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Income Tax Appellate Tribunal, A BENCH, CHENNAI
Before: SHRI MAHAVIR SINGH, HONBLE & SHRI S. R. RAGHUNATHA, HONBLE
आदेश /O R D E R
PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:
This appeal filed by the revenue and cross objection filed by the assessee aredirected against the order passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal
:-2-: ITA. No:1437/Chny/2024 & CO No: 46/Chny/2024 Centre (NFAC), Delhi, dated 07.03.2024 and pertains to assessment year 2009-10.
The revenue has raised the following grounds of appeal: 1. The order of the learned Commissioner of Income Tax (A) in dated 07/03/2024for the assessment year 2009-10 is erroneous in law, facts and circumstances of the case.
The learned CIT(A) has erred in deleting the disallowance made u/s.40(a)(ia) in respect of payment towards claim settlement under cashless scheme to Third Party Administrators(TPAs) by relying on the decision of the ITAT in the assessee's own case. The CIT(A) failed to note that the decision was not accepted by the department and filed further appeal with High Court, which is still pending.
For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT (A) may be set aside and that of the Assessing Officer be restored.
The appellant craves leave to add or amend any ground of appeal before it is finally disposed off.
3. The Assessee has raised the following grounds of Cross objections: “The cross objections stated herein are without prejudice to each other. Issue 1-Jurisdiction for reopening assessment
1. The order of the Learned Assessing Officer ('AO') is erroneous, bad in law and is wholly withoutjurisdiction.
2. The reassessment is without jurisdiction and time barred since the same was initiated after fouryears from the end of the relevant AY and there has been no failure on the part of Appellant todisclose fully and :-3-: ITA. No:1437/Chny/2024 & CO No: 46/Chny/2024 truly any material record information during the course of original assessment.
The Learned AO has erred in framing reassessment by forming a different opinion on the sameset of facts as were available to the Learned AO at the time of original assessment and therebyacting against the well settled law that change of opinion cannot be a basis for reassessment proceedings.
The reassessment proceeding is invalid, as the same was initiated merely based on auditobjections. The Cross Objector craves leave to add, substitute, amend, delete, or otherwise modify any of thegrounds of cross objection stated herein above before commencement of or at the time of hearing.”
The brief facts of the case are that the assessee is a company and filed its return of income for the A.Y.2009-10 on 29.09.2009 declaring a total income of Rs.5,82,72,087/- and Long Term Capital Gain of Rs.11,58,141/- thus a total income of Rs.5,94,30,228/-. The assessee is engaged in the business of General insurance and offers wide range of non-life insurance policies ranging from motor insurance, health, home, travel to accident, property, marine and engineering for individuals and corporate. The case was selected for scrutiny under CASS andnotice u/s. 143(2) was duly served on the assessee. The income was assessed vide order u/s.143(3) dated 28.03.2013. Subsequently, the case was reopened by issuing notice u/s.148 of the Act dated 28.03.2014. The income was again reassessed at Rs.24,58,77,167/- u/s.143(3) r.w.s.147 dated
:-4-: ITA. No:1437/Chny/2024 & CO No: 46/Chny/2024 30.12.2014. The AO found certain reason for which income has found to be escaping assessment. The reasons are:-
1. 1. Excess depreciation claim on Motor Cars 2. Certain payments made to M/s.Toyota Kirioskar Motor Private India Limited, M/s.Ashok Leyland Nissan for issuance of insurance policies through their dealer network. These payments were made for which no services were provided and also the payments are over and above the approved commissions as per the guidelines of IRDA. Hence these payments are to be disallowed and brought to tax.
3. Profit on sale of investments.
4. Amount paid to TPA Vendors like M/s.Paramount without deducting TDS andthese payments are to be disallowed u/s.40(a)(ia).
