ACIT, CIRCLE-3(3), SURAT vs. M/S. D P VEKARIYA, SURAT

The grounds of appeal raised by the Revenue are as follows: “1. Whether on facts and circumstances of the case and in law the Ld. CIT(A) was justified in quashing the proceedings initiated u/s 147 of the Act, by observing that no new tangible material is available on record and reopening of assessment was only on the basis of change of opinion, without considering the fact that the reason for reopening recorded by the assessing officer was not a change of opinion, but it was proper and lawful appreciation of facts and satisfaction of the assessing officer which was based on ample evidences on record? 2. Whether on facts and circumstances of the case and in law the Ld. CIT(A) was justified in deleting the addition of Rs.1,00,00,000/- by observing that contra entry to show equal asset in the books of account which the assessee did by showing the amount in WIP is absolutely as per the norms of accounting principles, without considering the fact that the undisclosed income declared

The facts of the case which can be stated quite shortly are as follows: In assessee`s case original assessment order was finalized under section 143(3) of the Act on 07.12.2011, determining total income at Rs.6,25,26,650/-. The assessee is a government contractor and does work for Government and Semi Government on contract basis. On verification of the case records, it was observed by assessing officer that assessee has declared undisclosed income of Rs.1,05,00,000/- during survey proceedings. It was observed by assessing officer that in profit and loss account for the year ending 31.03.2009, relevant to the assessment year under consideration, had shown undisclosed amount of Rs.1,05,00,000/- (vide Schedule 13: Other Income). Simultaneously, the assessee had shown undisclosed work in progress amounting to Rs.1,00,00,000/- (Vide-Schedule 13: Direct expenses). Thus, there was a net undisclosed income of Rs.5,00,000/- only as against Rs.1,05,00,000/- undisclosed income declared during survey. It was further noticed by assessing officer that in the profit and loss account, assessee has shown contract income of Rs.51,76,33,528/- ( vide Schedule 11: Sales Account) and interest income of Rs.14,08,934/- (vide Schedule 13: Indirect Income) and claimed IDS credit of Rs.1,17,83,599/- and Rs.2,03,518/- respectively. The assessing

Therefore, on the basis of above information available on record, reasons were recorded u/s 148(2) of the Act, by the assessing officer and notice u/s 148 of the Act, was issued on 30.03.2015 and duly served upon the assessee on 31.03.2015. In response, the assessee, vide letter dated 17.04.2015 stated that return filed on 30.09.2009 may be treated as filed in response to notice u/s 148 of the Act. Thereafter, on merit, the assessing officer noted that since, assessee had not furnished relevant documents and evidences during the assessment proceedings, therefore disallowed Rs.1,00,00,000/- shown as undisclosed work in progress and added to the total income of the assessee. The Assessing Officer also made addition on account of short accounted of contract income and interest income to the tune of Rs.22,71,231/-.

Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has quashed the reassessment proceedings initiated by the assessing officer under section 147 of the Act. While quashing the reassessment proceedings, the assessing officer held that there is no new material received or available with the assessing officer related to reason recorded by him and hence, it is merely change of opinion without availability of

Learned DR for the Revenue argues that CIT(A) has quashed the reopening of assessment for the year under consideration without pointing out any defect in the reasons recorded by the assessing officer. The ld DR further pointed out that reason recorded by the assessing officer was not a change of opinion, but it was satisfaction of the assessing officer with ample evidence on records therefore reopening of assessment is justified.

On the other hand, Shri P. M. Jagasheth, Learned Counsel for the assessee, pleads that during the course of original assessment proceeding, specific query related to debit of undisclosed work-in-process (WIP) was asked by the assessing officer and reply of same was filed by the assessee. Thus, ld Counsel contended that when the matter has been examined at the time of assessment proceedings, the reopening can only be considered as based on change of opinion. There has been no failure on the part of assessee to disclose fully and truly all material facts during the original assessment proceedings. To bolster his arguments, ld Counsel relied on the judgment of Hon`ble Gujarat High Court in the case of Aayojan Developers, 10 taxmann.com 226 (Guj) and Sadbhav Engineering Ltd, 20 taxmann.com 784 (Guj) and stated that order passed by the ld CIT(A) is an speaking order and therefore does not require interference. 8. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. Since the Revenue is in appeal before us on the ground that reassessment proceedings initiated by the assessing officer is justified and legal, hence ld CIT(A) ought not to have quashed the reassessment proceedings, therefore first of all, we should analyze the reasons recorded by the Assessing Officer, to know whether reasons so recorded by the

From above reasons recorded, it is vivid that assessing officer has reopened assessment proceeding on the basis of verification of case records of assessment proceeding completed u/s 143(3) of the Act. It was observed by the assessing officer that assessee has declared undisclosed income of Rs.1,05,00,000/- during the survey proceedings and same has been shown in profit and loss account (Schedule 13: Other Income). But simultaneously, the assessee has shown undisclosed work in progress amounting to Rs.1,00,00,000/- (Schedule 13: Direct expenses). Thus, there was a net undisclosed income of Rs.5,00,000/-. On the basis of this finding case of the assessee has been reopened. We note that during the course of original assessment proceeding specific query related to debit of undisclosed WIP was asked by the assessing officer and reply of same was filed by the assessee. The assessee filed relevant documents during the original assessment proceedings and matter was examined at the time of original assessment proceedings, therefore, the reopening of assessment can only be considered as based on change of opinion. There is no failure on the part of assessee to disclose fully and truly all material facts. In the reasons for reopening

We note that in the assessee`s case under consideration the original assessment was framed u/s 143(3) of the Act, on 07.12.2011, for the assessment year 2009-10. We note that reassessment proceedings in the assessee’s case have been initiated on 30.03.2015, which is after 4 years from the end of the assessment year 2009-10. In assessee’s case the four years elapsed on 31.03.2014. However, the reassessment proceedings were initiated on 30.03.2015. Therefore, it is clear that the reassessment proceedings have been initiated after 4 years from the end of the relevant assessment year 2009-10. As per first proviso to section 147 of the Act, if the assessee has disclosed fully and truly all material facts during the original assessment proceedings the reassessment should not be initiated.

We also note that in reasons recorded u/s 147 of the Act, the assessing officer did not mention anywhere that he has not satisfied that during the original assessment proceedings under section 143(3) of the Act, assessee has not submitted books of account, documents, WIP details, evidences and explanations. That is, the assessing officer, has nowhere recorded findings to the effect that assessee has failed to disclose fully and truly all material facts necessary for assessment year 2009-10. The settled position of law is that if an assessment for any year has been completed u/s 143(3) or u/s 147, then no action shall be taken u/s 147 after the expiry of four years from the end of relevant assessment year unless income chargeable tax has escaped assessment by reason of the failure on the part of the assessee. We have examined the original assessment order framed by assessing officer under section 143(3) of the Act and note that there is no allegation that the assessee has failed to disclose fully and truly, all material facts necessary for assessment. As we noted that the re-opening is beyond a period of four years and the original assessment was completed u/s 143(3) of the Act and therefore in the light of the decision of the Hon’ble Calcutta High Court in the case of Amiya Sales and Industries vs. ACIT reported in 274 ITR 25 (Cal.), the reopening of assessment is bad in law. We note that there is change in opinion as

We are very much conscious of Hon'ble Gujarat High court’s landmark decision in the case of Kantibhai Dharamshibhai Narola, [2021] 125 taxmann.com 348 (Guj) wherein the Hon`ble Court has held that there cannot be any action under Section 147 of the Act after the expiry of a period of four years from the end of the relevant assessment year until and unless the income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make disclosure of all the material facts truly and fully necessary for assessment. The important findings of the Hon`ble Court is reproduced below:

Based on the facts narrated above, we note that in the assessee`s case in the reasons supplied to the assessee, there is no whisper, what to speak of any allegation, that the assessee had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period, as explained above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. Therefore, based on these facts and circumstances, we do not find any infirmity in the order of ld CIT(A), hence we confirm and approve the findings of ld CIT(A) and dismiss the grounds raised by the Revenue

In the result, the appeal filed by the Revenue is dismissed,