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Income Tax Appellate Tribunal, DELHI BENCH ‘G’: NEW DELHI
Before: SHRI N.K. SAINI & SHRI A.T. VARKEY
O R D E R PER A.T. VARKEY, JUDICIAL MEMBER :
This appeal, at the instance of the revenue, is directed against the order of the Commissioner of Income-tax (Appeals)-XII, New Delhi dated 12.04.2013 for the assessment year 2007-08.
The solitary ground of appeal taken by the revenue is against quashing of the assessment proceedings u/s 147/148 of the Income-tax Act, 1961 (hereinafter ‘the Act’) by the CIT (A).
Brief facts of the case are that the assessee corporation is a Central Government undertaking engaged primarily in agricultural activities. The income which is liable to tax is income from trading in seeds, income from property and other sources like interest etc.
3.1 The return of income for the year under consideration was filed on 26.10.2007 declaring an income of Rs.6,25,63,250/-. The assessment was made u/s 143(3) of the Act dated 19.10.2009 at an income of Rs.11,30,51,720/-. After recording the reasons for re-opening, a notice u/s 148 of the Act was issued on 16.01.2012. In response to the said notice, the assessee filed return of income dated 01.03.2012 at Rs.6,26,47,430/-. Further, the assessee requested for copy of reasons recorded for reopening the assessment which was provided to the assessee on 21.12.2012. Subsequently, the assessee filed its reply dated 07.01.2013 raising objections against reopening of the assessment. The objections raised by the assessee were considered and was found not acceptable by the AO. . Subsequently, notice u/s 143 (2) was issued and, the AO made an addition of Rs.2,07,22,855/- and completed the reassessment on total income of Rs.8,33,70,290/-.
3.2 Aggrieved, the assessee filed an appeal before the first appellate authority challenging the jurisdiction of the AO to reopen u/s 147/148 of the Act. The CIT (A) allowed the appeal and quashed the assessment u/s 147/148 of the Act by holding as under :-
I have perused the facts stated in the assessment order as well as the facts stated by the assessee in his submissions. The return for assessment year 2007-08, was filed on October 26, 2007 declaring taxable income of Rs.6,25,63,250/- and was assessed at an income of Rs.6,26,47,430/- under section 143(3) of the Income-tax Act.
A notice under section 148 was issued on January 16, 2012 after recording the reasons. The reason recorded for reopening is reproduced hereunder:-
“2. During the year, the assessee has claimed an amount of Rs.11,59,641/- as "Provision for Land Development Expenses", Rs.4,79,210/- (Rs.20,83,886/- - Rs.16,04,676/-) as "Provision for Bonus", Rs.82,07,035/- (Rs.9,55,53,144/- - Rs.8,73,46,109/-) as "Provision for Leave Encashment" and Rs.91,02,718 (Rs.2,65,36,138/- - Rs.1,74,33,420) as "Provisions for Gratuity" in profit & loss account. There provisions of Rs.1,89,48,604/- were not ascertained liabilities, therefore the same should be disallowed and added back to the income of the assessee.
3. Further, the assessee has debited an amount of Rs.13,24,606/- as "Provision for Doubtful Debts Advance" under the head "Administrative & Other Expenses" Sch. 21). As this provision was not allowable, the same should be disallowed and added back to the income of the assessee.
4. It is also noticed that as per return filed by the assessee an amount of Rs.4,49,645/- has been deducted as disallowance u/s 40(Sch. BP Pt. 27) from computation and the same has again been deducted under "any other amount allowed as deduction" (Sch. BP Pt. 30). As this amount has been deducted twice, therefore the excess deduction of Rs.4,49,645/- should be disallowed and added back to the income of the assessee.
In view of this, I have reason to believe that an amount of Rs.2,07,22,855/- (1,89,48,604 + Rs 13,24,606/- + 4,49,645/-) has escaped assessment within the meaning of section 147 of the IT Act 1961."
From the reasons above, it is apparent that they' have been taken from the assessee's balance-sheet as well as Profit & Loss A/c which were also before the Assessing Officer at the time of original assessment hence no escapement of income can be attributed to the assessee.
