M/s. Sparco Engineering Pvt. Ltd., V. Deputy Commissioner of Income-tax,

ITA 1545/PUN/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2823 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-03-2019
• Assessment Year: 2006-2007
• Appeal Filed On: 27-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJEEV GHEI
• Keywords: Loose papers; Tangible material; Reason to believe; Reassessment proceedings; Set aside
• Section: 143(3); 148

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.1545/PUN/2015 / ASSESSMENT YEAR : 2006-07 SPARCO ENGINEERING PVT. LTD., 12, BHOSALE NAGAR, PUNE CITY, MAHARASHTRA 411007. PAN : AACCS3886A. . / APPELLANT V/S THE DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 2(3), PUNE. . / RESPONDENT ASSESSEE BY : SHRI KISHORE PHADKE. REVENUE BY : SHRI SANJEEV GHEI. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE ASSESSEE IS EMANATING OUT OF THE O RDER OF COMMISSIONER OF INCOME TAX (A) 12, PUNE DATED 14.10.201 5 FOR THE ASSESSMENT YEAR 2006-07. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS COMPANY STATED TO BE ENGAGED IN THE BUSIN ESS OF MANUFACTURING OF AUTOMOBILE SPARE PARTS AND STATED TO BE A PART OF S.M. AUTO GROUP OF COMPANIES. ASSESSEE HAD FILED ITS RETURN OF INCOME ON 20.10.2006 DECLARING TOTAL INCOME AT RS.24,42,925/-. A SEARCH AND / DATE OF HEARING : 26.03.2019 / DATE OF PRONOUNCEMENT: 07.06.2019 2 ITA NO.1545//PUN/2015 SEIZURE ACTION WAS CARRIED OUT ON 22.08.2012 WHEREIN THE MODUS OPERANDI OF UNDER INVOICING OF SCRAP SALE WAS DETECTED. FR OM THE FINDINGS OF SEARCH ACTION, IT WAS NOTICED THAT INCOME HAD E SCAPED ASSESSMENT AND ACCORDINGLY NOTICE U/S 148 OF THE ACT W AS ISSUED ON 28.03.2013 AND WAS SERVED ON THE ASSESSEE. IN RESPONS E TO THE AFORESAID NOTICE, ASSESSEE VIDE LETTER DT.23.04.2013 SUBMITTE D THAT THE RETURN OF INCOME FILED ON 20.10.2006 MAY BE TREATED AS RET URN OF INCOME IN RESPONSE TO NOTICE U/S 148 OF THE ACT. THEREAFTER, TH E CASE WAS TAKEN UP FOR SCRUTINY AND ASSESSMENT WAS FRAMED U/S 143(3) R.W .S. 148 OF THE ACT VIDE ORDER DT.10.03.2014 AND THE TOTAL INCOME WAS DET ERMINED AT RS.36,12,680/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CA RRIED THE MATTER BEFORE LD.CIT(A) WHO VIDE ORDER DATED 14.10.2015 (IN APPEAL NO.PN/CIT(A)-12/DCIT CENT CIR 2(3), PUNE/340/2014-15) DISM ISSED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CI T(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1. ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW , THE LEARNED CIT(A ) E RR ED IN H O L DING THAT THE REOPENING OF THE ASSESSMENT AND THE ASSESSMENT FRAMED U/ S . 143 (3 ) R . W.S . 147 ARE VALID . LOOKING TO THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND I N L AW THE APPE L LAN T SUBMITS T HAT LEA R NED CI T (A) OUGHT TO HAVE HE L D THAT THE REOPENING OF THE ASSESSMEN T AND THE ASSESSMENT FRAMED U/S . 143(3 ) R. W . S . 147 WERE INVAL I D AND OUGH T TO HAVE Q UASHED THE SAME. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW , THE LEARNED C I T(A ) ERRED I N CONFIRMING THE ADDITION OF RS . 11, 69 , 753 ON ACCOUNT OF AL L EGED UNACCOUNTED SCRAP SALES . L O OKI NG TO THE FACTS AND IN THE CI RCU M STANCES OF TH E CASE AND I N LAW T HE A PPEL L AN T SUBMITS THAT LEARNED CIT(A) OUGH T TO HAVE HELD THA T T HE SA I D ADDIT I ONS MADE BY THE A .O . I S I NCORRECT AND INVALID AND OUG H T TO HAVE DE L ETED THE SA M E . 