ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(2), AHMEDABAD vs. N K PROTEINS PVT. LIMITED, AHMEDABAD

आदेश/ORDER PER : TR SENTHIL KUMAR, JUDICIAL MEMBER:-

2.1. In response, the assessee requested to treat the original return in response to the notice issued u/s. 148 of the Act and asked for the reasons recorded for reopening of assessment. But the Ld AO completed the reassessment by making disallowance u/s. 43(5) r.w.s. 73 and sec.40A(2)(b) of Rs.13,89,08,810/- and excess disallowance u/s.14A of Rs. 1,04,652/- and demanded tax thereon.

* The Appellant submits that the reasons recorded by AO contain main allegation regarding payment from NSEL in HDFC NSEL client account and from this account M/s. MKIL received Rs 244 98,04,635 and such figure was considered as income brought into the account of debtors in the guise of so- called paper trade. • The Appellant has stated that during the asst year 2009-10, it has not carried out any transaction on NSEL platform which is also verified by Special Auditor in his report hence there cannot be any money received from NSEL for such transactions. • It was further stated that AO had recorded the reasons for reopening which is nothing but the figure of addition, already made in A.Y 2011-12 in the asst. order dated 21-11-2014. • The Assessee has further contended that these facts were brought to the notice of AO and he has not made any addition for this transaction, which is apparent from Assessment Order. • So far as second issue of disallowance under Section 14A as mentioned in the reasons recorded is concerned, Assessee submitted that this disallowance was made by AO in original Assessment Order which was already deleted by Hon'ble ITAT in its order dated 27-07-2016 in and 2133/Ahd/2012 and such order was already placed at paper book page No 108 to 147. Considering this decision, which is rendered by Hon'ble ITAT in current year itself disallowance under Section 14A does not survive. • Considering these facts Assessee claimed that once addition made by the AO is deleted by the Hon'ble ITAT, disallowance u/s.14A would not survive and AO has already not made other additions based upon reasons recorded. Hence reassessment order passed by AO deserves to be annulled as no effective addition(s) is/are made or survive which are based upon reasons recorded.

• The Assessee relied upon various judicial pronouncements in the Written Submission which includes decision of Hon'ble Gujarat High Court in the case of CIT vs. Mohmed Junded Dadani [2013] 30 taxmann.com 1 and the Hon'ble Bombay High Court in the case of CIT Vs. Jet Airways Ind Ltd. (2010) 195 Taxman 117. • The Assessee also relied upon decision of Hon'ble Ahmedabad ITAT passed in its own case, in dated 25-01-2021 for AY 2011-12 wherein additions were not made based upon reasons recorded and Hon'ble ITAT has held that once additions are not made based upon reasons recorded, reassessment order deserves to be quashed.”

3.1. The Ld. CIT(A) considered this additional grounds first as it goes to the root of the jurisdictional issue thereby decided the issue in favour of the assessee and held the re-assessment proceedings is bad in law by observing as follows:-

“4.8 So far as merits of additional claim are concerned, it is observed that AO had issued reassessment notice on two grounds. The main ground for reassessment notice was with reference to transactions with NSEL for Rs.244.98 crores. The Appellant has claimed that no transaction with NSEL was carried out in current year, which is also accepted by the Special Auditor in his report under Section 142A of the Act. The figure of Rs.244.98 crores was nothing but addition made in Appellant's own case for A.Y.2011-12 in Assessment Order passed on 21/11/2014. This contention of Appellant was accepted by AO while passing the Assessment Order and no addition was made. So far as second issue being disallowance under Section 14A for Rs. 2,18,174/- is concerned, it is observed that addition under Section 14A for Rs.1,13,521/- was also made in original Assessment Order dated 29/12/2011. While computing disallowance under Section 14A read with Rule 8D, AO had considered gross average asset as denominator whereas in the reasons recorded for present case. AO was of the view that net average asset needs to be taken. It is pertinent to note that entire issue of disallowance under Section 14A as was raised in original Assessment Order was deleted by Hon'ble Ahmedabad ITAT in Appellate Order dated 27/07/2016. The relevant operative part of the said decision is reproduced hereunder-

