ACIT, NEW DELHI vs. M/S. BARISTA COFFEE COMPANY LTD., NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “A”: NEW DELHI BEFORE SMT SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No.5324/Del/2012 (Assessment Year: 2003-04) ACIT, Barista Coffee Company Ltd, Circle-2(1), Room No. 398D, Shop No. 55, Community Centre, Vs. CR Building, New Delhi Basant Lok Market, Vasant Vihar, New Delhi PAN:AABCB798A (Appellant) (Respondent)

CO No. 461/Del/2012 (ITA No.5324/Del/2012) (Assessment Year: 2003-04) Barista Coffee Company Ltd, ACIT, Shop No. 55, Community Centre, Circle-2(1), Room No. 398D, Vs. Basant Lok Market, Vasant Vihar, CR Building, New Delhi New Delhi PAN:AABCB798A (Appellant) (Respondent)

Assessee by : Sh. KK Jaiswal, DR Revenue by: Sh. Kapil Goel, Adv Date of Hearing 12/07/2016 Date of pronouncement 09/09/2016 O R D E R Per Prashant M Maharishi , Accountant Member This is an appeal filed by the revenue and Cross objection filed by the 1. assessee against the order of the ld CIT(A)-V, New Delhi dated 14.08.2012 for the Assessment Year 2003-04. The revenue has raised the following grounds of appeal:- 2. “1. The ld CIT(A) has erred on facts and in law in deleting the addition amounting to Rs. 28,29,878/- on account of the fact that heads of receipts as mentioned in the TDS certificates claimed by the assessee in return of income filed are not specifically matching with the details of income submitted by the assessee.” The assessee has raised the following grounds of appeal:- 3. “1. That this appeal of the Ld ACIT not be admitted at all on the following facts and in the circumstances of the case. 2. The Ld CIT (A) has not erred on facts and in law in deleting the addition of Rs 2829878/-.

Page 2 of 9 3. That the then Ld AO Mr. Navneet Manohar has passed the first original assessment order U/s 143(3) dated 23-03-06 through questionnaire dt 30-08-05 and after examination and verification of books of accounts and more specifically after examining and verifying explanation of Para no 23 of the questionnaire dt 30-08-05 which contain the same aspect of concealment, if any, through the following question, which is reproduced below for ready reference "23. you are required to furnish a chart of TDS certificates filled along with the return in the following format! Is.Nol Name of Employee! Name of Deductee I Nature of Payment I Amount Paid I Tax Deducted You are also required to furnish reconciliation if the amount received from a party as per TDS certificates does not match with the receipts from that party during the year as shown in the P&L account" That the then Ld AO passed the original order after satisfied with the submission made by the Appellant Co. and no such addition was made on this very specific issue. That the case was again reopened u/s 147 and again reassessed and made addition on 06-12-2010 even after protest and even without providing the break-up and composition of gross receipt of Rs2829976/- on the ground that Head of receipt as mentioned on the TDS certificates not specifically matching with the details submitted by the assessee hence income not disclosed in the return of income which has now been correctly deleted by the Ld CIT(A). 4. That the assessed carry forward unabsorbed business losses as per record in all the assessment years up to a.y. 2007-08 was many fold than the impugned addition which was sacrificed by the appellant co. by virtue of application of Sec 79 in the A.Y. 2008- 09 and there was no loss to the revenue even if Ld DCIT not would have appealed against the CIT (A) and it will merely be wastage of time of the revenue, the appellant and particularly the valuable time of appellant authority. That merely because the appellant has booked an income in some other head, and strictly not as mention on the IDS certificates issued by payer i.e. not according to the wishes of the payer of income, will not make any difference so far income has been recorded by the appellant company, even if in some other head and there is no concealment.” 4. The brief facts of the case are that assessee is a company engaged in the business of retailing of coffee and food items. It filed its return of income on 28.11.2003 declaring loss of Rs. 189538683/-. Consequently, assessment was made u/s 143(3) on 20.03.2006 at a loss of Rs. 172637210/-. Subsequently, the case was reopened by notice u/s 148 issued and served upon the assessee on 22.03.2010. The reasons recorded for reopening are produced at para No. 2 of the Assessment order. According to the reason the claim of the assessee u/s 35D of the Income Tax Act amounting to Rs. 1736502/- is not allowable as no new industrial undertaking had been set ACIT V Barista Coffee co Ltd ITA No 5324/Del/2012 A Y 2003-04 Barista Coffee Co Ltd V ACIT Co No 461/ del /2012

