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Income Tax Appellate Tribunal, KOLKATA BENCH “A” KOLKATA
Before: Shri Aby.T Varkey & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-I, Kolkata dated 30.01.2013. Assessment was framed by DCIT, Kolkata u/s 143(3)/147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 24.12.2008 for assessment year 2003-04. Arti Debnath and Shital Khemka, Ld. Authorized Representatives appeared on behalf of assessee and Shri Sallong Yaden, Ld. Authorized Representative represented on behalf of Revenue.
At the outset it was observed that the assessee has raised additional ground of appeal challenging the reassessment proceedings u/s 147 of the Act. Before us, the ld. AR for the assessee submitted that the issue raised in LMJ Logistics Ltd. Vs. DCIT Cr-2, Kol. Page 2 additional ground is legal in nature and the same is arising from the assessment proceedings u/s 147 of the Act. The Tribunal was not prevented from considering such question of law. The ld. AR for the assessee referred to the judgment of the Hon'ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) in this regard.
3. The ld DR, on the other hand raised no objection on the issue of admissibility of additional ground. As regards the admissibility of the additional ground raised before us we find that the issue raised before us is a legal issue which can be adjudicated on the basis of material on record. We, therefore admit the same for adjudication.
We first decided to adjudicate the issue raised in the additional ground of appeal by the assessee wherein the validity of reassessment proceedings u/s 147 of the Act was challenged. For this, the assessee has raised the following additional ground of appeal:- “That on the facts & circumstances of the case and in law, the reopening based on facts which were specifically enquired by the assessing officer at the time of scrutiny proceedings, is re-appreciation of material on record & mere change of opinion which is impermissible in law and is liable to be quashed.
That on the facts & circumstances of the case and in law, the reopening solely based on audit objection without any independent application of mind by the assessing officer is bad in law and is liable to be quashed.”
4.1 At the outset the learned AR for the assessee drew our attention on the reasons recorded by the Revenue for the reopening of the case u/s 147 of the Act which reads as under :- “On examination of assessment records it is found that an amount of Rs.2,41,70,911/- was credited to P & L A/c for the year 2002-03 as service charges received from four domestic companies. This amount included a sum of Rs.1,71,70,486/- from Tata Chemicals Ltd., as service charges for carrying and forwarding and packing of salt at Calcutta and Bangalore. But from the details of payment made to your company by Tata Chemicals Ltd. the document reveals that an amount of Rs.1,96,20,499/- was credited in your account for service charges and rent payments. As the company had been LMJ Logistics Ltd. Vs. DCIT Cr-2, Kol. Page 3 following mercantile system of accounts, whole amount of Rs.1,96,20,499/- instead of Rs.1,71,70,486/- was required to be accounted for. Omission to do so, resulted in under-assessment of income by Rs.24,50,013/- (Rs.1,96,20,499/- Rs.1,71,70,486). In such circumstances, I have a reason to believe that a sum of Rs.24,50,013/- has escaped the assessment and there is sufficient reason to reopen the case under section 147 of the IT Act.”
The ld. AR before us further submitted that the above mentioned issue of service charges received from Tata Chemicals Ltd was already examined by the assessing officer during the scrutiny assessment proceedings. The assessing officer was aware of the service charges booked by the appellant (assessee) on account of services rendered by Tata Chemicals Ltd. This is clear from the fact that during the course of scrutiny assessment, vide notice u/s 142(1) dated 10.06.2005, the assessing officer had asked the details of the service charges received from the various parties from the appellant (assessee). The assessing officer also wrote a letter to Tata Chemicals ltd. on 15.12.2003 asking for the details of tax deducted at source on payment made to the appellant (assessee). Tata Chemicals had replied to the assessing officer vide letter dated 23.12.2003 which was in possession of the assessing officer at the time of passing original order u/s 143(3).
This is a settled law that when any issue is examined in detail during scrutiny proceedings u/s 143(3) by the assessing officer, it amounts to forming an opinion on the subject matter, despite the fact that no addition has been made on this account by the AO. Subsequent reopening on the same material which was already available on record and also examined by the AO would tantamount to change of opinion which is not permissible and thus order passed u/ s 147 is void and liable to be quashed. Without prejudice to the above, the reopening was made solely on the basis of the audit objection without any independent application of mind by the assessing officer. On this account also the assessment order is liable to be quashed.