"29. We have heard the rival contentions and perused the material on record Assessee is aggrieved with the disallowance u/s 14A of the Act of Rs. 1,13,521/-confirmed by ld CIT(A). We further observe that ld AR specifically mentioned that there is no exempt income earned by the assessee during the year. We also observe that in the judgment of Hon Jurisdictional High Court in the case of CIT vs. Cortech Energy P Ltd. (supra) has confirmed the order of the Tribunal deleting disallowance u/s 14A of the Act as the assessee has not claimed any exempt income. Similar is the situation in the case of assessee and we respectfully following the judgment of Hon. Jurisdictional High Court are of the view that no disallowance is called for u/s 14A as assessee has not claimed any exempt income in the year under appeal. We hold that ld. CIT(A) was not correct in upholding the disallowance and allow the ground of assessee"

Considering the above referred decision in Appellant's own case for current year only ground of reassessment for alleged escapement for disallowance under Section 14A does not survive or addition made in reassessment order consequently does survive. Thus, the effective addition in Appellant's case based upon reassessment order is disallowance under Section 43(5) read with Section 73 for Rs 13,18,08,810/- which is not based upon reasons recorded. Thus, additions effectively made in Assessment Order are not based upon reasons recorded and the legal pleas taken by Appellant are discussed elaborately by various courts and the courts have taken a view that when on the ground on which reassessment was based, addition is not made by AO in reassessment order, he cannot make additions on other grounds which do not form part of reasons recorded by him. Reliance is placed on following decisions –

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4.9 In view of above discussions and factual matrix of the case and respectfully following the decisions of Hon'ble Jurisdictional High Court of Gujarat in the case of CIT vs. Mohmed Junded

Dadani [2013] 30 taxmann.com 1(Gujarat)/ [2013] 214 taxman 38 (Gujarat)/355 ITR 172 (Guj), Hon'ble Jurisdictional Tribunal in Appellant's own case and other decisions as mentioned above and also as relied upon by the Appellant on similar issue to the Appellant's case, I find that claim of Appellant is correct.

4.10. In addition to above and on perusal of reasons recorded by AO which is reproduced herein above, it is apparent that major issue for alleged escapement of income relates to payment from NSEL for Rs.244.98 crores. In the present year the Appellant has not carried out any transactions with NSEL and even figure of alleged escapement of income pertains to addition made by AO for AY 2011-12. This issue is elaborately discussed in preceding paras which makes it clear that reasons recorded by AO are based upon factually incorrect details or same are non- existing. Reliance is placed on following decisions wherein jurisdictional High Court as well as Tribunal have consistently held that reassessment on non-existent and factually incorrect reasons is not permissible and such proceedings deserves to be quashed.

4.11. So far as second issue of alleged escapement relating to computation of disallowance under Section 14A is concerned, it is observed that original assessment under Section 143(3) of the Act was already passed on 29-12-2011 wherein after detailed discussion AO has made disallowance under Section 14A at Rs 1,13,521/-. The discussion was made at para 8 of the order. The reassessment notice is issued only for re-computation of disallowance under Section 14A made in Assessment Order. It is an undisputed fact that the reassessment notice was issued on 9th March, 2015 which means that such notice is issued beyond four years from end of relevant Assessment Year. On perusal of reasons recorded, it is seen that AO has not mentioned whether there was failure on part of assessee to disclose truly and fully all material facts necessary for making assessment as required by Provisions of Section 147. No new material/tangible material has been brought on record by AO which justify such reassessment notice and on the contrary, re-computation is made based upon facts already on the record of AO. Thus, issuance of notice for alleged escapement of income by making re-computation of disallowance u/s 14A on same issue is certainly change of opinion on part of subsequent AO. Further, it important to note that before passing of the Assessment Order,

Hon'ble Ahmedabad ITAT had already deleted disallowance under Section 14A made in original Assessment Order. The Hon'ble Jurisdictional High court of Gujarat in the case of Sandesh Procon Llp in SCA No 19990/2019 dated 5th February, 2021 on similar facts held as under:

“10 It is the case of the Revenue that, the assessee was required to disallow an amount of Rs.5,13,06,096/- under Section 14A of the Act and during the original assessment, disallowance was made only upto Rs.34,08,859/- restricting the extent of exempted income. Therefore, as per the case of the revenue, the income Rs.4,78,99,237/- has escaped assessment for which the assessee failed to disclose fully and truly all material facts necessary for the assessment for the year under consideration. It is also undisputed fact that, the case of the assessee selected for further scrutiny and notice under Section 143(2) of the Act was issued and thereafter, notice under Section 142(1) of the Act along with questionnaire was served and pursuant to these notices, the assessee had furnished required details along with copy of return, audited accounts, balance sheet, profit and loss account etc. The issue of disallowance was considered by the respondent authority at length and disallowance of interest was restricted upto Rs.34,06,859/-. The observations with regard to disallowance made in the original assessment order reads thus ............

