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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI ABRAHAM P. GEORGE
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
The Revenue has filed the appeal against the order of the
Commissioner of Income Tax (Appeals)-15, Chennai, dated
25.05.2016 and pertains to assessment year 2007-08. The
assessee has also filed cross-objection against the very same order
2 I.T.A. No.2276/Mds/16 C.O. No.129/Mds/16 of the CIT(Appeals). Therefore, we heard both the appeal and the
cross-objection together and disposing of the same by this common
order.
The assessee raised an issue with regard to reopening of
assessment which goes to the root of the matter. Therefore, let’s
first take the cross-objection filed by the assessee.
Shri R. Sivaraman, the Ld.counsel for the assessee,
submitted that the assessment was originally completed by an order
dated 25.11.2011 after reopening. For the second time, the
Assessing Officer reopened the assessment by issuing a notice
under Section 148 of the Income-tax Act, 1961 (in short 'the Act') on
31.03.2014, after expiry of four years. According to the Ld. counsel,
immediate provocation of Department to reopen the assessment for
second time was the audit objection of the Department. Referring to
the audit objection, a copy of which is available at page 40 of the
paper-book, the Ld.counsel submitted that the assessee is in the
business of providing financial and marketing services in various
sectors. The audit party of the Department found that Road Safety
Club Pvt. Ltd. was in the business of selling safety cards. It was
also found that all expenses on salary, staff training, etc. were
3 I.T.A. No.2276/Mds/16 C.O. No.129/Mds/16 incurred by the assessee at various offices and reimbursed by Road
Safety Club Pvt. Ltd. The audit party ultimately found that an amount of `6,01,84,164/- has escaped assessment.
Referring to a reply filed by the assessee on 04.03.2014, a
copy of which is available at page 43 of the paper-book, the
Ld.counsel submitted that the Assessing Officer in categorical terms
replied to the audit wing of the Department that outsourcing some of
the activities of business is quite common in commercial practice.
In the balance sheet of Road Safety Club Pvt. Ltd., an amount of `6,01,84,164/- was reflected under the head “Other advances” and
it was not claimed as expenditure. The expenditure actually
incurred for services rendered by the assessee-company, has been
debited and appropriated against the advance received from Road
Safety Club Pvt. Ltd. in the books of the assessee-company. Since
it is a business arrangement between sister concerns to reimburse
the actual expenditure without any markup, the Department cannot
specify that such markup is necessary. The Assessing Officer has
also informed the audit wing that the observation made by the audit
wing is not correct and requested the audit wing to drop the audit
objection. After replying to the audit wing, the Assessing Officer has
4 I.T.A. No.2276/Mds/16 C.O. No.129/Mds/16 reopened the assessment by issuing notice under Section 148 of
the Act.
Referring to Section 147 of the Act, the Ld.counsel for the
assessee submitted that Section 147 clearly says that if the
Assessing Officer has reason to believe that income chargeable to
tax has escaped assessment for any assessment year, he may,
subject to provisions of Sections 148 to 153, assess or re-assess
such income and also any of the income chargeable to tax which
escaped assessment. In the case before us, the Assessing Officer
found that the audit objection raised by the audit wing is not correct
and it is only a reimbursement of expenditure. Therefore, it cannot
be said that there was reason to believe that any income
chargeable to tax has escaped assessment. Hence, according to
the Ld. counsel, the reopening itself is not correct, therefore, the
consequential assessment framed by the Assessing Officer cannot
stand in the eye of law.
On the contrary, Shri Asish Tripathy, the Ld. Departmental
Representative, submitted that the audit wing of the Department has
brought to the notice of the Assessing Officer that there was escapement of income to the extent of `6,01,84,164/-. Though the
5 I.T.A. No.2276/Mds/16 C.O. No.129/Mds/16 assessee claims that it was business arrangement between two
sister concerns, the audit party found that M/s Road Safety Club
Pvt. Ltd. is making reimbursement for the expenses incurred by the
assessee-company year after year. M/s Road Safety Club Pvt. Ltd.
has not deducted any tax towards payment made to the assessee-
company for the service rendered. The entire amount received by
the assessee-company was only for rendering service, therefore,
the entire sum has to be brought to tax. According to the Ld. D.R.,
the audit party of the Department is entitled to bring to the notice of
the Assessing Officer the facts of the case and also escapement of
income, therefore, the Assessing Officer has to apply his mind
independently and reopen the assessment. In this case also,
according to the Ld. D.R., after audit objection, the Assessing
Officer independently applied his mind to issue notice under Section
148 of the Act for reopening the assessment. On a query by the
Bench, the Ld. D.R. replied that even though initially the Assessing
Officer found that the audit objection is not correct, subsequently he
realized the mistake and issued notice under Section 148 of the Act.
