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Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Dr.Arjun Lal Saini, AM]
ORDER Per N.V.Vasudevan, JM is an appeal by the Revenue while is an appeal by the assessee. Both these appeals are directed against the order dated 11.03.2011 of CIT(A)-Central-I, Kolkata relating to AY 2004-05
We shall take up for consideration ground No.1 raised by the assessee in its appeal which reads as follows :- “1. That in the facts and circumstances of the case, the ld. CIT(A) erred in confirming assumption of jurisdiction by the ld AO u/s 147.”
Since the aforesaid ground of appeal relates to the validity of initiation of re- assessment proceedings u/s 147 of the Income Tax Act, 1961 (Act) the same is taken for 2 M/s. Inland Vikash Ltd. A.Yr.2004-05 consideration as a jurisdictional issue.The facts with regard to ground no.1 are that the Assessee is a company. It derives income from acting as a transport operator. For A.Y.2004-05 the assessee filed return of income on 01.11.2004 declaring total income of Rs. Nil. An order of assessment u/s 143(3) of the Act was passed by the AO on 20.11.2006 determining the business at Rs.37,174/-. It is pertinent to point out that while concluding the assessment the AO has made the following observations with regard to the claim of the assessee for credit of TDS : - “With its letter dated 06-12-2006 a set of 73 TDS Certificates for total TDS of Rs.41,004/- has been filed by the assessee with the request to allow credit of the same. It appears that claim of TDS as made in the Return was for Rs, 4,49,252/- against which the assessee was allowed credit for Rs.3,39,283/- u/s 143(1) on verification of TDS Certificates filled with the Return. Now the fresh TDS Certificates filed are verified and found to be in order, Hence, the assessee is entitled to get credit of such Certificates. Allow further credit of TDS for Rs.41,004/- as per request of the assessee. “
4. The AO initiated proceedings u/s 148 of the Act after recording the following reasons :”- “13.06.2008. Seen from the record that as per TDS Certificate "booking charges receipt" was Rs.3,53,36,214/- instead of Rs..2,48,95.473/. as declared in the Profit & Loss A/c. resulting and shortfall of income amount to Rs.1,04,40,741/-. The under assessment of income leads to an undercharge of tax and interest which have escaped assessment. Furthermore, it is noticed that sundry creditors as stood on 31.03.2004 in the name of M/s. Inland Road Transport (P) Ltd was Rs.1,62,21,664/- whereas there was no sundry debtors in the file of Inland Road Transport in the name of the assessee, which leads to under assessment of' income and tax. Moreover the assessee has claimed depreciation of Rs.4,12,374/- during the A.Y.2004- 05. But the assessed failed to produce list of the intangible assets on which depreciation has been claimed. Therefore I have reason to believe that there is income which have escaped assessment during the relevant A.Y. Issue notice u/s 148. Sd/- (K.D.Ratnoo) A.C.I.T., CC-XI, Kolkata”
5. It may be pertinent to mention that when the original assessment proceedings u/s 143(3) of the Act were completed on 13.11.2006 the AO specifically asked the assessee to file details regarding hire charges (net) with clarification for reduction of such 3 M/s. Inland Vikash Ltd. A.Yr.2004-05 income. On 07.12.2006 and 12.12.2006 the AR appeared and gave necessary clarifications and the order of assessment was passed on 20.12.2006. On 17.12.2007 the AO proposed the rectification u/s 154 of the Act on the ground that the assessee declared a sum of Rs.2,48,95,473/- as receipt against booking and collection but as per TDS certificate the said collection was Rs.3,53,36,714/-. The difference is required to be clarified. However, on 13.06.2008 the AO dropped the proceedings u/s 154 of the Act as the issue was debatable and therefore he had proposed to take recourse of proceedings u/s 148 of the Act and hence proceedings u/s 154 of the Act was dropped.