Subsequently, the assessment was reopened and notice u/s.148 dated 30/03/2016.The assessee company filed return on 07/12/16. The assessee requested reasons for reopening in response to the notice vide its letter dated 23/12/2016. Reasons for reopening the case were furnished to the assessee vide letter dated 18.12.2017. The assessee filed written submission vide its letter dated 19.12.2017 objecting to the reopening. The objection to reopening the case was heard and the same was disposed of vide speaking order dated 22.12.2017 by the AO. Thereafter, the case was heard on the merits of the case. After hearing the assessee, the AO has completed the assessment by making the following additions:
:-5-: ITA. No:1437/Chny/2024 & CO No: 46/Chny/2024 Income as per order dated 30/12/2014: Rs.24,58,77,167/- Add: (i) Disallowance of expenses Rs. 3,80,80,209/- (ii) Disallowance u/s. 40(a)(ia): Rs.21,05,37,722/- Assessed Income : Rs.49,44,95,098 Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld.CIT(A) and raised grounds both on legal issue of reopening of assessment beyond 4 years and also on merits.
The Ld.CIT(A), after hearing the assessee dismissed the ground of appeal raised on jurisdiction and allowed the appeal of the assessee by deleting the additions made by the AO on account of disallowance of expenses of Rs. 3,80,80,209/- and Disallowance u/s.40(a)(ia)of Rs.21,05,37,722/-. Aggrieved by the order of the ld.CIT(A), the revenue is before us and the assessee has filed a CO by questioning the jurisdiction of the AO for reopening the assessment beyond 4 years.
Since, the Assessee has raised legal issue of jurisdiction on reopening of assessment u/s.148 in cross objection, we adjudicate the legal issue first before going to the appeal of the Revenue on merits.
:-6-: ITA. No:1437/Chny/2024 & CO No: 46/Chny/2024 8. The Ld.AR of the assessee drew our attention to the following chart of date of events of assessment completed for the A.Y.2009- 10, which has been reopened for the second time by the AO.
Sec. Date Events Reference 142(1) 30/11/2012 Notice issued by AO during scrutiny Pg. 3–5 of assessment proceedings for AY 2009- Assessee’s PB 10 dt. 09.08.24 N/A 20/12/2012 Assessee’s reply to AO’s notice issued Pg. 6–8 of u/s 142(1) Assessee’s paperbook dt. 09.08.24 143(3) 28.03.2013 Scrutiny assessment completed by the AO Order para AO under s 143(3) for AY 2009-10 1 – Pg 1 148 28.03.2014 First reopening notice issued under AO Order para section 148 by the AO for AY 2009-10 1 – Pg 2 147 30.12.2014 First reopening assessment completed AO order para r.w.s by AO under s 147 r.w.s. 143(3) for AY 1 –Pg 2 143(3) 2009-10 148 30.03.2016 Second reopening notice issued under AO order para section 148 by the AO for AY 2009-10 3–Pg 2 148 18.12.2017 Reasons furnished for reopening of Filed assessment. separately in Reasons do not state what was the open court failure and which facts were not fully during hearing and truly not disclosed on 08.08.24 147 22.12.2017 Objections filed by the assessee AO order para disposed off by a speaking order 4 – Pg 2 147 28.12.2017 Second reopening assessment r.w.s completed by AO under s 147 r.w.s. 143(3) 143(3) for AY 2009-10 The Ld.AR submitted that the second reopening of assessment by the AO for AY 2009-10 vide issuance of notice dt.30.03.2016 u/s.148 of the Act is without jurisdiction and barred by limitation under the first proviso to section 147 of the Act.
:-7-: ITA. No:1437/Chny/2024 & CO No: 46/Chny/2024 8.1 Further, the Ld.AR stated that u/s 147, where an assessment is made u/s.143(3) there can be no reopening of assessment after expiry of four years from the end of the relevant assessment year unless there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. In the impugned order, four years from the end of AY 2009-10, i.e., 31.03.2010, expired on 31.03.2014 and notice u/s.148 has been issued by AO on 30.03.2016, which is beyond the prescribed limitation period. The Ld.AR stated that the AO has not recorded/alleged any failure by assessee to fully and truly disclose all material facts in his reasons.
8.2 The Ld.AR submitted that reopening of assessment beyond four years can be done only when there is a failure to disclose fully and truly all material facts by the Assessee. Therefore, the reasons for reopening furnished by the AO ought to contain at least an allegation or a finding that the Assessee had failed to disclose fully and truly all material facts. It is submitted that the absence of any such finding on the above jurisdictional fact would render the entire reopening void and a nullity. The aforesaid view has been taken by the Hon’ble Madras High Court in the case of Durr India (P.) Ltd.
