 148 was issued by him to the assessee on 26.11.2014. Although there was no compliance on the part of the assessee to the said notice initially, a letter dated 24.08.2015 was finally filed by the assessee requesting the Assessing Officer to treat the return of income originally filed by him on 29.09.2009 as the return filed in response to notice under section 148. Thereafter the assessment was completed by the Assessing Officer under section 143(3)/147 vide an order dated 31.12.2015, wherein he made an addition of Rs.8,80,000/- to the total income of the assessee under section 40(a)(ia) for the failure of the assessee to deduct tax at source from the payment of Channel rent.
Against the order passed by the Assessing Officer under section 143(3)/147, an appeal was preferred by the assessee before the ld. CIT(Appeals) challenging the validity of the said assessment as well as disputing the addition of Rs.8,80,000/- made by the Assessing Officer therein by invoking the provisions of section 40(a)(ia). During the course of appellate proceedings before the ld. CIT(Appeals), a detailed submission was made by the assessee challenging the validity of the assessment made by the Assessing Officer under section 143(3)/147 on various grounds. The ld. CIT(Appeals), however, did not find merit in the same and rejecting the contentions of the assessee, he upheld the validity of the assessment made by the Assessing Officer under section 143(3)/147 for the following reasons given in paragraph no. 5 to 5.3 of his impugned order:- “5. In this ground the appellant is disputing the A.O. action in initiating notice u/s 148. The appellant's case is that all material had been furnished before the A.O. in course of the original assessment proceedings which resulted in an order u/s. 143(3) dated 02.11.2011. Therefore, as per the appellant's submission the instant reassessment proceeding is the result of a mere change of opinion on the part or the AO. The appellant has relied on various case laws in support of his submission. These include, KELVINATOR OF INDIA LTD. (2010) 320 ITR 561 (SC), ANDHRA BANK LIMITED (1997) 225 ITR 447 (SC) KANOI INDUSTRIES (P) LTD. [LT.A. No.108 OF 2012 DATED 15.06.2012], and AMRIT FEEDS LTD. (2012) 344 ITR 187 (CAL). These cases have been perused. The entire arguments of the appellant depend on his claim that there has been a change of opinion on the part of the AO. As per the assessment
3 ITA No. 2384/KOL/2017 Assessment Year: 2012-2013 order passed on 02.11.2011, the appellant has furnished before the AO produced his books of accounts along with bills and vouchers, ledger copies of pay channel bill account to Darshan Communication. From the documents submitted, in my opinion, it cannot be said that all material facts had been disclosed before the A.O. in course of the original assessment. Specifically, the fact that the appellant was not deducting TDS is not seen to have been in the knowledge of the AO at the time of the original assessment proceedings. In fact, the AO is seen to have made this detection later on after a close perusal of the records. That very fact indicates that the information has been culled by the AO himself and on the basis of the tangible material, reassessment proceedings had been initiated.
5.1 The judgment in the case of M/s. Kelvinator of India Ltd. [Supra] is on this very issue. It has been held therein that the AO has power to reopen proceedings provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Such reasons must also have a link with the formation of the belief on the part the AO perusal of the instant case does not suggest any conflict between the stand of the AO and the judgment of the Hon'ble Supreme Court cited above. The AO has reopened the instant case based on tangible material. In my opinion, it would be incorrect to say that there has been a change of opinion on the part of the AO.
5.2 In the case of ANDHRA BANK LIMITED (Supra), as per the Appellant's own submission, it had been held by the Hon'ble Supreme Court that if a claim had been allowed at the original assessment it was not permissible for the A.O. to reopen such assessment unless new materials were available. In this case, no claim by the appellant is visible on record during the original assessment proceedings on the question of it's a judicial or allowance does not arise. The facts of that case are, in my opinion, difference from the appellant's case and that precludes the said judgment from being applicable here.
5.3 In the case of AMRIT FEEDS LTD. [Supra] the issue was deduction u/s. 80lB and the assessee's entitlement to such claim had not been challenged earlier. Here also it is seen that. The Hon'ble High Court had ruled in the assessee's favour because a claim had been allowed previously. As already stated in the instant case the question of any such claim does not arise. The facts of this case are therefore seen to be different from that of the appellant's case. The judgment in the case of KANOI INDUSTRIES (P) LTD. [Supra] shows that this case involved reassessment proceedings because of remission of a liability which had been claimed and allowed earlier. Here also it is seen to be a case where a specific claim had been allowed earlier and subsequently sought to be reassessed. The facts in the appellant's case are different and, that, in my view prevents this decision of the Hon'ble Calcutta High Court from being applicable here. All these cases deal with the concept of change of opinion which as discussed above does not
4 ITA No. 2384/KOL/2017 Assessment Year: 2012-2013 meet the facts of the appellant's case. The other cases cited by the appellant are in the same vein.
