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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD & SHRI ARUN KHODPIA
आदेश / ORDER
PER RAVISH SOOD, JM:
The present appeal filed by the revenue is directed against the order passed by the Commissioner of Income-Tax (Appeals), Bilaspur, dated 28.03.2016, which in turn arises from the order passed by the A.O under Sec.143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated Nil for the assessment year 2010-11. The revenue has assailed the impugned order on the following grounds of appeal:
“1. The Ld. CIT(A) has erred in deleting the addition of Rs.11,49,738/- made by the A.O on account of performance guarantee debited by the assessee in the P & L A/c. 2. The Ld. CIT(A) erred in deleting the addition of Rs.18,95,121/- made by the A.O on account of miscellaneous deposit/other deposit debited by the assessee in the P & L A/c. The appellant reserves the right to add, alter, modify the grounds of appeal up to and also during the course of hearing.”
2. Succinctly stated, the assessee had filed his return of income for A.Y.2010- 11 on 24.11.2010, declaring an income of Rs.7,71,230/-. The original assessment was, thereafter, framed by the A.O. vide his order passed u/s. 143(3) dated 07.03.2013 determining the income of the assessee at Rs.9,99,893/-.
During the assessment proceedings, the A.O., on verification of the audit report, balance sheet, and profit & loss a/c, observed that the primary source of the receipts of the assessee, a Civil Contractor, was from the State Government Departments. On perusal of the books of accounts and “Form 16A” issued by the 3 ITO-2, Raigarh Vs. Shri Bishambhar Dayal Agrawal ITA No. 223/RPR/2016 PWD, it was observed by the A.O that the PWD had deducted a sum of Rs.30,44,859/- towards performance guarantee and other deposits from the gross amount of the bills. The A.O was of the view that as the aforesaid deductions towards performance guarantee and other deposits by the PWD were in the nature of deposits that were refundable after a period of time as mutually agreed upon by the parties, thus, the same should have been shown by the assessee as deposits on the asset side of his balance sheet. However, it was observed by the A.O. that the assessee in his balance sheet had not disclosed the aforementioned amount of performance guarantee and deposits and had not accounted for the same at all. The A.O holding a conviction that the aforesaid deductions, i.e., performance guarantee/deposits, were met out by the assessee out of his undisclosed sources of income, thus, held the same as the assessee’s unexplained investment u/s.69 of the Act, as under:
Sr. Name of deductor Deduction Mise/Deposit/other Total No. amount deposit performance guarantee 1. O/o. The EE, PWD, Div. 97209/- 97,209/- Champa 2. O/o. the EE, Div. 244654/- 244654/- Pathangaon 3. O/o. The EE, PWD, 569747/- 1029194/- 1598941 Bridge Cons. Div. Bilaspur 4. O/c. The EE, PWD, 238128/- 238128/- Bridge Cons. Div. Raigarh
4 ITO-2, Raigarh Vs. Shri Bishambhar Dayal Agrawal ITA No. 223/RPR/2016
5. O/o. The EE, PWD, 865927/- 865927/- Raigarh Total 1149738/- 1895121/- 3044859/- Referring to the fact that the assessee had made undisclosed investments u/s.69 of the Act, and, thus, his income chargeable to tax had escaped assessment, the A.O reopened his case u/s.147 of the Act.
During the re-assessment proceedings, the assessee, on being queried by the A.O about not having disclosed the performance guarantee and deposits in his balance sheet for the year under consideration, submitted that the said amounts were debited/charged by him as contract expenses in his books of accounts. It was the claim of the assessee that it had consistently opted to book all performance guarantees/other deposits in his Profit & loss account as those were always in the nature of amounts that were non-refundable by the department. Elaborating further on his aforesaid claim, it was submitted by the assessee that if any amount would be refunded by the department in the coming years, then the same would be treated by him as his income in the Profit & loss account in the year of receipt u/s. 41(4) of the Act. To support his aforesaid claim, the assessee referred to an instance where Rs.7,83,100/- and Rs.8,70,40/- were confiscated by the EE, PWD, Bridge Cons. Division, Bilaspur and EE, PWD Division, Champa, for the reason that the assessee had failed to complete the contract. In his attempt to further justify his aforesaid accounting practice, the assessee had drawn support from the fact that the amount of Rs.5,69,747/- that was received as a refund of the performance guarantee from 5 ITO-2, Raigarh Vs. Shri Bishambhar Dayal Agrawal ITA No. 223/RPR/2016 PWD, Bridge Division, Bilaspur during the year was accounted for by him as his income for the year under consideration.