:-8-: ITA. No:1437/Chny/2024 & CO No: 46/Chny/2024 v. ACIT [2023] 152 taxmann.com 303 (Madras) [Pg. 180-191 of Assessee’s pb dt. 09.08.24], wherein it was held as follows: “12. From the above decisions, it is clear that existence of ''jurisdictional fact'' is sine qua non for the exercise of power. If the jurisdictional fact exists, the authority can proceed with the case and take an appropriate decision in accordance with law. It leaves no room for any doubt that to invoke the extended period, the Assessing Officer ought to show/demonstrate the existence of any of the three circumstances set out in the proviso to section 147. In this case, failure on the part of the assessee to fully and truly disclose all material particulars in our view would constitute the "jurisdictional fact" for invoking extended period of limitation and failure to record the existence of the above jurisdictional fact while invoking the extended period under the proviso to section 147 of the Act, would vitiate the entire proceedings…”
8.3 Further, the ld.AR submitted that the reasons for reopening dt.18.12.2017 provided by the AO do not record any allegation or finding that there was a failure on the part of the Assessee to disclose fully and truly all material facts and the reasons also do not state which facts were not fully and truly disclosed. Therefore, absent of such jurisdictional fact, the reopening is without jurisdiction and is consequently barred by limitation as per the first proviso to section 147 of the Act. Further, the ld.AR argued that reopening is on the basis of change of opinion which is impermissible by relying on the following judicial precedents.
:-9-: ITA. No:1437/Chny/2024 & CO No: 46/Chny/2024 8.4 Further, the Ld.AR submitted that: 1. it is a settled principle of law under section 147 of the Act that no assessment can be reopened merely because the AO has changed his mind. CIT v Kelvinator of India (2010) 2 SCC 723: 320 ITR 561 (SC). 2. in the present case, the AO has not produced any fresh or new tangible material based on which the re-opening of assessment is initiated. Now, on the basis of same material furnished, coming to a different conclusion is nothing but a change of opinion 3. the four issues set out by the AO in the reasons for reopening dt. 18.12.2017 have been inquired into during the course of the regular scrutiny assessment proceedings by way of issuance of notice u/s. 142(1) dt. 30.11.2012 and all relevant details were furnished by the Assessee vide its reply dt. 20.12.2012. Pursuant to such inquiry, no addition / disallowance was made in the scrutiny assessment order dt. 28.03.2013. The details of the said issues and the Assessee’s corresponding reply to the same are set out below: a. Reason 1: Assessee’s claim of depreciation @50% on vehicles for AY 2010-11 and 2009-10 when Assessee is eligible to claim depreciation only @15% as per the relevant provisions. i. It is submitted that the issue of the applicable rate of depreciation is exclusively a legal issue. Therefore, the AO, on the basis of same material furnished, coming to a different conclusion is nothing but a change of opinion and it cannot be said that the Assessee failed to fully and truly disclose any relevant material. b. Reason 2: Payments made by Assessee to Motor Vehicle Dealers. i. The said issue was inquired into by the AO in his notice dt. 30.11.2012 issued u/s 142(1) during scrutiny assessment
:-10-: ITA. No:1437/Chny/2024 & CO No: 46/Chny/2024 proceedings under the query regarding “expenditure incurred for the purpose of marketing” [Point No. 11, @ Pg. 4 of Assessee’s PB dt. 09.08.24] ii. The Assessee provided the relevant details with regard to marketing expenditure, including payments made to motor vehicle dealers, in its reply dt. 20.12.2012 [Point No. 11, @ Pg. 7 of Assessee’s PB dt.09.08.24] and Annexure 7 filed along with its reply [Examples of payments in Annexure 7 @ Pg. 96 to “Infinium Toyota”, @Pg. 134 to “Ravindu Toyota”, @ Pg.166 to “Toyota Kirloskar Motor P. Ltd.” & “Toyota Lakozy Auto Pvt. Ltd., and @ Pg. 170 to “Uttam Toyota”]. iii. It is submitted that since, admittedly, the payments were made to Motor Vehicle Dealers, the names of the actual vehicle manufacturers (Nissan, Ashok Leyland, etc.) may not be directly mentioned. c. Reason 3: For AY 2009-10 profit on sale of investments amounting to Rs.45,86,659/- was claimed as exempt by Assessee. i. The said issue was inquired into by the AO in his notice dt. 30.11.2012 issued u/s 142(1) during scrutiny assessment proceedings [Point No. 19, @ Pg. 5 of Assessee’s PB dt.09.08.24] ii. It is also submitted that the issue of whether profits on sale of investments are exempt in the hands of the Assessee, which is an insurance company, is exclusively a legal issue. iii. Accordingly, the Assessee submitted a note on the legal position with regard to the aforesaid issue along with its reply dt. 20.12.2012 [Point No. 19, @ Pg. 7 of Assessee’s PB dt.09.08.24] as Annexure 12 filed along with its reply [Annexure 12 was filed separately in open court during hearing on 08.08.24] d. Reason 4: Payments made to Third Party Administrators (“TPAs”).
