M/S. SAHDEV JEWELLERS,NEW DELHI vs. ACIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘G’ NEW DELHI BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA Nos. 2796, 2797 & 2798/Del/2013 Assessment Years: 2002-03, 2004-05 & 2005-06 Vs. Asstt. Commissioner of Income Sahdev Jewellers, C/o- S.Kumar Jain & Associates, 2481/9, Tax, Circle-33(1), New Delhi Gurudwara Road, Karol Bagh, New Delhi PAN : AALFS0015Q (Appellant) (Respondent) Appellant by Sh. Salil Aggrarwal, Adv. Respondent by Sh. S.K. Jain, Sr.DR Date of hearing 28.11.2016 Date of pronouncement 17.01.2017 ORDER PER O.P. KANT, A.M.: These three appeals of the assessee are directed against separate orders of Ld. Commissioner of Income-tax( Appeals)-XXVI, New Delhi for assessment year 2002-03, 2004-05, and 2005-06 respectively. In all the appeals common issue is involved and therefore all these appeals were heard together and disposed of by this consolidated order.

ITA No. 2796/Del/2013 for AY: 2002-03 2. Briefly stated facts of the case are that the assessee, a 100% Export Oriented Unit (EOU), was engaged in the manufacturing and export of gold jewellery in the Noida Special Economic Zone. For the year under consideration, the assessee filed original return of income

2 ITA Nos. 2796, 2797 & 2798/Del/2013 AYs: 2002-03, 2004-05 & 2005-06 declaring nil total income after claiming deduction of Rs.59,00,324/-, under Section 10A of the Income- tax Act, 1961 (for short ‘the Act’) in respect of business profit. Subsequently, the reassessment proceedings were initiated and notice under section 148 of the Act dated 13/03/2006 was issued. In response to the notice, the assessee filed another return of income on 25/04/2006 declaring nil total income after claiming deduction of Rs.6,94,22,784/- under section 10A of the Act in respect of revised business profit. The reassessment was completed on 22/12/2006 under section 147 read with section 143(3) of the Act. The reassessment proceeding were again initiated by way of issue of notice under section 148 of the Act dated 27/03/2009 after recording reasons. In the reasons recorded, the Assessing Officer has mentioned that the assessee treated the interest income from fixed deposits with banks as margin money for getting credit facilities from the bank as business income. The Assessing Officer recorded that total expenditure on bank interest incurred by the assessee during the year under consideration was of Rs.28,35,257/-, however the assessee debited Rs.18,95,966/- to the profit and loss account after netting of interest received of Rs.9,39,771/- from fixed deposits. The Assessing Officer further mentioned that the fact of treating interest received on fixed deposit to get credit facility from the bank as business income was noticed in assessment proceeding for AY 2006-07 and it was held there as income from other sources. According, to the Assessing Officer, the assessee claimed excessive exemption under section 10A of the Act then permissible. In the re-assessment completed on 30/12/2009 the total income was assessed at Rs.8,79,180/-. 2.1 The assessee carried the matter before the Ld. Commissioner of Income-tax (Appeals), who vide his order dated 30/03/2010 is upheld the action of the Assessing Officer, in assessing the interest received on

3 ITA Nos. 2796, 2797 & 2798/Del/2013 AYs: 2002-03, 2004-05 & 2005-06 fixed deposit under the head “income from other sources”, however allowed the benefit of netting of interest. 2.2 Against the order of the learned Commissioner of Income-tax (Appeals), the Revenue preferred appeal before the Income-Tax Appellate Tribunal (in short ‘Tribunal’). The Tribunal in its consolidated order dated 27/08/2010 in ITA No. 2963, 2969, 2968 and 2967/Del/2010, remanded the matter back to the file of the Assessing Officer for a limited purpose of determining the allowance strictly in the manner provided in section 57(iii) of the Act. 2.3 In pursuance to the order of the Tribunal, the Assessing Officer allowed the opportunity to the assessee to give submissions on the issue for allowability of deduction of interest as per the provisions of section 57(iii) of the Act, however, due to non-compliance, by the assessee, the Assessing Officer assessed the income at same figure of Rs.8,79,180/-, which was assessed in terms of order under section 147/143(3) dated 30/12/2009. 2.4 Aggrieved, the assessee filed appeal before the Ld. Commissioner of Income-tax (Appeals). Before him, also the assessee could not substantiate that interest income earned had nexus with the interest expenditure incurred and accordingly, he upheld the order of the Assessing Officer. 2.5 Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above. 3. Before us the assessee raised following additional grounds and relying on the judgement of the Hon’ble Supreme Court in the case of National Thermal Power Corporation Limited Vs. CIT, reported in 229 ITR 383 submitted that all the material facts are on record and the additional ground raised was purely legal in nature, it can be raised at

