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Income Tax Appellate Tribunal, ‘C’ BENCH: BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN & SHRI INTURI RAMA RAO
O R D E R
Per INTURI RAMA RAO, AM :
This is an appeal filed by the assessee directed against the order of the CIT(A)-III, Bangalore, dated 1/3/2013 for the assessment year 2007-08.
The assessee raised the following the grounds of appeal: 1. “The order of the authorities below in so far as it is against the appellant is opposed to law, facts, equity, weight of evidence, probabilities and circumstances of the case.
Page 2 of 8 2. The learned authorities below are not justified in determining the income at Rs. 3,36,20,420/- as against the returned income of Rs. 2,26,83,229/- on the facts and circumstances of the case.
The learned CIT (A)-III erred in upholding the order of the learned DCIT even when the order passed by the Learned DCIT is bad in law as the notice u/s 148 was issued without having any cogent evidence of escapement of Income in his possession, but merely on the suspicion. It is submitted that mere suspicion is not a ground for issue of notice under section 148. Reliance is placed on the decision of Supreme Court in CIT Vs Kelvinator of India Ltd 320 ITR 561 and CIT Vs Mahesh Gum & Oil Industries. 292 ITR 397.
4. The Hon'ble CIT (A) erred in confirming the action of the learned Deputy Commissioner of Income-tax erred in issuing the notice u/s 148 which was without proper jurisdiction on the facts and circumstances of the case.
5. The Hon'ble CIT(A)-III erred in upholding the order ignoring the fact that the order of assessment passed by the Assessing Officer is barred by limitations as the same has not been completed within the time specified u/s 153 of the Income-tax Act, 1961.
6. The learned authorities below erred in not allowing business loss of Rs.1,22,91,930/- on facts and circumstances of the case. The appellant incurred business loss, which is available for set off and the same has been set off, which the AO has disallowed holding it as not genuine. The Closing stock of the previous year automatically becomes the Opening Stock of the next year and having accepted the closing stock as on 31.03.2006, the AO is precluded from doubting the Opening Stock value as on 1.4.2006. Reliance is placed on the decision of the Allahabad High Court in 278 ITR 213 and Supreme Court decision in 240 ITR 355.
7. The learned authorities below erred in allocating the total sale consideration received on the sale of property between Land and Building without considering the depreciation. The guidance value of the building has been ascertained without considering the depreciation on the building.
Page 3 of 8 8. The appellant craves leave to add, alter, amend, substitute, change, delete any of the grounds of appeal
9. For the above and other grounds that may be urged at the time of hearing of the appeal, the appellant prays that the appeals may be allowed and justice rendered.
3. Briefly, facts of the case are that the assessee is a company duly incorporated under the provisions of the Companies Act, 1956. It was incorporated for the purpose of carrying business of granite extraction and export. Return of income for the assessment year 2007-08 was filed on 28/03/2008 declaring income of Rs.2,26,83,229/-. Against said return of income, assessment was completed u/s 143(3) r.w.s. 147 of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] vide order dated 31/12/2010 at a total income of Rs.3,36,20,420/-. While doing so, the Assessing Officer [AO] had not allowed set off of business loss of Rs.1,22,91,930/- against capital gains arising out of sale of land and buildings during the previous year relevant to assessment year under consideration. The AO denied the benefit of set off of business loss against capital gains on the ground that the assessee-company had not carried on any business during the previous year relevant to assessment year under consideration. To come to this conclusion, the AO had taken into consideration the fact that the assessee-company had not filed return of income for the preceding several years and also taken note of the fact that the Page 4 of 8 assessee-company was barred from quarrying business due to imposition of ban by the Government of Karnataka etc.