The A.O., after deliberating at length on the explanation of the assessee to justify his practice of debiting/charging the amount of performance guarantee/deposits as contract expenses in his books of account, did not find favor with the same. Referring to Form 20, which the PWD had issued, the A.O. observed that the same clearly mentioned that the amount of the deposit was refundable. Also, the A.O was not impressed with the claim of the assessee that, as in the past, certain amounts of performance guarantee had been confiscated by the department; therefore, for the said reason, the same was, thereafter, being accounted for as an expenditure in his books of accounts Observing, that performance guarantees/deposits were security deposits which were refundable after some time as agreed upon amongst the parties concerned, the A.O held a firm conviction that the same were statutorily required to be accounted for on the asset side of the balance sheet under the head deposits. Also, the A.O. was of the view that as the amount of performance guarantees/deposits/investments were neither in the nature of direct or indirect expenses, there was no justification for the assessee to have debited the same in his Profit & loss account. Backed by his aforesaid observations, the A.O not being satisfied with the claim of the assessee that the amount of performance guarantees/deposits were allowable as expenditure, thus, made an addition of the same by treating it as the assessee’s undisclosed investment u/s.69
6 ITO-2, Raigarh Vs. Shri Bishambhar Dayal Agrawal ITA No. 223/RPR/2016 of the Act. Accordingly, the A.O. vide his order passed u/s. 143(3) r.w.s. 147 of the Act dated Nil reassessed the income of the assessee at Rs.40,44,752/-.
Aggrieved the assessee carried the matter in appeal before the CIT(Appeals). The CIT(Appeals), finding favor with the contentions of the assessee, vacated the addition made by the A.O u/s. 69 of the Act, observing as under:
“Decision — I have considered the rival submission carefully and find that the assessee on the basis of experience having no hope to receive it back so far as performance guarantee and miscellaneous deposits/other deposits is concerned when these are withheld/seized by the contractee Department treat the amounts as bad debt because sub-section (4) deals with the bad debts as per Clause-vii of sub-section (1) of section 36 of I.T. Act. The logical conclusion follows that on the face of clearly debit of performance guarantee on different dates as reproduced-by the AO himself in the P&L A/c, there is no question that assessee should show the already debited amounts in the balance sheet as according to the assessee, nothing was receivable depending on his experience and as and when the amount had been received back by the .assessee from the concerned Departments he use to disclose the amounts as income of the year in which the amount had been received by him. The assessee although follows the mercantile system but the experience of his business had compelled him to deviate from mercantile system only to the performance guarantee as well as miscellaneous deposits/ of because what assessee has spoken before the AO he had clarified that since these amounts are rarely received back hence, he preferred, to debit out rightly in the P&L A/c. The AO had insisted on the principle of mercantile system followed by the assessee and he thought that in absence of clear indication of forfeiture of performance guarantee and miscellaneous deposits/other deposits, the assessee should have shown these amounts as receivable from toe Government account and every amount receivable is shown in the Balance Sheet on the assets side. The Ld. AO did not try to verify from the record of the year as well as of earlier years as what is being debited by the assessee in the contract account. Since the assessee has shown to have debited all these performance guarantees in earlier years as well during the year in the P&L A/c as such question does not arise to reflect these amounts as receivable because he has claimed these amounts in the P&L A/c directly. Since these amounts are small and received frequently in F.Y.2011-12 and F.Y. 2012-13 respectively, the assessee had shown them during A.Y. 2012- 13 and 2013-14 as relevant to F.Y. 2011-12 and 2012-13. At best the AO could have rejected the books of accounts on the basis of following hybrid
7 ITO-2, Raigarh Vs. Shri Bishambhar Dayal Agrawal ITA No. 223/RPR/2016 system of accounting which has been done away with by section 145 of Income Tax Act. Since the assessee, had been regularly following the method of accounting in the above manner and amounts are usually smaller one, the ground for addition by the AO that he did not disclose the above amount in the Balance Sheet is not correct on the appreciation of the fact. The amount which had been claimed in the P&L A/c by the assessee for the performance guarantee as well as miscellaneous deposit/other deposits, the assessee cannot show them as receivable as he had already claimed them 100% in the P&L A/c and reduced the net profit during the year. In the year of receipt of the released performance guarantee, the assessee properly discloses such withheld/seized performance guarantee and other receipts on the credit side of P&L A/c. The AO had even invoke section 69 as these deposits/performance guarantees had been held by the assessee as undisclosed investment with the Government Department which is not correct on ire facts because these amounts had been deducted from the gross receipt a such by the Department thus these are fully explained from the table-of contract receipts. In the facts and circumstances of the case, I do not find any merit in the addition made by the AO as the assessee had been regularly following this method of debiting P&L A/c at the time of withholding/seizure and crediting at the time of receiving it back from the contractee Departments. I hereby delete the entire addition made by the AO only on the basis of technicalities of book keeping. (Relief of Rs.11,49,738/- and Rs.18,95,121/-).”
The revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
We have heard the ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and material available on record as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.
At the threshold of hearing of the appeal, Ld. Authorized Representative (for short ‘AR’) for the assessee respondent assailed the validity of jurisdiction assumed by the A.O. for reopening the concluded assessment of the assessee by taking
8 ITO-2, Raigarh Vs. Shri Bishambhar Dayal Agrawal ITA No. 223/RPR/2016 recourse to Section 147 of the Act. The Ld. A.R submitted that as the A.O had disturbed the concluded assessment not on the basis of any fresh material coming to his notice after the culmination of the original assessment that was earlier framed vide order passed u/s.143(3) dated 07.03.2013 but on the basis of re-appreciation of the same material that was available on record during the original assessment, therefore, he had wrongly assumed jurisdiction and framed the re-assessment vide his order passed u/ss.143(3)/147 of the Act dated Nil. The Ld. AR, in support of his aforesaid contention, had relied on the judgments of the Hon’ble Supreme Court in the case of CIT Vs. Kelvinator of India (2010) 320 ITR 561 (SC) and that of the ITO Vs. TechSpan India Private Ltd. & Anr. (2018) 404 ITR 10. It was, thus, the claim of the Ld. AR that a mere “change of opinion” by the successor A.O. on the basis of the same set of facts available on record would by no means justify the reopening of a concluded assessment. Also, the Ld. AR placed his contention as regards the merits of the case and supported the order of the CIT(Appeals), who had vacated the addition made by the A.O u/s.69 of the Act.
Per contra, the Ld. Departmental Representative (for short ‘DR’) relied on the assessment order. Apropos the preliminary objection raised by the assessee’s counsel, the Ld. D.R. submitted that as the same did not emanate from the orders of the lower authorities, therefore, it was not maintainable.
As the Ld. AR, i.e., the assessee respondent had assailed the validity of the jurisdiction assumed by the A.O for reopening the concluded assessment u/s.147 of the Act, therefore, on being specifically queried by the Bench that on what basis the 9 ITO-2, Raigarh Vs. Shri Bishambhar Dayal Agrawal ITA No. 223/RPR/2016 said objection/contention was being raised when the assessee had neither filed any cross-appeal nor any cross-objection, the Ld. AR submitted that the same was being raised as a preliminary objection under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963. The Ld. AR submitted that as he had assailed the validity of jurisdiction that the A.O had assumed for reopening the concluded assessment, i.e., a purely legal issue that did go to the roots of the case and the sustainability of the impugned order passed u/ss.143(3)/147 of the Act dated Nil; therefore, the same could be safely raised by way of a preliminary objection under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963. The Ld. A.R relying on the judgment of the Hon’ble High Court of Delhi in the case of Sanjay Sawhney Vs. Pr. CIT (2020) 316 CTR 392 (Del) submitted that as for availing the remedy under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963, an application in writing is not necessary; thus, the same could orally be raised before the Tribunal. Further, the Ld. AR, in support of his claim that though the issue might not have been raised before the CIT(Appeals), the same could be raised under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963, had relied on the judgment of the Hon’ble High Court of Bombay in the case of Peter Vaz Vs. CIT, Central Circle, Bangalore (2021) 128 taxmann.com 180 (Bom.). It was, thus, submitted by the Ld. AR that the assessee respondent, in light of Rule 27 of the Income Tax Appellate Tribunal Rules, 1963, as had been interpreted in the aforesaid judicial pronouncements, was well within his right to assail the validity of the jurisdiction that the A.O had assumed for the reopening of his concluded assessment.
