DCIT CIR 22(1), MUMBAI vs. JAI GLASS WORKS, MUMBAI

3. Rival contentions have been heard and record perused. Facts in brief are that in this case, return of income declaring income at Rs.12,09,990/- was filed on 01.11.2004. The return was duly processed u/s.143(1) of the Act. Subsequently the case was reopened by issue of notice u/s.148 of the Act dated 23.06.2008 after duly recording the reasons for reopening the assessment (the claim of Keyman Insurance amounting to Rs.25,00,000/- was to be disallowed as decided in the assessment for the A.Y.2005-06). In response, return of income declaring total income of Rs.37,09,990/- was filed on 17.07.2008, wherein Keyman Insurance Premium paid of Rs.25,00,000/- was offered for taxation. The assessment was completed u/s.147 r.w.s143(3) of the Act determining the total income at Rs.58,68,250/-. In the re-assessment order so framed no addition was made with respect to Keyman Insurance of Rs.25 lakhs. However, the AO has made other additions on account of purchases, commission expenditure, foreign travel expenditure etc. The assessee challenged the reassessment so framed u/s.143(3) r.w.s.147 on the plea that no addition was made with reference to the disallowance of Keyman Insurance Premium, which was the only reason for reopening the 3 1518 & 2206/14 assessment, therefore, reassessment order do not survive. The contention of ld. AR was that the assessee had voluntarily withdrawn the claim of Keyman Insurance Premium on 28.3.2008 i.e. prior to issue of notice u/s.148 dated 23.6.2008. It was further submitted that even in the return of income so filed in response to notice u/s.148 the assessee had declared total income of Rs.37,09,990/- wherein Keyman Insurance paid of Rs.25 lakhs was offered for taxation.

At the outset, it was contended by ld. AR that the assessee had filed appeal before the Tribunal i.e. ITA No.2557/Mum/2013 for AY 2006- 07, wherein the additional grounds of appeal

In the instant case, the plea of the assessee is that the additions made in the impugned assessment on account of following items namely, (i) Rs. 11,54,017/- out of expenditure on commission paid; (ii) Rs. 1,26,126/- bad debts; (iii) Rs. 1,67,162/- out of foreign travel expenses; (iv) Rs. 1,00,000/- out of the total 5 1518 & 2206/14 travelling expenses of Rs. 9,13,311/-; (v) Rs. 64,638/- out of the transport charges; (vi) Rs. 10,00,000/- on account of interest relating to the loans advanced; (vii) Rs. 46,871/- out of depreciation claimed; (viii) Rs. 70,389/- out of the telephone expenses; and, (ix) Rs. 86,496/- out of Motor Car expenses and depreciation, could have been made only in case the income referred to in the notice of reassessment i.e. payment of Keyman Insurance premium of Rs. 25,00,000/- has been assessed. According to the appellant, the Keyman Insurance premium paid of Rs. 25,00,000/- was offered to tax by the assessee voluntarily prior to the initiation of proceedings u/s 147 /148 of the Act by paying the requisite tax and interest on 27.03.2008 itself. Thus, the same could not be construed as an income which has been assessed by the Assessing Officer in the impugned assessment order dated 29.12.2008.

Another aspect which is central to the controversy before us is that under section 147/148 of the Act, the Assessing Officer gets jurisdiction to assess or re-assess the income which has escaped assessment only after complying with the requirements of sub- section (2) of section 148, which prescribes that the Assessing Officer ought to “record his reasons” for initiation of proceedings u/s 147/148 of the Act. The question is as to whether the requirements of sub-section (2) of section 148 of the Act, has to be complied with even where the Assessing Officer seeks to assess or re-assess an escaped income which comes to his notice subsequently in the course of proceedings which were initiated under section 147/148 on some other grounds. In other words, in case where the proceedings are already initiated u/s 147 of the Act, then in respect of the items stated in the reasons recorded, it would not be necessary to record any further reasons contemplated in section 148(2) but in respect of the items which come to his notice subsequently, is it necessary that he should record the reasons contemplated under sub-section (2) of section 148 of the Act to assess or reassess such incomes? The aforesaid controversy has been considered by the Hon‟ble Kerala High Court in the case of Travancore Cements Ltd. (Supra) and the following discussion in the order of Hon‟ble Kerala High Court is relevant:- “9. Section 148 deals with issue of notice where income has escaped assessment. It states that before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed. Sub-section (2) of section 148 states that the Assessing Officer shall before doing so record his reasons for issuing such notice. Recording of reasons before issuing notice is a mandatory requirement.

