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Income Tax Appellate Tribunal, MUMBAI BENCHES, ‘G’ MUMBAI
Before: Shri Joginder Singh, & Shri Manoj Kumar Aggarwal
आदेश / O R D E R
Per Joginder Singh(Judicial Member) This bunch of three appeals, is by the assessee, against the impugned orders dated 01/06/2016 (for Assessment Year 2010-11) and 02/06/2016 (for Assessment Year 2007-08 & 2008-09) of the Ld. First Appellate Authority, Mumbai.
First, we shall take up the appeal in (Assessment Year 2010-11), wherein, first ground raised by the assessee pertains to confirming the addition of Rs.7,98,205/- as undisclosed sales on account of difference in closing stock of previous year and opening stock of current year. During hearing, the crux of arguments, advanced by ld. counsel for the assessee, Shri Harish Bhatt, is that the Ld. First Appellate Authority did not appreciate the fact that the stock items were excisable and the same were tallying with the excise record, whereas, the mistake was committed while giving the stock data as per the Tally Software, which was not updated for stock. It was pointed out that this mistake was even confirmed by the Assessing Officer in his remand report and agreed that the correct stock is reported as opening stock. The ld. counsel further explained that there was no different in the value and it was merely a quantity error in earlier Assessment Year. On the other hand, the ld. DR, Ms. Anupama Singla, defended the addition made by the ld. Assessing Officer and confirmed by the Ld. Commissioner of Income Tax (Appeal).
2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee deals in cocoa and cocoa products. The assessee furnished the details of opening stock totaling Rs.42,05,128/-, which was compared by the Assessing Officer with the assessment record of Assessment Year 2009-10 and some difference in quantities was found. The ld. Assessing Officer, thus, made addition of Rs.7,98,205/-. The assessee carried the matter in appeal before the Ld. Commissioner of Income Tax (Appeal), there also, the addition was affirmed. The assessee is in further appeal before this Tribunal.
2.2. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, there is no dispute to the fact that there was some error in the quantity of earlier Assessment Year, which as per the assessee, occurred due to non-updation of Tally Software, resulted in to discrepancy in closing stock as on 31/03/2009 and opening stock as on 01/04/2009. As per the Revenue, the assessee disclosed closing stock of cocoa powder, GP-100 as 400 kg. valued at Rs.1,97,640/- as on 31/03/2009 and in the opening stock, this quantity was absent. The difference of 125 kg valued at the rate of 81.64 per kg amounting to Rs.10,205 was treated as undisclosed purchase out of books and thus consequent addition of Rs.9,98,205/- on account of discrepancies was made. Before the Ld. Commissioner of Income Tax (Appeal), the assessee furnished certain fresh evidences, which were remanded back to the file of the Ld. Assessing Officer. During remand proceedings, the assessee vide letter dated 23/12/2014, submitted the details like copy of ledger of cocoa powder GP-250 and GP-100 for Financial Year 2008- 09 and 2009-10 along with copy of purchase and sales invoices of cocoa powder GP-100 for Assessment Year 2008- 09 and 2009-10 along with the relevant pages of register maintained in form RG-23D under Rule 52AA maintained as purchase and sale register for Central Excise Department and the copy of the audit report from the office of Central Excise. On perusal of this details, the same were found tallying as per the claim of the assessee regarding the sales made during the Financial Year 2009-10 as submitted the during the assessment proceedings for Assessment Year 2010-11. In reply to the remand report, the assessee again took the plea that the item wise closing stock was wrongly submitted during assessment proceedings for Assessment Year 2009-10 and the correct itemwise closing stock is as per the opening stock submitted during assessment proceedings for Assessment Year 2010-11 and the purchases of GP-100 were sold in Financial Year 2008-09 itself. We find that, value wise closing stock as on 31/03/2009 was similar to opening stock of 01/04/2009 and it was merely a error, which either inadvertently occurred due to non-updation of the software. Otherwise, valuewise, there is no difference, therefore, this ground of the assessee is allowed.
So far as next ground i.e. ground no.2 & 3 with respect to commission paid to Shri Harish Kothari, husband of the assessee, amounting to Rs.5,85,500/- and Rs.5,25,000/- to Mr. Nagesh Hatim, employee of the assessee, is concerned, it was explained by the ld. counsel that the commission was paid out of commercial expediency and not to evade the tax. It was contended that Shri Harish Kothari, is in the business of manufacturing of bulk chocolates and the commission was paid for procuring business to the assessee. The commission was claimed to be made through account payee cheque, subjected to TDS and the same was disclosed in the return of income. On the other hand, the ld. DR, defended the addition.
3.1. We have considered the rival submissions and perused the material available on record. The addition was made of Rs.5,85,500/- as commission was paid to Mr. Harish Kothari, who is husband of the assessee. The commission was paid out of business expediency and further was made through banking channel. The statement of husband was recorded who confirmed of getting the commission. The husband of the assessee duly declared the commission in his return and paid taxes thereon, thus, there is no loss to the Revenue. Even the Ld. Assessing Officer has not denied the factum of payment of commission. It was merely a business transaction, thus, this ground of the assessee is allowed. Identical is the situation in the case of payment of commission amounting to Rs.5,25,000/- to Mr. Nagesh Hatim, employee of the assessee. The amount was paid through banking channel and even during recording of statement, Mr. Hatim accepted that he received the commission. The payment of commission was for business expediency, thus, the payment of commission to the employee is also found to be genuine, therefore, both these grounds are allowed. Thus, this appeal of the assessee is allowed.