In the reassessment proceedings the AO determined the total income of the assessee as follows :- “Assessed Business loss as per order u/s 143(3) (-) Rs.27,174/- Add Sundry Creditors Rs.1,62,21,664/- Undercharge of income Rs.1,04,40,741/- u/s 40(i)(a) Rs.2,38,63,150/- Rs.5,05,25,555/- Rs.5,04,98,381/- Less Set off with B/f Depreciation of A.Y.2003-04 Rs. 55,251/- Assessed Business Income Rs.5,04,43,130/-“
The Assessee filed appeal before the CIT(A) against the aforesaid order of the AO. Before CIT(A) the assessee challenged the validity of initiation of proceedings u/s 147 of the Act as bad in law. This was dealt with by CIT(A) as follows :- 3. Ground no.1 taken by the appellant is against the reopening of the assessment under section 148 of the Act. During the course of appeal it was submitted by the Ld. A.r. that there is no basis and justification for formation of belief by the A.O that income has escaped assessment and there was no new information to enable the A.O to assume jurisdiction. 3.1 I have carefully considered the submission of the L.d A.r . The A.O has discussed the reason for reopening on page 1 of the assessment order. It was noticed by the A.O that the total receipt as per T.DS certificate was Rs.3,53,36,2141 as against only Rs. 2,48,95,4731 declared ion the P&L a/c. Further on verification it was found that the assessee had shown sundry creditors ( credit balance) of M/s Inward Road Transport at Rs. 1,62,21,6641 as on 31.03.2004 whereas M/s Inward Road Transport has not shown any debit balance in the name of the assesee as on 31.03.2004 . Considering above it cannot be said that no new 3 4 M/s. Inland Vikash Ltd. A.Yr.2004-05 information was available with the A.O and the reopening is only on the basis of change of opinion. Considering above ground no 1 taken by the appellant is dismissed.”
Aggrieved by the aforesaid order of CIT(A) the assessee has raised ground no.1 before the Tribunal. The ld. Counsel for the assessee submitted before us that when there is no fresh material or information – jurisdiction u/s 147 of the Act could not be assumed. It was submitted that the Assessee acted as handling agent of M/s. Inward Road Transport Pvt.Ltd. (IRTPL) since 1998. Income from such agency work was always disclosed and included in the income of the Assessee. The freight booking receipts collected by the Assessee on behalf of IRTPL were not disclosed as business receipts of the Assessee since the right, title, interest and benefit in the consignment notes issued by the Assessee always remained with the IRTPL. The freights collected [ gross amounts i.e. cheques + TDS ] on behalf of the IRTPL were credited to the account of the IRTPL. Payment to IRTPL was adjusted in this account from time to time along with several other kinds of transactions with the IRTPL. The Assessee pointed out the details of handling charges since earlier years which were given before the CIT(A). It was submitted that the this system of accounting was always accepted by the dept in earlier years. Copies of scrutiny asst order for A Y 2002-03 was filed before CIT(A). The arrangement was consistently maintained since A Y 1998-99 reflecting the contractual relationship between the Assessee and M/s IRTPL. It was highlighted that for such service the Assessee received handling charges from the beneficial principal which were subjected to TDS and which were duly included in the Profit & Loss etc of the Assessee. The collection of freight was governed by an agreement between the Assessee and M/s IRTPL. But the payers of the freight were not concerned with the terms of the contract between the Assessee and M/s IRTPL. The Assessee acting as such agent for IRTPL collected freight and gross amount so collected was disbursed to beneficial Principals, namely IRTPL. The freights collected on behalf of IRTPL were duly credited to its running account with the Assessee is not disputed. The amount of freight collected by the Assessee for which TDS certificates were issued to the Assessee
5 M/s. Inland Vikash Ltd. A.Yr.2004-05 were included in the freight receipt of the IRTPL. Therefore, the relevant receipt and income embedded in such receipt is properly taxed in accordance with law in the hands of the person entitled to such income and to whom such income as accrued. There is no tax evasion or tax avoidance. The Assessee's income in this arrangement is also offered for tax as handling charges. It was thus submitted that in the particular facts and circumstances, it was clear that that there has been no escapement of any income , nor any failure on part of the Assessee to furnish any information or details, nor any new information in the hands of the Id AO to assume jurisdiction u/s 148 . There was no material to form a belief of escapement of income on the basis of TDS certificates. Reliance was placed on the decision of the Hon’ble Supreme Court in the case of Kelvinator of India Ltd. 320 ITR 561 (SC) and certain other judicial pronouncements. The ld. DR relied on the order of CIT(A).