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Before proceeding any further, we shall first deal with the maintainability of the objection raised on behalf of the assessee respondent under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963, as regards the validity of the jurisdiction assumed by the A.O for reopening the concluded assessment.
Admittedly, it is a fact borne from the record that the assessee respondent has neither preferred before us a cross-appeal nor a cross-objection. The objection as regards the validity of the jurisdiction assumed by the A.O. had orally been raised by the Ld. AR at the threshold of hearing of the appeal. As observed by the Hon’ble High Court of Delhi in the case of Sanjay Sawhney Vs. Pr. CIT (supra) that as Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 does not specify any definite structure for making any application in a particular manner; therefore, the view taken by the Tribunal, which had declined the objection filed by the assessee respondent that was rejected for the reason that it was not raised on the basis of an application made in writing was fallacious. For the sake of clarity, the relevant observations of the Hon’ble High Court are culled out as follows:
“11. The Tribunal has taken a pedantic view on the interpretation of Rule 27 by holding that for availing the remedy under the said provision, an application in writing is necessary. In our opinion, this surmise is fallacious and we cannot countenance the same. We agree with Mr. Krishnan that Rule 27, as it stands today, does not mandate for the application to be made in writing. Revenue has not brought to our notice any particular Form notified for filing such an application. Revenue also does not controvert the contention of the Appellant that the draft Appellate Tribunal Rules 2017 proposing to insert a proviso to Rule 27, providing for an application to be made in writing, have not been notified, as yet. Therefore, the reasoning of the Tribunal for rejecting Appellant's
11 ITO-2, Raigarh Vs. Shri Bishambhar Dayal Agrawal ITA No. 223/RPR/2016 contentions is palpably wrong. If the provision does not specify any defined structure for making an application in a particular manner, the Tribunal ought not to have deprived the Appellant of an opportunity to raise a fundamental question of jurisdiction, taking a hyper technical viewpoint. The Tribunal has plainly refused to consider the additional grounds on an erroneous premise which is contrary to the statutory scheme of the Act, that permits the Respondent to urge all grounds in support of the order appealed, as provided under Rule 27. The appeal deserves to be allowed on this short ground and we would have no hesitation in doing so with a consequential direction to ITAT to reconsider the matter afresh on the additional grounds urged by the Appellant…….”
Considering the judgment of the Hon’ble High Court of Delhi in the case of Sanjay Sawhney Vs. Pr. CIT (supra), we find favor with the claim of the Ld. AR that as the objection under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963, does not propose raising the same in writing, the assessee-respondent before us is, thus, well within his right to raise the same orally.
Coming to the issue as to whether the assessee respondent, in the absence of any cross-appeal or a cross-objection, could assail the validity of the jurisdiction that the A.O assumed for reopening the concluded assessment despite the fact that neither any such issue was raised before the CIT(Appeals) nor was adverted to by the latter while disposing off the appeal, we find that the said issue had been looked into at length by the Hon’ble High Court of Bombay in the case of Peter Vaz Vs. CIT, Central Circle, Bangalore (supra). Before adverting to the view taken by the Hon’ble High Court on the aforesaid issue, we shall briefly cull out the facts involved in the appeal before the Hon’ble High Court in the context of which the latter had looked into the scope of Rule 27.
12 ITO-2, Raigarh Vs. Shri Bishambhar Dayal Agrawal ITA No. 223/RPR/2016 (i) The assessee before the Hon’ble High Court had, in the proceedings before the Tribunal, filed cross-objections, which involved a delay of 248 days. The cross- objections filed by the assessee were dismissed by the Tribunal, which declined to condone the delay therein involved. On further appeal, it was the claim of the assessee that as it had assailed the validity of the jurisdiction that was assumed by the A.O u/s.153C of the Act, which was purely an issue of law, therefore, there was no justification on the part of the Tribunal in refusing to consider such significant issue. It was the claim of the assessee that as he was under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963, only supporting the order passed by the CIT(Appeals) before the Tribunal, which was already in his favor, thus, there was no necessity for filing of a cross-objection.
