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Facts
The assessee company had income of Rs. 6,85,05,730/- during AY 2014-15, which was not included in its return. The Assessing Officer (AO) initiated reassessment proceedings under Section 147 of the Income Tax Act, 1961, based on information from a survey action. The AO recorded reasons for reopening, citing the alleged evasion of taxes through amalgamation and creation of goodwill. The assessee contested the reopening, arguing it was based on incorrect facts, lack of application of mind, and limitation issues.
Held
The Tribunal held that the reassessment proceedings were illegal and without jurisdiction. The reasons recorded by the AO for reopening were found to be based on incorrect facts and without proper application of mind, as supported by several legal grounds and judicial precedents. The sanction for reopening was also deemed invalid.
Key Issues
Whether the reassessment proceedings initiated by the Assessing Officer were valid and legally sustainable, considering the grounds raised by the assessee regarding incorrect facts, lack of application of mind, and procedural infirmities.
Sections Cited
147, 133A, 153C, 149, 151, 139(1), 115JB, 32
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Income Tax Appellate Tribunal, ‘A‘ BENCH
Before: SHRI AMIT SHUKLA & SHRI S RIFAUR RAHMAN
आदेश / O R D E R PER AMIT SHUKLA (J.M): These are eight appeals filed by both assessee as well as revenue for AY 2014-15 to AY 2017-18, against common order dated 31.07.2023 passed by Ld CIT(A)-52 Mumbai for the quantum of assessment passed u/d 143(3)/147 of the Act. In assessee appeal, reopening issue was raised in all four years. Since basis of challenge is identical in all four years, hence AY 2014-15 Appeal No. 3469/M/2023, taken for adjudication, where in the appeal Memo assessee raised following grounds:- 1.On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in reopening the assessment completed u/s.143(3) r.w.s 153C of the Income Tax Act, 1961, without considering the facts and circumstances of the case.
3 ITA No.3466/Mum/2023 & others M/s. Aspen International Pvt. Ltd.
2.On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in directing the assessing officer to examine the realization of exports, without considering the facts & circumstances of the case and the provisions of the Act. 3.On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in restricting the addition to the extent of Rs.19,68,690/-u/s 69C of the Act, without considering the facts & circumstances of the case.
During the course of hearing assessee filed following Specific grounds in furtherance to ground one above: - 1. That the Commissioner of Income-tax (Appeals) ['CIT(A)'] erred on facts and in law in upholding the validity of reassessment order dated 31.03.2022 passed by the assessing officer under section 147 of the Income-tax Act, 1961 ('the Act): 1.1 That the CIT(A) erred on facts and in law in not appreciating that the reassessment order dated 31.03.2022 passed by the assessing officer is illegal and bad in law, being barred by limitation in terms of proviso to section 147 of the Act. 1.2 That the CIT(A) erred on facts and in law in upholding validity of reassessment proceedings, despite the same having been initiated on the basis of mere change of opinion, without any new tangible material to the possession of the assessing officer subsequent to completion of assessment under section 143(3) r.w.s. 153C of the Act. 1.3 That the CIT(A) erred on facts and in law in not testing/examining the validity of the reopening strictly on the basis of the reasons recorded, and instead, referring to/relying upon finding not mentioned therein. 1.4 That the CIT(A) erred on facts and in law in not appreciating that reassessment is barred by limitation in
4 ITA No.3466/Mum/2023 & others M/s. Aspen International Pvt. Ltd. terms of section 149 of the Act, since reasons recorded (that too, without copy of sanction obtained under section 151) were communicated much after the expiry of limitation period as prescribed in that section. 1.5 That the CIT(A) erred on facts and in law in not appreciating that the reassessment order was without jurisdiction, illegal and bad in law, since sanction obtained under section 151 was not provided to the appellant, much less within limitation prescribed in section 149 of the Act. 1.6 That the CIT(A) erred on facts and in law in not appreciating that the reassessment order was without jurisdiction, illegal and bad in law, since sanction obtained under section 151 was without application of mind and without appreciating the facts of the case. 3. The brief facts of the case are that a survey action U/s 133A was carried out by investigation wing on 23/03/2021 on Veritas Group and during the course of survey statement of Shri Nitin Didwania alongwith other employees of the group was recorded on the issue of amalgamation of various group companies and creation of goodwill in the books and claiming depreciation thereon. Investigation Wings communicated the said information with the concerned Assessing officer. In this case the assessing officer based on the finding of the survey report recorded following reasons were recorded before issue of notice U/s 148 dated 31/03/2021: “REASONS RECORDED FOR RE-OPENING OF ASSESSMENT The assessee is a Private Limited Company is required to file the return of income in respect of income chargeable to tax as per the provisions of Sec. 139(1) of the IT Act, 1961. It has filed R.O.I. for A.Y.- 2014-15 declaring income of Rs. 17,80,490/-. The case has