Being aggrieved by this assessment order, appeal was preferred before the CIT(A) contending inter alia that assumption of jurisdiction u/s 148 is invalid on the ground that re-assessment was on the ground that re-assessment proceedings were assumed only on the ground of suspicion and there are no reason to believe that income escaped assessment and the assessment order passed was barred by limitation. The above contention of the assessee-company was rejected by the CIT(A) by passing a reasoned order vide para.5.2 which reads as under: “5.2. I have carefully considered the issue. I find that the AO had duly recorded reasons and these were based on information collected by him in the course of his official duties. As per this information, there was reason to believe that income had escaped assessment within the meaning of section 147 since set off of business losses against income from capital gains for the assessment year 2007-08 had been claimed without filing returns for several previous financial years. In these circumstances, I do not find any credibility in the objections raised by the appellant. This ground of appeal is accordingly dismissed. ” The contention of the assessee-company that it had carried on business during the previous year has also been rejected by the CIT(A) vide para.6.1 as under:
“6.1. I find that before me also, the appellant could not adduce any independent evidence of the existence and valuation of the stock in question. Even the particulars of valuers and the method used could not be provided. In view of these circumstances, I do not find the action of the AO to be Page 5 of 8 without merits. The appellant has completely declined to own up to its responsibility and onus to prove the existence and valuation of the stock in question. Accordingly, the grounds raised by the appellant on these issues are without merits and the same are dismissed. ”
Being aggrieved, assessee-company is in further appeal before us in the present appeal. 5.1 The learned counsel for the assessee argued that the re- assessment proceedings initiated by the AO are bad in law for the reason that the re-assessment proceedings were initiated during the course of pendency of the original proceedings and barred by time. There are no reasons to believe that income escaped assessment from tax and the re-assessment proceedings were initiated merely on change of opinion and suspicion. In this connection, learned counsel for the assessee relied on the decision of the Hon’ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd. (320 ITR 561). 5.2 On the other hand, learned Departmental Representative heavily relied on the orders of the lower authorities.
We heard rival submissions and perused the material on record. At the first instance, we shall deal with grounds of appeal challenging the very validity of re-assessment proceedings. The contention of the assessee-company that the re-assessment proceedings were initiated during pendency of the original proceedings cannot be accepted, as the facts emerge from the assessment order, the original return of income was filed
Page 6 of 8 on 28/3/2008 and therefore, notice u/s 143(2) should have been issued by 31/3/2009. Obviously, there was no notice issued u/s 143(2) against original return of income. Notice u/s 148 was issued on 21/12/2009 on which date admittedly there was no pending proceedings. Therefore, the contention of the assessee- company that the re-assessment proceedings were initiated during the course of pendency of the original assessment is bald without any substance and devoid of any merit and therefore, dismissed as such.
6.1 As regards other contention that there was no reason to believe that income got escaped assessment and the re- assessment proceedings were assumed merely on the basis of suspicion. From the reasons recorded, it is clear that the AO had information that no return of income has been filed for several assessment years and this fact goes to show that there was no business activity carried on by the assessee-company. Obviously, this information could have enabled the AO to believe that no business was carried on by the assessee-company so as to entitled it to business loss which could be set off against capital gains. In our considered opinion, this information would have enabled the AO to believe that income got escaped assessment. It is also trite law that at the time of issuing notice, it is not incumbent upon the AO to prove conclusively that there is escapement of income. Reliance can be had to the decision of the Hon’ble Apex Court in the case of Phool Chand Bajrang Lal v. ITO
Page 7 of 8 (1993) 203 ITR 456 (SC) and Raymond Woollen Mills Ltd. vs ITO & others (1999)236 ITR 34. The contention of the assessee- company that re-assessment proceedings were prompted by mere change of opinion cannot be accepted as in the present case, there was no opinion formed by the AO as the original assessment came to be completed u/s 143(1) of the Act. Reliance placed by the learned counsel for the assessee on Kelvinator of India Ltd. (supra) is misplaced. 6.2 The contention raised by the assessee-company that the assessment order passed is barred by limitation cannot be accepted as the assessee-company merely raised a bald claim without demonstrating before us as to how it is barred by limitation. Hence, this contention is also rejected. 6.3 In the result, grounds challenging re-assessment proceedings are dismissed.
As regards merits of the addition, the assessee-company has not brought any evidence in support of the contention that the assessee-company had undertaken any business activity during the previous year relevant to assessment year under consideration. The findings of the AO that sales tax bills or invoices and transport details plus details of granites extracted were not produced, has not been controverted by the assessee- company either before the CIT(A) or before us. In the result, it cannot be accepted that the assessee-company is engaged in the business activity during the previous year relevant to assessment
Page 8 of 8 year under consideration. Therefore, business loss returned can neither be accepted nor can it be allowed to be set off against capital gains. As regards, grounds relating to bifurcation of consideration between land and buildings, assessee-company had not demonstrated before us as to how the working done by the AO is wrong. Therefore, we do not find any reason to interfere with order of CIT(A).
In the result, the appeal filed by the assessee is dismissed.