3. ALL THE GROUNDS BEING INTER CONNECTED ARE CONSIDERED TOGETH ER. 3 ITA NO.1545//PUN/2015 4. BEFORE US, LD.A.R. SUBMITTED THAT THE REASONS FOR RE-OP ENING OF THE ASSESSMENT WAS ON THE BASIS OF REPORT OF INVESTIG ATION WING WHEREIN IT WAS NOTED THAT DURING THE COURSE OF SEARCH P ROCEEDINGS, EVIDENCE WAS FOUND TO THE EFFECT THAT ASSESSEE COMPANY WAS GENERATING UNACCOUNTED CASH BY WAY OF UNDER-INVOICING THE SCRAP G ENERATED DURING PRODUCTION ACTIVITY. HE POINTED TO THE COPY OF THE LOOSE PAPERS OF THE SALE OF SCRAP WHICH ARE PLACED IN THE PAPER BOOK. HE SUB MITTED THAT THE AO HAS RECORDED TO HAVE REASON BELIEVE THAT INCOME ASS ESSABLE TO TAX IN EXCESS OF RS.11 LAKHS HAD ESCAPED ASSESSMENT DURING THE YEAR UNDER CONSIDERATION. HE SUBMITTED THAT ASSESSEE HAS RAISED OB JECTION AGAINST THE NOTICE U/S 148 OF THE ACT WHICH WAS REJECTED BY T HE AO VIDE ORDER DATED 04.01.2014 AND THE COPY OF THE ORDER IS PLACED AT PAGE 65 OF TO 80 OF THE PAPER BOOK. HE SUBMITTED THAT ON THE BASIS OF TH E SAME LOOSE PAPERS THAT WERE FOUND, RE-OPENING OF ASSESSMENT WAS A LSO MADE IN THE CASE OF ASSESSEES SISTER CONCERN I.E., M/S. S.M. AUTO ENGI NEERING PVT. LTD., BY ISSUING NOTICE U/S 148 OF THE ACT. HE SUBMITTED THAT THE SAME PAPERS WERE REFERRED IN THE CASE OF ITS SISTER CONCERN I.E ., S.M. AUTO ENGINEERING PVT. LTD., ALSO. IN CASE OF S.M. AUTO ENGINEER ING PVT. LTD., THE CO-ORDINATE BENCH OF THE TRIBUNAL (IN ITA NO.656/PUN/ 2015 VIDE ORDER DATED 25.04.2018) HAS HELD RE-OPENING OF ASSESSMEN T TO BE BAD- IN-LAW. HE PLACED ON RECORD THE COPY OF THE AFORESAID ORD ER. HE THEREFORE SUBMITTED FOLLOWING THE ORDER OF ITAT IN CASE O F ASSESSEES SISTER CONCERN I.E., S.M. AUTO ENGINEERING PVT. LTD., THE RE- OPENING OF ASSESSMENT MADE IN THE CASE OF ASSESSEE ALSO NEEDS TO BE HELD TO BE INVALID. LD. D.R. ON THE OTHER HAND SUPPORTED THE ORDER O F AO AND LD.CIT(A). 4 ITA NO.1545//PUN/2015 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO THE VALIDITY OF RE-OPENING OF ASSESSMENT. BEFORE US, IT IS THE SUBMISSION O F LD.A.R. THAT ON THE BASIS OF SAME LOOSE DOCUMENTS THE CASE WAS RE- OPENED IN THE CASE OF S.M. AUTO ENGINEERING PVT. LTD. THE SISTER CONCER N OF ASSESSEE AND THE TRIBUNAL HAD HELD THE REASSESSMENT TO BE NOT IN ACCORDANCE WITH LAW AND THEREFORE SET IT ASIDE. THE AFORESAID CONTENT ION OF LD.A.R. HAS NOT BEEN CONTROVERTED BY REVENUE. WE FIND THAT TH E CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF S.M. AUTO ENGINEERING P VT. LTD., (SUPRA) WHILE HOLDING THE RE-OPENING OF ASSESSMENT TO BE BAD IN LAW HAS OBSERVED AS UNDER : 9. THE BASIC REQUIREMENT OF SECTION 147 IS THAT TH E ASSESSING OFFICER SHOULD HAVE REASONS TO BELIEVE THAT THE INCOME CH ARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THE REASONS TO BELIEVE AS ENVI SAGED IN SECTION 147 SHOULD BE OF THE ASSESSING OFFICER AND NOT BORROWED FROM ANY OTHER AUTHORITY. THE ASSESSING OFFICER HAS TO FORM AN OP INION FROM FRESH MATERIAL IN HIS POSSESSION THAT THERE HAS BEEN ESCA PEMENT OF INCOME. IF THE REASONS HAVE BEEN RECORDED BY THE ASSESSING OFF ICER WITHOUT MENTIONING THE FRESH MATERIAL IN HIS POSSESSION WHI CH GIVES HIM REASONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. THE DR CANNOT IMPROVE THE CASE OF REVENUE BY INTERPRETING OR SUPPLEMENTIN G REASONS RECORDED. 