By applying the aforesaid principle laid down by the Hon‟ble Court we may now examine the issue as to whether in the instant case, the Assessing Officer has correctly assumed jurisdiction to assess the nine items of income totaling to Rs. 26,34,935/-, noted by us earlier. Quite clearly, all the aforesaid nine items, which we have detailed earlier, are unconnected with the issue which formed the basis for initiation of proceedings u/s 148 of the Act. Pertinently, the proceedings were initiated to bring to tax the payment of Keyman Insurance premium of Rs. 25,00,000/-. Moreover, it is not the case of the Assessing Officer that during the course of impugned assessment proceedings, he has come across any material relating to the aforesaid nine items which suggested that any escapement of income within the meaning of section 147 of the Act. Under these circumstances, we are in agreement with the assertions put forth by the assessee that the aforesaid incomes have been sought to be assessed based on fishing and roving enquiries in matters, which were unconnected with the original issue on the basis of which proceedings u/s 147 were initiated. Factually speaking, in the entire assessment order, there is no allegation much less any finding by the Assessing Officer that the nine items of income represent any escapement or under assessment of income within the meaning of section 147/148 of the 7 1518 & 2206/14 Act. Therefore, in our view, the Assessing Officer was clearly denuded of a valid jurisdiction to assess the incomes on account of nine items, namely, (i) Rs. 11,54,017/- out of expenditure on commission paid; (ii) Rs. 1,26,126/- out of bad debts; (iii) Rs. 1,67,162/- out of foreign travel expenses; (iv) Rs. 1,00,000/- out of the total travelling expenses of Rs. 9,13,311/-; (v) Rs. 64,638/- out of the transport charges; (vi) Rs. 10,00,000/- on account of interest relating to the loans advanced; (vii) Rs. 46,871/- out of depreciation claimed; (viii) Rs.70,389/- out of the telephone expenses; and, (ix) Rs. 86,496/- out of Motor Car expenses and depreciation in the impugned assessment. Return of income filed by the assessee qua the aforesaid items of income had already become final and that finality cannot be disturbed in a proceeding u/s 147 of the Act, in the absence of any material on record to suggest escapement of income. Therefore, we conclude by holding that the income of Rs. 26,24,935/- assessed by the Assessing Officer in relation to the aforesaid nine items in the impugned proceedings is bereft of jurisdiction and is hereby directed to be deleted. Thus, assessee succeeds on the Additional Grounds as above.”

In the instant assessment year 2004-05 under consideration the assessment was reopened on the plea that claim of deduction of Keyman Insurance was not correct. However, in the reassessment no addition was made on account of Keyman Insurance Premium. The ITAT “J” Bench in assessee’s own case for A.Y.2006-07 vide order dated 30-9-2015 as reproduced above held that reassessment order so passed without making any addition on account of Keyman Insurance Premium, when the reopening was solely on the ground of wrong claim of Keyman Insurance Premium.

As the facts and circumstances during the year under consideration are exactly same, respectfully following the order of the Tribunal in assessee’s own case, we do not find any merit for reopening of the assessment.

The assessee has filed an application for condonation of delay. We have gone through the condonation application and found that the assessee has mentioned sufficient reasons for delay of 22 days in filing appeal. Hence, we allow the application of the assessee and condone the delay of 22 days in filing the appeal.

As discussed above, in ITA No.982/Mum/2011, the AO has made addition after reopening the assessment u/s.147 of the Act. The AO has also levied penalty for the addition so made, part of which was deleted by the CIT(A). As we have already quashed the reopening of the assessment and consequential assessment so made, the penalty levied for the addition so made by the AO u/s.143(3)/147 of the Act has no legs to stand.

In the result, appeal of the assessee i.e. ITA No.982/Mum/2011 & ITA No.2206/Mum/2014 are allowed, whereas appeal of the of the revenue i.e. ITA No.1518/Mum/2014 is dismissed. Order pronounced in the open court on this 30/11/2015.