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Income Tax Appellate Tribunal, “SMC” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM ]
Date of Hearing : 14.01.2016. Date of Pronouncement : 3.2.2016. ORDER This is an appeal by the Assessee against the order dated 30.10.2014 of CIT(A)-XXX, Kolkata, relating to AY 2005-06.
The Assessee is an individual. He carries on the business of civil construction in the name and style M/S.Jain Construction Company. For AY 2005-06, the Assessee filed return of income on 4.10.2005 declaring total income of Rs.1,01,590. The Assessment u/s.143(3) of the Act, was completed by the AO by his order dated 31.12.2007 determining total income of the Assessee at Rs. 3,48,760. One of the addition made while completing the assessment u/s.143(3) of the Income Tax Act, 1961 (Act) was an addition of Rs. 4,400/- being 20% of Rs.22,000/- on account of disallowance of purchases made by the Assessee from M/S.J.K.Suppliers, for which the Assessee made payment by cash in violation of the provisions of Sec.40A(3) of the Act. As per provisions of Sec.40A(3) of the Act as it existed for AY 2005-06, where the Assessee incurs any expenditure in respect of which payment is made, in a sum exceeding twenty thousand rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, twenty per cent of such expenditure shall not be allowed as a deduction. The Assessee challenged the aforesaid addition before CIT(A) but the CIT(A) by his order dated 23.1.2009 confirmed the action of the AO. -Tara Chand Jain, A.Y.2005-06 1 2.1. While the matters stood thus the AO issued a notice u/s.148 of the Act on 10.3.2010 for making an assessment u/s.147 of the Act, viz., to bring to tax income that has escaped assessment. The reasons recorded by the AO reads thus: “In the instant case, assessment was completed u/s 143(3) of the I.T.Act, on 31.12.07 at a Total Income of Rs.3,48,760/-. On scrupulous examination of scrutiny folder and the copy of the bank statement (Vijaya Bank, Burrabazar Branch, a/c no.240010) of M/s. Jain Construction, the proprietorship concern of the assessee, it is found that cash cheques exceeding Rs.20000/- were issued to several parties on different dates as per table below :- Date Name of the payee Amount of Cash cheque (Rs.) 06.07.04 F.Ali 45,000/- 29.09.04 R.A.Pailan 1,50,000/- 01.10.04 R.A.Pailan 1,00,000/- 06.10.04 R.A.Pailan 50,000/- 11.10.04 S.K.Badruddin 1,00,000/- 14.10.04 Bipad Taran Rudra 69,800/- 15.10.04 Payal Construction 40,000/- 30.10.04 R.A.Pailan 1,00,000/- 01.11.04 Payal Enterprise 87,430/- 02.11.094 R.A.Pailan 75,000/- 05.11.04 S.K.Baduddin 50,000/- 08.11.04 R.A.Pailan 1,00,000/- 09.11.04 R.A.Pailan 2,00,000/- 10.11.04 J.K.Suppliers 42,078/- 18.11.04 R.A.Pailan 35,000/- 19.01.04 R.Chakraborty 1,00,000/- Total 13,44,308/-
20% of these cash payments are disallowable u/s 40A(3) of the I.T.Act, 1961. In light of the above observation, there is every reason to believe that the income to the extent of Rs.2,68,862/- has escaped assessment.”
2.2. By an order of assessment dated 30.12.2010, the AO disallowed 20% of Rs.13,44,308 and added a sum of Rs.2,68,862 to the total income already determined in the case of the Assessee. The CIT(A) allowed partial relief to the Assessee. The Assessee is in appeal against the order of the CIT(A) before the Tribunal.
The only ground of challenge before the Tribunal is to the validity of assumption of jurisdiction u/s.147 of the Act. Though this ground of appeal was not raised before the AO or CIT(A), this ground being a legal ground can be raised at any Chand Jain, A.Y.2005-06 2 time. Therefore there cannot be any objection to raising of such ground of appeal for the first time before the Tribunal.
It was the submission of the learned counsel for the Assessee before me that the AO has on the basis of the very same material which was available with him while he completed the original assessment proceedings and without any other tangible material coming to his possession resorted to reopening of completed assessment. According to him doing so would be assumption of jurisdiction to reopen assessment purely based on change of opinion and without fresh tangible material coming to his possession after conclusion of the original assessment proceedings. The learned counsel for the Assessee relied on the decision of the Hon’ble ITAT Mumbai Bench in the case Motilal R.Todi Vs. ACIT order dated 22.9.2015 wherein it was laid down that availability of new tangible material indicating escaped income of the Assessee, which should have come into possession of the AO, after passing of the assessment order u/s.143(3) of the Act, is necessary for valid assumption of jurisdiction u/s.147 of the Act.
In the present case, it was noticed by me that the case of the assesse is that there was no fresh tangible material in the possession of AO at the time of recording of impugned reasons. A perusal of the ‘Reasons’ recorded by the AO in this case reveals that at the time of recording of these ‘Reasons’ the AO had examined original assessment records only and no fresh material had come in the possession of the AO. In response to our specific query also, Ld DR could not point out any fresh material available with the AO at the time of reopening of the case of the assessee. Thus, assertion of the assessee that there was no fresh material with AO for reopening of this case, remained uncontroverted.
On identical facts, the Mumbai ITAT in the case of Motilal R.Todi (supra) held as follows: “6.7. Under these facts and circumstances, let us now examine settled position of law on this issue. It has been held in various judgments coming from various courts that availability of fresh tangible material in the possession of AO at the time of recording of Chand Jain, A.Y.2005-06 3
impugned reasons is a sine qua none, before the AO can record reasons for reopening of the case. We begin with the judgment of Hon’ble Supreme Court in the case of CIT vs. Kelvinator India Ltd. 320 ITR 561 (SC), laying down that for reopening of the assessment, the AO should have in its possession ‘tangible material’. The term ‘tangible material’ has been understood and explained by various courts subsequently. There has been unanimity of the courts on this issue that in absence of fresh material indicating escaped income, the AO cannot assume jurisdiction to reopen already concluded assessment.
6.8. Recently, Hon’ble Delhi High Court in the case of Pr. CIT vs Tupperware India Pvt. Ltd., in its order dt 10-8-15 (ITA no 415/2015 ) got an occasion to analyse latest position of law on this issue. After discussing many judgments on this issue, it was held that even in the case of original assessment order having been passed u/s 143(1), it is mandatory for the AO to have in its possession, fresh tangible material before reopening of the case.
6.9 In the case of Bombay Stock Exchange Ltd. (writ petition no.2468 dt. 12.06.2014) (89 CCH 118), Hon’ble Bombay High Court observed as under: “5. It is pertinent to note that Respondent No.1 has not set out in the reasons which fact or other material was not disclosed by the Petitioner that led to income escaping assessment. In fact, on going through the reasons, we find that Respondent No.1 has come to the conclusion/belief that income had escaped assessment on the basis of the material already before him and no new tangible material has been relied upon by Respondent No.1 to come the said conclusion/belief. This is clear from the use of the words “on perusal of the records it is noticed........”, “further perusal of statement 2 enclosed with the computation of income shows.......” and “it is further noticed......” in the impugned notice.”
6.10. In the case of CIT vs. Orient Craft Ltd. 354 ITR 536, it was observed by Hon’ble Delhi High Court that in the said case, Reasons for reassessment disclosed that AO reached belief that there was escapement of income "on going through the return of income" filed by assessee after he accepted return u/s. 143(1) without scrutiny, and nothing more. In these facts, it was held by the Hon’ble High Court that it was nothing but review of earlier proceedings and abuse of power by AO. It was further held that since there was no whisper in reasons recorded, of any tangible material which came to possession of AO subsequent to issue of intimation, therefore, it was an arbitrary exercise of power conferred u/s 147. Thus, reopening was held to be invalid on this ground itself. 6.11. In the case of Mohan Gupta (HUF) vs. CIT 366 ITR 115, same view has been followed by Hon’ble Delhi High Cout. 6.12. Further, in the case of CIT vs. K. L. Arora in ITA 118/2014 dated 21-04-2014, Hon’ble Delhi High Court observed as under: “This Court is of the opinion that no fault can be found with the Tribunal’s order. It is well settled that in order to issue a valid reassessment notice, the AO has to be satisfied on the basis of tangible material or information subsequently available to him that the assessee had not made full and true disclosure which led to income escaping assessment at the stage when the original assessment was completed. Short of that a reappreciation of the existing materials which really amounts to review is impermissible. The Tribunal, in the circumstances of this case was justified in concluding that re-assessment -Tara Chand Jain, A.Y.2005-06 4 proceedings themselves were not in accordance with law and consequently dismissing the Revenue’s appeal. No question of law arises for consideration.”
6.13. In the case of CIT vs. Shri Atul Kumar Swami in dated 18-03- 2014 reported at 52 Taxmann.com 47, Hon’ble Delhi High Court observed as under: “…..Reopening of assessment is valid if it is based on tangible material to justify conclusion that there was escapement of income—In instant case note forming part of return clearly mentioned and described nature of the receipt under a non-compete agreement—Reasons for issuance of notice u/s 147 nowhere mentioned that revenue came up with any other fresh material warranting reopening of assessment—Mere conclusion of proceedings u/s 143(1) ipso facto does not bring invocation of powers for reopening assessment—Reopening of assessment was unjustified—Revenue’s appeal dismissed.”
6.14. Further reliance can be placed on the detailed judgment in the case of Madhukar Khosla vs. ACIT 367 ITR 165 (Delhi), wherein it has been held that the reopening is not permitted under the law unless it is based on fresh tangible material and that if The “reasons to believe” are not based on new, “tangible materials”, the reopening amounts to an impermissible review. It has been further observed that : “The foundation of the AO’s jurisdiction and the raison d’etre of a reassessment notice are the “reasons to believe”. Now this should have a relation or a link with an objective fact, in the form of information or facts external to the materials on the record. Such external facts or material constitute the driver, or the key which enables the authority to legitimately re-open the completed assessment. In absence of this objective “trigger”, the AO does not possess jurisdiction to reopen the assessment. It is at the next stage that the question, whether the reopening of assessment amounts to “review” or “change of opinion” arises. In other words, if there are no “reasons to believe” based on new, “tangible materials”, then the reopening amounts to an impermissible review. Here, there is nothing to show what triggered the issuance of notice of reassessment – no information or new facts which led the AO to believe that full disclosure had not been made (Kelvinator of India Ltd [(2010)320 ITR 561 (SC)] and Orient Craft Ltd [(2003)354 ITR 536 (Delhi)] followed, Usha International [(2012)348 ITR 485 (Del) (FB)] referred)”
6.15. In the case of CIT vs Jyoti Devi 218 CTR 264, Hon’ble Rajasthan High Court held that since Revenue could not point out any information or material which had subsequently come to the notice of the AO to enable him to form the requisite belief that any income liable to be assessed had escaped assessment, therefore, the initiation of reassessment proceedings was not valid.
6.16. Hon’ble Madras High Court in the case of Bapalal & Co. Exports 289 ITR 37, held that in the absence of any new material, the AO is not empowered to reopen an assessment irrespective of the fact whether it was made under s.143(1) or s. 143(3).
6.17. Recently, Mumbai Bench of ITAT in the case HV Transmissions Ltd. in held that even though original assessment was made under s. 143(1) and not under s. 143(3), assessee having made full disclosure of its income, AO was not justified in reopening the assessment in the absence of any new material. Hon’ble Bench has relied upon third member judgment from Mumbai Bench of ITAT in the case Telco -Tara Chand Jain, A.Y.2005-06 5
Dadajee Dhackjee Ltd vs DCIT ( dt 12-5-2010), in support of this view. 6.18. Similar view has been expressed by Hon’ble Delhi Bench of ITAT in the case of M/s Nexgen School of Business Vs. Deputy Commissioner of Income Tax, [ITA No.5609/DEL/2010] holding that the Assessing Officer was not justified to initiate the reopening proceedings in absence of any new information or material on record since the date of filling and processing of the return of income.
In the present case, it has already been discussed that admitted facts are that there was no fresh material coming into the possession of the AO, at the time of recording of the ‘Reasons’. These facts have not been rebutted by Ld DR also. Thus, in view of decisions referred to above, reopening done by Ld. AO in the absence of fresh tangible material, is invalid and bad in law. Therefore, the initiation of reassessment proceedings was not valid. Thus, re-assessment order framed in pursuance to invalid reopening is illegal; the same is hereby quashed.
In the result, appeal by the Assessee is allowed.
Order pronounced in the Court on 3.2.2016.