For Assessment Year 2007-08 and 2008-09, the assessee has challenged reopening of assessment u/s 147/148 of the Act on the ground that the Assessing Officer did not provide the reasons of reopening in spite of asking for the same. The ld. counsel invited our attention to the letter dated 25/01/2013, filed with the office of the Ld. DCIT, Ward-23(2) on 28/01/2013. Reliance was placed upon the decision in in GKN DRIVESHAFTS (INDIA) LTD. vs. INCOME TAX OFFICER & ORS. 259 ITR 19 (SC). This factual matrix was not controverted by the Revenue. However, the ld. DR, defended the addition. Reliance was also placed upon the aforesaid decision by contending that non-supply of reasons is merely a technical default by the Assessing Officer. In reply, the ld. counsel for the assessee, relied upon the decision in CIT vs Trend Electronics, order dated 16/09/2015 (2015) 379 ITR 456 (Bom.) by contending that the decision in GNK Driveshafts (India) Ltd. was duly considered along with the decision in Videsh Sanchar Nigam Ltd. 340 ITR 66.
4.1. We have considered the rival submissions and perused the material available on record. Without going into much deliberation, we find that while framing the assessment, the assessee requested the Assessing Officer to supply the reasons of reopening and vide letter dated 25/01/2013 (filed on 28/01/2013), no reasons were supplied to the assessee and in the said letter, it was requested that return filed by the assessee u/s 139 of the Act on 10/06/2008 may be treated to be return filed in pursuance to notice u/s 148 of the Act. It is also noted that this letter of the assessee find mentions at page-2 of the assessment order, in which, the ld. Assessing Officer conveniently ignored the factum of request of the assessee to supply the reasons of reopening. In such a situation, the assessee gets shelter from the decision from Hon'ble jurisdictional High Court in the case of CIT vs Trend Electronics (Supra), wherein, it was held as under:-
“It was found that the impugned order merely applied the decision of the Apex Court in GNK Driveshafts (India) Ltd. Further it also followed the decision of this Court in Videsh Sanchanr Nigam Ltd. (supra) in holding that an order passed in reassessment proceedings was bad in law in the absence of reasons recorded for issuing a reopening notice under Section 148 of the Act being furnished to the assessee when sought for. It is axiomatic that power to reopen a completed assessment under the Act is an exceptional power and whenever revenue seeks to exercise such power, they must strictly comply with the prerequisite conditions viz. Reopening of reasons to indicate that the Assessing Officer had reason to believe that income chargeable to tax has escaped assessment which would warrant the reopening of an assessment.
These recorded reasons as laid down by the Apex Court must be furnished to the assessee when sought for so as to enable the assessee to object to the same before the Assessing Officer. Thus in the absence of reasons being furnished, when sought for would make an order passed on reassessment bad in law. The recording of reasons (which has been done in this case) and furnishing of the same has to be strictly complied with as it is a jurisdictional issue. This requirement is very salutary as it not only ensures reopening notices are not lightly issued. Besides in case the same have been issued on some misunderstanding/misconception, the assessee is given an opportunity to point out that the reasons to believe as recorded in the reasons do not warrant reopening before the reassessment proceedings are commenced. The Assessing Officer disposes of these objections and if satisfied with the objections, then the impugned reopening notice under Section 148 of the Act is dropped/withdrawn otherwise it is proceeded with further. In issues such as this, i.e. where jurisdictional issue is involved the same must be strictly complied with by the authority concerned and no question of knowledge being attributed on the basis of implication can arise.
(Para 8)
The order of the Tribunal only applied the settled position of law in allowing the respondent assessee's appeal. No substantial question of law arises. Accordingly appeal dismissed. (Paras 9, 10)
Conclusion :
Where assessee had sought for reasons for reopening notice from the AO but reasons were not furnished to the assessee before the completion of the reassessment proceedings then the reassessment proceedings were bad in law.”
In the aforesaid order, the Hon'ble jurisdictional High Court has clearly held that where assessee had sought for reasons for reopening notice from the Assessing Officer but reasons were not furnished to the assessee before the completion of the reassessment proceedings then the reassessment proceedings were bad in law. While coming to this conclusion, the Hon'ble Court duly considered the decision from Hon'ble Apex Court in GNK Driveshafts (India) Ltd. vs Income Tax Officer 259 ITR 19 (SC) and CIT vs Videsh Sanchar Nigam Ltd. 340 ITR 66. Uncontrovertedly, in spite of asking by the assessee, as mentioned earlier, no reasons were supplied to the assessee for reopening the assessee, thus, respectfully following the aforesaid decisions, the reassessment proceedings are held to be bad in law. Thus, both these appeals of the assessee are allowed.
Finally, the appeals of the assessee are allowed.
This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 06/02/2017.
Sd/- Sd/- (Manoj Kumar Aggarwal) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य /JUDICIAL MEMBER मुंबई Mubai; �दनांक Dated : 06/02/2017 f{x~{tÜ? P.S/.�न.स. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant (Respective assessee) 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai, 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR,