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Income Tax Appellate Tribunal, “E”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN, JM
O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the revenue and cross objection filed by the assessee against the order of CIT(A), Mumbai, for the assessment year 2004-05, in the matter of order passed u/s.143(3) r.w.s.148 of the IT Act.
2. Rival contentions have been heard and record perused. In this case, the assessment was reopened by issue of notice u/s.148 on 6-3- 2 & CO No.70/2013 2009. After reopening the AO reduced the deduction claimed u/s.10A and 80HH. The contention of assessee was that reason for reopening was recorded much after issue of notice u/s.148, accordingly reassessment order so framed is liable to be annulled.
By the impugned order the CIT(A) held that reopening of assessment by issue of notice u/s.148 dated 6-3-2009 is not a valid. Precise observation of the CIT(A) was as under :- “3. In the appeal proceedings, the appellant filed detailed written submissions vide letter dated 29.07.2010. A Paper Book containing numerous documents relating to the reopening proceedings containing the following :-
14 Company’s detailed submissions to the reopening proceedings vide 14 letter dated 28th October 2009 15 Order rebutting assessee’s objections issued by the 15 Dy.Commissioner of Income Tax 2(3) vide letter dated 28th October 2009 Company’s reply dated 23 November 2009 to the Order dated 28th 16. 16 October 2009 The appellant also furnished a Paper Book containing 7 case laws: (i) Commissioner of Income Tax v Information Architects (322 ITR 1) Bombay High Court (ii) Zylog Systems Ltd. v ITa (128 ITO 105) ITAT-Chennai Special Bench. (iii) Patni Telecom (P) Ltd. v. ITa (22 SOT 26) ITAT 'A' Bench, Hyderabad.
3 & CO No.70/2013 (iv) Changepond Technologies (P) Ltd. v. ACIT (22 SOT 220), ITAT 'A' Bench Chennai. (v) OCIT vs Softsollndia Ltd. (22 SOT 271) ITAT 'A' Bench, Hyderabad. (vi) CIT v Gem Plus Jewellery India Ltd. (330 ITR 175) Bombay High Court. (vii) Rajoo Engineers Ltd. v DCIT (218 CTR 53) Gujarat High Court.
Attention was drawn to documents in the Paper Book to the fact;- (i) That the notice u/s.148 is dated 06.03.2009 signed by Shri Bharat B. Garg, ACIT-2(3), Mumbai, (ii) 'The AO, Shri K. R. Iyengar, DCIT-2(3), Mumbai vide letter dated 25.08.2009 sent the attested true copy' of reasons recorded for reopening the assessment for A.Y.2004-05, (iii) The attested true copy of reasons recorded' contents the date as 19.03.2009 signed by Shri Bharat B. Garg, ACIT-2(3), Mumbai. It is seen that in the reasons recorded the AO states that store launch expenses of Rs.293.24 lakhs debited by the assessee in the P&L A/c needs to be added back in the computation of income and in the second last Para the AO writes that he is "satisfied and have reason to believe that income to the extent of Rs. 3.02 lakhs chargeable to tax has escaped assessment within the meaning of the provision of section 147 of the I.T.Act.", (iv) The AO, Shri K. R. Iyengar, DCIT-2(3), Mumbai sent a notice u/s.142(1) dated 18.09.2009 asking the appellant to show cause 'as to why the store launch expenses of Rs.293.4 lakhs debited to your P&L Ale. should not be disallowed', The appellant filed a letter dt.09.1 0.2009 stating that they have not claimed any expenditure of Rs.293.4 lakhs and the reasons recorded by the AO on 19.03.2009 do not pertain to the appellant company and the reasons are incorrect and erroneous, (vi) The AO vide notice u/s.142 dt.12.10.2009 stated that the reasons dated 19.03.2009 recorded by my predecessor did not pertain to your company. On perusal of the records, it is seen that your contention is correct. The AO states that it is further seen from the records that there was a clerical error in filing the papers. It is seen from the assessment record that the AO has recorded the correct reasons in your case on 19.03.2009, a copy of which is enclosed. Copy of reason recorded signed by Shri Bharat B. Garg, ACIT-2(3), Mumbai dated 19.03.2009 and also dated by pen by Shri Bharat B. Garg, ACIT·2(3), Mumbai as "19.03.2004".
