DCIT 5(2), MUMBAI vs. JNJ HOLDINGS P.LTD, MUMBAI

1 ITA No.707/Mum/2014

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “J”, MUMBAI

BEFORE SHRI AMIT SHUKLA (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACOUNTANT MEMBER)

I.T.A. No.ITA No.707/Mum/2014 (Assessment year : 2005-06)

Dy.CIT 5(2), Mumbai vs M/s JN Holdings Pvt Ltd Raval Building No.1, 2nd Floor, 423, Bhadkamkar Marg, Mumbai 04 PAN :AACJ2047D (Appellant) (Respondent)

Appellant by Shri Asghar Zain V.P. Respondent by Shri Hiro Rai

Date of hearing : 02-06-2016 Date of pronouncement : 15-06-2016

O R D E R Per ASHWANI TANEJA, AM

This appeal has been filed by the revenue against the order of Commissioner of Income-tax (Appeals) [hereinafter called ld.CIT(A)”] dt 01-11- 2013 passed against the assessment order u/s 143(3) r.w.s. 147 of the I.T Act, 1961 dated 07-02-2013 for A.Y. 2005-06 on the following grounds:

“1. "Whether on the facts and in the circumstances of the case and in law, the Ld. C!T(A) has erred in quashing proceedings u/s. 147 of the

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I. T. Act on the basis of fact that re-opening was done after the lapse of four years, though in similar circumstances jurisdictional High Court has held the reassessment valid in the case of Pranawa Leafin Pvt. Ltd.?"

The appellant prays that the order of the Ld.C!T(A) be set aside and the order of the A 0 be restored.”

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Under these circumstances, the reopening can be done subject to the first proviso to section 147 which says that no reopening shall be done after the expiry of four years, where the original assessment was done u/s 143(3) unless there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that assessment year. For the purpose of examining the validity of the reopening vis-a-vis aforesaid proviso we need to first examine the reasons recorded by the Assessing Officer. The reasons recorded by the Assessing Officer are reproduced below:

“On perusal of case records it is noted that the assessee has claimed expenses on account of commission paid to the Directors Shri Sanjay Jhaveri of Rs.46,70,703/- and Mr. Prashant J. Sarkar of Rs.46,70,703/- However it is noted that in the return of income filed by Mr. Sanjay Jhaveri, commission received from assessee company was not offered to tax. Since commission income was not offered by the Director in his return of income filed, it would be construed that no commission is paid by the assessee company to its Directors and assessee's claim of expenditure is not an allowable deduction.

I therefore have reason to believe that income to the extent of Rs.46,70,703/- has escaped assessment and therefore assessment is required to be reopened u/s.147 of the I.T. Act, 1961. “

4.1. The mandatory condition to reopen the case where the proviso is applicable as discussed above in the earlier paragraph is that there should be failure on the part of the assessee to disclose all the material facts and for this purpose, the Assessing Officer shall record the reasons so as to

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make out a case in the reasons itself that there was failure on the part of the assessee to disclose all material facts. For this purpose, the Assessing Officer is expected and obliged under the law to atleast record this allegation that there was a failure on the part of the assessee in disclosing all material facts necessary for the assessment. It is noted by us that perusal of the reasons suggests that no such allegation has been recorded by the Assessing Officer, even for the sake of mentioning. In the absence of the same, these reasons cannot overcome the embargo of limitation provided in the first proviso to section 147. Law in this respect is settled on the basis of various judgements coming from various courts all over the country. The ld.counsel of the assessee placed reliance before us on the following judgements:

4.2 We have gone through these judgments and find force in the arguments’ of ld.counsel of the assessee. The reasons are not sustainable in the eyes of law as no case is made out in the reasons about the failure of the assessee to fully and truly disclose all the material facts necessary for the assessment.

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4.3 It has also been examined by us as to whether, actually, was there any failure on the part of the assessee to disclose all the material facts or not. From the evidences shown to us it is noted that assessee had conspicuously disclosed in its books of account the payment of commission (being part of salary paid to its directors). Even during the course of assessment proceedings various queries were raised by the Assessing Officer from time to time and assessee gave its reply in various letters justifying and substantiating the payment of commission to directors. It was also submitted by the assessee that TDS was deducted on the said payment which was deposited in the government treasury. The assessee also brought on record the board resolution authorising payment of commission to directors @5% on the net profit earned by the assessee company. The board resolution dated 25-01-2005 was placed before the Assessing Officer vide assessee’s reply dated 03-11-2007 during the course of original assessment proceedings. Evidence of payment of commission and deduction of tax at source and its deposit in the government treasury was placed before the Assessing Officer vide assessee’s reply dt 05-10-2007. Under these circumstances we fail to understand how can it be even alleged that assessee did not disclose the impugned transactions during the course of original assessment proceedings. Thus, there is no failure on the part of the assessee in disclosing all material facts needed for the assessment. We derive support from the judgement of Hon’ble Supreme Court in the case of CIT vs Kelvinator of India Ltd 320 ITR 561 (SC) and the judgment of the Hon’ble Bombay High Court in the case of CIT vs Reliance Industries Ltd 382 ITR 574 (Bom).

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4.4 We have also examined other crucial aspect, as to whether there was any escapement of income in this case. A perusal of the reasons reveals that as per the Assessing Officer the commission income was not offered in the return of income by the payee directors in their individual returns and, therefore, it would be presumed that no commission would have been paid by the assessee company to its directors. This is a case where Assessing Officer is trying to put the Cart before the Horse’’. The approach of the AO has been highly irresponsible and casual in reopening this case. The constitution of our country has attached great sanctity to the concept of finality of litigation. No reopening of an already concluded assessment can be done except as provided by the legislature. Any casual and irresponsible reopening of an already concluded assessment is misuse of process of law and pierces the faith of the taxpayers upon the income- tax department. If the directors have not shown the commission income in their individual returns and if these facts are true, then first of all, the individual cases of the directors should have been reopened, that too, after verification of primary facts. It is further noticed by us that on facts also, the Assessing Officer has gone wrong. It is shown to us that commission was paid as part of salary to the directors. Therefore, the assessee was liable to deduct TDS u/s 192 and not u/s 194H. Section 192 provides that TDS on salaries shall be deducted at the time of payment of salary. The company provided for the commission as part of salary in the impugned year. The TDS was deducted at the time of payment of the same in the subsequent financial year but before the due date of filing of the return u/s 139. Thus, viewed from this angle also, the same was not disallowable, in view of the clear provisions of law as has emerged after various amendments and legal precedents. Even otherwise, payments

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made on account of salary is not covered u/s 40(a)(ia) of the Act. Thus, it is a clear case where the payment was duly made by the assessee, expenses were properly booked and claimed in the return of income and due compliance was made with regard to the provisions of TDS also. No case of escapement has been made out by the Assessing Officer, at all. It is not a case where any belief could have been formed about the escapement of income. The reopening has been done in an absolutely illegal manner and is a by-product of casual approach of the Assessing Officer, who had recorded the reasons. The ld.CIT(A) has rightly held that the reopening was not valid and has rightly quashed the same. Even on merits, no disallowance was liable to be made and has rightly been deleted by the ld.CIT(A). Thus, we uphold the order of the ld.CIT(A) and dismiss the grounds raised by the revenue.

ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES