MANAS KUMAR SWAIN,KEONJHAR vs. ITO, KEONJHAR WARD, KEONJHAR

This is an appeal filed by the assessee against the order of CIT(A)-

Cuttack, dated 20.6.2016 for the assessment year 2009-2010.

as under:

“ 1 For that, the order of the forum below is arbitrary, illegal, unjustified and erroneous and has been passed on improper application of mind, being devoid of merit as such deserves to be quashed in limine.

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appeal raised by the assessee. Hence, they were admitted and the parties

were allowed to make their submissions thereon.

assessee has challenged the reopening of assessment u/s.147 of the Act

by issuance of notice u/s.148 of the Act on the ground that there was no

credible additional material evidence available with the Assessing Officer at

the time of reopening of the assessment and, therefore, the reopening of

assessment is bad in law.

by the Assessing Officer on the ground that the assessee has debited

Rs.72,37,631/-- towards payment of freight charges. On examination of

the details of freight charges, it is found that Rs. 13,06,100/- was paid in

cash by the assessee and that on a single day the amount paid in cash

exceeded Rs.20,000/-. Hence, it violated the provisions of section 40A(3)

of the Act and, therefore, Rs.13,06,100/- was to be disallowed as deduction

to the assessee. He submitted that in the original assessment made

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u/s.143(3) of the Act on 21.12.2011, the Assessing Officer had examined

the issue of claim of freight charges of Rs.72,37,631/- and after examining

the same concluded that all the bills and vouchers for the expenses were

not produced and, therefore, the Assessing Officer made an estimated

disallowance of 5% out of the total expenses and added Rs.3,61,882/-. The

Assessing Officer has also observed in first para of the assessment order

that the assessee had filed audited profit and loss account as required

u/s.44AB of the Act in the form of 3CB and statement of particulars in Form

No.3CD. The Assessing Officer has recorded that books of account and bills

and vouchers were produced and verified by him. In view of above, as the

Assessing Officer in the original assessment proceedings u/s.143(3) of the

Act has verified the freight charges and thereafter made a considered

disallowance of 5% out of the total expenses claimed by the assessee of

Rs.72,37,631/- and made an addition of Rs.3,61,882/- to the income of the

assessee, then on the basis of very same materials, the Assessing Officer

cannot reopen the assessment by issue of notice u/s.148 of the Act as it

amounts to change of opinion. Therefore, the reopening of assessment is

bad in law and it was his prayer that the assessment order dated 23.7.2014

should be cancelled.

controvert the above submission of ld A.R. of the assessee.

on record and orders of lower authorities. I find from the copy of recorded

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reasons for reopening of assessment by issuance of notice u/s.148 of the

Act that the Assessing Officer has noted as under:

“The reasons for reopening the assessment u/s.147 of the I.T.Act, 1961 for the assessment year 2009-2010 as recorded vide order sheet entry dated is furnished below:

“The assessee is an individual derives income from execution of transport contract work. For the assessment year 2009-2010, the assessee filed return of income on 30.9.2009 showing total income of Rs.2,87,170/-. Subsequently, another return was filed on 28,.3.2011 showing total income of Rs.3,88,902/-. Assessment u/s.143(3) was completed on 21.12.2011 determining the total income at Rs.6,96,610/-.

It is seen from the record that the assessee has debited a sum of Rs.72,37,631/- towards payment of freight charges. On examination of the details, it is found that out of the entire freight charges, a sum of Rs13,06,100/- was paid in cash to different persons where on a single day the amount paid in cash exceeded Rs.20,000/-. According to section 40A(3) of the I.T.Act, 1961, where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds rupees twenty thousand, no deduction shall be allowed in respect of such expenditure. Therefore, the amount of Rs.13,06,100/- paid in cash towards freight charges was to be disallowed u/s.40A(3) of the Act and added to the income of the assessee.

In view of the above, I have reason to believe that income of Rs.13,06,100/- chargeable to tax has escaped assessment within the meaning of section 147 of the I.T.Act, 1961 for the assessment yer 2009-2010.”

new material which has come to the knowledge of the Assessing Officer to

show after passing of the order u/s.143(3) of the Act on 21.12.2011 that

income chargeable to tax has escaped assessment so as to trigger the

reopening of assessment made u/s.147 of the Act.

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Pvt Ltd.,(2015) 372 ITR 762 has held that the power to reopen is not a

power to review an assessment order. At the time of passing assessment

order, it is expected of the Assessing Officer that he will apply mind and

pass an order. If the Assessing Officer had considered and formed an

opinion on the material in the original assessment itself then he would be

powerless to start the proceedings for reassessment.

of India Ltd., 320 ITR 561 (SC) has held that he concept of “change of

opinion” must be treated as an in-built test to check abuse of power by the

Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has

power to reopen an assessment, provided there is "tangible material" to

come to the conclusion that there is escapement of income from

assessment. Reasons must have a live link with the formation of the belief.

In this context, the observations of Hon’ble apex Court at page 564 are

very relevant, which are reproduced as follows:

“Therefore, post-1st April, 1989, power to re-open 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 re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. 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 re- assess. But reassessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-

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opening 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. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. “ 11. Thus, I find that in the instant case, there was no tangible material

with the Assessing Officer before reopening of assessment to show that

income chargeable to tax has escaped assessment. Further, it is observed

that the issue of freight charges claimed by the assessee at Rs.72,37,631/-

was examined by the Assessing Officer at the time of original assessment

proceedings with the books of accounts and vouchers, etc and, thereafter

an estimated disallowance of Rs.13,06,100/- was made at 5% out of total

expenses claimed by the assessee on the ground of non-production of all

bills and vouchers. It is observed that the reopening in the instant case

has been made on the basis of very same set of material to hold that freight

charges of Rs.13,06,100/- was paid in cash by the assessee and hence was

to be disallowed u/s.40A(3) of the Act which is clearly a change of opinion

and in view of the decision of Hon’ble Bombay High Court in the case of Jet

Speed Audio Pvt Ltd and Hon’ble Supreme Court in the case of Kelvinator

of India Ltd (supra), reassessment is not permissible in law. Hence, I hold

that the reopening of assessment in the instant case by issuance of notice

u/s.148 of the Act is bad in law and consequently, reassessment order

dated 23.7.2014 passed u/s.143(3)/147 is also bad in law and hence I

cancel the same and allow this ground of appeal.

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grounds of appeal on merits of the additions have become infructuous and

hence not adjudicated upon.

Order pronounced in the open court on 30 /06/2017 in the presence of parties. Sd/- (N.S Saini) ACCOUNTANT MEMBER

Cuttack; Dated 30 /06/2017 B.K.Parida, SPS Copy of the Order forwarded to : 1. The appellant : Manas Kumar Swain, Prop. S.S.Commercial, Boneikela, Joda, Keonjhar. 2. The Respondent. ITO, Keonjhar Ward, At/PO: Dist: Keonjhar 3. The CIT(A) Cuttack 4. Pr.CIT, Cuttack 5. DR, ITAT, Cuttack 6. Guard file. BY ORDER, //True Copy//

SR.PRIVATE SECRETARY ITAT, Cuttack