A.C.I.T CIR - 35,KOLKATA, KOLKATA vs. M/S MOR OVERSEAS, KOLKATA

There is a delay of 25 days in filing this appeal by the revenue. The reasons have been explained in an affidavit by the appellant as owing to administrative constraints. The reasons given in our view are sufficient and reasonable. Hence, the delay in filing the appeal is condoned

As far as the appeal of the revenue is concerned, the facts are that the Assessee is a partnership firm engaged in the business of import of polypropylene and sells them when the imported goods are in the course of import and while they are in high sea. For AY 96-97, the Assessee filed a return of income on 2.12.96 declaring total income of Rs.36,120/-. An order of assessment was passed u/s.143(3) of the Act dt.30.3.99. The total income of the Assessee was determined by the AO in the said order at Rs.47,77,790/-. In the said order of assessment the AO has acknowledged the fact that ITA No.951/Kol/2013-M/s.More Overseas-A.Y.1996-97 there was a search and seizure operation at the business premises of the Assessee as well as its sister concerns at No.23A, N.S.Road, Calcutta by the Department of Revenue Intelligence (DRI) on 30.11.1995, 1.12.1995 and 3.6.1996. Books of accounts seized by the DRI were requisitioned by the Income Tax Department u/s.132A of the Income Tax Act, 1961 (Act). Based on the seized documents so requisitioned, the AO came to the conclusion that the Assesssee had made sales to Saigal Enterprises of Rs.72,56,815 but recorded only sales of Rs.26,10,613 in the books of accounts. The difference of Rs.46,46,202 was added to the total income of the Assessee. The aforesaid addition was challenged by the Assessee before CIT(A) and on further appeal the ITAT in by its order dated 30.9.04 had deleted the addition so made. The matter stood thus in so far as the original proceedings u/s.143(3) of the Act are concerned.

The AO on 28.3.2003 had issued a notice u/s.148 of the Act for AY 1996-97 for bringing to tax income that has escaped assessment. The reasons recorded by the AO for issue of notice u/s.148 of the Act are as follows : "Information had been received from Directorate of Revenue (Intelligence) that the aforesaid assessee had been importing huge consignments without paying customs duty by forging import documents. Such documents in respect of the aforesaid two assesses have been received from A. C. I. T., Cir. -34, Kolkata. On perusal it has come to notice that both the aforesaid two assesses had imported consignments of polypropylene Grade H-4500, HDPE worth several lakhs of rupees against bills of entry with specific numbers. The Directorate of Revenue Intelligence had issued show-cause notice on account of evasion of duty on imports and all these imports prima facie are found not disclosed for income tax purpose in relevant assessment year. Hence, I have reason to believe that income chargeable to tax has escaped assessment and it is likely to exceed Rs. 1,00,000/- As four years have already elapsed, your honour's sanction is sought for as per sec. 149, read with sec. 151 to issue notice u/s. 148 in respect of aforesaid assessee. I would like to add further in this connection that in respect of both the cases appeals are pending before Hon'ble I. T.A. T. against assessment completed u/s. 143(3) for the relevant assessment year. The limitation period for issue of notice u/s. 148 in both the cases expire on 31.03.2003."

The AO passed an order of assessment u/s.147 read with Sec.143(3) of the Act dated 31.3.2004. In the said order the AO has referred to the fact that the ITA No.951/Kol/2013-M/s.More Overseas-A.Y.1996-97 Commissioner of Customs, Customs House, Kandla in his order dated 28.9.2000 had found that the Assessee had during the previous year relevant to AY 2006-07 imported MTS polypropylene and sought clearance of the same from the Kandla Customs House with forged/tampered licences and evaded customs duty. The AO has further referred to the fact that when the above facts were confronted to the Assessee, the Assessee pleaded that the aforesaid sales had been duly disclosed in the books of accounts maintained on the basis of which total income was declared under the Act and that the sales were made to two parties by name Pan Am Impex Corporation The AO after recording his inability to serve notice u/s.133(6) of the Act on party at the address given by the Assessee thereafter issued a show cause notice dated 18.3.2004 to the Assessee to show cause as to why the customs duty evaded be not treated as understatement of sales/closing stock. The AO after referring to the order of Commissioner of Customs dated 28.12.2000 held that the Assessee evaded customs duty amounting to Rs.50,28,097, Rs.50,28,097, Rs.53.,63,303 and Rs.53,63,303 respectively and the same has to be regarded as suppressed sales not recorded in the regular books of accounts and added the aforesaid sum to the total income of the Assessee. The aforesaid addition was in respect of evasion of customs duty on import of 256 MTS, 240 MTS, 240 MTS and 256 MTS of poly propylene on 4 different occasions by the assessee.