In this respect assessee in his submission has stated that - "all the information had been furnished before the Assessing Officer at the time
143(3), the action of the Assessing Officer in reopening the assessment is not correct. The opinion by audit could not constitute tangible material for reassessment under section 147/148 of the Income Tax Act. In this respect the decision of the Delhi high Court in the case of Xerox Modicorp Ltd. vs Deputy Commissioner of Income-tax 350 ITR page 308. The Delhi High Court held that-
"The audit objection was an inference that the royalty payment resulted in a capital benefit; such an opinion expressed by the audit could not constitute tangible material on the basis of which the assessment could be reopened. Therefore, the notice within the period of four years from the end of the assessment year 2004-05 was not valid."
It is apparent that the appellant has truly and completely disclosed all material facts relating to all the expenses at the time of scrutiny assessment proceedings itself. The assessee has filed the complete details of expenses on the basis of which the assessment was made. The expenses related to the agricultural activities were not claimed. The expenses on trading were claimed and in this respect the assessee has filed the detailed statement of accounts showing the expenses claimed and income assessed. These expenses relates to non agricultural activities and duly Audit Report under section 44AB was also filed. The assessment was completed on the basis of these statements. The assessee has not claimed any of the expenses on the basis of which the assessment has been reopened. From the statement of account filed. I find that none of these expenses have been claimed by the assessee on the basis of which the re-assessment proceedings were initiated.
Reliance in this respect is also placed on the following judgment is as under:-
In the case of CIT vs USHA International Ltd. in dated September 21, 2012 where in the court reiterated that onus is on AD to prove that there is failure on the part of the assessee to disclose truly and fully of all particulars of income which resulted into an escaped assessment. In case of the non-observation of the same, the entire proceedings in pursuant of the same are void and bad in law.
Hon'ble Supreme Court judgement in case of M/s Kelvinator of India Limited [2010- TIOL-06-SC-IT -LB] where it was held after considering the various amendments u/s 147 of the LT. Act, held that:
"the Assessing Officer cannot re-open assessments on the basis of mere change of opinion and if the same is done it would give arbitrary powers to the AO to reopen the past assessments on mere change of opinion and this is not permissible even as per legislative intent."
The Bombay High Court in the case of OHM Stock Brokers (P) Ltd. Vs Commissioner of Income Tax & Anr. in writ petn. Nos. 79 to 82 of 2013 vide order dated 20th February, 2013 wherein it is held that:-
"Though the power of the AO to reopen as assessment within a period of four years is indisputably wider than when an assessment is sought to be reopened beyond four years, the power is nonetheless not unbridled. After the amendment which was brought in by the Direct Tax Laws (Amendment) Act, 1987 w.e.f 1st April 1989, the AO must have reason to believe that income has escaped the assessment. At the same time, the AO is not conferred with the power to review an assessment and he cannot reopen as assessment only because of a mere change in the opinion. The AO must, in other words, have tangible material to come to the conclusion that there is an escapement of income. The mere fact that the order of assessment did not specifically deal with the issue as to whether the payment fell within the purview of s. 36(1)(ii) is not dispositive in the present case. The test is as to whether the assessee had furnished to the AO all the primary facts on the basis of which a deduction was claimed in respect of the commission that was paid to the two directors for services rendered. The record indicates that the assessee had specifically placed before the AO by its letter dt. 4th Sept., 2009, copies of the agreement dt. 16th June, 2005between the assessee and its directors in pursuance of which remuneration was paid to them for the relevant year which included the payment of commission. The attention of the AO was clearly and specifically drawn to the quantum of the fixed monthly remuneration and in addition to the payment of commission which is computed at a stipulated proportion of the net profits. The assessee explained the basis on which a decision was taken to make the payment of commission at a fixed monthly remuneration and the rest at a proportion of the net profit. According to the assessee, this decision was based on the volatility of the stock market and having regard to the fact that the income of the assessee from share business had reduced and in fact, it was Rs 35.51 crores in comparison to the income of Rs 57.07 crores for the previous year, This is therefore, a case where the nature of the payment, the basis of the computation and the rationale for computing the remuneration to the two directors with reference to a fixed remuneration in part and a proportion of the net profits in balance was brought in focus before the AO. Hence, all the primary facts for the purpose of a deduction under s. 36(l)(ii) were placed before the AO. That the order of assessment under s. 143(3) accepted the claim on this issue is what matters. It is not in dispute that the two directors have been assessed under s. 143(3) on the amounts paid by the assessee to them as salary income. The Revenue has admittedly treated the amounts paid to the directors in question as salary income in their hands and their assessments have been completed accordingly. In this view of the matter, the reopening of the assessments must be held to be based on a pure change of opinion and not on tangible material. Therefore, the conclusion is that the reopening of the assessment was on a mere change of opinion and was impermissible in law. For these reasons, the conclusion is that the reopening of the assessments under s. 147 for assessment years 2007-08 and 2008-09 is contrary to law. The notices issued under s. 148 for the aforesaid years are quashed and set aside - CIT Vs Kelvinator of India Ltd. (2010) 228 CTR (SC) 488: (2010) 34DTR (SC) 49: (2010) 320 ITR 561 (SC) The Assessing Officer was not correct in his action to assume jurisdiction over the appellant for the year under consideration. Additionally reasons recorded are based on Balance Sheet and Profit & Loss A/c furnished with return of income and was accepted in original assessment. It is a case of reappraisal of same facts. On which earlier Assessing Officer had taken a view on which the new Assessing Officer differs. In view of the above, it is submitted that, proceedings initiated u/s 147 of the Act and completion of assessment u/s 147/143(3) of the Act is ab-initio void and illegal is therefore quashed.
As the assessment proceeding u/s 147/148 has been quashed. Hence there is no need to go in to the merit in the case Rahul Kumar Bajaj (Pune Bench) ITA T.
In the result appeal is partly allowed.”
The revenue, being aggrieved, has filed this appeal before us.
5. Ld. DR relied on the order of the AO and submitted that the reopening of the assessment was valid in the eyes of law and so the order of the ld. CIT (A) be reversed and the matter may be remanded back to the ld. CIT (A) to be decided on merits.
On the other hand, ld. AR for the assessee reiterated the submissions made before the CIT (A) and submitted that it was incumbent on the AO to dispose off the objections before completing the reassessment. He submitted that the AO had not disposed off the objections of the assessee by a speaking order and had completed the assessment u/s 147/143(3). He further submitted that the AO simply mentioned that, “the submission of the assessee had been considered properly and found not acceptable. The submission of the assessee is considered carefully and it is seen that the provisions are in the nature of unascertained liability whereas the provisions of IT Act 1961 deals with ascertained liability.” Relying on the judgment of Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. ITO – 259 ITR 19, he submitted that without disposing the objections of the assessee by a speaking order, the assessment framed by the AO is bad in law. He further submitted that when the assessee had not claimed the liability the question or provisions which are in the nature of unascertained liability does not arise. He further submitted that it is already clear from the statement which had already been filed with the AO that the amounts mentioned had not been claimed and, therefore, the assertion of the AO that the income has escaped assessment did not arise and so, the AO lacked jurisdiction to reopen the assessment.
6.1 Ld. AR further submitted that when all the information had been furnished before the Assessing Officer at the time of completion of the original
143(3), the action of the Assessing Officer in reopening the assessment was not permissible. He further submitted that the objection raised by audit could not constitute tangible material for reassessment under section 147 / 148 of the Act and in this regard, he relied on the decision of the Hon’ble Delhi High Court in the case of Xerox Modicorp Ltd. vs. DCIT - 350 ITR 308. wherein the Hon’ble High Court held as under :-
"The audit objection was an inference that the royalty payment resulted in a capital benefit; such an opinion expressed by the audit could not constitute tangible material on the basis of which the assessment could be reopened. Therefore, the notice within the period of four years from the end of the assessment year 2004-05 was not valid".
Ld. AR submitted that the AO had made an addition of Rs.2,07,22,855/- without assigning any reason and pointed out that the assessee had not claimed the expenses in its return of income. He further submitted that complete information was furnished before the Assessing Officer at the time of completion of the original assessment under section 143(3) and the information on all the items were available on record at the time of the original assessment.
In view of the aforesaid submissions, ld. AR submitted that the reassessment is made only on the basis of a mere change of opinion which could not be a ground for reopening assessment proceedings. In the aforesaid circumstances, he submitted that the ld. CIT (A) has rightly quashed the reassessment proceedings and wanted us not to interfere with the order of the ld. CIT (A).
We have heard both the sides and perused the material on record. We find that the reasons had been taken from the facts disclosed in the assessee’s balance sheet as well as reflected in the Profit & Loss account which were also before the AO at the time of original assessment, hence, no escapement could have been attributed to the assessee. We take note that the reopening was done u/s 147 of the Act subsequent to the four-year period stipulated in the proviso to Section 147 and, consequently, the same could only be initiated, if any income chargeable to tax had escaped assessment by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice under Section 142(1) or Section 148 or "to disclose fully and truly all material facts necessary for his assessment" for that assessment year. We take note of the fact that all the information had been furnished before the AO at the time of completion of the original assessment u/s 143(3) of the Act, therefore, the reopening of the assessment is not legally permitted; and the internal audit objection could not be constituted as a tangible material for reopening and thereafter reassessment u/s 147/148 of the Act. In this regard, we find that the CIT (A) has rightly relied upon the order of the Xerox Modicorp Ltd. vs. DCIT (supra) for forming such an opinion. We find that the assessee has truly and completely disclosed all material facts relating to all the expenses at the time of scrutiny original assessment proceedings itself. We further uphold the view of the ld. CIT (A) that there has been no failure which could be attributed to the assessee of not disclosing fully and truly all relevant primary material facts
necessary for completion of assessment. We further find that reasons recorded were based on the audit report of the assessee which was furnished with the return of income. We further take note that the expenses related to agricultural activities were not claimed by the assessee and only the expenses on trading were claimed for which the detailed statement of accounts was filed. We find that these expenses were related to non-agricultural activities and due audit report u/s 44AB was also filed. We further find that the assessee had not claimed any of the expenses on the basis of which the assessment had been reopened. Therefore, we are of the view that the CIT (A) is right in holding that none of these expenses had been claimed by the assessee on the basis of which the reassessment proceedings were initiated and in this regard, ld. CIT (A) rightly relied upon the following judgments :-
(i) CIT vs. USHA International Ltd. in dated 21.09.2012; (ii) Hon’ble Supreme Court’s judgment in the case of M/s. Kelvinator of India Limited [2010-TIOL-06-SC-IT-LB]; (iii) Hon’ble Bombay High Court’s judgment in the case of OHM Stock Brokers (P) Ltd. vs. CIT & Anr. In WP Nos.79 to 92 of 2013 vide order dated 20.02.2013. In view of the above, we are of the opinion that the CIT (A) has rightly held that the AO was not correct to assume jurisdiction over the assessee for the year under consideration and no new facts were brought on record which gave reasons to believe that the income of the assessee had escaped assessment and, therefore, the reopening of assessment in the present case had been merely on the basis of change of opinion. Further, it is evident that all the material information was available in the course of original assessment for framing an assessment and the AO failed to bring on record new facts or material which provided reasons to believe that the income of the assessee has escaped assessment. Moreover, we take note that the objection of the assessee against reopening has not been answered by a speaking order as mandated by the Apex Court in GKN Driveshafts (India) Ltd. vs. ITO (supra) which also vitiates the reopening of the original assessment. In the aforesaid circumstances, we uphold the view of the ld. CIT (A) that the reopening is based on change of opinion which is not permissible as held by Hon’ble Supreme Court in CIT vs. Kelvinator of India Ltd. (supra).
7.1 In view of the above, since it is a case of change of opinion of the AO the ld. CIT (A) has rightly quashed the reassessment. Accordingly, we uphold the order of the ld. CIT (A).
In the result, the appeal of the revenue is dismissed.
Order pronounced in the Open Court on this 21st day of October, 2015.