Income tax Officer, International Taxation, Bangalore V. M/s Pharma Arc consulting Services GMBH, Bangalore

ITA 1382/BANG/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89893 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 12-11-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SUIDHAR
• Keywords: Reopening of assessment; Loose papers; Reason to believe; Reassessment proceedings
• Section: 143(3); 133A; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE A BENCH, BANGALORE [CORAM: PRAMOD KUMAR AM AND SMT. P MADHAVI DEVI JM] I.T.A. NO. 178/BANG/14 ASSESSMENT YEAR: 2007-08 M/S A.M. CONSTRUCTIONS ..APPELLANT II FLOOR, DIAMOND CORNER DESHPANDE NAGAR HUBLI (PAN: AAALF6900C) VS. DY.CIT, CIR.1(1) RESPONDENT HUBLI ] APPEARANCES BY: SHRI SUIDHAR, FOR THE ASSESSEE SHRI T.S.N. MURTHY FOR THE ASSESSING OFFICER DATES OF CONCLUDING THE HEARING :APRIL 15, 2015. DATE OF PRONOUNCING THE ORDER :APRIL 15, 2015. ORDER PER PRAMOD KUMAR, AM: 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HA S CALLED INTO QUESTION CORRECTNESS OF THE ORDER DATED 29 TH NOVEMBER, 2014, PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX(A), IN THE M ATTER OF ASSESSMENT UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME-TAX A CT, 1961, FOR ASSESSMENT YEAR 2007-08. ITA 178/BANG/2014 ASSESSMENT YEAR 2007-08 2 2. ONE OF THE GRIEVANCES THAT THE ASSESSEE HAS RAIS ED IN THIS APPEAL, BY WAY OF AN ADDITIONAL GROUND OF APPEAL, IS THAT WHEN THE ASSESSING OFFICER HAS NOT MADE ANY ADDITION IN RESPECT OF THE ITEMS S ET OUT IN REASONS FOR REOPENING THE ASSESSMENT, THE COMMISSIONER OF INCOM E-TAX(A) OUGHT NOT TO HAVE CONFIRMED ADDITIONS IN RESPECT OF OTHER ISS UES AS WELL. THIS GROUND OF APPEAL IS REPRODUCED BELOW FOR READY REFE RENCE: 1. THE CIT (A) ERRED IN JUSTIFYING THE REASONS FOR REOPENING OF ASSESSMENT WHEN NO ADDITION WAS MADE ON THE GROUND ON WHICH REOPENING WAS MADE. 3. AS THE ISSUE SO RAISED BY THE ASSESSEE IS A PURE LY LEGAL ISSUE ARISING OUT OF FACTS ALREADY ON RECORD, WE ADMIT THIS GROUN D OF APPEAL AND PROCEED TO DISPOSE OF THE SAME ON MERITS. 4. TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERIA L FACTS NEED TO BE TAKEN NOTE OF. THE ASSESSMENT IN THIS CASE WAS REO PENED BY RECORDING THE FOLLOWING REASONS: REASONS FOR REOPENING THE CASE U/S 147 OF THE I T ACT, 1961 THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF LAND. A SURVEY U/ S 133A OF I T ACT, 1961 WAS CONDUCTED AT ASSESSEES BUSINESS PR EMISES ON 21.10.2010. DURING THE COURSE OF SURVEY CERTAIN INCRIMINATING DOCUMENTS AND