The Assessee challenged the validity of initiation of reassessment proceedings u/s.148 of the Act before the CIT(A). The reasons recorded by the AO before issuing notice u/s.148 of the Act are set out in para-4 of this order. The Assessee contended before CIT(A) that the initiation of reassessment proceedings is barred by time as laid down in the proviso to sec.147 of the Act. It was submitted that under the proviso to sec.147 of the Act, where an assessment has been completed u/s 143(3) of the Act, and thereafter the AO seeks to take an action u/s 147 of the Act for re-assessment of income escaping assessment after the period of 4 years from the end of the relevant assessment year, than such proceedings can be initiated only where income chargeable to tax has escaped assessment for that assessment by reasons of failure on the part of ITA No.951/Kol/2013-M/s.More Overseas-A.Y.1996-97 the assessee to disclose fully and truly all material facts necessary for his assessment for that year. According to the assessee the assessment in the present case was sought to be re-opened, after expiry of 4 years from the end of the relevant assessment year and an order of assessment u/s 143(3) has already been passed. It was therefore, submitted by him that the proceedings u/s 147 of the Act are barred by time. In this regard, it was also argued even in the reasons recorded there is no reference to the failure on the part of the assessee to fully and truly disclose the material facts. Reliance was placed on the decision of the Hon’ble Bombay High Court in the case of Hindustan lever Ltd. Vs. ACIT 268 ITR 332 (Bom) wherein on identical facts initiation of reassessment proceedings were held to be invalid. It was submitted that on identical facts, initiation of reassessment proceedings u/s.147 of the Act in the case of another sister concern of the Assessee viz., Ashwani Kumar More in order dated 15.7.2006, was held to be bad in law and the order of the Tribunal has also been upheld by the Hon’ble Calcutta High Court. It was pointed out that the ITAT in coming to the aforesaid conclusion had placed reliance on the decision of the Hon’ble Supreme Court in the case of Coca cola Export Corporation Vs. ITO 231 ITR 200 (SC) wherein it was held that when facts showed that imports were duly recorded in the books of accounts, there was no basis to form opinion regarding escapement of income. It was also argued that initiation of reassessment proceedings were based on a mere change of opinion and reliance was placed on the decision of the Hon’ble Delhi High Court in the case of CIT Vs. Kelvinator of India Ltd. 256 ITR 1(Del.).

The CIT(A) on consideration of the above submissions held that initiation of reassessment proceedings were bad in law and in holding so followed the decision of the Hon’ble ITAT in the case of Ashwini Kumar More (supra). The following were the relevant observations of the CIT(A): “4.2. I have perused the assessment order and considered the submission of the appellant. In the case of Shri Ashwani Kumare More, A.Y. 1996-97 on the identical facts, the ITAT, Kolkata "C" Bench in their order no. (Kol) of 2005 dated 14.07.2006 has held- "We have perused the orders of authorities carefully and also ITA No.951/Kol/2013-M/s.More Overseas-A.Y.1996-97

Since the initiation of reassessment proceedings were held to be bad and invalid, the CIT(A) did not consider the case of the Assessee on merits. Aggrieved by the order of the CIT(A), the revenue is in appeal before the Tribunal. The grounds of appeal

We have heard the submissions of the learned DR who submitted that the information received from the Customs Authorities was a valid basis to form opinion regarding escapement of income and for initiation of reassessment proceeding. The learned AR relied on the order of CIT(A) and contentions put forth before the CIT(A).

We have given a very careful consideration to the rival submissions. On identical facts proceedings for reassessment were initiated in the case of Shri Ashwani Kumar More for AY 1996-97. Ashwani Kumar More is a business Associate of the Assessee carrying on business at the same business premises of the Assessee and was subjected to search and seizure operations by the DRI. In his case reassessment proceedings were initiated on identical reasons. The reasons recorded in the case of Ashwani ITA No.951/Kol/2013-M/s.More Overseas-A.Y.1996-97 Kumar More (supra) are set out in para 9 page-5 of the order of the Tribunal dated 14.7.2006 a copy of which is placed at pages 16 to 24 of the Assessee’s paper book. The operative portion of the said order has already been extracted by the CIT(A) in his order which we have set out in para-7 of this order. It is clear from the order of the Tribunal that no reassessment proceedings could be initiated merely on the basis of action initiated by Customs Department. We also find that in the case decided by the Tribunal the stage at which reassessment proceedings were initiated u/s.147 of the Act was when show cause notice was issued by the Customs Authorites and in the reasons recorded by the AO in the present case also it was at the stage of show cause notice before the Customs Authorities. The decision rendered by the Tribunal will therefore squarely apply to the present case .

We are also of the view that admittedly, the proviso to sec.147 of the Act referred to in the earlier part of this order is applicable in the present case since assessment for AY 96-97 had been completed by the AO originally u/s.143(3) of the Act and the reassessment proceedings were sought to be initiated on 28.3.2003 beyond a period of 4 years from the end of the relevant assessment year. The AO for initiating the re- opening of the assessment proceedings beyond the period of 4 years from the end of the relevant assessment year has to establish that there was escapement of income chargeable to tax because of the failure of the assessee to disclose fully and truly the material facts necessary for the assessment. Neither in the reasons recorded for re- opening the assessment nor in the order of re-assessment u/s147 of the Act. The AO has not brought out facts to show any omission on the part of the assessee to disclose fully and truly the material facts when the original assessment was completed. We are of the view that the re-opening of the completed assessment u/s 143(3) of the Act beyond the period of 4 years cannot be justified. We hold that the re-opening of the assessment is beyond the time contemplated by the proviso to sec.147 of the Act and therefore, initiation of re-assessment proceedings is held to be bad. -M/s.More Overseas-A.Y.1996-97

In this regard we find that the decision of the Hon’ble Bombay High Court in the case of Hindusthan Lever Ltd. (supra) supports the plea of the Assessee. In the said decision the Hon’ble Bombay High Court, on identical facts as in the case of the present Assessee before us, held as follows:

Even on the basis of the above contention, we are of the view that the order of the CIT(A) is just and proper and calls for no interference. We therefore confirm the order of the CIT(A) and dismiss the appeal by the Revenue. -M/s.More Overseas-A.Y.1996-97

In the result, the appeal by the Revenue is dismissed.