Besides, reference can be made here to the decision of the Hon'ble Supreme Court in the case of A.L.A. Firms vs. CIT [1991J 189 ITR 285 wherein, the Hon'ble Supreme Court has held that the word 'reason' in the phrase 'reason to believe' will mean cause or justification, and, if the AO had cause or justification to know or suppose that income has escaped assessment, he can be said to have reason to believe that an income has escaped assessment. In the view of the Hon’ble Supreme Court, the said expression cannot be read to mean that the AO should have finally ascertained the fact be legal evidence or conclusion. Further, in the case of Ghaziabad Ispat Udyog Ltd. vs. DCIT [2014] 224 Taxman 82 (All), where the AO had carried out discrete enquiry and recorded reasons which revealed that companies from whom unsecured loans were received had no identity, genuineness and creditworthiness, it could not be said that issuance of notice for reassessment was a mere change of opinion. In view of this, the claim of the appellant that this was a mere change of opinion on the part of the AO cannot be accepted. Accordingly, the reassessment proceedings are held to be valid and the Ground no. 2 of the appeal is therefore dismissed”.
The ld. CIT(Appeals) also confirmed the addition of Rs.8,80,000/- made by the Assessing Officer by invoking the provisions of section 40(a)(ia) for the following reasons given in paragraph no. 8 to 8.2 of his impugned order:- “8. I have duly considered the submissions made by the A/R of the appellant as well as the issue raised in the assessment order u/s. 143(3) of the Act framed by the A.O. in light of the materials adduced on record. In these grounds the appellant is disputing the action of the AO for applying the provisions of s. 40(a)(ia) of the Act in his case and making consequent disallowance of expenditure incurred. The claim of the appellant is that sec. 40(a)(ia) of the Act is not applicable to his case because he never entered in a contract with Darshan Communication for doing any work and therefore was not obliged to deduct tax u/s. 194C of the Act. In my opinion, the airtime purchased by the appellant from Darshan Communication are different from purchases of commodities from the open market. In fact, such a purchase is not possible without a contractual relationship with the seller. It is a fact that without a contract it will not bar on the sellers selling airtime to another purchase in the same locality.
8.1 The appellant is buying airtime from Darshan Communication and is in turn collecting money from its subscribers for telecasting its rights. I do not see how, without a contractual relationship, it would be possible for the appellant to conduct its business. Without a contractual relationship nothing prevents the seller from selling airtime to another distributor in the same area. It is not the
5 ITA No. 2384/KOL/2017 Assessment Year: 2012-2013 contention of the appellant that airtime is also being purchased by other telecasters operating in the same area. Under the circumstances, I am of the view that a contractual relationship did indeed existed between the appellant and Darshan Communication. 8.2. It is further contended that as per CBDT's Circular 681 the instant case would come under the contract for sale of goods. In my view, the submission of the appellant has not been able to bring out which particular clause of Circular No. 681 is applicable to it. I do not see the appellant making out any case that its contract comes under the category of contract for sale of goods. Under the circumstances, I hold that the appellant has violated the provisions of sec. 40(a)(ia) read with section 194C of the Act for which the disallowance has been rightly made by the AO which is confirmed. Accordingly, this Ground No. 3 of appeal, therefore, fails”.
Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal.
The common issue raised in Grounds No. 1 to 3 of the assessee’s appeal relates to the validity of the assessment made by the Assessing Officer under section 143(3)/147 of the Act.