(ii) After deliberating on the contentions of the assessee, the Hon’ble High Court found favor with the same. Adverting to the issue as to whether the assessee could have assailed the validity of the jurisdiction u/s.153C of the Act before the Tribunal without filing any cross-objection, the Hon’ble High Court observed that as the assessee wished to raise an issue that was at least prima facie going to the root of jurisdiction to initiate proceedings under Section 153C of the Act, therefore, having regard to the provisions of Rule 27, the Tribunal should have permitted the assessee- respondent to have supported the order of CIT (Appeals) on this ground, even without the necessity of filing any cross-objections. Relying on the judgment of the Hon’ble High Court of Gujarat in the case of Dahod Sahakari Kharid Vechan Sangh Ltd. Vs. CIT (2006) 200 CTR 265 (Guj), the Hon’ble High Court observed
13 ITO-2, Raigarh Vs. Shri Bishambhar Dayal Agrawal ITA No. 223/RPR/2016 that the right that accrued to the assessee respondent under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 could not have been taken away by the Tribunal by referring to the provisions of Section 253(4) of the Act. The Hon’ble High Court had observed that though the issue as regards the validity of the jurisdiction assumed by the A.O u/s. 153C of the Act was not raised before the CIT(Appeals), but having regard to the provisions of Rule 27 of the Income Tax Appellate Tribunal Rules, 1963, as also the provisions of Section 260A(7) read with provisions of Order XLI Rule 22 of the CPC as interpreted by the Hon’ble Supreme Court in the case of S. Nazeer Ahmed Vs. State Bank of Mysore (2007) 11 SCL 75, the ITAT should not have precluded the assessee from assailing the issue as regards the validity of the jurisdiction assumed by the A.O u/s.153C of the Act in the course of hearing of the appeal instituted by the revenue, even without the necessity of filing any cross- objection. Based on its aforesaid observations, the Hon’ble High Court observed that in terms of Rule 27 of the Income Tax Appellate Tribunal Rules, 1963, the assessee was entitled to support the order of the CIT(Appeals) before the Tribunal even without the necessity of filing any cross-objection. For the sake of clarity, the observations of the Hon’ble High Court are culled out as under (relevant extract) :
“38. In the present case, it is not as if the issue of non-fulfillment of jurisdictional parameters of Section 153C was raised but rejected by the CIT (Appeals). Such an issue was not raised before the CIT (Appeals). Having regard to the provisions of Rule 27 of the Appellate Tribunal Rules, 1963 as also the provisions of Section 260A(7) read with Order XLI Rule 22 of CPC as interpreted by the Hon'ble Supreme Court in S. Nazeer Ahmed (supra) we think that the ITAT should not have precluded the assessees from raising the issue in the appeals instituted by the Revenue, even without the necessity of filing any cross-objections. Accordingly, the 14 ITO-2, Raigarh Vs. Shri Bishambhar Dayal Agrawal ITA No. 223/RPR/2016 additional substantial question of law is required to be answered in favor of the Appellants/assessees and against the Revenue.” (emphasis supplied by us)
Considering the aforesaid judgment of the Hon’ble High Court of Bombay in the case of Peter Vaz Vs. CIT, Central Circle, Bangalore (supra), we are of the view that the assessee respondent before us, by triggering Rule 27 of the Income Tax Appellate Tribunal Rules, 1963, is well within his right to assai the validity of the jurisdiction assumed by the A.O for reopening of his concluded assessment u/s.147 of the Act
Also, the vesting of similar rights with the assessee respondent can be traced in the judgment of the Hon’ble High Court of Punjab & Haryana in the case of CIT Vs. Dehati Co-operative Marketing cum Processing Society (1981) 130 ITR 504 (P&H). Referring to Rule 11 of the Income Tax Appellate Tribunal Rules, 1963, the Hon’ble High Court had observed that now, when the appellant can be allowed a concession, therefore, there is no justification for denying the respondent in an appeal a similar concession. It was, thus, observed by the Hon’ble High Court that the Tribunal can, therefore, allow an assessee to raise a ground that had not been taken before or adjudicated upon by the ITO so long that does not require further investigation of the facts.
Based on our aforesaid observations r.w. the interpretation of the scope of Rule 27 of the Income Tax Appellate Tribunal Rules, 1963, as had been looked into by the Hon’ble High Courts (supra), we are of the considered view that the objection
15 ITO-2, Raigarh Vs. Shri Bishambhar Dayal Agrawal ITA No. 223/RPR/2016 raised by the assessee respondent under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 as regards the validity of the jurisdiction assumed by the A.O for reopening of his concluded assessment u/s.147 of the Act merits admission.
As the assessee respondent has assailed the validity of the jurisdiction assumed by the A.O. for reopening his concluded assessment u/s.147 of the Act, we shall first deal with the same. Before proceeding any further, it would be relevant to cull out the “reasons to believe” on the basis of which the concluded assessment of the assessee that was originally framed vide order passed u/s 143(3), dated 07.03.2013 was thereafter reopened by the A.O u/s.147 of the Act, which reads as under (as extracted out from the assessment order – Page1 & 2):
“On verification of case records as well as audit report, balance sheet, profit & Loss A/c. submitted along-with return of income the source of receipt was mainly from state Govt. Deptt. Examination of contractor ledger and form No.16A issued by the PWD revealed that department deducted a sum of Rs.30,44,859/- towards performance guarantee and other deposit from ix gross amount of the bill. These deductions are depository in nature and refundable after a period of time mutually agreed upon. Thus the same should have been shown under deposit head in asset side of balance sheet. It was however seen from Balance Sheet that the said deduction were not shown by the assessee. In fact these deductions were not accounted for at all. It was stated that these deductions are met out of other source of income which resulted in undisclosed investment under section 69. The details of deductions are as under:-
Sr. Name of deductor Deduction Mise/Deposit/other Total No. amount deposit performance guarantee 1. O/o. The EE, PWD, Div. 97209/- 97,209/- Champa
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O/o. the EE, Div. 244654/- 244654/- Pathangaon 3. O/o. The EE, PWD, 569747/- 1029194/- 1598941 Bridge Cons. Div. Bilaspur 4. O/c. The EE, PWD, 238128/- 238128/- Bridge Cons. Div. Raigarh 5. O/o. The EE, PWD, 865927/- 865927/- Raigarh Total 1149738/- 1895121/- 3044859/-
I have, therefore, a reason to believe that section 69 of the Income Tax Act has been violated, so income of the assessee has escaped assessment for the A.Y.2010-11, therefore………..”
Admittedly, it is a matter of fact borne from the record that the A.O had framed the original assessment in the case of the assessee for A.Y.2010-11 vide order passed u/s.143(3) of the Act dated 07.03.2013, Page 2-7 of APB. On a perusal of the assessment order u/s.143(3) dated 07.03.2013, it transpires that the A.O in the course of the original assessment proceedings, had looked into the assessee’s claim for deduction of “Contract payment” (expenses) of Rs.36315053/- which was comprised of, viz. (i). Earthwork expenses: Rs.2,46,54,236/-; (ii) purchase of building material: Rs.1,16,60,817/-, and had formed a view as regards the allowability of the same. For the sake of clarity, the observations of the A.O in the original assessment with respect to the allowability of the assessee’s claim for deduction of the aforesaid expenses aggregating to Rs.3,63,15,053/- is culled out as under:
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Considering the fact that now, when the assessee’s claim as regards the allowability of performance guarantee/other deposits, which the assessee accounted for under the head “Contract expenses,” had been looked into by the A.O in the course of original assessment proceedings, therefore, we find substance in the claim of the Ld. AR that in the absence of any fresh material coming to the notice of the A.O after the culmination of the original assessment proceedings that had culminated vide order passed u/s.143(3) dated 07.03.2013, the same could not have been reopened merely on the basis of a “change of opinion” on the basis of the same set of facts as were available on record in the course of the original assessment proceedings. Our aforesaid conviction that a substitution of a view of a successor A.O. by re-appreciating the material that was available on record in the course of the original assessment proceedings cannot form a basis for reopening the concluded assessment of an assessee is supported by the landmark judgment of the Hon'ble Supreme Court, in CIT Vs. Kelvinator of India (2010) 320 ITR 561 (SC). The Hon’ble Apex Court had observed that merely on the basis of a “change of opinion,” the case of an assessee cannot be reopened and had held as under:-
"On going through the changes, quoted above, made to s. 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the AO to make a back assessment, but in s. 147 of the Act (w.e.f. 1st April, 1989), they are given a go by and only one condition has remained, viz., that where the AO has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, s. 147 would give arbitrary powers to the AO to reopen assessments on the basis of "mere change of opinion", which cannot
19 ITO-2, Raigarh Vs. Shri Bishambhar Dayal Agrawal ITA No. 223/RPR/2016 be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to s. 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in s. 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the AO. We quote hereinbelow the relevant portion of Circular No. 549, dt. 31st Oct., 1989 [(1990) 82 CTR (St) 1], which reads as follows : "7.2 Amendment made by the Amending Act, 1989, to re-introduce the expression “reason to believe” in s. 147.--A number of representations were received against the omission of the words „reason to believe from s. 147 and their substitution by the “opinion” of the AO. It was pointed out that the meaning of the expression, “reason to believe” had been explained in a number of Court rulings in the past and was well settled and its omission from s. 147 would give arbitrary powers to the AO to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended s. 147 to reintroduce the expression “has reason to believe” in place of the words “for reasons to be recorded by him in writing, is of the opinion”. Other provisions of the new s. 147, however, remain the same.”
