DEPUTY COMMISSIONER OF INCOME TAX, FARIDABAD V. COLD FORGE, FARIDABAD

ITA 4228/DEL/2024

AI Insights

The case involves the Deputy Commissioner of Income Tax as the appellant and Cold Forge, Faridabad as the respondent. The appeal by the Revenue was against the order of the Ld. CIT(A)/NFAC, Delhi, which quashed the reassessment proceedings for the assessment year 2015-16. The reassessment was initially triggered by the Assessing Officer due to issues related to unexplained credit, verification of capital asset additions, and disallowance of interest on withdrawals for personal use. The Ld. CIT(A) found that the original assessment had been completed under section 143(3) of the Act without any failure on the part of the assessee to disclose material facts, leading to the quashing of the reassessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 112039 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2015-2016
• Other Referred Cases: CIT vs. Foramer France
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT KATOCH
• Assessee Lawyers: AMIT SHARMA
• Keywords: Capital asset; Reassessment proceedings; Unexplained cash credit; Depreciation; Assessment record; Reason to believe
• Section: 147; 148; 143(3); 153; 68; 139; 264; 20

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘E’’ : NEW DELHI) BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT AND SHRI M. BALAGANESH, ACCOUTANT MEMBER ITA No. 4228/Del/2024 Asstt. Year : 2015-16 Dy. Commissioner of Income Tax, vs. Cold Forge, Faridabad Plot No. 181, Income Tax Office, Shed No. 2,3,4,5,6 Block-B, New CGO Complex, Sector-24, Faridbad NH-IV, NIT Faridabad Haryana - 121003 Haryana-121001 (PAN: AADFC9058R) (Appellant) (Respondent) Appellant by : Sh. Amit Katoch, Sr. DR. Respondent by : Sh. Amit Sharma, Adv. Date of Hearing 16.04.2025 Date of Pronouncement 16.04.2025 ORDER PER MAHAVIR SINGH, VP This appeal by the Revenue is arising out of the order dated 05.07.2024 of the Ld. CIT(A)/NFAC, Delhi in Appeal No. NFAC/2014- 15/10147711. Assessment was framed by the Assessing Officer/National Faceless Assessment Centre, Delhi for assessment year 2015-16 u/s 147 read with section 144B of the Income Tax Act, 1961 (hereinafter referred as “Act”) vide order dated 31.03.2022. 2. The first issue in this appeal of Revenue is as regards to order of Ld. CIT(A)/NFAC quashing the reassessment proceedings and this issue is raised by the Revenue vide Ground No. 3, which reads as under:- 2 “Whether on the impugned order passed by the Ld. CIT(A) by quashing the reassessment proceedings is the correct interpretation of the facts and of the law?” 3. The brief facts of the case are that the assesse is a firm engaged in the business of manufacturing of automobiles and auto parts. The assesse filed its return of income for assessment year 2015-16 on 27.10.2015 declaring total income of Rs. 23,93,000/-. Original assessment was completed u/s. 143(3) of the Act vide order dated 22.06.2017 and the AO identified following issues in limited scrutiny: (i) Interest expenses (ii) Custom Duty Payment Mismatch. (iii) Payment to related persons mismatch. 3.1 Subsequently, after recording reasons proceedings u/s. 147 of the Act was initiated on the following reasons: i. The case was selected under scrutiny for High Interest expenditure against new capital added or addition in fixed asset as one of the reason. Examination of record revealed that the assesse made addition in capital of Rs. 20,00,000/- but source was not mentioned in the record. Hence, it was to be treated as unexplained credit u/s. 68 of the Act. ii. Further it is pertinent to mention that the reason for selection was addition in capital assets as stated above and the addition of assets in previous year was of Rs. 3,39,56,741/-. But the source of such huge expenditure was not checked as no bills / invoices were found attached in record. Moreover, as the previous year account was not attached, thus, the 3 availability of funds / creditors to expend such huge amount in assets could not be verified. iii. Perusal of records reveals that the assesse has made addition in capital and interest on capital was paid on opening capital along with addition in capital. But no disallowance of interest was made from the withdrawals made from capital which were made for personal use and income derived by partners will not form part of total income/exempted income for firm. Interest on such withdrawals is to be charged at Rs. 3,10,663/- @ 11.8% at the same percentage at which interest was paid on capital and required to be added to the assessed income. 4. In compliance to notice u/s. 148 of the Act, the assesse filed return of income on 26.5.2021. Notice u/s. 148 of the Act is dated 28.03.2021. The Ld. CIT(A) noted that the assessee’s case falls in first proviso to section 147 of the Act for the reasons that there is no failure on the part of the assesse to disclose fully and truly all materials facts necessary for its assessment for the relevant assessment year 2015-16 in the original assessment and even return was filed u/s. 139 of the Act. Since there was no failure on the part of the assesse to disclose fully and truly all material facts necessary for its assessment for the relevant assessment year and original assessment was completed u/s. 143(3) of the Act, the Ld. CIT(A) quashed the reopening by observing as under:- “……However, a perusal of the reasons recorded, the Ld. AO has not mentioned anything about the facts that escapement of income from assessment has occasioned on account of failure on the part of the Appellant to disclose fully and truly all the material facts. All the facts had been truly and fully disclosed by the appellate at the time of original assessment proceedings. It is also not in dispute 4 that vide order dated 22.06.2017 the original assessment for the above assessment year was completed under Section 143(3) of the Act.” 5. Aggrieved, Revenue is in appeal before us. 6. We have heard the rival contentions and gone through the facts of the case. We noted that the relevant assessment year is 2015-16 and the original assessment was completed by the AO u/s. 143(3) of the Act on 22.06.2017 in the limited scrutiny assessment on the issues of (i) Interest Expenses; (ii) Custom Duty Paid Mismatch and (iii) Payment to related persons mismatch. The Revenue reopened the assessment to assess the source of unexplained credit u/s. 68 of the Act of Rs. 20 lacs and to verify addition in capital assets of Rs. 3,39,56,741/- and also disallowance of interest on withdrawal made by the partners from capital account for personal use amounting to Rs. 3,10,663/-. The assessee before us, claimed that assessee filed all its details which were available in the assessment records and entire details of opening capital, addition to capital and addition of assets alognwith source of this expenditure including the addition in capital account of Rs. 20 lacs was explained during the original assessment proceedings. We note that this fact has been examined by the Ld. CIT(A) while adjudicating this issue of reopening. From the very reasons, recorded and as reproduced by the Ld. CIT(A), in its order, it is clear that there is no charge levied by the AO while recording reasons that there is no failure on the part of the assessee to disclose fully and truly all material facts. From the very reasons that the source of huge expenditure was not checked and source of addition capital account of Rs. 20 lacs was not verified and further there is no disallowance of interest of withdrawals made by the partners from capital account for personal use. These details are already available on record, at the time of original assessment proceedings. 5 Nevertheless the assessment was done in a limited scrutiny assessment by the AO and there was no scope for the AO to transgress other issues, even though all the details were available. 7. We noted that similar issue was considered by the Hon’ble Supreme Court in the case of Foarmer France Hon’ble Supreme Court in the case of CIT vs. Foramer France, reported in (2003) 264 ITR 566, wherein the Hon’ble Supreme Court has affirmed the decision of Hon’ble Allahabad High Court in the case of Foramer France vs. CIT, reported in (2001) 247 ITR 436 by observing as under:- 14. Having heard learned counsel for the parties, we are of the view that these petitions deserve to be allowed. 15. It may be mentioned that a new Section substituted Section 147 of the Income-tax Act by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989. The relevant part of the new Section 147 is as follows : \"147. If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this Section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under Sub-section (3) of Section 143 or this Section has been made for the relevant assessment year, no action shall be taken under this Section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued 6 under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.\" 16. This new Section has made a radical departure from the original Section 147 inasmuch as clauses (a) and (b) of the original Section 147 have been deleted and a new proviso added to Section 147. 17. In Rakesh Aggarwal v. Asst. CIT (1997] 225 ITR 496, the Delhi High Court held that in view of the proviso to Section 147 notice for reassessment under Section 147/148 should only be issued in accordance with the new Section 147, and where the original assessment had been made under Section 143(3) then in view of the proviso to Section 147, the notice under section 148 would be illegal if issued more than four years after the end of the relevant assessment year. The same view was taken by the Gujarat High Court in Shree Tharad Jain Yuvak Mandal v. ITO [2000] 242 ITR 612. 18. In our opinion, we have to see the law prevailing on the date of issue of the notice under Section 148, i.e., November 20, 1998. Admittedly, by that date, the new Section 147 has come into force and, hence, in our opinion, it is the new Section 147 which will apply to the facts of the present case. In the present case, there was admittedly no failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessment. Hence, the proviso to the new Section 147 squarely applies, and the impugned notices were barred by limitation mentioned in the proviso.” 8. In view of above, we find no infirmity in the order of the Ld. CIT(A) quashing the reopening and thus we affirm the same and accordingly, dismissed this issue raised in Revenue’s Appeal. 9. As regards the issues on merits are concerned, since we have adjudicated the issue of jurisdiction in favour of the Assessee by 7 dismissing the appeal of the Revenue, as aforesaid, hence, we need not adjudicate the issues on merits. 10. In the result, the appeal filed by the Revenue stand dismissed. Order pronounced in the Open Court on 16.04.2025. Sd/- Sd/- (M. BALAGANESH) (MAHAVIR SINGH) ACCOUNTANT MEMBER VICE PRESIDENT SRBhatnagar Copy forwarded to: - 1. Appellant 2. Respondent 3. DIT 4. CIT (A) 5. DR, ITAT TRUE COPY By Order, Assistant Registrar, ITAT, Delhi Benches "