LMJ Logistics Ltd. Vs. DCIT Cr-2, Kol. Page 4 The ld. AR further submitted that the issue of service charges received from Tata chemicals Ltd was already examined by the AO during the scrutiny assessment proceedings u/s 143(3) of the Act as evident from the question no. 5 of the notice issued under section 142(1) of the Act vide dated 10th June 2005. The assessee in response to the notice has made a reply vide letter dated 29th august 2005. The relevant extract of the notice issued to the assessee under section 142(1) of the Act and the reply made there to by the assessee were submitted by the assessee at the time of hearing which are placed on record. In addition to above, the ld AR further submitted that a letter was also written by the AO to Tata Chemicals Ltd on the captioned subject. In compliance there to TATA Chemicals Limited submitted various details to the AO which are placed on pages 88 to 90 of the paper book. The ld AR also submitted that the reassessment was opened on the basis of materials which were already available on record and the same were examined by the AO at the time of original assessment proceedings u/s 143(3) of the Act. The act of the Assessing Officer for reopening the case is based on the change of opinion which is not permissible in the eyes of law. At the end, the ld the AR prayed to the Bench to quash the order passed u/s 147 of the Act.
On the other hand the ld DR vehemently supported the order of authorities below. 5. We have heard the rival submissions and carefully perused the records. We find that in this case original assessment was made u/s 143(3) of the Act. During the original assessment proceedings u/s 143(3) of the Act, certain details were called for by issuing notice u/s 142(1) of the Act. The relevant question number 5 of the notice reads as under :
“5. On going through P & L A/c, it is seen that you have received Rs.2,41,70,911/- as service charges. Kindly state is it gross or net? If it is not file details of various expenditure which is debited to arrive at net figure.”
LMJ Logistics Ltd. Vs. DCIT Cr-2, Kol. Page 5 The assessee in response to the notice as discussed above has replied vide letter dated 29.08.2005 of which the covering letter is placed on record. Besides the above we also find that the AO has also confirmed the service charges paid to the assessee from TATA Chemicals Limited. The reply from Tata chemicals Ltd is placed on pages 88 to 90 of the paper book.
From the above, we note that the AO has duly considered the payment made by TATA Chemicals Ltd. to the assessee. Accordingly the AO was also aware TDS details from the TATA Chemical Ltd. Hence it cannot be said that the AO was not aware of the nature of payments made to the assessee by the said party. AO has also considered and chosen not to make any addition on account of under statement of income in the name of the said party. Thus the AO after conscious application of mind has chosen not to make any addition. Hence it is clear that the AO has applied his mind regarding the nature of payment and corresponding details of the TDS deducted by the said party.
5.1 Now in this background we note that while reopening of the assessment on the same ground of services charges income to assessee from TATA Chemicals Ltd. AO has noted that assessee is in receipt of income for Rs.1,96,20,499/- instead of Rs.1,17,70,486/-. Thus, there is underassessment of income for Rs.24,50,013/- (1,96,20,499.00 – 1,17,70,486.00). The AO was of the opinion that the assessee was required to make disclosure of income from the said party for Rs.1,96,20,499/- which the assessee has not done. Thus, we note that no new fact has come to the notice of AO for reopening the issue of payment received from the party. The nature of payments received, amount of TDS deducted, confirmations from the party were all available with the AO in the original assessment u/s 143(3) of the Act. AO consciously made a decision not to make any disallowance in this regard. Hence, on the same issue when the reopening is done and the AO changes his opinion and comes to the decision that the assessee should have been shown more amount of income, it is clearly a change of opinion. It is a fresh application of mind on the same set of facts. This, in our considered opinion, is not permissible as held LMJ Logistics Ltd. Vs. DCIT Cr-2, Kol. Page 6 by the Hon'ble Supreme Court in the case of Kelvinator of India Ltd. reported in 320 ITR 561 (SC). The relevant extract of the judgment is extracted below:-
'Therefore, post - 1st April 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain preconditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer.' Thus, the decisions referred to the above supports the case of the assessee. If the AO has considered the payment and nature of the payment received from TATA Chemicals and corresponding TDS and chosen not to make any disallowance, reopening and addition on this account is merely a change of opinion and is not permissible. Moreover, if it is considered that when the details were available and AO chose not to make any disallowances, then remedy lies with the Commissioner of Income Tax u/s 263 of the Act. This cannot be made a subject-matter of reopening u/s 147 of the Act and fresh application of mind by another assessing officer. In these circumstances we hold that reopening in this case is bad in law. Since we have quashed the order of assessment dated for the year under consideration as being invalid and unsustainable in law, we therefore, do not propose to go into the merits of the issues raised in this appeal. In the result appeal of the assessee is allowed on legal ground.