5 ITA No.3466/Mum/2023 & others M/s. Aspen International Pvt. Ltd. been selected in High Risk CRIU/VRU information on Insight portal. 2. Information has been received that a survey action was conducted in the case of the assessee on 23.03.2021 in which it was found that assessee has used of the instrument of amalgamation for evasion of taxes by creation of Goodwill and claiming huge amortization expenses during AY 2014-15. The details are as under: Sr. Information Nature of Amount No. Source Information 1 DDIT(Inv.), use of the 6,85,05,730 Unit-8(1), instrument of Mumbai amalgamation for evasion of taxes Total 6,85,05,730
As per the above information, it is apparent that the assessee has earned an income to the tune of Rs. 6,85,05,730/- during the relevant previous year. Since the assessee has not included this amount in the income while filing return of income for AY 2014-15, this income has escaped assessment. 4. In this case return of income was filed by the assessee for the year under consideration. However, in this case no assessment was made and the only requirement to initiate proceedings u/s.147 is to record reason to believe that income chargeable to tax has escaped assessment. 5. In view of the above, the provisions of clause (b) of Explanation 2 to Section 147 are applicable to facts of this case and it is deemed to be a case where income chargeable to tax has escaped assessment. 6. In view of the above, I have reason to believe that income amounting to Rs. 6,85,05,730/- chargeable to tax has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts within the meaning of section 147 of the Income-tax Act, 1961 for the A.Y. 2014-15.
6 ITA No.3466/Mum/2023 & others M/s. Aspen International Pvt. Ltd. Hence, it is a fit case for issue of notice u/s. 148 of the I.T. Act, 1961.” 4. Before us the Ld Counsel for the assessee raised following anomalies in the above recorded reasons:
4.1 He submitted that the main allegation in the reasons recorded is that the assessee has claimed expenses on account of amortization of goodwill created through instrument of amalgamation but actually assessee has not claimed any amortization/depreciation U/s 32 of the I T Act on such goodwill. The AR pointed out this fact in its computation of total income for the year in paper book on page 2 and balance sheet of the assessee company on page 5-31. On verification of the same was noted that though assessee has claimed amortization of the goodwill in books but in the computation of total income disallowed the same and claimed depreciation only on tangible assets amounting to Rs. 1,49,734/-. Accordingly, it is undisputed fact that no depreciation claimed on such goodwill in the return of income u/s 32 of the Act. Ld AR also pointed out that in the order passed U/s 143(3) read with section 147 of the Act, the Ld AO has disallowed depreciation U/s 32 but not disturbed book profit computed U/s 115JB of the Act, which clearly proves that reference of amortization of goodwill is with regard to depreciation U/s 32 of the Act and not for depreciation claimed in book profit computed U/s 115JB of the Act. Accordingly, he concluded that the Ld AO not only raised irrelevant issue in the reasons recorded but also disallowed
7 ITA No.3466/Mum/2023 & others M/s. Aspen International Pvt. Ltd. depreciation U/s 32 which was never claimed by the assessee company.
4.2 AR of the assessee further pointed out that earlier, Veritas group was subject to search action in Sept.,2015 and case of the assessee was assessed from AY 2014-15 to 2017-18 u/s 143(3) r.w.s. 153C of the Act. However, this fact was completely ignored by the Ld AO and in para 4 of the reasons recorded AO mentioned that no assessment was made for this year. This clearly shows that AO has issued notice u/s 148 without verification of the records of the assessee and accordingly there is no application of mind by AO as well as by PCIT who has accorded approval u/s 151 in this case.
4.3 He further stated that for the time being if we assume that the AO has treated amortization of goodwill as deduction in book profit computed U/s 115JB of the Act, in that case also the assessment order do not survive as there is no addition made u/s 115JB for the said amortization in the order passed as held by the Jurisdictional High Court in case of Jet Airways (331 ITR 234)(Bombay). In this case the Hon’ble High Court held that if no addition made on the issue which was recorded in the reasons for reopening, in that case AO cannot make any other additions.
On the other hand, Ld DR supported the order of Ld CIT (A) on this ground and stated that Ld CIT(A) has dealt with all these issues in the order on page 10-13 in details and considering decision of various courts he held that reopening in valid.
