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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH, JM & SHRI MANOJ KUMAR AGGARWAL, AM
assailing the order of Commissioner of Income Tax (Appeals)-9 [CIT], Mumbai dated 03.11.2015 passed under section 143(3) read with Section 147 of the Income Tax Act, 1961. The assessee has challenged reassessment on technical grounds as well as on merits.
The facts in brief, are that the assessee is a domestic company engaged as Share/Stock Broker, Merchant Banking / financial service provider who filed its Return of Income for Assessment Year 2006-07 during November, 2006 declaring total income at Rs.6,12,47,996/- , the assessment of which was completed under section 143(3) at Rs.6,29,41,275/- after making certain adjustments / disallowances vide Assessing Officer [AO] order dated 26.12.2008. The assessee preferred first appeal before Commissioner of Income Tax (Appeals)-14 which was partly allowed vide order dated 24.02.2010.
Subsequently a notice under Section 133(6) dated 06.04.2010 was issued to the assessee calling for certain information under the head ‘Sundry Creditors for Expenses’ and ‘Trade Payables’ apparently on the basis of Audit Memo dated 09.12.2009. In response, the assessee supplied various documents and information through its various replies. Thereafter, the assessee received reopening notice dated 22.03.2013 under section 148 of the Income Tax Act, 1961 and the assessee asked for the supply of reasons for reopening. The same were supplied by the assessing officer vide its letter dated 29.10.2013 which read as follows: ‘The assessment under section 143(3) of IT act, 1961 was completed on 26.12.2008 assessing income Rs. 6,29,41,275/-against the returned income of Rs.6,12,47,996/-.It has been observed that the balance sheet as on 31.03.2006 on record, reveal that a credit amount of Rs. 17,73,18,533/- is shown against the account ‘Trade Payable’ under the head Current Liabilities. The earlier year’s balance brought forward under this accounting head is Rs.80,82,866/-. Therefore, the credit entry during the year under review could be worked out at Rs.16,92,35,667/-. Further, it is seen that the balance sheet records liability of Rs.94,69,091/- separately against ‘Sundry Creditors for expenses’. The submission on record does not explain the nature and content of the credit entry to the tune of Rs.94,69,091/-. The onus to explain the credit transaction is clearly on the assessee. In the circumstances, the genuineness of the said credit entry has remained to have examined during assessment proceedings. Prima-facie, there appears to be a case of invoking Section 68 of the IT Act with regard to ‘unexplained credit’. On facts and circumstances of the case, it is apparent that income to the tune of Rs.17,73,18,533/- has escaped assessment. In view of the above, I have reasons to believe that the income of Rs.17,73,18,533/- has escaped assessment in the hands of M/s J. M. Financial ASK securities Pvt. Ltd. Further escapement of income is because of failure on the part of the assessee to furnished true and fair particulars of income. In order to bring to tax above-mentioned income and any other which might have escaped assessment, found during the course of proceedings, notice under section 148 is issued.’
The assessee objected to the reopening on technical grounds as well as on merits but the same were rejected by the Assessing Officer vide its letter dated 14.02.2014 by taking recourse to Explanation -1 to Section 147 and held that mere availability/production of material on record do not amount to disclosures within the meaning of the Section and he also relied upon various judicial pronouncements to support this contention. Finally, after considering the various replies of the assessee on merits, the reassessment was concluded vide Assessing officer order dated 26.03.2014 wherein total income was reassessed at Rs.24,83,91,284/- after making additions of Trade Payables and Sundry Creditors. The same was also confirmed by the CIT in first appeal vide order dated 03.11.2015.
Aggrieved, the assessee is in appeal before us.
The learning Authorized Representative [AR] of the assessee has challenged the reopening on technical grounds and contended that no new tangible material has come to the possession of the assessing officer so as to justify the reopening. The assessing officer has no power to review and there is no failure on the part of the assessee to disclose truly and fully material facts necessary for the purpose of assessment. The relevant information was called upon at the time of original assessment proceedings and the same were duly supplied by the assessee, whenever and to the extent asked for. All the material facts were before the assessing officer and he has applied the mind on all aspects during the original assessment proceedings itself. The learned counsel for the department [DR], on the other hand, has justified the reopening and supported the reopening and contended that no opinion has been formed during the original assessment proceedings and therefore, there is no question of change of opinion in such a case and relied upon the judgment of Delhi High court in the case of Commissioner of Income Tax- VI, New Delhi Vs. Usha International Ltd. (348 ITR 485). To counter, the learned AR has contended that opinion was certainly been formed during original assessment proceedings as specified questions has been asked with respect to ‘Trade Payables’ and ‘Sundry Creditors’ and full information to the extent called for from the assessee has duly been supplied and AO has perused all the material on record and hence formed an opinion after satisfying himself fully in this regard. Whatever information was asked from the assessee during original assessment proceedings were duly supplied and it is the duty of AO to call for any further information/documents/confirmation etc. to examine the same and satisfy himself in all respect.
We have heard the rival contentions and perused the material on record. The assessment year in question is 2006-2007. The original assessment was completed u/s 143(3) of the Act.
Reopening notice has been issued under section 148 on 22.03.2013 which is clearly beyond the prescribed period of four years from the end of relevant assessment year. First of all, it would be prudent to reproduce the relevant portion of Section 147 which is as follows:-
“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”. Therefore, Section 147 provides that when an assessment is completed u/s 143 (3) of the Act then it can be reopened beyond four years from the end of the relevant assessment year, only upon satisfaction of either of following conditions: - (i) failure on the part of assessee to file the prescribed return; or (ii) failure of assessee to disclose full and truly all material facts necessary for the assessment The assessment is sought to be reopened by the AO mainly on the grounds that certain ‘Trade Payables’ and ‘Sundry Creditors’ have remained to be examined. We also find that specific queries were raised in this regard by AO during original assessment proceedings in questionnaire dated 10.09.2008 and the reply to the same was given by the assessee vide its reply dated 07.11.2008 along-with documents / information called for. The breakup of these amounts was also available in the Schedules forming part of the Balance Sheet.
The above facts show that the assessee has disclosed all material facts at relevant places during original assessment proceedings u/s 143(3) of the Act. The AO himself asked for specific questions and full details were supplied by the assessee. AO examined these documents and framed the assessment only after proper application of mind. There was no failure on the part of the assessee to fully and truly disclose all the material facts. Thus, reassessment is being sought by the AO on mere change of opinion and apparently on the basis of Audit Memo, which is not permissible. No new tangible material has come to the knowledge of the AO so as to justify the reopening. The following observation of the Hon’ble Apex Court in the case of CIT Vs. Kelvinator of India Ltd. 320 ITR 561 would be relevant here:-
“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. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, 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”. Further, the Hon’ble apex Court in the case of CIT vs. Foramer France (2003) 264 ITR 566 (SC) has clearly laid down the principle that where there is no failure on the part of the assessee to disclose material facts, the reassessment proceedings after the expiry of four years is not possible in view of the provisions of Sec. 147 of the Act. In the circumstances of the case and after appreciating the statutory provisions and judicial pronouncements, we conclude that reassessment proceedings are bad in law and the same are set aside. Accordingly, the appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 11-08-2016.