10. THE HONBLE DELHI HIGH COURT IN THE CASE OF PRI NCIPAL COMMISSIONER OF INCOME TAX VS. MEENAKSHI OVERSEAS (P.) LTD. (SUP RA) HAS HELD THAT WHERE THE ASSESSMENT IS REOPENED ON THE BASIS OF IN FORMATION RECEIVED FROM DIT(I) AND THERE IS NO INDEPENDENT APPLICATION OF MIND BY ASSESSING OFFICER AND THE REASONS FAILED TO DEMONSTRATE LINK BETWEEN THE TANGIBLE MATERIAL AND FORMATION OF REASON TO BELIEVE THAT IN COME HAS ESCAPED ASSESSMENT, REASSESSMENT IS NOT JUSTIFIED. THE REL EVANT EXTRACT OF THE OBSERVATIONS OF HONBLE HIGH COURT ARE AS UNDER : 26. THE FIRST PART OF SECTION 147 (1) OF THE ACT R EQUIRES THE AO TO HAVE REASONS TO BELIEVE THAT ANY INCOME CHARGEABL E TO TAX HAS ESCAPED ASSESSMENT. IT IS THUS FORMATION OF REASON TO BELIEVE THAT IS SUBJECT MATTER OF EXAMINATION. THE AO BEING A QUASI JUDICIAL AUTHORITY IS EXPECTED TO ARRIVE AT A SUBJECTIVE SAT ISFACTION INDEPENDENTLY ON AN OBJECTIVE CRITERIA. WHILE THE R EPORT OF THE INVESTIGATION WING MIGHT CONSTITUTE THE MATERIAL ON THE BASIS OF WHICH HE FORMS THE REASONS TO BELIEVE THE PROCESS O F ARRIVING AT SUCH SATISFACTION CANNOT BE A MERE REPETITION OF TH E REPORT OF INVESTIGATION. THE RECORDING OF REASONS TO BELIEVE AND NOT REASONS TO SUSPECT IS THE PRE- CONDITION TO THE ASSUMPTION OF JURISDICTION UNDER SECTION 147 OF THE ACT. THE REASONS TO BELIEV E MUST DEMONSTRATE LINK BETWEEN THE TANGIBLE MATERIAL AND T HE FORMATION 5 ITA NO.1545//PUN/2015 OF THE BELIEF OR THE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. 11. IN THE PRESENT CASE, WE FIND THAT THE REASONS R ECORDED BY THE ASSESSING OFFICER DOES NOT SPEAK OF ANY FRESH MATER IAL IN POSSESSION OF ASSESSING OFFICER LINKING WITH THE ESCAPEMENT OF IN COME, IF ANY DURING ASSESSMENT YEAR 2006-07. WE ARE OF CONSIDERED VIEW THAT THE REASONS RECORDED DOES NOT SPELL OUT THAT ANY INCOME CHARGEA BLE TO TAX HAS ESCAPED ASSESSMENT FOR ASSESSMENT YEAR 2006-07. TH US, ASSUMING JURISDICTION BY THE ASSESSING OFFICER U/S. 147 FOR REOPENING THE ASSESSMENT IS BAD IN LAW. WE DO NOT FIND ANY INFIR MITY IN THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN HOLDING THE REASSESSMENT PROCEEDINGS AS INVALID. ACCORDINGLY, THE IMPUGNED ORDER IS UPHELD AND THE APPEAL OF REVENUE IS DISMISSED BEING DEVOID OF ANY MERIT. 6. BEFORE US, NO DISTINGUISHING FEATURE IN THE FACTS OF THE PRESENT CASE OR THAT OF ASSESSEES SISTER CONCERN I.E., S.M. AUTO ENGINEERING PVT. LTD., HAS BEEN POINTED OUT BY REVENUE. FURTHER REVENUE HAS ALSO NOT PLACED ANY MATERIAL TO DEMONSTRATE THAT THE ORDER OF TR IBUNAL IN ASSESSEES SISTER CONCERN I.E., S.M. AUTO ENGINEERING PVT. LT D., HAS BEEN SET ASIDE / STAYED OR OVERRULED BY HIGHER JUDICIAL F ORUM. IN VIEW OF THE AFORESAID FACTS, WE FOLLOWING THE ORDER OF THE CO-ORDIN ATE BENCH OF THE TRIBUNAL IN THE CASE OF ASSESSEES SISTER CONCERN I.E., S.M. AUTO ENGINEERING PVT. LTD.. AND FOR SIMILAR REASON HOLD THAT RE-O PENING OF ASSESSMENT IS INVALID AND WE THEREFORE SET ASIDE THE ORDE R OF REASSESSMENT. THUS, THE GROUNDS OF ASSESSEE ARE ALLOWED. 7. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 7 TH DAY OF JUNE, 2019. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 7 TH JUNE, 2019. YAMINI 6 ITA NO.1545//PUN/2015 #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A)-12, PUNE. PR. CIT(CENTRAL), PUNE. '#$ %%&',) &', / DR, ITAT, A PUNE; $,-./ GUARD FILE. / BY ORDER // TRUE COPY // /01%2&3 / SR. PRIVATE SECRETARY ) &' , / ITAT, PUNE.