8 ITA No.3466/Mum/2023 & others M/s. Aspen International Pvt. Ltd. 6. We have considered the contention of both parties and perused the relevant finding given in the impugned orders and material referred to before us. The only legal ground involved in this Appeal is, whether the reassessment proceedings u/s. 148 of the IT. Act are illegal and without jurisdiction in the absence of any relevant reasons being recorded in respect of any undisclosed income and recording of requisite satisfaction in respect of any such undisclosed income or not. It is an undisputed fact that in the reasons AO has recorded the escapement of income on account of amortization of goodwill which was not claimed by the assessee in computation of normal provisions of the Act and with regard to adjustment in book profit computed U/s 115JB of the Act AO has not disturbed the same in the order passed U/s 143(3) r.w.s. 147of the Act. So it is very clear that the reasons recorded are without verification of the records and accordingly, without application of mind. The AO has not bothered to even verify the information received with the assessment folder whether any such depreciation has been claimed by the assessee or not. It clearly reflects that the AO has mechanically recorded the reasons and issued the notice without applying his own mind. Ld. PCIT has also accorded approval U/s 151 of the Act based on the reasons recorded by the AO without ascertaining the actual facts of the case. Hon’ble Bombay High Court in case of Sharvah Multitrade Compant P Ltd. Vs. ITO ( 134 Taxmann.com 134) dealt with similar case and held that reassessment initiated based on reasons recorded on irrelevant facts and without application of mind cannot survive.
9 ITA No.3466/Mum/2023 & others M/s. Aspen International Pvt. Ltd.
This, in our considered opinion, it is against the settled principles of law, as reopening of an assessment is an extraordinary power available to the ld AO and it should not be done in a cavalier manner. That is why the legislature in its wisdom had put lot of restrictions by imposing conditions for seeking approval and sanction from a superior officer in terms of section 151 of the Act. In this case the AO recorded wrong facts on many count in the reasons recorded for reopening of the assessment i.e. AO recorded incorrect fact that assessee has claimed huge amortization expenses on goodwill and disallowed the same in the assessment order U/s 32 of the Act which was deleted by Ld CIT(A) by stating that no such expenses actually claimed by the assessee. The AO in the reasons also recorded incorrect fact that no assessment has been completed in this case u/s 143(3) but assessment u/s 143(3) r.w.s. 153C completed on 29/12/2017 as recorded by the AO on page 1 of the assessment order. The AO also incorrectly stated that provisions of section 147(2)(b) are applicable, whereas in the facts of the case provisions of section 147(2)(c) are applicable where the onus on AO is higher to prove escapement of income. The AO, therefore, recorded wrong, incorrect and non-existing reasons for reopening of the assessment. It makes clear that there is a total non-application of mind on the part of the AO while recording the reasons for reopening of the assessment. Considering the facts and circumstances of the case, in the light of the above discussion, and decisions referred to in the order,
10 ITA No.3466/Mum/2023 & others M/s. Aspen International Pvt. Ltd. we are of the view that reopening of the assessment is invalid and bad in law and that sanction/approval granted is also without any application of mind. Therefore, the reopening of the assessment cannot be sustained in law. We, accordingly, allow appeal of the assessee on legal grounds. Since appeal is allowed on legal ground of reopening, other grounds in the assessee appeal as well as department appeal on merits of the case, become academic hence does not require any adjudication.
ITA No.3468-3466/Mum/2023 AY 2015-16 to 2017-18 (Assessee appeal)
The issue on legal ground to challenge reopening is common in all these three year before us accordingly. Since the issue is similar to one as decided by us in ground No.1 in ITA No.3469/Mum/2023 of assessee’s appeal, therefore, our decision/finding in the above ground would mutatis mutandis apply to ground No.1 of assessee appeal. Accordingly, ground No.1 of assessee is allowed.
ITA No.3594,3593, 3591 & 3589/Mum/2023 AY 2014-15 to 2017-18 (Revenue appeal)
The issue involve in revenue appeal relates to merits of the case. Since in assessee’s appeal is allowed on legal issue. Hence these appeals are not maintainable. Accordingly, the appeals of revenue for AY 2014-15 to 2017-18 are dismissed.
11 ITA No.3466/Mum/2023 & others M/s. Aspen International Pvt. Ltd. 10. In the result, all the appeals of the assessee are allowed and all the appeals of the Revenue are dismissed. Order pronounced on 5th April, 2024.
Sd/- Sd/- (S RIFAUR RAHMAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 05/04/2024 KARUNA, sr.ps
Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy//
BY ORDER,
(Asstt. Registrar) ITAT, Mumbai