Further, following the judgment of the “Full bench” of the Hon’ble High Court of Delhi in the case of Kelvinator of India (supra), which the Hon’ble Apex Court had approved, the Hon'ble High Court of Bombay in the case of Asteroids Trading & Investment P. Ltd. Vs. DCIT (2009) 308 ITR 190 (Bom), had held, that an A.O is precluded from assuming jurisdiction to initiate reassessment proceedings on the basis of a “Change of opinion,” and observed as under:
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"8. Perusal of the record shows that the petitioner had made full disclosure necessary for claiming deduction under s. 80M. The AO after applying his mind to the relevant records had made a specific order allowing the deduction. A perusal of the record shows that now respondent No. 1 proposes to reopen the assessment because according to him deduction under s. 80M was wrongly allowed, and, therefore, he was of the opinion that the income has escaped assessment. Though, in the notice respondent No. 1 has used the phrase "reason to believe", admittedly between the date of the order of assessment sought to be reopened and the date of forming of opinion by respondent No. 1, nothing new has happened and there is no change of law, no new material has come on record, no information has been received. It is merely a fresh application of mind by the same officer to the same set of facts. Thus, it is a case of mere change of opinion, which, in our opinion, does not provide jurisdiction to respondent No. 1 to initiate proceedings under s. 148 of the Act. It can now be taken as a settled law, because of a series of judgments of various High Courts and the Supreme Court, which have been referred to in the judgment of the Full Bench of the Delhi High Court in the case of Kelvinator of India Ltd. (supra) referred to above, that under s. 147 assessment cannot be reopened on a mere change of opinion."
We further find that the Hon'ble High Court of Bombay, in the case of Asian Paints Ltd. Vs. DCIT (2008) 308 ITR 195 (Bom), had observed that as the A.O received no new information/material, therefore, the fresh application of mind by the A.O to the same set of facts and material which were available on record at the time of framing of the assessment but had inadvertently remained omitted to be considered would tantamount to review of the order, which is not permissible as per law, and held as under:
"10. It is further to be seen that the legislature has not conferred power on the AO to review its own order. Therefore, the power under s. 147 cannot be used to review the order. In the present case, though the AO has used the phrase "reason to believe", admittedly between the date of the order of assessment sought to be reopened and the date of formation of opinion by the AO, nothing new has happened, therefore, no new material has come on record, no new information
21 ITO-2, Raigarh Vs. Shri Bishambhar Dayal Agrawal ITA No. 223/RPR/2016 has been received; it is merely a fresh application of mind by the same AO to the same set of facts and the reason that has been given is that the some material which was available on record while assessment order was made was inadvertently excluded from consideration. This will, in our opinion, amount to opening of the assessment merely because there is change of opinion. The Full Bench of the Delhi High Court in its judgment in the case of Kelvinator (supra) referred to above, has taken a clear view that reopening of assessment under s. 147 merely because there is a change of opinion cannot be allowed. In our opinion, therefore, in the present case also, it was not permissible for respondent No. 1 to issue notice under s. 148".