12. A bare perusal of the reasons and original the assessment order made under Section 143(3) of the Act, the facts emerge that, the respondent authority had determined the issue of disallowance after considering the material available and now

again without any tangible material available with the Assessing Officer based on the same materials, which were relied at the time of original assessment proceedings, has reason to believe that there is escapement of income. Therefore, in this circumstances, we are of the view that, the material available with the Assessing Officer, at the relevant point of time, while making original assessment under Section 143 (3) of the Act and at the time of reopening of the assessment, the materials available with the Assessing Officer were the same and there return declaring certain taxable income Assessing Officer completed assessment under section 143(3) wherein certain addition was made to Assessee's valuation of stock in relation to unutilized CENVAT credit After expiry of four years from end of relevant assessment year, Assessing Officer reopened assessment on ground that unutilized CENVAT credit should have been included in closing stock which would alter Assessee's profit for year under consideration - It was noted from records that Assessing Officer was conscious of methodology adopted by assessee and he had raised multiple queries Further, it was only after such scrutiny that Assessing Officer had passed order of assessment wherein he had made limited disallowance in relation to unutilized CENVAT credit - Whether, on facts, there was no failure on part of assessee to disclose truly and fully all material facts necessary for assessment and, therefore, reassessment proceedings initiated merely on basis of change of opinion deserved to be set aside - Held, yes [Paras 8 and 10] [In favour of assessee]"

4.13 Considering the above decisions, reassessment notice relating to alleged escapement of income relating to disallowance under Section 14A is mere change of opinion on part of the subsequent Assessing Officer. In view of detailed discussions made herein above, reassessment notice issued by AO is nothing but an invalid notice. Therefore, additional ground of appeal filed by Appellant is allowed and reassessment order is quashed.”

“1. On the facts and in the circumstances of the case and in law, the ld CIT(A) has erred in quashing the assessment order holding that the reasons recorded by the AO are based upon factually incorrect details or same are non-existing, without considering the discrepancies pointed out in the report u/s 142(2A) submitted by the Special Auditor.

2. On the facts and in the circumstances of the case and in law, the ld CIT(A) has erred in deleting the disallowance of Rs. 13,89,08,810/- made u/s 43(5) read with section 73 and 40A(2)(b) of the Act.

3. On the facts and in the circumstances of the case and in law, the ld CIT(A) has erred in quashing the assessment order holding that reassessment notice relating to alleged escapement of income relating to disallowance u/s.14A is mere change of opinion on part of the subsequent Assessing Officer, without considering the difference in computing the disallowance u/s 14A r.w.r 8D.

4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O.

4.1. The Grounds of Cross Objection filed by the assessee are as under:-

“1. In law and on the facts and in the circumstances of the appellant's case, the Ld. Assessing Officer has erred in directing the special audit under Section 142-2A without satisfying about the complexity of this account and that the nature of accounts have remained the same since years.

2. In law and on the facts and in the circumstances of the appellant's case, the learned Assessing Officer has erred in disallowing the loss of Rs 13,89,08,810/- by treating the same as speculative in nature, as loss was incurred during normal course of business, which is genuine business loss.

3. In law and on the facts and in the circumstances of the appellant's case, the learned Assessing Officer has erred in making disallowance u/s 14A of Rs. 1,04,652/- when no exempt income is earned.

4. The appellant craves to add to, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.”

5. Ld CIT DR Shri Sudhendu Das appearing for the Revenue could not dispute the above facts and also could not place on record any contrary decision passed by the Ld CIT[A], however he pleaded to sustain the addition made by the Assessing Officer and allow the department appeal.