LOOSE PAPERS WERE FOUND WHICH REVEALED TRANSACTION IN IMMOVABLE PROPERTY INCLUDIN G LAND. ITA 178/BANG/2014 ASSESSMENT YEAR 2007-08 3 THE RETURN OF INCOME FOR A Y 2007-08 IS FILED ON 31.3.2009 VIDE E-FILING ACK NO.68249770310309. AS PER THE PROFIT AND LOSS ACCOUNT ATTACHED WITH THE RETURN OF INCOME FOR A Y 2007-08, THE PURCHASES ARE SHOWN ONLY TO A TUNE OF RS.48,23,432.12. BUT AS PER THE PRIMA FACIE ANALYS IS OF THE IMPOUNDED MATERIAL, PURCHASES DURING THE F Y 2006-0 7 RELEVANT TO A Y 2007-08 IS TO A TUNE OF RS.95,45,20 0/-. HENCE, THERE IS A DIFFERENCE OF RS.47,21,767.88/-. THUS, THERE IS EXCESS OF PURCHASES AS AGAINST THE PURCHASES SHO WN IN THE RETURN OF INCOME FOR A Y 2007-08. HENCE, I HAVE REASON TO BELIEVE THAT INCOME CHARGE ABLE TO TAX HAS ESCAPED ASSESSMENT IN THE RELEVANT A Y 2 007-08. THEREFORE, NOTICE U/S 148 OF I T ACT, 1961 IS BEING ISSUED FOR A Y 2007-08 WITHIN THE MEANING OF SECTION 147 OF TH E I T ACT, 1961. 5. IN THE COURSE OF FRAMING THE ASSESSMENT PROCEEDI NGS, AS A RESULT OF THIS REOPENING, NO ADDITIONS WERE MADE IN RESPECT O F THE ABOVE. THE ASSESSING OFFICER, HOWSOEVER, MADE SOME OTHER ADDIT IONS. AGGRIEVED, INTER ALIA, BY THE REOPENING OF THE REASSESSMENT, A SSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A) BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 7. IT IS WELL SETTLED LEGAL POSITION THAT WHEN NO A DDITIONS ARE MADE BY THE ASSESSING OFFICER, IN THE COURSE OF REOPENED AS SESSMENT PROCEEDINGS, IN RESPECT OF THE INCOME FOR ESCAPEMENT OF WHICH TH E REASSESSMENT ITA 178/BANG/2014 ASSESSMENT YEAR 2007-08 4 PROCEEDINGS ARE INITIATED, HE CANNOT MAKE ANY OTHER ADDITIONS EITHER. IN THE CASE OF CIT VS. JET AIRWAYS (331 ITR 236), HON BLE BOMBAY HIGH COURT HAS, REITERATING THIS LEGAL POSITION, OBSERVED AS F OLLOWS:- 19. THE SECOND LINE OF PRECEDENT IS REFLECTED IN A JUDGMENT OF THE RAJASTHAN HIGH COURT IN CIT VS. SHRI RAM SIN GH (2008) 217 CTR (RAJ) 345 : (2008) 306 ITR 343 (RAJ). THE RAJASTHAN HIGH COURT CONSTRUED THE WORDS USED BY PARLIAMENT I N S. 147 PARTICULARLY THE WORDS THAT THE ASSESSING OFFICER MAY ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME C HARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDING S UNDER S.147. THE RAJASTHAN HIGH COURT HELD AS FOLLOWS: . IT IS ONLY WHEN, IN PROCEEDINGS UNDER S.147 THE ASSESSING OFFICER, ASSESSES OR REASSESS ANY INCOME CHARGEABLE TO TAX, WHICH HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEA R, WITH RESPECT TO WHICH HE HAD REASON TO BELIEVE TO BE S O, THEN ONLY, IN ADDITION, HE CAN