:-11-: ITA. No:1437/Chny/2024 & CO No: 46/Chny/2024 i. The said issue was inquired into by the AO in his notice dt. 30.11.2012 issued u/s 142(1) during scrutiny assessment proceedings [Point No. 16, @ Pg. 5 of Assessee’s PB dt.09.08.24] ii. The Assessee provided the relevant details in its reply dt. 20.12.2012 [Point No. 16, @ Pg. 7 of Assessee’s PB dt. 09.08.24] and Annexure 9 filed along with its reply [@ Pg. 179 of Assessee’s PB dt. 09.08.24].
8.5 Therefore, the Ld.AR submitted that the same material is being once again re-examined and is thus, a case of change of opinion, which is not permissible under the Act. Thus, the entire proceeding is wholly without jurisdiction. Further, the Ld.AR also stated that the sanctioning authority has not applied his mind to the above jurisdictional fact before granting sanction under section 151 of the Act. Therefore, even on this ground the reopening is without jurisdiction and hence prayed for quashing the order of the AO as lack of jurisdiction.
Per contra, the Ld. DR relied on the orders of the lower authorities and prayed for dismissing the CO and adjudicate the appeal of the revenue on merits.
We have heard the rival contentions, gone through the material available on record and orders of the authorities below. We
:-12-: ITA. No:1437/Chny/2024 & CO No: 46/Chny/2024 note from the facts of the case for the impugned A.Y. 2009-10 as narrated in assessment order and the order of CIT(A) and in the original assessment order and reasons recorded that the reason itself speaks that the information is culled out by AO from the assessment records which was supplied by assessee and is part of return of income filed originally, which was the subject matter of assessment u/s.143(3) and reassessment u/s.143(3) r.w.s. 147 of the Act. Return of Income filed on 29.09.2009 Assessment order U/s.143(3) 28.03.2013 Reassessment order U/s.143(3) r.w.s.147 30.12.2014 We do not agree with the order of the Ld.CIT(A) in dismissing the grounds raised on the jurisdiction of reopening of the case of the assessee, because in the present case there is no question of disclosure or non-disclosure because the AO has not pointed out the failure on the part of the assessee to disclosure fully and truly all material facts relating to assessment in view of proviso.
In the present case, we note that all the four issues considered for reopening have been clearly taken from the records existing in the file of the AO.
:-13-: ITA. No:1437/Chny/2024 & CO No: 46/Chny/2024 1. Firstly, the Assessee’s claim of depreciation @50% on vehicles for AY 2010-11 and 2009-10 when Assessee is eligible to claim depreciation only @15% as per the relevant provisions is taken from the Assets and depreciation statement and also it is a legal issue, wherein there is no failure of the assessee to disclose fully and truly any relevant material.
The Payments made by Assessee to Motor Vehicle Dealers. The above issue was inquired into by the AO in his notice dt.30.11.2012 issued u/s 142(1) during scrutiny assessment proceedings under the query regarding “expenditure incurred for the purpose of marketing” and the same has been furnished to the AO by the Assessee in its reply dt. 20.12.2012 and Annexure.
For AY 2009-10 profit on sale of investments amounting to Rs.45,86,659/- was claimed as exempt by Assessee. It is seen that the said issue was inquired into by the AO in his notice dt. 30.11.2012 issued u/s 142(1) during scrutiny assessment proceedings and accordingly, the Assessee submitted a note on the legal position with regard to the aforesaid issue along with its reply dt. 20.12.2012.
Payments made to Third Party Administrators (“TPAs”). The very same issue was inquired into by the AO in his notice dt. 30.11.2012 issued u/s 142(1) during scrutiny assessment
:-14-: ITA. No:1437/Chny/2024 & CO No: 46/Chny/2024 proceedings and the Assessee has provided the relevant details in its reply dt. 20.12.2012
In the facts as discussed above, the AO should have taken cognizance of the same while framing assessment for the relevant assessment year 2009-10. This issue is no res integra and we have already adjudicated this issue and Co-ordinate Bench of Chennai Tribunal in the case of Crown Real Estate Pvt. Ltd., in wherein the Tribunal relying on the decision of Hon’ble Supreme Court in the case of CIT vs. Foramer France, (2003) 264 ITR 566 has considered the issue as under:-
“7. We have heard rival contentions and gone through the facts and circumstances of the case. Admittedly, the AO during the course of assessment proceedings was aware about the share application money received by assessee because the audited accounts were available before him during the course of original assessment proceedings. From the reasons recorded, there is no iota of thinking or words in the reasons recorded that there is any failure on the part of the assessee to disclose fully and truly all material facts relating to the income for the relevant assessment year. Admittedly the reopening is beyond 4 years because relevant assessment year involved is 2013-14 and notice u/s.148 of the Act is issued on 29.03.2019, which means admittedly it is beyond 4 years. In our view, there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for framing of assessment and assessment was completed originally u/s.143(3) of the Act and admittedly the reopening is beyond 4 years because notice u/s.148 of the Act was issued on 29.03.2019, no re- opening is possible. This view of ours is supported by the decision of Hon’ble Supreme Court in the case of CIT vs. Foramer France, (2003) 264 ITR 566, wherein the Supreme Court has affirmed the decision of Hon’ble Allahabad High Court in the case of Foramer France vs. CIT, (2001) 247 ITR 436 by observing as under:-
:-15-: ITA. No:1437/Chny/2024 & CO No: 46/Chny/2024 14. Having heard learned counsel for the parties, we are of the view that these petitions deserve to be allowed.
It may be mentioned that a new Section substituted Section 147 of the Income-tax Act by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989. The relevant part of the new Section 147 is as follows: "147. 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."
This new Section has made a radical departure from the original Section 147 inasmuch as clauses (a) and (b) of the original Section 147 have been deleted and a new proviso added to Section 147.
In Rakesh Aggarwal v. Asst. CIT (1997] 225 ITR 496, the Delhi High Court held that in view of the proviso to Section 147 notice for reassessment under Section 147/148 should only be issued in accordance with the new Section 147, and where the original assessment had been made under Section 143(3) then in view of the proviso to Section 147, the notice under section 148 would be illegal if issued more than four years after the end of the relevant assessment year. The same view was taken by the Gujarat High Court in Shree Tharad Jain Yuvak Mandal v. ITO [2000] 242 ITR 612.
:-16-: ITA. No:1437/Chny/2024 & CO No: 46/Chny/2024 18. In our opinion, we have to see the law prevailing on the date of issue of the notice under Section 148, i.e., November 20, 1998. Admittedly, by that date, the new Section 147 has come into force and, hence, in our opinion, it is the new Section 147 which will apply to the facts of the present case. In the present case, there was admittedly no failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessment. Hence, the proviso to the new Section 147 squarely applies, and the impugned notices were barred by limitation mentioned in the proviso.” 7.1 In view of above facts and circumstances, we are of the view that reopening is beyond 4 years and as the original assessment was framed u/s.143(3) of the Act, the Revenue could not establish any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment, the reopening in present case is bad in law. Hence, reopening is quashed and this jurisdictional issue is allowed in favour of assessee.”
In view of above facts and circumstances, we are of the view that reopening is made beyond 4 years and as the original assessment was framed u/s.143(3) and also reassessment was completed u/s.143(3) r.w.s.147 of the Act, the Revenue could not establish any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment and hence we are of the considered view that, the reopening in the present case is bad in law. Hence, the reopening is quashed and the jurisdictional issue is raised in the CO is allowed in favour of assessee.
Since we have quashed the reassessment on reopening raised by the assessee in CO, we need not adjudicate the grounds raised
:-17-: ITA. No:1437/Chny/2024 & CO No: 46/Chny/2024 by the Revenue on merits. In term of the above, the appeal of the Revenue is dismissed.