4 & CO No.70/2013 5. This office sent a letter dated 26.09.2011 stating as under: "1. The appellant has challenged the validity of reopening proceedings submitting that: (i) Notice u/s.14B was issued on 06.03.2009 and served on 09.03.2009 and the reasons for reopening was recorded on 19.03.2009. (ii) The copy of reasons provided to the appellant vide your office letter dated 25. OB. 2009 did not pertain to or were applicable to the appellant company. (iii) Vide letter dated 12.10.2009 of your office the appellant was informed that there was clerical error in filing the papers and correct reason in their case was enclosed. The reason was dated 19.03:2009. (iv) The appellant has further submitted that the tax effect is much less than Rs. 542 Crores.
2. Copy of the written submission of the appellant vide letter dated 29.07.2010 is enclosed.
The AO sent a remand report dated 30.09.2011 stating as under: "Kindly refer to the letter No. CIT(A)-6/Reportl2011-12 dated 26.09.2011 on the subject matter.
Vide the above referred letter I have been directed to submit the submission on the validity of reopening proceedings. My report thereon is as under: 3. The first objection of the assessee is that notice u/s. 14B was issued on 06.03.2009 whereas the reasons for reopening were recorded on 19.03.2009. In this connection I am enclosing copy of the order sheet wherein reasons for reopening were recorded. It is ample clear that the reasons were recorded on 05.03.2009 and not on 19.03.2009. However, in the 'typed copy' of the reasons, the date was wrongly mentioned as 19.03.2009. In view of the above, it is clear that there was a mistake in typed copy communication given to the assessee. 4.Further, there was mistake in communicating the reasons to the assessee. The correct reasons were subsequently provided to the assessee when this mistake was brought to the notice by the assessee. But the fact remained the Assessing Officer correctly recorded the reasons on 05.03.2009.
5 & CO No.70/2013 5. As regards tax effect, the same has been worked out at Rs. 212.72 crores on an income escaped of RS.592.93 crores in the reasons recorded by the Assessing Officer. In view of the above, it is submitted that the Assessing Officer properly recorded the reasons for reopening on 05.03.2009 i.e. a day before the issue of notice u/s.14B. There had been a mistake while communicating the reasons to the assessee. "
The appellant was asked to furnish their comments and the appellant vide letter dated 03.11.2011 furnish their comments as under: SUB: Appellate Proceeding for A. Y. 2004-05 against Order of the A. 0. under Section 143(3) r.w.s. 148 dated 30.12.09 We are surprised to receive your letter Ref. CIT(A) – 6/Report/2011-12 dated 4th Oct.2011 along with letter Ref. DCIT 2(3)/Remand Reportl2011-12 dated 3()th Sept.2011 signed by the present A.O. (Mr. Anil Gupta) enclosing a hand written statement of the reasons for re-opening under Sec. 148 for A. Y. 2004-05, signed by the then A. 0. (Mr. Bharat Garg) with date 5th March 2009. We strongly oppose the substitution of the reasons, which were; • furnished to us on two occasions and on both occasions the reasons were dated 19 March 2009; and • countered by us as per the provisions of section 148(2) as having been recorded after the issue of the Notice under section 148(1). We wish to take you through the sequence of events which had taken place during the re-opening proceedings: • Notice issued under Sec. 148 dated 6th March 2009. • Vide letter dated 25th Aug.2009, attested true copy of the reasons recorded for re-opening were enclosed. The statement recording the reasons, was dated 19103109 and the same was duly signed by the then A. O. (Mr. Bharat Garg). These reasons, specifically for reopening the assessment of Tata Sons Ltd, pertained to error in claim and allowance of Store Launch Expenses. • Vide our letter dated October 9, 2009, we informed the then A. 0. (Mr. Iyengar) that the said reasons dated 19 March 2009, were not applicable to us, and, therefore, the proceedings initiated vide 6 & CO No.70/2013 Notice under Sec. 148 dated 6th March 2009 were null and void and hence the re-assessment proceedings initiated thereby had come to an