ALSO PUT TO TAX, THE OTHER INCO ME, CHARGEABLE TO TAX, WHICH HAS ESCAPED ASSESSMENT, AN D WHICH HAS COME TO HIS NOTICE SUBSEQUENTLY, IN THE COURSE OF PROCEEDINGS UNDER S. 147. TO CLARIFY IT FURTHER, OR TO PUT IT IN OTHER WORDS, IN OUR OPINION, IF IN THE COURSE OF PROCEEDINGS UNDER S. 147, THE A SSESSING OFFICER WERE TO COME TO THE CONCLUSION, THAT ANY IN COME CHARGEABLE TO TAX, WHICH, ACCORDING TO HIS REASON TO BELIEVE, HAD ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, DID NOT ESCAPE ASSESSMENT, THEN, THE MERE FACT THAT THE AO ENTERTAINED A REASON TO BELIEVE, ALBEIT EVEN A GENUINE REASON T O BELIEVE, WOULD NOT CONTINUE TO VEST HIM WITH THE JURISDICTIO N, TO SUBJECT TO TAX, ANY OTHER INCOME, CHARGEABLE TO TAX, WHICH THE ASSESSING OFFICER MAY FIND TO HAVE ESCAPED ASSESSME NT, AND WHICH MAY COME TO HIS NOTICE SUBSEQUENTLY, IN THE C OURSE OF PROCEEDINGS UNDER S.147. 20. PARLIAMENT, WHEN IT ENACTED THE EXPLN.(3) TO S. 147 BY THE FINANCE (NO.2) ACT, 2009 CLEARLY HAD BEFORE IT BOTH THE LINES OF PRECEDENT ON THE SUBJECT. THE PRECEDENT DEALT WITH TWO SEPARATE QUESTIONS. WHEN IT EFFECTED THE AMENDMENT BY ITA 178/BANG/2014 ASSESSMENT YEAR 2007-08 5 BRINGING IN EXPLN.3 TO S.147, PARLIAMENT STEPPED IN TO CORRECT WHAT IT REGARDED AS AN INTERPRETATIONAL ERROR IN TH E VIEW WHICH WAS TAKEN BY CERTAIN COURTS THAT THE ASSESSIN G OFFICER HAS TO RESTRICT THE ASSESSMENT OR REASSESSMENT PROC EEDINGS ONLY TO THE ISSUES IN RESPECT OF WHICH REASONS WERE RECORDED FOR REOPENING THE ASSESSMENT. THE CORRECTIVE EXERC ISE EMBARKED UPON BY PARLIAMENT IN THE FORM OF EXPLN.3 CONSEQUENTLY PROVIDES THAT THE ASSESSING OFFICER MA Y ASSESS OR REASSESS THE INCOME IN RESPECT OF ANY ISSUE WHICH C OMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDING S THOUGH THE REASONS FOR SUCH ISSUE WERE NOT INCLUDED IN THE NOTICE UNDER S.148(2). THE DECISIONS OF THE KERALA HIGH C OURT IN TRAVANCORE CEMENTS LTD. (SUPRA) AND OF THE PUNJAB & HARYANA HIGH COURT IN VIPAN KHANNA (SUPRA) WOULD, THEREFORE , NO LONGER HOLD THE FIELD. HOWEVER, INSOFAR AS THE SEC OND LINE OF AUTHORITY IS CONCERNED, WHICH IS REFLECTED IN THE J UDGMENT OF THE RAJASTHAN HIGH COURT IN SHRI RAM SINGH (SUPRA), EXPLN.3 AS INSERTED BY PARLIAMENT WOULD NOT TAKE AWAY THE B ASIS OF THAT DECISION. THE VIEW WHICH WAS TAKEN BY THE RAJ ASTHAN HIGH COURT WAS ALSO TAKEN IN ANOTHER JUDGMENT OF TH E PUNJAB & HARYANA HIGH COURT IN CIT VS. ATLAS CYCLE INDUSTR IES (1989) HELD THAT THE ASSESSING OFFICER DID NOT HAVE JURISD ICTION TO PROCEED WITH THE REASSESSMENT, ONCE HE FOUND THAT T HE TWO GROUNDS MENTIONED IN THE NOTICE UNDER S.148 WERE IN CORRECT OR NON-EXISTENT. THE DECISIONS OF THE PUNJAB & HARYAN A HIGH COURT IN ATLAS CYCLE INDUSTRIES (SUPRA) AND OF THE RAJASTHAN HIGH COURT IN SHRI RAM SINGH (SUPRA) WOULD NOT BE A FFECTED BY THE AMENDMENT BROUGHT IN BY THE INSERTION OF EXPLN. 3 TO S.147. 21. EXPLANATION 3 LIFTS THE EMBARGO, WHICH WAS INSE RTED BY JUDICIAL INTERPRETATION, ON THE MAKING OF AN ASSESS MENT OR REASSESSMENT ON GROUNDS OTHER THAN THOSE ON THE BAS IS OF WHICH A NOTICE WAS ISSUED UNDER S.148 SETTING OUT T HE REASONS FOR THE BELIEF THAT INCOME HAD ESCAPED ASSESSMENT. THOSE JUDICIAL DECISIONS HAD HELD THAT WHEN THE ASSESSMEN T WAS SOUGHT TO BE REOPENED ON THE GROUND THAT INCOME HAD ESCAPED ASSESSMENT ON A CERTAIN ISSUE, THE ASSESSING OFFICE R COULD NOT MAKE AN ASSESSMENT OR REASSESSMENT ON ANOTHER ISSUE WHICH CAME TO HIS NOTICE DURING THE PROCEEDINGS. THIS IN TERPRETATION WILL NO LONGER HOLD THE FIELD AFTER THE INSERTION O F EXPLN.3 BY THE FINANCE ACT (NO.2) OF 2009. HOWEVER, EXPLN.3 D OES NOT AND CANNOT OVERRIDE THE NECESSITY OF FULFILLING THE CON DITIONS SET OUT IN THE SUBSTANTIVE PART OF S.147. AN EXPLANATI ON TO A STATUTORY PROVISION IS INTENDED TO EXPLAIN ITS CONT ENTS AND ITA 178/BANG/2014 ASSESSMENT YEAR 2007-08 6 CANNOT BE CONSTRUED TO OVERRIDE IT OR RENDER THE SU BSTANCE AND CORE NUGATORY. SEC.147 HAS THIS EFFECT THAT THE AS SESSING OFFICER HAS TO ASSESS OR REASSESS THE INCOME (SUCH INCOME) WHICH ESCAPED ASSESSMENT AND WHICH WAS THE BASIS OF THE FORMATION OF BELIEF AND IF HE DOES SO, HE CAN ALSO ASSESS OR REASSESS ANY OTHER INCOME WHICH HAS ESCAPED ASSESSM ENT AND WHICH, COMES TO HIS NOTICE DURING THE COURSE OF THE PROCEEDINGS. HOWEVER, IF AFTER ISSUING A NOTICE UN DER S.148, HE ACCEPTED THE CONTENTION OF THE ASSESSEE AND HOLDS T HAT THE INCOME WHICH HE HAS INITIALLY FORMED A REASON TO BE LIEVE HAD ESCAPED ASSESSMENT, HAS AS A MATTER OF FACT NOR ESC APED ASSESSMENT, IT IS NOT OPEN TO HIM INDEPENDENTLY TO ASSESS SOME OTHER INCOME. IF HE INTENDS TO DO SO, A FRESH NOTI CE UNDER S.148 WOULD BE NECESSARY, THE LEGALITY OF WHICH WOULD BE TESTED IN THE EVENT OF A CHALLENGE BY THE ASSESSEE. 