Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, RAIPURBENCH “SMC”, RAIPUR
Before: SHRI RAVISH SOOD
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)-II, Raipur, dated 26.06.2020, 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 30.01.2015 for the assessment year 2007-08. The revenue has assailed the impugned order on the following grounds of appeal: “1. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs.5,15,000 /- made by the AO on account of 'Centering Material' by treating the same as Revenue Expenditure ?" 2. "Whether on the facts and circumstances of the case and on points of law, the Ld. CIT(A) was justified in giving a finding that the alleged expense of Rs.5,15,000/- incurred by the assessee are revenue in nature, thereby ignoring the facts on record that these expense are in capital in nature as held by the AO )" 3. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs.13,89,600/- made by the AO on account of 'Supervision Charges' ?" 4. "Whether on the facts and circumstances of the case and on points of law, the Ld. CIT(A) was justified in giving a finding that in the absence of contractual relation, section 194C of the IT Act cannot be invoked thereby ignoring the facts on record that the nature of work for which payment is covered U/s 194C of the IT Act as held by the AO ?"
3 ACIT-1(1) Vs. M/s Varsha Construction ITA No.111/RPR/2020
"Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs.1,83,720/- made by the AO on account of 'Bank Guarantee' and thereby ignoring the facts brought on the record by the AO ?" 6. The order of the Ld. CIT(A) is erroneous both in law and on facts.”
Succinctly stated, the assessee firm which is engaged in the business of civil construction had filed its return of income for the A.Y.2007-08, declaring an income of Rs.13,78,360/-. Original assessment was, thereafter, framed by the A.O vide his order passed u/s. 143(3) dated 26.12.2009, determining the income of the assessee at Rs.25,00,400/-.
Subsequently, the case of the assessee was reopened u/s.147 of the Act. Assessment was, thereafter, framed by the A.O vide his order passed u/s. 143(3) r.w.s. 148 of the Act, dated 30.01.2015, determining the income of the assessee at Rs.35,61,680/- after, inter alia, making the following additions/disallowances:
Sr. No. Particulars Amount
Disallowance of the assessee’s claim Rs.5,15,000/- for deduction of ‘centering materials’ 2. Disallowance of the assessee’s claim Rs.13,89,600/- for deduction of supervision charges paid to 17 persons without deduction of tax at source u/s.194C of the Act
4 ACIT-1(1) Vs. M/s Varsha Construction ITA No.111/RPR/2020
Disallowance of the assessee’s claim Rs.95,000/- for deduction of MD ( miscellaneous deposit) paid to C.G. Housing Board 4. Disallowance of the assesse’s claim Rs.1,83,720/- for deduction of bank guarantee charges pertaining to PIU PMGSY 4. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals) who partly allowed the same.
The revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before me.
The Ld. Authorized Representative (for short “A.R”) for the assessee had at the very outset of the hearing of the appeal raised a preliminary objection as regards the validity of the jurisdiction that was assumed by the A.O for reopening the concluded assessment of the assessee vide notice u/s.148 of the Act, dated 05.02.2014 on two- fold reasons, viz. (i) that the reopening of the concluded assessment that was framed by the A.O u/s.143(3) dated 26.12.2009 was based on a mere change of opinion ; and (ii) that as the there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for framing of its assessment, therefore, as per the “1st proviso” to Section 147 of the Act, its case could not have been reopened after expiry of 4 years from the end of the relevant assessment year i.e. A.Y.2007-08.
5 ACIT-1(1) Vs. M/s Varsha Construction ITA No.111/RPR/2020
I have heard the ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the 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.
As the Ld. AR has assailed the validity of the jurisdiction that was assumed by the A.O for reopening the concluded assessment of the assessee by taking recourse to Section 147 of the Act, therefore, I shall first deal with the same.
On a perusal of the records, it transpires that the concluded assessment in the case of the assessee which was earlier framed by the A.O vide his order passed u/s.143(3), dated 26.12.2009 was, thereafter, reopened u/s. 147 of the Act on the basis of the following “reasons to believe” :
“During the relevant accounting period, it is found that : 1. Centering material worth Rs.2,35,000/- and Rs.2,80,000/- debited in P & L account which should have been capitalized.
Payment of supervision charges of Rs.13,89,600/- to 17 persons were given without TDS u/s.194C of the Act.
Miscellaneous deposit of Rs.95,000/- shown as expenses in P & L a/c. which is depository in nature.
6 ACIT-1(1) Vs. M/s Varsha Construction ITA No.111/RPR/2020
In P & L a/c. bank guarantee charges paid at Rs.1,83,720/- pertains to work done for PIU-PMGSY and municipality. On verification, it is seen that no receipts from the above units were received during the F.Y.2006-07.
As such, I have reasons to believe that income of Rs.21,83,320/- has escaped assessment.”
Ostensibly, a bare perusal of the “reasons to believe” which forms the very basis for reopening of the assessee’s case u/s.147 of the Act, therein reveals that the same is based on a mere “change of opinion” on the same set of facts as were available on record in the course of original assessment proceedings, and not on the basis of any fresh material coming to the notice of the A.O after the culmination of the original assessment.
At the time of hearing of appeal the Departmental Representative (for short ‘DR’) had tried to impress upon me that as the assessee during the year had not executed any contract work for M/s. Engineering Project (India) Ltd., therefore, its claim for deduction of the corresponding bank guarantee charges of Rs.1,83,720/- (out of Rs.1,96,884/-) was wrongly allowed by the A.O while framing of the original assessment. To sum up, the ld. D>R had tried to justify the reopening of the concluded assessment of the assessee, for reason that the same was, inter alia, taken recourse to for disallowing a claim for deduction that was raised by the assessee
7 ACIT-1(1) Vs. M/s Varsha Construction ITA No.111/RPR/2020
in its return of income on the basis of wrong and incorrect facts, but was allowed by the A.O while framing the original assessment.
Rebutting the aforesaid claim of the Ld. DR, it was stated by the Ld. AR that the contract receipts of the assessee assessee firm during the year under consideration comprised of the amounts that were received from M/s. Engineering Project (India) Ltd, Page 7-8 of APB. My attention was drawn by the Ld. AR towards the details of bank guarantee charges of Rs. 1,96,884/- that were paid to SBI, Raipur, Page 44 of APB. It was averred by the Ld. AR that the aforesaid claim of the department that the assessee had raised a wrong claim for deduction of bank charges of Rs. 1,83,720/- (supra) was absolutely misconceived and misplaced.
As is discernible from the records, the A.O had in the garb of proceedings u/s.147 of the Act sought to disallow the assessee’s claim for deduction of certain expenses, viz. (i). disallowance of the assessee’s claim for deduction of centering material : Rs.5,15,000/-; (ii). disallowance of the assessee’s claim for deduction of supervision charges paid to 17 persons without deduction of tax at source u/s.194C of the Act: Rs.13,89,600/-; (iii). disallowance of the assessee’s claim for deduction of MD ( miscellaneous deposit) paid to C.G. Housing Board: Rs.95,000/-; and (iv) disallowance of the
8 ACIT-1(1) Vs. M/s Varsha Construction ITA No.111/RPR/2020
assessee’s claim for deduction of bank guarantee charges pertaining to PIU PMGSY : Rs.1,83,720/-. Considering the aforesaid facts, I have no hesitation to observe that as the very basis for reopening of the concluded assessment of the assessee was nothing better than a mere “change of opinion” of the A.O as regards the allowability of the claim of deduction(s) of the assessee, as against the view to the contrary that was taken by his predecessor, which, by no means could have validly conferred with him u/s.147 of the Act. On the basis of the aforesaid facts, I am of the considered view that the reopening of the concluded assessment of the assessee which was earlier framed by the A.O u/s.143(3), dated 26.12.2009 on the basis of a change of opinion can by no means be held to be justified. The aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Kelvinator of India (2010) 320 ITR 561 (SC). The Hon’ble Apex Court in its aforesaid order, had held, that the case of an assessee cannot be reopened on the basis of a mere “change of opinion” by observing 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.
9 ACIT-1(1) Vs. M/s Varsha Construction ITA No.111/RPR/2020
Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to ITA No.1212/Mum/2019 A.Y. 2012- 13 M/s Medley Pharmaceuticals Ltd. Vs. DCIT-10(2)(2) 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 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 theconcept 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."
10 ACIT-1(1) Vs. M/s Varsha Construction ITA No.111/RPR/2020
Apart from that, reliance is placed on the judgment of the Hon’ble High Court of Delhi in the case of Rasalika Trading & Investment Co. (P) Ltd. Vs. Deputy Commissioner of Income Tax & Anr. (supra). It was observed by the Hon’ble High Court that in a case where notice u/s.148 is based upon stale information which was available at the time of the original assessment, and in fact appears to have been used by the A.O during the completion of proceedings u/s.143(3) of the Act, then, reopening of the case cannot be sustained. Further, 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”, observing as under:
"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 opinionthat the income has ITA No.1212/Mum/2019 A.Y. 2012-13 M/s Medley Pharmaceuticals Ltd. Vs. DCIT-10(2)(2) 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
11 ACIT-1(1) Vs. M/s Varsha Construction ITA No.111/RPR/2020
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." On the basis of my aforesaid observations, I concur with the objection raised by the Ld. AR that the A.O had on the basis of a mere “change of opinion” wrongly assumed jurisdiction for reopening the concluded assessment of the assessee under Section 147 of the Act. Accordingly, the assessment framed by the A.O u/s. 143(3) r.w.s. 148 of the Act, dated 30.01.2015 is quashed for want of valid assumption of jurisdiction on his part.
As I have quashed the assessment for want of valid assumption of jurisdiction, therefore, I refrain from adverting to and therein adjudicating the grievance of the revenue, which having been rendered as merely academic in nature is left open.
In the result, appeal of the revenue is dismissed in terms of my aforesaid observations.
Order pronounced in open court on day of 28th November, 2022. Sd/- (रवीश सूद/RAVISH SOOD) �या�यक सद�य/JUDICIAL MEMBER रायपुर / Raipur; �दनांक / Dated : 28th November, 2022
12 ACIT-1(1) Vs. M/s Varsha Construction ITA No.111/RPR/2020
***SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeals)-II, Raipur (C.G.) 4. The Pr. CIT-II, Raipur (C.G.) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “एक-सद�य” ब�च, रायपुर / DR, ITAT, “SMC” Bench, Raipur. गाड� फ़ाइल / Guard File. 6.
आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, रायपुर/ ITAT, Raipur