DCIT 24(3), MUMBAI vs. GUNDECHA BUILDERS, MUMBAI

Brief facts of the case are that the assessee filed its return of income for the assessment year 2006-07 on 31.10.2006, declaring the total income of Rs. 10,20,41,920/- after claiming deduction u/s 80IB(10) of Rs. 25,94,15,537/-. The assessment was completed u/s 143(3) of the Act, determining the total income of Rs. 11,12,30,910/-. After the expiry of four years AO initiated re-assessment proceeding u/s 147 of the Act and notice u/s 148 of the Act was issued on 28.02.2013. The assessee after receiving the copy of reasons recorded, filed return of income and also filed objections against the initiation of the proceedings. However, the AO without passing any speaking order proceeded further. As per the reasons recorded during the year under consideration assessee had claimed solicitors fees paid to Chitnis Vaithy & Co. amounting to Rs. 11,00,000/- and an amount of Rs. 8,39,475/- on account of professional charges paid to M.R.Patil Consulting. On perusal of the bill it was noticed that the same was not allowable in the assessment year under consideration. Moreover, on both these amounts, the assessee had not deducted TDS. Since the assessee’s income for Asst. Year 2006-07 has been escaped assessment in respect of above two payments, proceedings u/s 147

The assessee challenged the assessment order inter alia raising the following legal grounds that re-opening of assessment u/s 147 after the expiry of 4 years is bad in law when the appellant/assessee discloed all the particulars fully and truly, reassessment order cannot be passed without passing speaking order on objection filed by the assessee, reassessment proceeding cannot be initiated on the basis of Audit objection by the revenue audit team, proceeding u/s 148 cannot be initiated to review the earlier opinion, reassessment proceeding cannot be initiated for making fresh enquiry or verification that earlier deduction was rightly allowed or no and the assessing officerhas no power to reassess those matters which are already subject matter of appeal before the higher authority. The Ld. CIT(A) after hearing the assessee dismissed the legal grounds raised by the assessee, however allowed some of the other grounds and accordingly partly allowed the appeal of the assessee.

The revenue has challenged the impugned order on the following effective grounds of appeal:-

On the other hand the assessee has filed cross objection against the order of the Ld. Commissioner of Income Tax (A)– 34, Mumbai, raising the following effective grounds :

Since, the assessee has raised the legal grounds in its cross objection, we heard the assessee on the said grounds. Before us the Ld. Counsel for the assessee vehemently reiterated the stand taken before the authorities below and submitted that reopening of assessment u/s 147 of the Act after expiry of four years is bad in law when the appellant disclosed all the particulars fully and truly. The assessment can only be reopened after four years in case of 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 u/s 139 or in response to a notice issued under sub section (1) of Section 142 or Section 148 or 2 disclosed fully and truly all material facts necessary for his assessment for that assessment year. Since the AO has not pointed out any failure on the part of the assessee the reassessment is bad in law. The Ld. Counsel further submitted that as per the law laid down by Hon’ble Supreme Court in GKN Driveshaft (India) Ltd. Vs. ITO 259 ITR 19, reassessment order cannot be passed without passing speaking order on objection filed by the assessee. In the present case, the reopening of the assessment has been done in violation of the ratio laid down by the Hon’ble Supreme Court in the aforesaid case. The Ld. Counsel further

On the other hand the Learned Departmental Representative (DR) relying on the findings of Ld. CIT (A) on the legal grounds raised, submitted that since the AO had reason to believe that income chargeable to tax in this case has escaped assessment, AO had rightly initiated proceedings u/s 147 of the Act and Ld. CIT (A) has rightly confirmed the action of the AO. Therefore, there is no reason to interfere with the findings of the Ld. CIT(A) so far as the legal grounds raised by the assessee are concerned.

We have heard the rival submissions and also perused the documents placed on record. It is an admitted fact that proceedings under section 147 of the Act, in this case has been done after the expiry of four years from the end of the relevant assessment year. As per section 147, if the AO has reason to believe that any income chargeable to tax has escaped assessment he may assess or re-assess 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 provided that where an assessment under sub section (3) of section 143 or section 147 has been made for the relevant assessment year, no action shall be taken under section 147 after expiry of four years from the end of the relevant assessment years 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 u/s 139 or in response to notice issued u/s 142 (1) or section 148 or to

We noticed that in the present case the AO has not pointed out any failure on the part of the assessee in making disclosure fully and truly all material facts necessary for the assessment, which is a condition precedent for exercising jurisdiction u/s 147 of the Act. The relevant portion of the reasons recorded for reopening of assessment reads as under:- “In this case, the assessee filed return of income on 31.10.2006, declaring total income at Rs. 10,20,41,920/- after claiming deduction u/s 80IB (10) of Rs. 25,94,15,537/-. The assessment u/s 143 (3) of the Act was completed on 18.12.2008 determining an income of Rs. 11,12,30,910/-. During the year under consideration, the assessee has debited Rs. 11,00,000/- as solicitors fees paid to Chitnis Vaithy and Co. on which no tax has been deducted. Therefore, the said amount has to be disallowed u/s 40 (a) (ia). Further, the assessee has debited profit and loss account with Rs. 8,39,475 as professional charges paid to Mr. Patil Consulting. On perusal of said bill, it is seen that the bill is dated 01.11.2004 and the same cannot be allowed to be claimed as expenses for the F.Y. 2005-06 relevant to A.Y. 2006-07. Moreover, no tax has been deducted on the payment of Rs. 8,39,475/- paid to Mr. Patil Consulting Engineers Pvt. Ltd. Hence, the same required to be disallowed u/s 40 (a) (ia) and added back to the total income of the assessee.”