6. Per contra Ld Counsel Mr. Vartik Chokshi appearing for the assessee submitted that the first issue of reopening of assessment itself is bad in law since the issue of disallowance u/s.14A r.w.r. 8D was originally considered in the regular assessment stage, therefore cannot be reopen after four years for reworking of the same, when there is no failure on the part of assessee in disclosing the income. Further the Hon’ble ITAT already deleted the disallowance u/s.14A, since there was no dividend income earned by the assessee during this Asst. year. Similarly the second issue of reopening of assessment is also bad in law since the assessee has not carried out any transactions with NSEL during this Asst. year and even figure of alleged escapement of income amounting to Rs.244.98 crores pertains to addition made by Ld AO relating to the Asst Year 2011-12. When the reasons recorded are not resulted in escapement of income, Ld AO cannot travel beyond these reasons and make new additions/disallowances and relied upon series of case laws. Thus Ld Counsel pleaded that the appellate order passed by the Ld CIT[A] does not require any interference and the Revenue appeal is liable to be dismissed and the Cross Objection filed by the assessee is to be allowed.

7.1. On first reason for reopening being disallowance u/s.14A for Rs.2,18,174/- is concerned, it is observed that addition u/s.14A for Rs.1,13,521/- was made in original Assessment Order dated 29- 12-2011. On appeal before this Tribunal vide Appellate Order dated 27-07-2016 in & 2133/Ahd/2012, Co-ordinate Bench of this Tribunal deleted the addition on account of disallowance u/s.14A, since the assessee has not received any dividend income during this Asst. year following jurisdictional High Court judgement. Further we notice that there is no failure on the part of the assessee in disclosing the above income in the Return of Income, therefore the reopening of assessment beyond four years is invalid in the eye of law as held by the Jurisdictional High Court in the case of CIT -Vs- Mohmed Juned Dadani [2013] 30 taxmann.com 1 (Gujarat) wherein it is held as follows:

“… 30. We may also approach the question from a slightly different angle. It is not in dispute that once an assessment is reopened by a valid exercise of jurisdiction under Section 147 of the Act, it is open for the Assessing Officer to assess or reassess any income which had escaped assessment which comes to his light during the course of his assessment proceedings which was not mentioned in the reason for issuing notice under Section 148 of the Act. In a notice for reassessment which has been issued beyond a period of four years from the end of relevant assessment year, the condition that income chargeable to tax has escaped assessment for the reason of the failure on the part of the assessee to disclose truly and fully all material facts for the purpose of assessment must also be established unless of course some other ground viz. non-filing of the return at all etc. is available to the Assessing Officer. If such non-disclosure of material facts is established with respect to the reason recorded for issuing notice for reopening the assessment, it would be open for the Assessing Officer to thereafter even assess other income which might have escaped assessment but which may not necessarily satisfy the requirement of non-disclosure of true and full material facts. If in such a situation, the stand of the revenue is accepted, a very incongruent situation would come about if ultimately the Assessing Officer were to drop the ground on which notice for reopening had been issued but to chase some other grounds not so mentioned for issuance of the notice. In such a situation, even if a case where notice for reopening has been issued beyond a period of four years, the assessment would continue even though on all the grounds on which the additions are being made, there was no failure on the part of the assessee to disclose true and full material facts. In such a situation an important requirement of failure on part of the assessee to disclose truly and fully all material facts would be totally circumvented.

“… 23. Section 147 of the Act, even without the aid of Explanation 3 thus enabled the Assessing Officer while framing an assessment under Section 147 of the Act, to assess or reassess such income for which he had recorded his reasons to believe had escaped assessment and also any other income which escaped assessment which came to his notice subsequently in the course of the assessment proceedings.

This amendment will take effect retrospectively from 1st April, 1989 and will, accordingly, apply in relation to assessment year 1989-1990 and subsequent years."

enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve. (c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful. (d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment. (e) It cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same."

9.1. Respectfully following the above judicial precedents we do not find any infirmity in the order passed by Ld CIT[A] quashing the reassessment order as without jurisdiction. Therefore the new [not forming part of ‘reasons recorded’] addition made u/s. 43(5) r.w.s. 73 and section 40A(2)(b) of Rs.13,89,08,810/- is liable to deleted. Thus the grounds raised by the Revenue on merits of the case does not require adjudication, since the very reassessment itself is held invalid in the eyes of law.

11. Since the Cross Objection filed by the assessee only supports the order passed by Ld CIT[A], the same is allowed.

Order pronounced in the open court on 12-11-2024