22. WE HAVE APPROACHED THE ISSUE OF INTERPRETATION THAT HAS ARISEN FOR DECISION IN THESE APPEALS, BOTH AS A MAT TER OF FIRST PRINCIPLE, BASED ON THE LANGUAGE USED IN S.147(1) A ND ON THE BASIS OF THE PRECEDENT ON THE SUBJECT. WE AGREE WI TH THE SUBMISSIONS WHICH HAS BEEN URGED ON BEHALF OF THE A SSESSEE THAT S. 147(1) AS IT STANDS POSTULATES THAT UPON TH E FORMATION OF A REASON TO BELIEVE THAT INCOME CHARGEABLE TO TA X HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, THE ASS ESSING OFFICER MAY ASSESS OR REASSESS SUCH INCOME AND ALS O ANY OTHER INCOME CHARGEABLE TO TAX WHICH COMES TO HIS N OTICE SUBSEQUENTLY DURING THE PROCEEDINGS AS HAVING ESCAP ED ASSESSMENT. THE WORDS AND ALSO ARE USED IN A CUM ULATIVE AND CONJUNCTIVE SENSE. TO READ THESE WORDS AS BEIN G IN THE ALTERNATIVE WOULD BE TO REWRITE THE LANGUAGE USED B Y PARLIAMENT. OUR VIEW HAS BEEN SUPPORTED BY THE BAC KGROUND WHICH LED TO THE INSERTION OF EXPLN.3 TO S.147. PA RLIAMENT MUST BE REGARDED AS BEING AWARE OF THE INTERPRETATION TH AT WAS PLACED ON THE WORDS AND ALSO BY THE RAJASTHAN HIG H COURT IN SHRI RAM SINGH (SUPRA). PARLIAMENT HAS NOT TAKEN A WAY THE BASIS OF THAT DECISION. WHILE IT IS OPEN TO PARLIA MENT, HAVING REGARD TO THE PLENITUDE OF ITS LEGISLATIVE POWERS T O DO SO, THE PROVISIONS OF S.147(1) AS THEY STOOD AFTER THE AMEN DMENT OF 1 ST APRIL, 1989 CONTINUE TO HOLD THE FIELD. ITA 178/BANG/2014 ASSESSMENT YEAR 2007-08 7 8. WHEN WE ASKED THE LEARNED DR WHETHER ANY ADDITIO NS HAVE BEEN MADE IN RESPECT OF THE ITEMS OF INCOME, FOR THE ALL EGED ESCAPEMENT OF WHICH ASSESSMENT WAS REOPENED, HE COULD NOT SHOW SU CH ADDITIONS. 9. IT IS THUS CLEAR THAT THE ALLEGED ITEMS OF INCOM E, FOR THE ESCAPEMENT OF WHICH THE ASSESSMENT WAS REOPENED, WERE NOT BROU GHT TO TAX BY THE ASSESSING OFFICER IN THE IMPUGNED ASSESSMENT ORDER. SUCH BEING THE FACTUAL POSITION, THE VERY EXERCISE OF REOPENING OF ASSESSMENT IS RENDERED INFRUCTUOUS AND UNSUSTAINABLE IN LAW. AS LEARNED C OUNSEL FOR THE ASSESSEE RIGHTLY CONTENDS, NO OTHER ADDITIONS COULD HAVE BEEN MADE IN THIS CASE. 10. FOR THE REASONS SET OUT ABOVE, WE UPHOLD THE PL EA OF THE ASSESSEE AND QUASH THE REASSESSMENT PROCEEDINGS. AS THE REA SSESSMENT ITSELF IS QUASHED, WE SEE NO NEED TO DEAL WITH OTHER ISSUES R AISED IN THE APPEAL. 11. IN THE RESULT, THE APPEAL IS ALLOWED IN TERMS I NDICATED ABOVE. IT WAS SO PRONOUNCED IN THE OPEN COURT IMMEDIATELY UPO N CONCLUSION OF HEARING ON 15 TH APRIL 2015. SD/- SD/- (SMT. P MADHAVI DEVI) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DT : 15 TH APRIL, 2015 PK/- ITA 178/BANG/2014 ASSESSMENT YEAR 2007-08 8 COPY TO: 1. M/S A M CONSTRUCTIONS, II FLOOR, DIAMOND CORNER, DE SHPANDE NAGAR, HUBLI 2. DY.CIT, CIR.1(1), HUBLI 3. COMMISSIONER OF INCOME-TAX(A), HUBLI 4. COMMISSIONER OF INCOME-TAX, HUBLI 5. DR A BENCH 6. GUARD FILE (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, BANGALORE BENCHES