Therefore, the reply filed by the Assessing Officer cannot be
construed that the Assessing Officer has not satisfied himself about
6 I.T.A. No.2276/Mds/16 C.O. No.129/Mds/16 the income escaped from assessment. Hence, according to the Ld.
D.R., the Assessing Officer has rightly reopened the assessment.
We have considered the rival submissions on either side and
perused the relevant material available on record. We have also
carefully gone through the provisions of Section 147 of the Act
which reads as follows:-
“If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and 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 recompute 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 facts 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
7 I.T.A. No.2276/Mds/16 C.O. No.129/Mds/16
India, chargeable to tax, has escaped assessment for any assessment year : Provided further 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. Explanation 1.— Production before the Assessing officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.— For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:-- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E ; (c) where an assessment has been made, but-- (i) income chargeable to tax has been under assessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or
8 I.T.A. No.2276/Mds/16 C.O. No.129/Mds/16
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. (d) where a person is found to have any asset (including financial interest in any entity) located outside India. Explanation 3.— For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. Explanation 4.— For the removal of doubts, it is hereby clarified that the provisions of this section, as amended, by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.”
For reopening assessment, it is mandatory that the
Assessing Officer has reason to believe that the income chargeable
to tax has escaped assessment. In the case before us, the audit
wing of the Department brought to the notice of the Assessing
Officer that an amount of `6,01,84,164/- escaped assessment.
Immediately after receipt of audit objection, the Assessing Officer
vide her letter dated 04.03.2014 informed the audit wing of the
Department that the entire work of Road Safety Club Pvt. Ltd. was
carried out by the assessee-company only is not correct. Enclosing
the Profit & Loss account of Road Safety Club Pvt. Ltd., the
Assessing Officer requested the audit wing of the Department to
9 I.T.A. No.2276/Mds/16 C.O. No.129/Mds/16 drop the audit objection. Therefore, it is obvious that the Assessing
Officer after applying his mind found that there was no escapement
of income. Subsequently, the Assessing Officer issued notice under
Section 148 of the Act for reopening the assessment. Therefore,
this Tribunal is of the considered opinion that the Assessing Officer
has not independently satisfied himself about the escapement of
income.
The proceeding before the Assessing Officer is a judicial
proceeding under Section 136 of the Act. Therefore, the reason to
believe that the income has escaped assessment has to be that of
the Assessing Officer and not that of any other officer of the
Department. In the case before us, the Assessing Officer came to a
conclusion after considering the audit objection, that there was no
escapement of income. Therefore, it cannot be said that the audit
wing of the Department has merely brought to the notice of the
Assessing Officer the fact of escapement of income. Once, the
Assessing Officer is not satisfied about escapement of income and
requested the audit wing to drop the proceeding, he cannot change
his mind subsequently and issue notice under Section 148 of the
Act for reopening assessment. No material is available on record to
suggest that the Assessing Officer reopened the assessment due to
10 I.T.A. No.2276/Mds/16 C.O. No.129/Mds/16 change of circumstances after the reply dated 04.03.2014 requesting the audit wing of the Department to drop the audit objection. In the absence of any material, this Tribunal is of the considered opinion that the reopening of assessment is not justified. Therefore, the consequential assessment order passed by the Assessing Officer cannot stand in the eye of law. Accordingly, the order of the Assessing Officer is quashed.
In view of the decision taken in the cross-objection filed by the assessee, it may not be necessary to go into the merit of the appeal filed by the Revenue. Accordingly, the appeal is dismissed.
In the result, the appeal filed by the Revenue is dismissed whereas, the cross-objection filed by the assessee stands allowed.
Order pronounced on 10th August, 2017 at Chennai.
Sd/- Sd/- (अ�ाहम पी.जॉज�) (एन.आर.एस. गणेशन) (Abraham P. George) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member चे�नई/Chennai, �दनांक/Dated, the 10th August, 2017.
Kri.
11 I.T.A. No.2276/Mds/16 C.O. No.129/Mds/16
आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A)-15, Chennai-34 4. आयकर आयु�त/CIT-6, Chennai-34 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.