Page 3 of 9 up. The another issue was that the assessee has claimed TDS of Rs. 580906/- on its receipt from rent, interest, advertisement etc. however, the rental income shown works out to Rs. 2829976/- has not been offered for taxation. Subsequently, the assessment u/s 143(3) of the Act read with Section 147 of the Act was framed on 06.12.2010 wherein the above two additions were made and total loss was assessed of Rs. 168070732/- against the assessed loss u/s 143(3) of Rs. 172637210/-. The assessee being aggrieved with that preferred an appeal before the ld CIT(A) on both the counts. The ld CIT(A) confirmed the action of disallowance u/s 35D of the Act of Rs. 1736502/- and deleted the addition on account of non disclosure of income of rent etc. of Rs. 2829878/-. In view of this both the parties are in appeal before us. 5. Before us the original grounds were requested to be amended by the assessee submitting that the assessee challenges the issue of reopening before us. For the same the assessee has submitted an application wherein jurisdictional ground has been raised as under:- “That on the basis of cursory look to reason recorded u/s 148 of the Act, as filed in assessee’s paper book page 44 already filed on records, the instant reopening made after expiry of four years from the ends of the relevant assessment year, without any fresh information coming on records post completion of earlier regular assessment u/s 143(3) of the Act, required to be annulled being contrary to law, as espoused in latest Delhi High court in case of Orient Craft 354 ITR 536.” 6. Before us the ld AR of the appellant submitted that the ground raised by the assessee is purely legal ground which can be raised and considered at any time and no fresh facts are required to be adduced and hence, he pressed for admission of the same. 7. The ld DR against this submitted that this ground cannot be admitted now as it was not raised before the ld CIT(A) and assessee itself has conceded that disallowance u/s 35D is proper. Therefore, he vehemently opposed the additional grounds of appeal. 8. We have carefully considered the rival contentions. As the ground raised by the appellant is purely legal in nature challenging the jurisdiction against

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Page 4 of 9 reopening of the assessment and no further facts are required to be considered for the same, we are of the view that the assessee is entitled to get this ground adjudicated. Therefore, we admit the same. 9. As the new ground taken by the assessee is ground against the jurisdiction assumed by the Assessing Officer we proceed to decide it first. 10. The ld AR submitted that the reopening has been done on appreciation of the same facts and no new tangible material has come into possession of the assessee and therefore, reopening is bad in law. He further submitted that during the course of assessment proceedings the assessee was specifically asked by question No. 23 of the notice dated 30.08.2005 about reconciliation of TDS with the receipt. Regarding deduction u/s 35D he referred to the letter dated 20/1/2006 at page no 43 of the paper book. He further submitted that total reassessment proceedings have been initiated on reappraisal of same facts and evidences which were there at the time of original assessment. He further relied on various decisions of Hon’ble Delhi High Court for this proposition. He further submitted that the ld Assessing Officer has not stated what is the failure on the part of assessee to disclose fully and truly any material facts necessary for assessment. 11. Ld DR submitted that assessee himself has admitted that deduction u/s 35D of the Act is not allowable to the assessee therefore, there is a failure on the part of the assessee to disclose these facts 12. We have carefully considered the rival contentions. The original assessment u/s 143(3) of the Act was completed on 20.03.2006 and notice u/s 148 has been issued on 22.03.2010 for reopening of assessment. The reasons recorded by the AO is as under:- “ The return of income for the AY 2003-04 was filed on 28.11.2003 declaring loss of Rs. 189538638/- and subsequently assessed u/s 143(3) dated 20.03.2006 at a loss of Rs. 172637210/-. On perusal of the asstt. Records and computation of income, it reveals that the assessee had written off share issue expenses u/s 35D amounting to Rs. 1736502/-. This amount had been written off out of Rs. 8682514/- incurred during the financial year 2001-02 on account of placement of shares allotted to the company. However, since the ACIT V Barista Coffee co Ltd ITA No 5324/Del/2012 A Y 2003-04 Barista Coffee Co Ltd V ACIT Co No 461/ del /2012