The ld. counsel for the assessee contended that the assessment originally completed under section 143(3) of the Act was reopened by the Assessing Officer after the expiry of four years from the end of the assessment year under consideration. He contended that when the assessment was made originally under section 143(3), the same could have been reopened by the Assessing Officer after the expiry of four years from the end of the relevant assessment year only when any income chargeable to tax had escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under section 142(1) or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. He contended that there was no failure on the part of the assessee either to make a return as contemplated in proviso to section 147 or to disclose fully and truly all material facts necessary for his assessment for the assessment year in question under consideration. In this regard, he invited my attention to
6 ITA No. 2384/KOL/2017 Assessment Year: 2012-2013 the reasons recorded by the Assessing Officer as placed at page no. 67 of his paper book and pointed out that there was no such allegation made even by the Assessing Officer that any income chargeable to tax had escaped assessment for the failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for his assessment as contemplated in proviso to section 147. He contended that the reopening of assessment made by the Assessing Officer after the expiry of four years from the end of the assessment year under consideration thus was not in accordance with the proviso to section 147 and since the reopening itself was invalid being barred by limitation, the assessment completed by the Assessing Officer under section 143(3)/147 in pursuance of the same is liable to be cancelled being invalid. In support of this contention, ld. counsel for the assessee has relied, inter alia, on the decision of the Hon’ble Calcutta High Court in the case of CIT- vs- Metro Dairy Limited (ITAT No. 120 of 2013 dated 02.08.2013) and in the case of Chief CIT –vs.- Kanoria Chemicals & Industries Limited (ITAT No. 150 of 2013 dated 23.12.2013).
The ld. D.R., on the other hand, relied strongly on the impugned order of the ld. CIT(Appeals) in support of the revenue’s case on this issue. He contended that all the arguments raised by the ld. counsel for the assessee challenging the validity of the assessment made by the Assessing Officer under section 143(3)/147 have already been considered by the ld. CIT(Appeals) before deciding this issue against the assessee.
I have considered the rival submissions and also perused the relevant material available on record. It is observed that the assessment for the year under consideration was originally completed by the Assessing Officer under section 143(3) and the same was reopened after expiry of four years from the assessment year under consideration. The validity of the said reopening is challenged by the ld. counsel for the assessee by relying on the proviso to section 147, which reads as under:-
7 ITA No. 2384/KOL/2017 Assessment Year: 2012-2013 “[Income escaping assessment. 147. If the [Assessing] Officer has reason to believe] that any income chargeable to tax has escaped assessment79 for any assessment year, he 79may, subject to the provisions of sections 148 to 153, assess or reassess79 such income 79and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re- compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts80 necessary for his assessment, for that assessment year:
Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year.
Provided that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment”.
A perusal of the aforesaid proviso clearly shows that the assessment originally completed under section 143(3) can be reopened by the Assessing Officer after the expiry of four years from the end of the relevant assessment year only where the income chargeable to tax has escaped assessment as a result of the failure of the assessee to file his return of income or furnish fully and truly all material facts, which are necessary for the purpose of assessment for that assessment year. As contended by the ld. counsel for the assessee, there was, however, no such failure on the part of the assessee that was pointed out by the Assessing Officer in the reasons recorded. In order to appreciate this contention of the ld. counsel for the assessee, it is relevant to refer to the reasons recorded by the Assessing Officer, which are extracted below:- “During the relevant previous year, the assessee was engaged in the trading of cement & paints under the name and style “Devi Durga Hardwares”. It was seen from the profit & loss a/c. submitted along with the return of income for the previous year relevant to the AY 2009-10 that the assessee hd credited an amount of Rs.9,60,663/- as income for his business of ‘Midnapore Glory Vision’ and debited Rs.8,80,000/- as
8 ITA No. 2384/KOL/2017 Assessment Year: 2012-2013 pay channel rent paid. Scrutiny of records reveals that in reply to notice u/s 133(6) of the I.T. Act, 1961, the party M/s. Darshan Communication stated that they received Rs.8,80,000/- as pay channel rent during the year from M/s. Glory Vision - Prop. Dipak Kumar Das Bhowmik. As the said payment exceeded the amount of Rs.50,000/- during the year made to a single party and the same is contractual in nature, deduction of tax at source under the provisions of section 194C attracts.
The assessee submitted return of income along with tax audit report during the current year as well as the preceding financial year. It was seen from Sl. No. 27(a) of the tax audit report that the assessee did not comply the provisions of Chapter XVII-B of the I.T. Act, 1961 in respect of deduction of tax at source during the year. For non- deduction of TDS, the full amount of Rs.8,80,000/- was required to be added to the total income of the assessee u/s 40(a)(ia) of the Income Tax Act, 1961. However, no such addition was made during scrutiny assessment. This has resulted in undercharge of tax to the tune of Rs.3,68,877/- including interest u/s 234B as detailed below.