Further, the Hon'ble High Court of Bombay in the case of ICICI Prudential Life Insurance Co. Ltd. Vs. ACIT (2010) 325 ITR 471 (Bom), had relied on the judgment of the Hon’ble Supreme Court in the case of Kelvinator of India (supra), and held as under:
23. Though the power to reopen an assessment within a period of four years of the expiry of the relevant assessment year is wide, it is still structured by the existence of a reason to believe that income chargeable to tax has escaped assessment. The Supreme Court, in a recent judgment in Kelvinator of India Ltd. (supra) while drawing upon the legislative history of s. 147 held that the expression „reason to believe needs to be given a schematic interpretation in order to ensure against an arbitrary exercise of power by the AO. The judgment of the Supreme Court emphasizes that the power to reopen an assessment is not akin to the power to review the order of assessment, and a mere change of opinion would not justify recourse to the power under s. 147. Unless the AO has tangible material to reopen an assessment, the power cannot be held to be validly exercised.”
Also, in the case of Aventis Pharma Ltd. Vs. Asst. CIT (2010) 323 ITR 570 (Bom), the Hon'ble High Court of Bombay reiterated its aforesaid view that reassessment proceedings could not be permitted on the basis of a “Change of opinion” and had held as under:-
22 ITO-2, Raigarh Vs. Shri Bishambhar Dayal Agrawal ITA No. 223/RPR/2016
"There is merit in the submission which has been urged on behalf of the assessee that there was no tangible material before the AO on the basis of which the assessment could have been reopened and what is sought to be done is to propose a reassessment on the basis of a mere change of opinion. This, in view of the settled position of law is impermissible. No tangible material is shown on the basis of which the assessment is sought to be reopened. In the absence of tangible material, what the AO has done while reopening the assessment is only to change the opinion which was formed earlier on the allowability of the deduction. The power to reopen an assessment is conditional on the formation of a reason to believe that income chargeable to tax has escaped assessment. The power is not akin to a review. The existence of tangible material is necessary to ensure against an arbitrary exercise of power. There is no tangible material in the present case.”
At this stage, we may herein observe that as per the mandate of law, even where a concluded assessment is sought to be reopened by the A.O within a period of 4 years from the end of the relevant assessment year, it is a must that the A.O has fresh material or information with him, that had led to the formation of belief on his part that the income of the assessee chargeable to tax has escaped assessment. Our aforesaid view is fortified by the judgments of the Hon'ble High Court of Bombay in the case of NYK Lime (India) Ltd. Vs. DCIT (No.2) [2012] 346 ITR 361 (Bom) and Purity Tech Textile Pvt. Ltd. Vs. ACIT & Anr. [2010] 325 ITR 459 (Bom).
We, thus, in terms of our aforesaid observations, are of the considered view that as the case of the assessee had been reopened by the A.O merely on the basis of “change of opinion” and not on the basis of any fresh tangible material coming to his notice after the conclusion of the original assessment proceedings which would reveal any income of the assessee chargeable to tax had escaped assessment,
23 ITO-2, Raigarh Vs. Shri Bishambhar Dayal Agrawal ITA No. 223/RPR/2016 therefore, in light of the aforesaid settled position of law, quash the assessment framed by the A.O u/s.143(3)/147 of the Act dated Nil for want of valid assumption of jurisdiction.
As we have quashed the assessment order for want of valid assumption of jurisdiction by the A.O., we refrain from adverting to and therein dealing with the other contentions raised by both the parties on merits, which, thus, are left open.
As a result, the preliminary objection raised by the assessee-respondent U/rule 27 of the Appellate Tribunal Rules, 1963 is allowed, and, as a consequence thereto, the appeal of the revenue is dismissed in terms of our aforesaid observations.
Order pronounced in open court on 27th day of October, 2023. Sd/- Sd/- ARUN KHODPIA RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 27th October, 2023 **###SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :
1. 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent.
3. The CIT(Appeals)-1, Raipur (C.G.) 4. The Pr. CIT, Raipur-1 (C.G) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, रायपुर ब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. गाड� फ़ाइल / Guard File. 6.
24 ITO-2, Raigarh Vs. Shri Bishambhar Dayal Agrawal ITA No. 223/RPR/2016