Page 5 of 9 amount was incurred after commencement of assessee’s business and the assessee being retailer of coffee and foods items, and no new industrial undertaking had been set up or expanded, hence, the assessee is not entitled to deduct u/s 35D of the Act. Further, the assessee had claimed and allowed TDs amounting to Rs. 580906/- from its receipt of intt rent advertisement and contract. On perusal of the P&L A/cs of the assessee, it is noticed that the assessee had shown interest income of Rs. 2455504/- only, whereas as per TDS certificate (Forms 16A) total contractual receipt from rent, advertisement and contractual works out of Rs. 2829976/- was not taken into account and not offered for tax. In view of the above, I have reason to believe that an amount to the extent mentioned above chargeable to tax has escaped assessment for the assessment year 2003-04 and hence, clearly attracts the provisions of clause (b) of Explanation 2 to section 147 of the Income Tax Act.” 13. Regarding the claim of the assessee under section 35D of the act was explained wide letter dated 20 of January 2006 by the assessee in the original assessment proceedings. The assessee explained that a sum of Rs. 8 682514/-has been incurred during the financial year 2001 – 2002 on account of placement of 52 lakh shares allotted the amount spent is Rs. 86.82 lakhs which is within 5% as laid down under section 35D (3). Therefore in assessment year 2002 – 03 assessee has claimed 1/5 of such expenditure amounting to Rs. 17.36 Lacs. On reading of this letter it is apparent that assessee has explained its claim to the assessing officer during the course of assessment proceedings. On the 2nd issue of reconciliation of tax deduction at source which income shown by the assessee has also been specifically examined by the assessee in the original assessment proceedings vide question No. 23 of the notice dated 30.08.2005 about reconciliation of TDS with the receipt. This fact has not been disputed by the revenue that both these claims have been examined by the assessing officer during the original assessment proceedings which culminated into an assessment under section 143 (3) dated 20/03/2006. On reading of the reasons recorded by the assessing officer for reopening of the assessment it is stated that he proposes to reopen the case of the assessee on perusal of the same assessment records and computation of income. He does not refer to any material which has a live link with the reasons recorded. Honorable ACIT V Barista Coffee co Ltd ITA No 5324/Del/2012 A Y 2003-04 Barista Coffee Co Ltd V ACIT Co No 461/ del /2012

Page 6 of 9 Delhi high court in Indulta Rangwala V DCIT 384 ITR 337 (del ) has culled out the following principles on reopening of assessment as under :- “ 35.1 The upshot of the above discussion is that where the return initially filed is processed under section 143(1) of the Act, and an intimation is sent to an assessee, it is not an "assessment" in the strict sense of the term for the purposes of section 147 of the Act. In other words, in such event, there is no occasion for the Assessing Officer to form an opinion after examining the documents enclosed with the return whether in the form of balance- sheet, audited accounts, tax audit report etc. 35.2 The first proviso to section 147 of the Act applies only (i) where the initial assessment is under section 143(3) of the Act and (ii) where such reopening is sought to be done after the expiry of four years from the end of the relevant assessment year. In other words, the requirement in the first proviso to section 147 of there having to be a failure on the part of the assessee "to disclose fully and truly all material facts" does not at all apply where the initial return has been processed under section 143(1) of the Act. 35.3 As explained in Rajesh Jhaveri Stock Brokers (P.) Ltd. (supra) "an intimation issued under section 143(1) can be subjected to proceedings for reopening", "so long as the ingredients of section 147 are fulfilled". 35.4 Explanation 2(b) below section 147 states that for the purposes of section 147, where a return of income has been furnished by the asses see but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income and claimed excessive loss, deduction, allowance and relief in the return then that "shall also be deemed to be a case where the income chargeable to tax has escaped assessment". 35.5 As explained by the Supreme Court in Rajesh Jhaveri Stock Bro kers P. Ltd. (supra) and reiterated by it in Zuari Estate Development and Investment Co. Ltd. (supra) an intimation under section 143(1)(a) cannot be treated to be an order of assessment. There being no assessment under section 143(1)(a), the question of change of opinion does not arise. 35.6 Whereas in a case where the initial assessment order is under section 143(3), and it is sought to be reopened within four years from the expiry of the relevant assessment year, the Assessing Officer has to base his "reasons to believe" that income has escaped assessment on some fresh tangible material that provides the nexus or link to the formation of such belief. In a case where the initial return is processed under section 143(1) of the Act and an intimation is sent to the assessee, the reopening of such assessment no doubt requires the Assessing Officer to form reasons to believe that income has escaped assessment, but such reasons do not require any fresh tangible material. 35.7 In other words, where reopening is sought of an assessment in a situation where the initial return is processed under section 143(1) of the Act, the Assessing Officer can form reasons to believe that income has escaped assessment by examining the very return and/or the documents accompanying the return. It is not necessary in such a case for the Assessing Officer to come across some fresh tangible material to form "reasons to believe" that income has escaped assessment. 35.8 In the assessment proceedings pursuant to such reopening, it will be open to the assessee to contest the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not