Total income u/s 143 Rs.3,23,880 Addl. As discussed Rs.8,80,000 Revised total income Rs.12,03,880 Income Tax Rs.2,66,164/- Addl. S.C. @ 10% Rs.26,616 Rs.2,92,780 Add.: E. Cess Rs.8,783 Rs.3,01,563 Less: TDS + SAT 601 + 7199 Rs.7,800 Rs.2,93,763 Add.: Interest u/s 234B @ 1% 2,93,700 X 1% X 32 = Rs.93,984 from 04/2009 to 11/2011 on Rs.93,984/- Rs.2,93,700 Payable Rs.3,87,747 Less: Demand notice dt. Rs.18,870 02.11.2011 Undercharge Rs.3,68,877
In view of the above circumstances, I have reason to believe that the income of the assessee has escaped the assessment within the meaning of section 147 of the I.T. Act, 1961.
Hence, proceeding u/s 148 of the I.T. Act, is initiated.
Issued notice u/s 148 of the I.T. Act, for furnishing return u/s 148 of the I.T. Act, 1961 within 30 days of receipt of this notice”.
It is manifest from the reasons recorded by the Assessing Officer that no such failure on the part of the assessee as contemplated in the first proviso to section 147 was pointed out by the Assessing Officer in order to empower him to reopen the assessment originally completed under section 143(3) after the expiry of four years from the end of the
9 ITA No. 2384/KOL/2017 Assessment Year: 2012-2013 assessment year under consideration. Even the ld. D.R. has not been able to show any such failure specifically pointed out by the Assessing Officer in the reasons recorded and has simply relied on the impugned order of the ld. CIT(Appeals) in support of the revenue’s case on this issue. In the case of Metro Dairy Limited (supra) cited by the ld. counsel for the assessee, the assessment originally completed under section 143(3) was reopened after the expiry of four years from the end of the relevant assessment year without making out a case of assessee’s failure to file the return of income as contemplated in the 1st proviso to section 147 or to disclose fully and truly all material facts necessary for his assessment. The Tribunal accordingly found on facts that income had not escaped assessment due to any fault, lacunae or latches on the part of the assessee at the time of earlier assessment and cancelled reassessment order passed by the Assessing Officer by holding that the reopening itself was barred by limitation. On appeal preferred by the Revenue, the Hon’ble Calcutta High Court upheld the order of the Tribunal after taking note of the specific provision contained in the 1st proviso to section 147. A similar view has been taken by the Hon’ble Calcutta High Court in the case of Kanoria Chemicals & Industries Limited (supra), wherein it was held that the power to reopen the assessment originally completed under section 143(3) after the expiry of four years from the end of the relevant assessment year could be exercised by the Assessing Officer only when he could show that there was escapement of income due to the failure of the assessee to disclose fully and truly all material facts for the purpose of assessment. Keeping in view the ratio of these two decisions of the Hon’ble Jurisdictional High Court and having regard to the facts of the case as discussed above, I hold that the reopening of assessment originally completed under section 143(3) by the Assessing Officer after the expiry of four years from the end of the assessment year in question without satisfying the conditions laid down in the first proviso to section 147 was barred by limitation and the assessment made under section 143(3)/147 in pursuance thereof is invalid, which is liable to be
10 ITA No. 2384/KOL/2017 Assessment Year: 2012-2013 cancelled. I order accordingly and allow Grounds No. 1 to 3 of the assessee’s appeal.
Keeping in view the decision rendered above on a preliminary issue cancelling the assessment made by the Assessing Officer under section 143(3)/147, the issue raised in Ground No. 4 of the assessee’s appeal relating to the disallowance of Rs.8,80,000/- made under section 40(a)(ia) has become infructuous and I do not consider it necessary or expedient to decide the same.
In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 23rd day of February, 2018.
Sd/- (P.M. Jagtap) Accountant Member Kolkata, the 23rd day of February, 2018 Copies to : (1) Shri Dipak Kumar Dasbhowmik, C/o. S.N. Ghosh & Associates, Advocates, “Seven Brothers’ Lodge”, P.O. Buroshibtala, Chinsurah, Dist. Hooghly-712 105 2) Income Tax Officer, Ward-38(1), Midnapore, Income Tax Office, Amaravati building, Keranitola, P.O. Midnapore, Dist. Midnapore(W)-721 101 (3) CIT(Appeals)-11, Kolkata, (4) CIT- , Kolkata, (5) The Departmental Representative (6) Guard File TRUE COPY By Order
Senior Private Secretary, Head of Office/DDO, Income Tax Appellate Tribunal Kolkata Benches, Kolkata Laha/Sr. P.S.