4 ITA Nos. 2796, 2797 & 2798/Del/2013 AYs: 2002-03, 2004-05 & 2005-06 any stage of proceeding including on a reference or in appeal before the Hon’ble High Court: “Additional Ground No.1: That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in sustaining the initiation of proceedings under section 147 of the Act and, further completion of assessment under section 148/143(3) of the Act, that too, without satisfying the statutory pre-conditions for initiation of the proceedings and, completion of assessment under the Act. Additional Ground No.2: That the learned Commissioner of Income Tax (Appeals) has further failed to appreciate the fact that assessment in the case of assessee - appellant was already framed under section 148/143(3) of the Act and thus, the proceedings initiated under section 148 of the Act without there being any specific allegation of “failure” to disclose fully and truly all material facts by the assessee ” is a mere pretence and should be quashed, as such. Additional Ground No. 3: That the learned Commissioner of Income Tax (Appeals) has failed to appreciate the fact that the reasons recorded were mere reasons to suspect and were just to make fishing and roving enquiries, as no independent enquiry was conducted by the learned AO before issuing such notice under section 148 and as such the proceeding initiated under section 148 was a mere pretence and with total non - application of mind and should be quashed, as such”

5 ITA Nos. 2796, 2797 & 2798/Del/2013 AYs: 2002-03, 2004-05 & 2005-06 in the case of national thermal power Corporation limited versus CIT (supra) , we are of the opinion that such ground can be admitted at any stage of the appellate proceedings. On the issue of admissibility of additional ground in second round of proceeding, the Tribunal, Kolkata bench in ITA No. 1964/Kol/2008 in the case of Santosh Kumar Surekha held as under:

“7. We are of the view that the proceedings taken u/s. 147 can be disputed even in the second round of appeal since if the AO lacks the jurisdiction the said jurisdiction can be disputed at any time and even in the second round of appeal passed on remand. This view of ours is supported by the decision of Hon'ble Gujarat High Court in the case of P. V. Doshi Vs. CIT (1978) 113 ITR 22 (Guj.), which is directly on the issue that assessee can dispute the validity of reassessment proceedings even in the second round of appeal. Hon'ble Gujarat High Court in the case of P. V. Doshi (supra) held as under:

"Therefore, if this settled position was borne in mind, the Tribunal's view was clearly erroneous that the matter became final when the Tribunal passed the earlier remand order so that this point of jurisdiction got finally settled, which could not be agitated unless the assessee had come in the reference to this court at that stage. The Tribunal's view was also incorrect that in restoring the case to the file of the Income-tax Officer by the earlier order, the only point left open was in respect of addition of Rs. 19,421 on merits and that the legal or jurisdictional aspect whether the reassessment proceedings were legally initiated was not kept open. Even on the third question the Tribunal's view was erroneous that even though this point went to the root of the jurisdiction and was a pure question of law, merely because the point was initially raised and not pressed when the matter was taken up before the Appellate Assistant Commissioner, it could be waived and it could not be reagitated. Therefore, in view of the settled legal position our answers on questions Nos. 1 and 2 are in the negative, while our answer on question No. 3 is in the

6 ITA Nos. 2796, 2797 & 2798/Del/2013 AYs: 2002-03, 2004-05 & 2005-06 affirmative, that is to say, all the questions are answered against the Revenue and in favour of the assessee.” 8. Further, Hon'ble Rajasthan High Court in the case of Deep Chand Kothari Vs. CIT (1988) 171 ITR 381(Raj.) has taken a view that if the officer completed the assessment lacked jurisdiction, such plea can be raised even in second round of appeal. Hon'ble Rajasthan High Court in the case of Deep Chand Kothari (Supra) held as under:

"It is not in dispute that the jurisdiction of the Income-tax Officer was duly challenged by the assessee before the Income-tax Officer himself and also in the memoranda of appeals filed before the Appellate Assistant Commissioner. It is not disputed that the Appellate Assistant Commissioner did not touch on this point in his common order dated August 17, 1972, and decided the appeals on merits in favour of the assessee. As such, it would be deemed that the Appellate Assistant Commissioner decided the point of jurisdiction against the assessee. Admittedly, the said point of jurisdiction was duly raised before the learned Tribunal by learned counsel for the assessee before the close of his arguments. Even an application was moved by him at that time. Rule 27, Income-tax (Appellate Tribunal) Rules, 1963, provides that the respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him. Thus, the assessee was entitled to support the order of the Appellate Assistant Commissioner for not clubbing the said two incomes on the said ground of lack of jurisdiction. The assessee could submit his arguments and raise the said pleas only after the conclusion of the arguments of the learned representative for the Department as he was the respondent in all the appeals. It has been observed in Kiran Singh v. Chaman Paswan, AIR 1954 SC 340, as under: "It is a fundamental principle well established that a decree passed by a court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject- matter of the action, strikes at the very authority

7 ITA Nos. 2796, 2797 & 2798/Del/2013 AYs: 2002-03, 2004-05 & 2005-06 of the court to pass any decree, and such a defect cannot be cured even by consent of parties. " 6. Respectfully following the above decisions, we admit the additional grounds raised by the assessee. 7. Supporting the additional grounds, learned counsel of the assessee, submitted before us that the first re-assessment under section 147 of the Act was completed on 22/12/2006 and the four years from the end of the relevant assessment year expired on 31/03/2007, therefore, in terms of proviso to section 147 of the Act, no action for subsequent reassessment can be taken under section 147 of the Act after expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment due to reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. It was submitted that in the reasons recorded the Assessing Officer has nowhere mentioned any failure on the part of the assessee in disclosing the material facts. 8. The Ld. counsel of the assessee also submitted that prior to the reopening of the case second time, the Assessing Officer completed first re-assessment on dated 22/12/2006 and all the relevant material on the issue of interest from fixed deposit was on record and, therefore, reopening the case second time amounted to change of opinion by the Assessing Officer and which is not permitted by the law as held by the Hon’ble Delhi High Court in the case of Commissioner of Income Tax Vs. Kelvinator of India Ltd reported in 256 ITR 01, which has been further upheld by the Hon’ble Supreme Court in 320 ITR 561. 9. On the other hand, the Ld. Sr. Departmental Representative relying on the judgement of the Bombay High Court in the case of Yuvraj versus union of India reported in (2009) 315 ITR 84 submitted that the issue of interest income from FDR had not been considered at all by the

8 ITA Nos. 2796, 2797 & 2798/Del/2013 AYs: 2002-03, 2004-05 & 2005-06 Assessing Officer during first reassessment proceeding and there was no application of mind by the Assessing Officer at any stage of the reassessment proceeding and thus there could have been no opinion formed in the first re-assessment (original assessment) so as to justify the inference of any change of opinion. 10. We have heard the rival submissions of the parties and perused the relevant material on record. In the case of CIT Vs Kelvinator of India Ltd. (supra), Hon’ble Delhi High Court analyzed the decision of the Gujarat High Court in the case of Parfful Chunnilal Patel Vs. ACIT (1998) 148 CTR 62 and dissented with it. The relevant paragraphs of the decision of the Delhi High Court are as under:

9 ITA Nos. 2796, 2797 & 2798/Del/2013 AYs: 2002-03, 2004-05 & 2005-06 that such income was assessed. Merely because during the assessment proceedings the relevant material was on record or could have been with due diligence discerned by the Assessing Officer for the purpose of assessing a particular item of income chargeable to tax, it cannot be inferred that the Assessing Officer must necessarily have deliberated over it and taken it out while ascertaining the taxable income or that he had formed any opinion in respect thereof. If looking back it appears to the Assessing Officer (albeit within four years of the end of the relevant assessment year) that a particular item even though reflected on the record was not subjected to assessment and was left out while working out the taxable income and the tax payable thereon, i.e., while making the final assessment order, that would enable him to initiate the proceedings irrespective of the question of non-disclosure of material facts by the assessed." 28. We are, with respect, unable to subscribe to the afore-mentioned view. If the contention of the Revenue is accepted the same, in our opinion, would confer an arbitrary power upon the Assessing Officer. The Assessing Officer who had passed the order of assessment or even his successor officer only on slightest pretext or otherwise would be entitled to re-open the proceeding. Assessment proceedings may be furthermore re-opened more than once. It is now trite that where two interpretations are possible, that which fulfills the purpose and object of the Act should be preferred. 11. We find that the Hon’ble Delhi High Court has not subscribed the view of the Hon’ble Gujarat High Court in the case of Parfful Chunnilal Patels(supra) that merely because during assessment proceeding the relevant material was on record, it could not be inferred that the Assessing Officer had formed an opinion in respect thereof. The view expressed in Yuvraj Vs. UOI (supra) by the Hon’ble Bombay High Court are identical to the views expressed by the Hon’ble Gujarat High Court in the case of Prafull Chunnilal Patels (supra). But the Jurisdictional High Court has not subscribed to those views and we are bound to follow, the decision of the Jurisdictional High Court. 12. We find that in the instant case the Assessing Officer completed the reassessment first time on 22/12/2006 and there is no change in the

10 ITA Nos. 2796, 2797 & 2798/Del/2013 AYs: 2002-03, 2004-05 & 2005-06 facts of the interest income from FDR, reopening of the reassessment dated 22/12/2006, amounts to change of opinion and which is not permitted by law. Respectfully following the decision of the jurisdictional High Court ,being a binding precedent, we are of the opinion that reassessment proceeding initiated second time in the case of the assessee are not valid, and liable to be quashed. 12. Moreover, in the instant assessment year, the first reassessment was completed under section 147 of the Act and four years had expired from the end of the relevant assessment year on 31/03/2007, therefore, the reassessment completed on 22/12/2006 could not have been reopened after 31/03/2007 except in the event of failure by the assessee in disclosing fully and truly all material facts. The Assessing Officer in the reasons recorded has not pointed out any such failure on the part of the assessee in disclosing material facts. In such circumstances invoking the provision of section 147 of the Act, second time reassessment could not have been made in the case of the assessee. 13. In view of above the reassessment proceedings are held not in accordance with law and are quashed. The additional grounds of the assessee are accordingly allowed. Since we have already quashed the reassessment proceeding in consideration, the adjudication of the grounds of the appeal is rendered infractuous. 14. In the result, appeal of the assessee is allowed.

ITA No.2797/Del/2013 for AY:2004-05 and 2798/Del/2013 for AY:2005-06 15. In both these appeals, identical additional grounds have been raised, therefore, the additional grounds raised in ITA No. 2797/Del/2013 are reproduced as under: “Additional Ground No.1 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in sustaining the initiation of proceedings under section 147 of the Act and, further

11 ITA Nos. 2796, 2797 & 2798/Del/2013 AYs: 2002-03, 2004-05 & 2005-06 completion of assessment under section 148/143(3) of the Act, that too, without satisfying the statutory pre-conditions for initiation of the proceedings and, completion of assessment under the Act. Additional Ground No. 2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate the fact that the reasons the recorded were mere reasons to 'suspect and were just to make fishing and roving enquiries, as no independent enquiry was conducted by the learned AO before issuing such notice under section 148 and as such the proceeding initiated under section 148 was a mere pretence and with total non - application of mind and should be quashed, as such ” 16. Since additional grounds raised in these two appeals being identical and the facts and circumstances being similar to appeal in ITA No. 2796/Del/2013, the additional ground raised in these two appeals are also allowed and the reassessment proceeding are quashed. Both the appeals are allowed. 17. In the result, all the three appeals of the assessee are allowed.

The decision is pronounced in the open court on 17th January, 2017.

Sd/- Sd/- (H.S. SIDHU) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 17th January, 2017. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi