AI Insights
The case involves the Deputy Commissioner of Income Tax, Central Circle-1, Guntur, as the appellant, and M/s. Ravindra Bharathi Educational Society, Nellore, as the respondent. The dispute arose from the reopening of the assessment for the Assessment Year 2018-19 under Section 147 of the Income Tax Act, 1961, following a survey operation under Section 133A, where the president of the society admitted additional income. The Assessing Officer (AO) reopened the assessment based on this admission, but the CIT(A) later found the reopening to be unjustified, leading to the Revenue's appeal to the Tribunal.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 135728 (ITAT-VISAKHAPATNAM)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
6 month(s) 21 day(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
22-05-2023
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
DB
Next Hearing Date
05-04-2023
Assessment Year
2018-2019
Appeal Filed On
01-11-2022
Judgement Text
आयकरअपीलȣयअͬधकरण, ͪवशाखापटणमपीठ, ͪवशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM Įीदुåवूǽआरएलरेɬडी, ÛयाǓयकसदèयएवंĮीएसबालाकृçणन, लेखासदèयकेसम¢ BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकरअपीलसं./ I.T.A. No.160/Viz/2022 (Ǔनधा[रणवष[/ Assessment Year : 2018-19) The Deputy Commissioner of Income Tax, Central Circle-1, 3 rd Floor, Raj Kamal Complex, Lakshmipuram, Guntur. Vs. M/s. Ravindra Bharathi Educational Society, D.No.23/812, Ravindra Bharathi Bhavan, Fathekhanpet, Nellore, Andhra Pradesh-524003. PAN: AAAAR 2715 E (अपीलाथȸ/ Appellant) (Ĥ×यथȸ/ Respondent) C.O. No. 21/Viz/2022 (आयकरअपीलसं./ I.T.A. No.160/Viz/2022) (Ǔनधा[रणवष[/ Assessment Year :2018-19 ) M/s. Ravindra Bharathi Educational Society, D.No.23/812, Ravindra Bharathi Bhavan, Fathekhanpet, Nellore, Andhra Pradesh-524003. PAN: AAAAR 2715 E Vs. The Deputy Commissioner of Income Tax, Central Circle-1, 3 rd Floor, Raj Kamal Complex, Lakshmipuram, Guntur. ( Cross Objector) (ŮȑथŎ/ Respondent) अपीलाथȸकȧओरसे/ Assessee by : Sri M.V. Prasad, AR Ĥ×याथȸकȧओरसे/ Revenue by : Sri ON Hari Prasada Rao, Sr. AR सुनवाईकȧतारȣख/ Date of Hearing : 06/04/2023 घोषणाकȧतारȣख/Date of Pronouncement : 23/05/2023 2 O R D E R PER S. BALAKRISHNAN, Accountant Member : The captioned appeal is filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals)-3, Visakhapatnam in DIN & Order No. ITBA/APL/S/250/2022- 23/1043288118(1), dated 01/06/2022 arising out of the order passed U/s. 147 of the Income Tax Act, 1961 [the Act] for the AY: 2018-19. 2. Briefly stated the facts of the case are that the assessee is an Association of Persons [AOP] and engaged in the business of imparting education to students. The assessee does not have a registration U/s. 12A of the Act. The assessee e-filed its return of income for the AY 2018-19 admitting a total income of Rs. 4,02,25,350/-. Thereafter, a survey operation U/s. 133A of the Act was conducted in the case of the assessee on 18/7/2019 and found that cash payments amounting to Rs. 2.81 Crs and Rs. 65 lakhs were made for purchase of Text Books and Note Books etc., and the same was impounded. Further, a provisional P & L Account, Balance Sheet for the AY 2019-20 was found which contained the details of cash payment of interest, rent and payment to valuer for the FY 2018-19 which was impounded in 3 Annexure – A/RBES/OFF/HYD/01. Similarly, payment of interest for the FY 2015-16 and 2017-18 and also the details of some other receipts are noticed and impounded in Annexure – A/RBES/OFF/HYD/02. It was clarified by the President of the Society Sri M. Subrahmanyam, the provisional P & L Account was prepared for the purpose of availing bank loan. The Survey Team also observed that there are cash payments, declaration of low profits which was intimated to the President of the assessee- Society. The President of the Assessee-Society admitted an additional income of Rs. 2.90 Crs for the AY 2018-19. Considering the above admission of the assessee, the case was reopened U/s. 147 of the Act and the notice U/s. 148 was issued on 4/12/2019 for the AY 2018-19 which was served on the assessee on 7/12/2019. Subsequently, a notice U/s. 142(1) of the Act was issued on 4/2/2021 calling for information. In the meantime, the assessee e-filed its return of income in response to notice U/s 148 of the Act admitting a total income of Rs. 4,02,25,350/- as admitted in the original return. Further, a notice U/s. 143(2) was issued on 19/4/2021. As there was no response from the assessee, a letter was addressed to the assessee on 16/4/2021 proposing an addition of Rs. 2.90 Crs as admitted by the assessee at the time of survey and called for its 4 objections. In response, the assessee e-filed a letter in ITBA on 20/04/2021 explaining that the cash payments were not made during the FY 2017-18 and all the payments for purchase of Text Books and Note Books etc., were made through cheques only. The Ld. AO considering the assessee’s explanation not acceptable, made an addition of Rs. 2.90 Crs to the returned income of the Assessee while framing the assessment U/s. 147 of the Act and completed the assessment U/s. 144 of the Act. Aggrieved by the order of the Ld. AO, the assessee is in appeal before the Ld. CIT(A). 3. Before the Ld. CIT(A), the assessee challenged the reopening of the assessment based on the admission made by the President of the Assessee-Society. The Ld. CIT(A) in his detailed order, relying on various judicial pronouncements, considered the submissions made by the assessee and allowed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal. 4. The Revenue has raised the following grounds of appeal: “1. The order of the Ld. CIT(A) is erroneous both on the fac ts and in law. 5 2. The Ld. CIT(A) is no t justified in stating that reopening the assessment U/s. 147 of the Act is bad in law. 3. The Ld. CIT(A) has erred in law and on fac ts when stating that reopening the assessment was done without referring to the incriminating material. 4. The Ld. CIT(A) has erred in law and on fac ts in deleting the addition of Rs. 2.90 Crs as the assessee ad mitted the additional inco me of Rs. 2.90 Crs as per the material found during the course of survey U/s. 133A. 5. The Ld.CIT(A) is wrong on facts when stating that the assessee has re tracted the state ment recorded during the course of survey as the assessee has never stated that it is re tracting from the state ment. 6. The Ld. CIT(A) erred on law and in facts in admitting the explanation of the assessee that the admission is due to miscomprehension as the retrac tion of ad mission was without any proof or evidence. 7. The Ld. CIT(A) erred on law and fac ts in ignoring the unaccounted transac tion recorded in the incriminating impounded material. 8. Any other ground that may be urged at the time of hearing.” 5. At the outset, the Ld. DR argued that since the assessee has admitted Rs. 2.90 Crs during the survey but has failed to admit the same while filing the return of income U/s. 148 of the Act. The Ld. DR further submitted that the Ld. CIT(A) has relied on the decision of Pullangode Rubber Producer Co. Ltd vs. CIT 6 [1973] 91 ITR 18 wherein it was held that reopening based on admission is an ex tre mely important piece of evidence. The Ld. DR further submitted that since the assessee has not declared the income admitted, the Ld. AO has rightly considered that there is a reason to belief escapement of income by the assessee. The Ld. DR also referred to the reasons for reopening. The Ld. DR therefore pleaded that the order of the Ld. AO be upheld. Per contra, the Ld. AR argued that the Ld. AO has relied on the admission made by the President of the Assessee-Society and has not brought in any corroborative evidence to support the reopening U/s. 147 of the Act. The Ld. AR further submitted that the Ld. AO has also not rejected the books of account while estimating the income of the assessee based on the admission. Further, the Ld. AR also referred to the reasons for reopening in paper book page No. 24 wherein the Ld. AO has purely relied on the admission of the assessee as a valid reason for reopening of the assessment for the AY 2018-19. The Ld. AR also referred to the Hon’ble Supreme Court decision in the case of Pullangode Rubber Producer Co. Ltd vs. CIT (supra) wherein it has been held that “even though an ad mission is an ex tre mely important piece of evidence, it cannot be said to be a conclusive”. Further, the Ld. 7 AR also placed heavy reliance in the decision of the Hon’ble Madras High Court in the case of CIT vs. M/s. S. Khader Khan Son. The Ld. AR also referred to page 6 of the paper book wherein a table was given justifying the increase in interest and depreciation expenditure being the cost for the lower declaration of profits for the impugned assessment year. Further, the Ld. AR also submitted that Annexure – A/RBES/OFF/HYD/02 wherein there are cash payments of interest of Rs. 26 lakhs, which are already included in the sundry expenses in the P & L Account and hence there is no escapement of income as relied on by the Ld. AO. Further, the Ld. AR also submitted that during the course of survey proceedings, no material which is incriminating in nature to have a bearing on the assessment was found. Further, the Ld. AR also referred to the retraction of President of the Assessee-Society and stated that the assessee has wrongly submitted that the admission of additional income at the time of survey was made due to miscomprehension of facts and low profits of margins were correctly justified and recorded. The Ld. AR therefore pleaded that the reopening of assessment was bad in law, invalid and unsustainable in law as it is based on the admission during the survey and not based on any corroborative 8 evidence hence pleaded that the order of the Ld. CIT(A) be upheld. 6. We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. Admittedly, we find that the reopening is based on the admission of additional income of Rs. 2.90 Crs by Sri. M. Subrahmanyam, President of the Assessee-Society at the time of survey. Subsequently, the President of the Assessee-Society retracted his statement and stated that the admission was due to low profit ratios at the time of survey was made due to miscomprehension of facts whereas the low profit margins were justified and correctly recorded. Further, we find that the Hon’ble Supreme Court in the case of Pullangode Rubber Producer Co. Ltd vs. CIT [1973] 91 ITR 18 (supra) held that “an ad mission is an extre mely importance piece of evidence but it cannot be said to be conclusive”. There is merit in the argument of the Ld. AR that the Ld. AO has erred in relying on the statement of admission by the assessee was the sole reason to reopen the assessment U/s. 147 of the Act without bringing any additional corroborative material on record. Various judicial pronouncements have held that a confessional statement made during the survey cannot be 9 considered as a reason for reopening of the assessment in the absence of any supportive incriminating material having direct nexus / correlation with the statement. For having a reason to believe there must be some tangible material which indicates the income escaped assessment. Merely based on the suspicion or surmises, the Ld. Assessing Officer is not permitted to reopen the assessment. It is also seen from the submissions made by the Ld. AR that the assessee has incurred huge expenditure in the form of interest and hence the low profit margin. The Ld. AO has also not brought on record any material or finding based on the suppression of receipts or unrecorded transactions for the year. The reference was made by the Ld. AR to the Circular Dated 10/03/2003, deserves consideration, which reads as under: “Instances have co me to the notice of the Board where assessees have co me to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later re trac ted by the concerned assessees while filing re turns of inco me. In these circumstances, on confessions during the course of search & seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to infor mation on what has not been disclosed or is no t likely to be disclosed before the Inco me Tax Department. Similarly, while recording state ment during the course of search & seizure and survey operations no atte mpt should be made to obtain confession as to the undisclosed inco me. Any action on the contrary shall be viewed adversely. 10 Fur ther, in respec t of pending assessment proceedings also, Assessing Officers should rely upon the evidences / materials gathered during the course of search / survey operations or thereafter while framing the relevan t assessment orders”. 7. Further, any statement recorded U/s. 133A of the Act is not given any evidentiary value obviously for the reason that the Officer is not authorized to administer oath and to take any sworn statement as contemplated in law. Further, the word “may” used in Section 133A(3)(iii) of the Act makes it clear that the materials collected and the statement recorded during the survey U/s. 133A are not conclusive piece of evidence by itself. The case relied on by the Ld. DR in ACIT vs. Rajesh Jhaveri Stock Brokers Pvt Ltd in Appeal (Civil) No. 2830 of 2007) (Supreme Court), dated 23/05/2007 is distinguishable on the fact that wherein para 16 it has been held by the Hon’ble Apex Court that the question is whether there was any relevant material on which a reasonable person could have formed a requisite belief. Whe ther the materials would conclusively prove the escape ment is no t the concern at this stage?” However, in the instant case, the Ld. AO has not brought in any relevant materials conclusively to prove that there is escapement of income. In the light of the above 11 discussions, we find no infirmity in the order of the Ld. CIT(A) in para 5.4 of his order which reads as under: “5.4. During the assessment proceedings the appellant society had established that what was said and admitted in the survey was not correct and hence the admission f or offer of additional income on account of low prof it margin had no justif ication. It was explained that the interest payments on loans taken by the appellant f rom the banks f or its working capital requirements had increased over the years resulting in low prof it margins. A comparative chart showing the net prof it receipts to the gross receipts f or various f inancial years from assessment year 2015-16 to 2018-19 was submitted during the assessment proceedings through which low prof it margins was explained. On perusal of the comparative chart, it is noticed that the bank interest has been showing an increasing trend which was Rs. 23,19,56,781/- in Assessment year 2015-16 rose to Rs. 26,94,41,160/- in the Assessment Year 2018-19 having an impact on the prof it margins. In comparison the net f ee receipts f rom the students did not register signif icant increase as concessions have been allowed to the students. With respect to cash payments of interest of Rs. 26 lakhs f or the year under consideration it was submitted that the same was included in the sundry expenses in the prof it & loss account f or the year under consideration and hence was not an unaccounted item. The low prof it margin at the time of survey was only observation made by the AO and not a conclusive f inding based on suppression of receipts of unrecorded transaction for the year. The appellant had clarif ied subsequently that what he had said during the survey was not correct due to misapprehension of f acts. I observe that the AO has not taken into account the submissions made by the appellant during the assessment and has made the addition only on the basis of confessional statement at the ti me of survey without any supporting material. If the AO disagreed with the claims of the appellant with respect to the justif ication f or low prof it margins he ought to have brought on record with relevant material that the justif ication f or the claims being made by the appellant are not correct. Instead the AO has only relied on the admission given at the time of survey and made the addition. Considering the above f acts and circumstances of the case and the judicial pronounce ments cited above grounds no.2, 3, 4 & 5 are allowed.” 12 8. From the above, we find that the Ld. CIT(A) has rightly held that the reopening is bad in law and allowed the appeal of the assessee. We therefore are of the considered view that no interference is required in the order of the Ld. CIT(A) and hence the grounds raised by the Revenue are dismissed. 9. In the result, appeal of the Revenue is dismissed. 10. With respect to Cross Objection of the assessee, Grounds No. 1, 2, 3, 4 & 6 are supportive in nature and therefore they are considered as infructuous and dismissed as such. 11. With respect to Ground No. 5 of the Cross Objection wherein the objection was raised by the assessee with respect to estimation of income without rejecting the books of account, we note that since the appeal of the Revenue is dismissed based on considering the reopening of assessment is bad in law, this ground needs no separate adjudication and hence this ground is dismissed. 12. In the result, Cross Objection filed by the assessee is dismissed as infrutuous. 13 13. Ex-consequenti, appeal of the Revenue and the Cross Objection of the Assessee are dismissed. Pronounced in the open Court on the 23 rd May, 2023. Sd/- Sd/- (दुåवूǽआर.एलरेɬडी) (एसबालाकृçणन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) ÛयाǓयकसदèय/JUDICIAL MEMBER लेखासदèय/ACCOUNTANT MEMBER Dated : 23.05.2023 OKK - SPS आदेशकȧĤǓतͧलͪपअĒेͪषत/Copy of the order forwarded to:- 1. Ǔनधा[ǐरती/ The Assessee–M/s. Ravindra Bharathi Educational Society, Dr. No. 23/812, Ravindra Bharathi Bhavan, Fathekhanpet, Nellore, Andhra Pradesh – 524003. 2. राजèव/The Revenue –Deputy Commissioner of Income Tax, Central Circle, 3 rd Floor, Raj Kamal Complex, Lakshmipuram Main Road, Guntur – 522007, Andhra Pradesh. 3. The Principal Commissioner of Income Tax (Central), Visakhapatnam. 4. आयकरआयुÈत (अपील)/ The Commissioner of Income Tax 5. ͪवभागीयĤǓतǓनͬध, आयकरअपीलȣयअͬधकरण, ͪवशाखापटणम/ DR,ITAT, Visakhapatnam 6. गाड[फ़ाईल / Guard file आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam
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