From the contents of the reasons recorded aforesaid it cannot be inferred that there was any failure on the part of the assessee in disclosing full and true material facts necessary for his assessment for the assessment year under consideration. Hence, we find merit in the contention of the assessee that since there is no failure on the part of the assessee in disclosing all material facts fully and truly, the reopening is bad in law. We, therefore, hold that the action of reopening in this case is not in accordance with the expressed provisions of the Act.

The second issue raised by the Ld. Counsel for the assessee is that the AO has not followed the law laid down by the Hon’ble Supreme Court in GKN Driveshaft India Ltd. (supra) the reassessment order cannot be passed without passing speaking order on objection filed by the assessee. We notice that the assessee after receiving copy of reasons recorded filed return of income as well as objection of initiation of reassessment proceeding vide letter dated 25.04.2013. But the AO without passing any speaking order on objection filed by the assessee, proceeded further and passed order u/s 143 (3) r.w.s. 147 of the Act. So it is apparent that the AO has not followed the law laid down by the Hon’ble Supreme Court in the aforesaid case.

The third issue raised by the Ld. Counsel is regarding subjective satisfaction of the AO to the effect that any taxable income has escape assessment. The contention of the Ld. Counsel for the assessee is based on the ratio laid down by the Hon’ble Supreme Court in Adani Exports Vs. Dy. CIT 240 ITR 224, relevant portion of the judgment reads as under:- “It is true that satisfaction of the Assessing Officer for the purpose of reopening is subjective in character and the scope of judicial review is limited. When the reasons recorded show a nexus between the formation of belief and the escapement of income, a further inquiry about the adequacy or sufficiency in the material to reach such belief is not open to be scrutinized. However, it is always open to question existence of such belief on the ground that what has been stated is not correct state of affairs existing on record. Undoubtedly, in the case of record, burden lies, and heavily lies, on the petitioner who challenges it. If the petitioner is able to demonstrate that in fact the assessing officer did not have any reason to belie or did not hold such belief in good faith or the belief which is projected in papers is not belief held by him in fact, the exercise of authority conferring on such person would be ultra virus the provision of law and would be abuse of such authority.”

In the light of the said judgment reassessment proceedings cannot be initiated solely on the basis of audit objection by the revenue team. Further In CIT Vs. Lucas T.V.S. Ltd. 249 ITR 306, the Hon’ble Supreme Court has upheld the decisions of the Hon’ble High Court in which the High Court had quashed the reopening proceedings wherein apart from the information furnished by the audit party, the Income Tax Officer had not other information for reopening the assessment. In Indian and Eastern Newspaper Society Vs. CIT (1979) 119 ITR 996 (SC) the Hon’ble Supreme Court has held that audit objection cannot be the basis for reopening of assessment. In view of the facts and circumstances of the case and the law laid down by the Hon’ble Supreme Court and various High Courts, it can be concluded that in the present case the AO has exercised the jurisdiction u/s 147 without his own satisfaction, which is the condition precedent for initiating proceeding u/s 147 if the Act..

Further, we agree with the Ld. Counsel for the assessee that the proceedings u/s 148 cannot be initiated to review the earlier opinion. It is well settled law that when deduction u/s 80 IB (10) was allowed in original assessment after considering all the facts the same cannot be withdrawn by invoking section 147 of the Act. In this case, the AO had allowed the deduction in question in original assessment after considering all the facts and details submitted by the assessee. So far as Fees paid to Chitnis Vaithy & Co is concerned we notice that the assessee vide letter 18.03.2014 submitted the certificate dated 18.01.2001 issued by the said company TDS Ledger Account, Bank Payment voucher etc. to prove that the said company had provided solicitor for the project of the assessee company, it cannot be said that no tax has been deducted at source. As regards payment of Rs. 8,39,475/- made to M. R. Patil Consulting Engineering Ltd. there is merit in the assessee’s contention of the Ld. counsel that expenditure is

In view of the facts and circumstances of the case of the case and the discussion in the light of the settled law we hold that the reassessment proceedings u/s 147 initiated in this case is bad in law. We, therefore, hold the entire proceedings void ab initio. Since we have held the reassessment proceeding invalid the impugned order passed by the Ld. CIT (A) has become infructuous. Accordingly, we dismiss the appeal filed by the revenue in limine.

In the result, the appeal filed by the revenue is dismissed as infructuous and cross objection filed by the assessee for Asst. year 2006-07 is allowed.