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Page 7 of 9 relevant for the formation of the belief that income chargeable to tax has escaped assessment. 35.9 The decisions of this court and other courts to the extent inconsistent with the above decisions of the Supreme Court cannot be said to reflect the correct legal position.” (italics, bold and underline supplied by us) 14. In the above decision Hon’ble Delhi High Court has held that wherein the case initial assessment order is under section 143 (3) and if assessing officer wants to reopen the case of the assessee then assessing officer has to base his ‘reason to believe’ on some fresh tangible material that provides nexus and live link to the formation of such reason. Similar view has also been expressed by Honourable Delhi High court in Priya desh Gupta V DCIT 385 ITR 452 (Del) as under:- “14. In this context, it is relevant to refer to the decision of a Full Bench of this court in CIT v. Usha International Ltd. [2012] 348 ITR 485 (Delhi) [FB] had held as under (page 496) : "Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons." 15. Following the aforesaid decision, a Division Bench of this court in Maruti Suzuki India Ltd. v. Deputy CIT [2013] 356 ITR 209 (Delhi) had explained that in cases where no query is raised, it must be held that the Assessing Officer had examined the subject matter even though there may not be any discussion in the assessment order. The court had referred to the decision in Usha International (supra) and observed as under (page 216) : "It is apparent from the above extract that even in cases where no query is raised by the Assessing Officer in the course of the original assessment proceedings it may yet be held that the Assessing Officer had examined the subject matter. This is so because the aspect or question in issue may be too apparent and obvious. However, the Full Bench cautioned by stating that such cases would have to be exam ined individually. It is, therefore, clear that even where no query is raised by the Assessing Officer and there is no discussion in the assessment order, it may yet be a case where the Assessing Officer would be considered to have examined the issue. However, we are not concerned with those type of cases inasmuch as in the present case the Assessing Officer had clearly raised a specific query with regard to bad debts/advances written off and the petitioner/assessee had given details in respect thereof. It is obvious that since no such addition was made on that count, the Assessing Officer had consi dered and examined the position and held in favour of the petitioner/ assessee. Therefore, we can safely conclude that, in the facts and cir cumstances of ACIT V Barista Coffee co Ltd ITA No 5324/Del/2012 A Y 2003-04 Barista Coffee Co Ltd V ACIT Co No 461/ del /2012

Page 8 of 9 the present case, the Assessing Officer had, indeed, examined the issue at the time of the original assessment proceedings and had formed an opinion by not making any addition in respect thereof. Thus, the reopening of the assessment which had been con cluded on March 13, 2006, would be nothing but a mere change of opinion." 16. A similar view was expressed by the Supreme Court in CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC), wherein it authoritatively held that a mere change of opinion cannot be a reason to reopen assessments. The relevant extract from the said decision is as under (page 564) : "On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amend ment) Act, 1987, reopening could be done under the above two conditions and fulfillment of the said conditions alone conferred juris diction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from April 1, 1989), they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post April 1, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words 'reason to believe' failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre- condition and if the concept of 'change of opinion' is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the Assessing Officer. Hence, after April 1, 1989, the Assessing Officer has power to re- open, provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words 'reason to believe' but also inserted the word 'opinion' in section 147 of the Act. However, on receipt of representations from the companies against omission of the words 'reason to believe', Parliament re- introduced the said expres sion and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer." 17. In Andhra Bank Ltd. v. CIT [1997] 225 ITR 447 (SC), the Supreme Court held that once the Income-tax Officer had passed an order after taking into account the relevant facts, it was not open for his successor to reopen the assessment at a later point of time. The relevant extract of the said decision reads as under (page 450) : "The facts stated above clearly disclose that the Income-tax Officer allowed the change in the method of accounting for the assessment years concerned herein knowingly. It was not a case of an inadvertent mistake which was discovered later on after completion of the assessment or oversight. Once it is found that the change in the method of accounting was knowingly allowed by the Income-tax Officer after taking into account all the relevant facts it is not per missible for the Income-tax Officer, or his successor, to reopen the assessment at a later point of time under section 147(b) of the Income-tax Act unless any information comes from an extraneous source. ACIT V Barista Coffee co Ltd ITA No 5324/Del/2012 A Y 2003-04 Barista Coffee Co Ltd V ACIT Co No 461/ del /2012

Page 9 of 9 Further, we fail to see what is the 'information' available to the Income-tax Officer in this case on the basis of which he is seeking to reopen the assessments under clause (b) of section 147. We find none. Indeed, this appears to be a case of mere change of opinion. The principles enunciated in Kalyanji Mavji's case [1976] 102 ITR 287 (SC) cannot save the impugned action of the Income-tax Officer."

ACIT V Barista Coffee co Ltd ITA No 5324/Del/2012 A Y 2003-04 Barista Coffee Co Ltd V ACIT Co No 461/ del /2012