end. Vide Notice under Sec.142(1) dated 12th October, 2009 the AO Mr. Iyengar referring to our letter dated October 9, 2009, mentioned that; You have mentioned that the attested copy of the reasons dated 19-03-09 recorded by my predecessor did not pertain to your company. On perusal of the records, it is seen that your contention is correct. It is further seen from the records that there is a clerical error in filing the papers. It is seen from the assessment records that the Assessing Officer has recorded the correct reasons in your case on 19-03-2009, a copy of which is enclosed". (Emphasis supplied). The stated enclosed copy of the reasons, which was furnished to us, were obviously recorded on 19/3/09 as admitted by the A 0. Further, the said reasons were signed by the then A O. (Mr. Bhrat Garg) with a handwritten date of 19/3/09. • Vide our letter dated 28th Oct.2009 we had specifically raised the issue of the reasons for re-opening being recorded after the date of the Notice under Sec. 148, which is contrary to the provisions of the said Section, resulting in the reassessment proceedings being bad in law and the same should be dropped. • Vide Rebuttal Order dated 11th Nov.2009, on this specific issue of reasons for re-opening being recorded after the date of the Notice under Sec.148, the then A 0. (Mr. Iyengar) did not produce any other earlier dated reasons and merely referred to the provisions of Sec.292B and stated that "merely by reasons of putting inadvertently the date subsequent to the Notice does not invalidate the proceedings". Appellant's Contention. If the reasons which have now been furnished existed ( dated 5th March, 2009), the AO. would have furnished these reasons and not defended his position by relying of Sec. 292B, when the specific issue of reasons recorded after the date of the Notice was raised before him. • Vide letter dated 23rd Nov.2009, we had further reiterated our stand that the failure to record reasons before issuing the Notice under Sec. 148 of the Act results in the reassessment proceedings in pursuance of such a Notice, being void ab initio and non est. Appellant's Contention.
Even after pointing out that the invalid Notice, "on account of reasons recorded after the date of the Notice as per section 148(2)", could not be cured by the provisions of section 292B (as meekly relied upon by the AO. to counter our objections in his Rebuttal Order dated 10 November 2009), the A 0. could not produce the reasons purported to have been recorded on 5 March 2009. • Order under 143(3) r.w.s.148 dated 30.12.09, was passed. In the said Order, on the issue of the reasons for reopening being recorded after the date of the Notice u/s. 148, the A O. repeated verbatim his earlier stand. Appellant’s contention : Even after the submissions made by the Appellant vide letter dated 23 November 2009 and before passing of the Order under section 143(3) r.w.s.147, the AO could not produce any reasons recorded prior to 19 March 2009. The Appellant is therefore left with no alternative but to conclude that the reasons dated 19 March 2009, which were furnished to the Appellant during the re-assessment proceedings, were the only reasons which were available with the A O. Subsequently, in early September 2011 we appeared before you in connection with the hearing of our appeal against the subject order. (Several hearing had also been held before your predecessor but no Order for this Appeal was finally passed by your predecessor). We understand that vide your letter No. CIT(A) - 6/Report/2011-12 dated 26.09.2011, you had asked for a Remand Report from tl7e AO. (Mr. Anil Gupta). In reply, the AO. has suddenly changed the Department's stand and now contradicts the earlier position taken on four previous occasions being; • Letter dated 25/8/09 of the AO enclosing the attested true copy of the reasons recorded on 19/3/09; • Our letter dated 9/10/09 - informing the A O. that the reasons dated 19/3/09 were not applicable to the appellant and hence the reassessment proceedings had come to an end; • Rebuttal Order dated 10/11/09 - wherein the A. O. referred to the provisions of Sec. 292B; and • Order dated 30/12109 - repeating verbatim his earlier stand.
8 & CO No.70/2013 and now states that the reasons were recorded on 05.03.2009. After the conclusion of the re-assessment proceedings, the A O. (Mr. Anil Gupta) has enclosed a hand written statement detailing the reasons for re-opening under Sec.148 signed by the then A O. (Mr. Bharat Garg) with date 05/03/09. We fail to understand that when during the re-opening proceedings, we had repeatedly raised the issue that the reasons were recorded after the date of the Notice under Sec. 148, the then AO. (Mr. Iyengar) had never once mentioned that the reasons were recorded on 5th March 2009. In fact he meekly took refuge under the provisions of Sec.292B, stating that merely by reasons of putting inadvertently the date subsequent to the Notice does not invalidate the proceedings. If the reasons were recorded on 05/03/09, as is now being claimed, the A O. (Mr. Iyengar) only had to open the file and furnish to us a copy of the same and the said matter would have got closed. It is difficult to comprehend that in spite of several correspondences as stated above, the A O. (Mr. Iyimgar) could not locate the hand written reasons signed by the then AO. (Mr. Bharat Garg) with date 05/03/09. In fact, the then AO. (Mr.lyengar) vide Notice under Sec. 142(1) dated 12th Oct.2009 had categorically stated that "it is seen from the assessment records that the Assessing Officer has recorded the correct reasons in your case on 19-03-2009, a copy of which is enclosed". (Emphasis supplied). Appellant also contends that once the order under Sec. 143(3) r.w.s. 147 is passed on 30.12.09, no new evidence can be considered or taken on record. This is more so when the Appellant during the reassessment proceedings had raised the specific issue of the reasons having been recorded after the date of the Notice under Sec. 148 and the then A O. (Mr. Iyengar) had dealt with it by merely relying on provisions of Sec. 292B. Now, after a gap of more than the and a half years when the subject matter is remanded to the A O during Appellate proceedings, suddenly, a hand written statement stating the reasons for re-opening dated 05/03/09 is produced. The Appellant therefore respectfully submits that the reasons dated 19 March 2009, furnished to the Appellant, as per the procedure laid down by the Supreme Court in the case of GKN Driveshafts (India) Ltd v Income-tax Officer & Others (259 ITR 19), are the only reasons which should be considered for the re- assessment proceedings. The Appellant further submits that, in accordance with the procedure as laid down by the Supreme Court, the Appellant is entitled to file its objection on the basis of the reason furnished to the Appellant and further the A. O. is bound to pass a speaking order on the said objections before proceeding with the re-assessment proceedings.
Therefore, the Appellant once again reiterates that no statement of reasons, other than the reasons furnished not only prior to the Order under section 143(3) r.w.s.147 but in fact prior to the Rebuttal Order, can be relied upon. The procedure of re- assessment as laid down by the Supreme Court, does not envisage supplementing the reasons furnished during the initiating of the re-assessment proceedings by any other material fact after passing the Rebuttal Order and definitely not after passing the Order under section 143(3) r.w.s.147. The Appellant also submits that it is inconceivable that an A. O. could be so callous in not examining the re-assessment records available with him, especially in a case involving such a high demand and more so where the Appellant repeatedly pointed out to the AO. the fatal effect of the reasons recorded after the date of the Notice. The A. O. cannot be allowed at this late stage to multiply the errors and disregard the procedure as laid down by the Supreme Court in the case of GKN Driveshafts (India) Ltd. For these reasons the Appellant objects to reliance in any manner on "Reasons dated 5/3/09" not produced to the Appellant during the reassessment proceedings. These new reasons are required to be disregarded and the Appeal may please be decided based on the records upto the time of passing the Order u/s.143(3) r.w.s. 147 dated 30/12109 viz. the reasons dated 19/3/09.
I have gone through the order and report, letter of the AO and submissions and documents furnished by the appellant. 8.1 There are three reasons for reopening of assessment has been recorded by Shri Bharat B. Garg, ACIT·2(3), Mumbai· (a) The reasons for reopening u/s.148 which was forwarded by Shri K. R. Iyengar, DCIT-2(3), Mumbai to the appellant vide his letter dated 25.08.2009. (b) The reasons for reopening of assessment forwarded by Shri K. R. Iyengar, DCIT-2(3), Mumbai to the appellant vide his letter dated 12.10.2009. (c) The reasons for reopening of assessment forwarded by Shri Anil A. Gupta, ACIT-2(3), Mumbai to this office vide his letter dated 30.09.2011. 8.2 All the three reasons suffers from infirmity and blunders as analyzed under:-
10 & CO No.70/2013 (a) The reasons for reopening u/s.148 which was forwarded by Shri K. R. Iyengar, DCIT-2(3), Mumbai to the appellant vide his letter dated 25.08.2009. (i) In this reason for reopening, the facts mentioned regarding escapement of income did not pertain to the appellant company and this fact was accepted by Shri K. R. Iyengar, DCIT-2(3), Mumbai in his letter dated 12.10.2009 written to the appellant. (ii) The notice u/s.148 is dated 06.03.2009 signed by Shri Bharat B. Garg, ACIT-2(3), Mumbai. (iii) The reason recorded is dated 19.03.2009. Thus, the reason recorded on 19.03.2009 is subsequent to the notice u/s.148 issued on 06.03.2009 and the reason recorded contends facts which do not pertain to the appellant company. (b) The reasons for reopening of assessment forwarded by Shri K. R. Iyengar, DCIT-2(3), Mumbai to the appellant vide his letter dated 12.10.2009- (i) This reason recorded for reopening is dated "19.03.2009" (typed on Page 2 of the reasons) and is also dated "19.03.09" as put by pen below his signature by Shri Bharat B. Garg, ACIT-2(3), Mumbai. (ii) The notice u/s.148 is dated 06.03.2009, signed by Shri Bharat B. Garg, ACIT-2(3), Mumbai. Thus, the reason recorded on 19.03.2009 is subsequent to the notice u/s.148 issued on 06.03.2009. (c) The reasons for reopening of assessment forwarded by Shri Anil A. Gupta, ACIT-2(3), Mumbai to this office vide his letter dated 30.09.2011- (i) The handwritten reasons recorded dated 05.09.2009 was never given to the appellant whereas the aforesaid mentioned two reasons were given to the appellant. (ii) The handwritten reasons were forwarded in response to this office's letter dated 26.09.2011 which was forwarded by this office to the appellant vide letter dated 04.10.2011 and the appellant filed their comments on the same vide letter dated 03.11.2011. 8.3 The entire sequence of events mentioned in the aforesaid part of the order clearly indicate that the reasons recorded for reopening suffers from various blunders and the same cannot be validated by virtue of section 292B, which states that the notice 11 & CO No.70/2013 etc. cannot be deemed to be invalid merely by reason of any mistake, defect or omission in notice other proceedings'. The present case is an absolutely bizarre, weird and out of ordinary having three reasons recorded for reopening, out of which one contains facts that do not pertain to the appellant and is recorded subsequent to the date of issue of notice, the second one was given to the appellant after being informed by the appellant that the first one does not contain facts pertaining to the appellant and was also recorded subsequent to the issue of notice u/s.148, and the third one was never given to the appellant. For reopening an assessment, it is mandatory to record 'reason to believe' prior to issue of the notice and when an assessee asked for the reasons recorded, the AO is required to provide the reasons to the appellant. In the present case, the two reasons recorded and provided to the appellant were recorded subsequent to the issue of notice and the third reason was never made available to the appellant in course of reassessment proceedings. Thus, it is found that the entire proceedings stand vitiated by the infirmity and blunders in the three 'reasons recorded for reopening' the assessment. It is, therefore, held that the reopening proceedings, initiated by issue of notice u/s.148 dated 06.03.2009, is not valid .”
4. However, the CIT(A) has not decided the merit of the addition on the plea that the reopening initiated by issue of notice u/s.148 dated 6-3- 2009 is not valid. Against the above order of CIT(A), the revenue is in appeal before us and contended that the CIT(A) was not correct in questioning the reopening of assessment, whereas the assessee has filed cross objection supporting the CIT(A)’s conclusion to the effect that CIT(A) was justified in quashing the reopening. The assessee in ground No.3 of cross objection, has requested the Tribunal to direct the CIT(A) to adjudicate the other grounds of the appeal which he declined to do in para 9 of his appellate order.
5. It was contended by ld. CIT DR that reasons were recorded much prior to the date of issue of notice u/s.148 dated 6.3.2009, however, while 12 & CO No.70/2013 supplying the reasons to assessee, inadvertently wrong date was put on the reasons.
We have considered rival contentions, carefully gone through the orders of the authorities below and found from the record that a clear finding has been recorded by the CIT(A) to the effect that reasons for reopening was recorded much after issue of notice u/s.148. The Bench specifically asked the department to produce the assessment records so as to substantiate the date of issue of notice u/s.148 vis-à-vis date of recording of reasons. Ld. CIT(DR) produced the assessment records and also filed photocopies of the notesheet which is placed on record. From the notesheet, we found that the first entry pertains to issue of notice u/s.148 dated 6-3-2009 and the last entry is dated 16-12-2009. However, we do not find any entry in notesheet recording the reasons for reopening, after the date of issue of notice on 6-3-2009 u/s.148, it means reasons for reopening was not recorded after issue of notice u/s.148 dated 6-3-2009. Since note sheet recording entries prior to the date of issue of notice u/s.148 dated 6-3-2009 was not made available to us, it is not possible for us to find out independently as to whether any reasons for reopening was recorded prior to issue of notice u/s.148. As per entry on the note sheet, between 24-8-2009 to 16-12-2009, the assessee had asked for issue of reasons and the AO has sent the reasons. However, the notings of the proceedings carried out by AO before issue of notice u/s.148 was not made available to us. Thus, the copy of notesheet so filed by ld. DR which