We have given a very careful consideration to the rival submissions. With regard to the contention that the reopening of assessment is invalid because reopening was made purely on a change of opinion, the following observations of the Hon’ble Supreme Court in the case of Kelvinator of India Ltd (supra), are relevant.:- “On going through the changes, quoted above, made to s. 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the AO to make a back assessment, but in s. 147 of the Act (w.e.f. 1st April, 1989), they are given a go by and only one condition has remained, viz., that where the AO has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. 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, s. 147 would give arbitrary powers to the AO 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 AO has no power to review; he has the power to reassess. 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, 5 6 M/s. Inland Vikash Ltd. A.Yr.2004-05 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 AO. Hence, after 1st April, 1989, AO 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.”
In the present case, the reasons recorded by the AO does not refer to any new material that came into his possession based on which he entertained belief that income of assessee chargeable to tax has escaped assessment. The facts with regard to the amount of receipts as per the TDS certificates and the receipts disclosed in the profit and loss account were already available with the AO when he completed the assessment proceedings. The AO has not mentioned as to how the fact that sundry creditors as on 31.3.2004 shown by the Assessee in the name of M/s.Inland Road Transport (P) Ltd., at Rs.1,62,21,664/- was not reflected with an entry of sundry debtors in the books of M/s Inland Road Transport (P) Ltd., in the name of the Assessee. From a reference to the file of M/S.Inland Road Transport (P) Ltd., it appears that the AO of the Assessee and M/S.Inland Road Transport (P) Ltd., are one and the same. In such circumstances it cannot be said that the AO got tangible material after conclusion of the assessment proceedings based on which he formed opinion that income chargeable to tax in the hands of the Assessee has escaped assessment. The details of intangible assets on which depreciation has been claimed by the Assessee need not be verified because depreciation is claimed on the written down value of assets as on 1.4.2003 and there was no addition to the intangible assets during the previous year. Therefore there is no reason why the details of intangible assets on which depreciation has been claimed by the Assessee should be looked into.
Thus none of the reasons recorded by the AO for initiating reassessment proceeding can be said to be on the basis of tangible material obtained after conclusion of the original assessment so as to form opinion that income of the Assessee chargeable to tax has escaped assessment. The Hon’ble Bombay High Court in the case of Hindusthan 6
7 M/s. Inland Vikash Ltd. A.Yr.2004-05 Lever Ltd. (supra) has held that validity of initiation of reassessment proceedings have to be judged on the basis of reasons recorded by the AO and not by looking into any extraneous material. The following were the relevant observations of the Court:
“”…The reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestations of mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing affidavit or making oral submission, otherwise the reasons which were lacking in material particulars would get supplemented, by the time the matter reaches the Court, on the strength of affidavit or oral submission advanced…”.
On the reasons recorded by the AO, there is no other conclusion possible except the conclusion that the reopening of assessment is not based on tangible material which came into possession of the AO after conclusion of the original assessment proceedings. On the facts and circumstances of the present case, we are of the view that initiation of reassessment proceedings has been merely on the basis of change of opinion and in view of the law laid down by the Hon’ble Supreme Court in the case of Kelvinator of India Ltd. (supra), initiation of reassessment proceedings has to be held as not proper. Before us, the ld. DR had placed strong reliance on the order of the CIT(Appeals) on the issue of validity of initiation of reassessment proceedings. In our view, the ld. CIT(Appeals) has merely proceeded on the basis that new information was available 7
8 M/s. Inland Vikash Ltd. A.Yr.2004-05 before the AO based on which he initiated reassessment proceedings. What is the new material available before the AO has not been spelt out by the CIT(A). He has not addressed the issue whether reassessment proceedings were initiated merely on change of opinion.
We are, therefore, of the view that in the given facts and circumstances of the case, initiation of reassessment proceedings u/s 147 of the Act is held to be illegal and consequently, order passed u/s. 147 of the Act is cancelled on this ground. In view of the above conclusion, we are not dealing with the other grounds raised
by the Assessee before us. In view of the above conclusion, the additions challenged in the appeal by the revenue and the Assessee on merit does not require any consideration.
14. In the result, appeal of the Assessee is allowed and that of the Revenue dismissed. .
Order pronounced in the Court on 10.08.2016.