ACIT, CIRCLE-3(3), SURAT V. M/S. D P VEKARIYA, SURAT

ITA 172/SRT/2020

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1932 (ITAT-SURAT)
• Duration Of Justice: 1 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 01-06-2022
• Assessment Year: 2009-2010
• Appeal Filed On: 07-07-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Search and seizure; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings; TDS; Set aside
• Section: 148; 144; 143(3); 274

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकर अपील सं./ITA No. 172/SRT/2020 Assessment Year: (2009-10) (Physical Court Hearing) The ACIT, Circle-3(3), Surat Vs. M/s. D. P. Vekariya, Skylark Shopping, B/H Kapodara Police Station, Varachha Road, Surat, Gujarat. èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AABFD 8442 Q (Revenue)/(Assessee) (Assessee)/(Respondent) Assessee by Shri P. M. Jagasheth, CA Respondent by Shri Abhishek Gautam, Sr. DR Date of Hearing 02/06/2022 Date of Pronouncement 30/06/2022 आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the Revenue, pertaining to Assessment Year (AY) 2009-10, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-3, Surat [in short “the ld. CIT(A)”] in Appeal No. CIT(A),-3/10319/2016-17 dated 03.03.2020 which in turn arises out of an assessment order passed by the Assessing Officer under section 144 r.w.s 147 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). 2. The grounds of appeal raised by the Revenue are as follows: “1. Whether on facts and circumstances of the case and in law the Ld. CIT(A) was justified in quashing the proceedings initiated u/s 147 of the Act, by observing that no new tangible material is available on record and reopening of assessment was only on the basis of change of opinion, without considering the fact that the reason for reopening recorded by the assessing officer was not a change of opinion, but it was proper and lawful appreciation of facts and satisfaction of the assessing officer which was based on ample evidences on record? 2. Whether on facts and circumstances of the case and in law the Ld. CIT(A) was justified in deleting the addition of Rs.1,00,00,000/- by observing that contra entry to show equal asset in the books of account which the assessee did by showing the amount in WIP is absolutely as per the norms of accounting principles, without considering the fact that the undisclosed income declared Page | 2 172/SRT/2020/AY.2009-10 D. P. Vekariya during the Survey of Rs.1,05,00,000/- was shown as ‘Other Income’ in P & L Account and which covered the Undisclosed WIP expenses of Rs.1,00,00,000/-. Therefore, such accounting entry resulted in suppressing income of Rs.1,00,00,000/-. 3. Whether on facts and circumstance of the case and in law the Ld. CIT(A) was justified in deleting the addition of Rs.22,71,231/- made by assessing officer on account of Contract Income and Interest Income not shown by the assessee, with an observation that the assessee had shown net Interest income of Rs.14,08,934/- after debiting interest expenditure of Rs.19,62,386/- and regarding balance difference of receipt, the assessee has filed reconciliation statement during the appellate proceedings, without considering the fact that during the assessment proceedings, the assessment had failed to furnish any such evidences on records to prove its claim? 4. On the basis of the facts and circumstance of the case, the learned CIT(A) ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of the assessing officer may be restored. 5. The assessee craves leave to add, alter, amend and/or withdraw any ground(s) of appeal either before or during the course of hearing of the appeal.” 3. The facts of the case which can be stated quite shortly are as follows: In assessee`s case original assessment order was finalized under section 143(3) of the Act on 07.12.2011, determining total income at Rs.6,25,26,650/-. The assessee is a government contractor and does work for Government and Semi Government on contract basis. On verification of the case records, it was observed by assessing officer that assessee has declared undisclosed income of Rs.1,05,00,000/- during survey proceedings. It was observed by assessing officer that in profit and loss account for the year ending 31.03.2009, relevant to the assessment year under consideration, had shown undisclosed amount of Rs.1,05,00,000/- (vide Schedule 13: Other Income). Simultaneously, the assessee had shown undisclosed work in progress amounting to Rs.1,00,00,000/- (Vide-Schedule 13: Direct expenses). Thus, there was a net undisclosed income of Rs.5,00,000/- only as against Rs.1,05,00,000/- undisclosed income declared during survey. It was further noticed by assessing officer that in the profit and loss account, assessee has shown contract income of Rs.51,76,33,528/- ( vide Schedule 11: Sales Account) and interest income of Rs.14,08,934/- (vide Schedule 13: Indirect Income) and claimed IDS credit of Rs.1,17,83,599/- and Rs.2,03,518/- respectively. The assessing Page | 3 172/SRT/2020/AY.2009-10 D. P. Vekariya officer noted that statement showing TDS credit and corresponding income revealed that income was short accounted in the profit and loss account. The details there of is as under: Nature of Income Income as per TDS certificate Income as per P & L account Difference (Rs.) TDS credit claimed and allowed Contract and sub- contract receipts 51,93,65,772 51,76,33,528 17,32,244 1,17,85,599 Interest Income 19,47,921 14,08,934 5,38,987 2,03,518 Total 52,13,13,693 51,90,42,462 22,71,231 1,19,87,117 The assessee claimed and allowed TDS credit of Rs.1,19,87,117/-, however the corresponding income was not taken into account. Thus, the contract income and interest income amounting to Rs.22,71,231/- was short accounted in profit and loss account. 4. Therefore, on the basis of above information available on record, reasons were recorded u/s 148(2) of the Act, by the assessing officer and notice u/s 148 of the Act, was issued on 30.03.2015 and duly served upon the assessee on 31.03.2015. In response, the assessee, vide letter dated 17.04.2015 stated that return filed on 30.09.2009 may be treated as filed in response to notice u/s 148 of the Act. Thereafter, on merit, the assessing officer noted that since, assessee had not furnished relevant documents and evidences during the assessment proceedings, therefore disallowed Rs.1,00,00,000/- shown as undisclosed work in progress and added to the total income of the assessee. The Assessing Officer also made addition on account of short accounted of contract income and interest income to the tune of Rs.22,71,231/-. 5. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has quashed the reassessment proceedings initiated by the assessing officer under section 147 of the Act. While quashing the reassessment proceedings, the assessing officer held that there is no new material received or available with the assessing officer related to reason recorded by him and hence, it is merely change of opinion without availability of Page | 4 172/SRT/2020/AY.2009-10 D. P. Vekariya any tangible new material. Aggrieved by the order of ld CIT(A), the Revenue is in appeal before us. 6. Learned DR for the Revenue argues that CIT(A) has quashed the reopening of assessment for the year under consideration without pointing out any defect in the reasons recorded by the assessing officer. The ld DR further pointed out that reason recorded by the assessing officer was not a change of opinion, but it was satisfaction of the assessing officer with ample evidence on records therefore reopening of assessment is justified. 7. On the other hand, Shri P. M. Jagasheth, Learned Counsel for the assessee, pleads that during the course of original assessment proceeding, specific query related to debit of undisclosed work-in-process (WIP) was asked by the assessing officer and reply of same was filed by the assessee. Thus, ld Counsel contended that when the matter has been examined at the time of assessment proceedings, the reopening can only be considered as based on change of opinion. There has been no failure on the part of assessee to disclose fully and truly all material facts during the original assessment proceedings. To bolster his arguments, ld Counsel relied on the judgment of Hon`ble Gujarat High Court in the case of Aayojan Developers, 10 taxmann.com 226 (Guj) and Sadbhav Engineering Ltd, 20 taxmann.com 784 (Guj) and stated that order passed by the ld CIT(A) is an speaking order and therefore does not require interference. 8. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. Since the Revenue is in appeal before us on the ground that reassessment proceedings initiated by the assessing officer is justified and legal, hence ld CIT(A) ought not to have quashed the reassessment proceedings, therefore first of all, we should analyze the reasons recorded by the Assessing Officer, to know whether reasons so recorded by the Page | 5 172/SRT/2020/AY.2009-10 D. P. Vekariya assessing officer is in accordance with the provisions of section 147 of the Act. The reasons recorded by assessing officer are reproduced below: “Reason for belief that income has escaped assessment” During the course of post-assessment proceedings, it was observed that the assessee has declared undisclosed income Rs.1,05,00,000/- during the survey proceedings but from the perusal of the Profit & Loss Account for the year ending 31.03.2009, relevant A.Y. 2009-10, it is seen that the assessee had shown undisclosed income of Rs.1,05,00,000/- (Schedule 13: Other income). Simultaneously, the assessee had also shown ‘Undisclosure Work in Progress’ amounting to Rs.5,00,000/- only as against Rs.1,05,00,000/- undisclosed income declared during survey. This has resulted in under assessment of income of Rs.1,00,00,000/-. In view of the above, the case of the assessee stands under assessed to such extent as defined in explanation 2(c) of section 147 of the Income Tax Act, 1961 and hence I have reason to believe that income to such extent escaped assessment and therefore, it is hereby proposed for issue of notice u/s 148 of the Act, and as the case falls under Section 149(1)(b), approval may kindly be considered and accorded, as laid down under proviso to section 151(1) of the Income-tax Act, 1961, as deemed fit.” 9. From above reasons recorded, it is vivid that assessing officer has reopened assessment proceeding on the basis of verification of case records of assessment proceeding completed u/s 143(3) of the Act. It was observed by the assessing officer that assessee has declared undisclosed income of Rs.1,05,00,000/- during the survey proceedings and same has been shown in profit and loss account (Schedule 13: Other Income). But simultaneously, the assessee has shown undisclosed work in progress amounting to Rs.1,00,00,000/- (Schedule 13: Direct expenses). Thus, there was a net undisclosed income of Rs.5,00,000/-. On the basis of this finding case of the assessee has been reopened. We note that during the course of original assessment proceeding specific query related to debit of undisclosed WIP was asked by the assessing officer and reply of same was filed by the assessee. The assessee filed relevant documents during the original assessment proceedings and matter was examined at the time of original assessment proceedings, therefore, the reopening of assessment can only be considered as based on change of opinion. There is no failure on the part of assessee to disclose fully and truly all material facts. In the reasons for reopening Page | 6 172/SRT/2020/AY.2009-10 D. P. Vekariya there is not even a whisper about failure on the part of the assessee to disclose fully and truly all material facts. 10. We note that in the assessee`s case under consideration the original assessment was framed u/s 143(3) of the Act, on 07.12.2011, for the assessment year 2009-10. We note that reassessment proceedings in the assessee’s case have been initiated on 30.03.2015, which is after 4 years from the end of the assessment year 2009-10. In assessee’s case the four years elapsed on 31.03.2014. However, the reassessment proceedings were initiated on 30.03.2015. Therefore, it is clear that the reassessment proceedings have been initiated after 4 years from the end of the relevant assessment year 2009-10. As per first proviso to section 147 of the Act, if the assessee has disclosed fully and truly all material facts during the original assessment proceedings the reassessment should not be initiated. 11. We also note that in reasons recorded u/s 147 of the Act, the assessing officer did not mention anywhere that he has not satisfied that during the original assessment proceedings under section 143(3) of the Act, assessee has not submitted books of account, documents, WIP details, evidences and explanations. That is, the assessing officer, has nowhere recorded findings to the effect that assessee has failed to disclose fully and truly all material facts necessary for assessment year 2009-10. The settled position of law is that if an assessment for any year has been completed u/s 143(3) or u/s 147, then no action shall be taken u/s 147 after the expiry of four years from the end of relevant assessment year unless income chargeable tax has escaped assessment by reason of the failure on the part of the assessee. We have examined the original assessment order framed by assessing officer under section 143(3) of the Act and note that there is no allegation that the assessee has failed to disclose fully and truly, all material facts necessary for assessment. As we noted that the re-opening is beyond a period of four years and the original assessment was completed u/s 143(3) of the Act and therefore in the light of the decision of the Hon’ble Calcutta High Court in the case of Amiya Sales and Industries vs. ACIT reported in 274 ITR 25 (Cal.), the reopening of assessment is bad in law. We note that there is change in opinion as Page | 7 172/SRT/2020/AY.2009-10 D. P. Vekariya the assessee has disclosed all the material facts in its return of income, and submitted WIP details, Interest details, TDS details, contract income, interest income, Balance Sheet along with annexures, and other evidences as required by the assessing officer and the Assessing Officer had considered the same while completing the original assessment u/s 143(3) of the Act dated 07.12.2011. 12. We are very much conscious of Hon'ble Gujarat High court’s landmark decision in the case of Kantibhai Dharamshibhai Narola, [2021] 125 taxmann.com 348 (Guj) wherein the Hon`ble Court has held that there cannot be any action under Section 147 of the Act after the expiry of a period of four years from the end of the relevant assessment year until and unless the income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make disclosure of all the material facts truly and fully necessary for assessment. The important findings of the Hon`ble Court is reproduced below: “38. We have noted above that the assessee was already assessed under the provisions of Section 143(3) of the Act 1961 vide order dated 31st December 2013. Accordingly, the first proviso in Section 147 of the Act 1961 has a direct bearing on the issue on hand. It is stated therein that there cannot be any action under section 147 of the Act after the expiry of a period of four years from the end of the relevant assessment year until and unless the income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make disclosure of all the material facts truly and fully necessary for assessment. In the present case, we have already held that initiation of the proceedings under Section 147 of the Act was based on the borrowed satisfaction. Thus, it is implied that the Assessing Officer has not applied his mind to arrive at the conclusion that there was of failure on the part of the assessee to disclose fully and truly all the material facts. In other words, mentioning by the Assessing Officer that the assessee has failed to disclose all material facts in the reasons recorded is not sufficient enough. Rather the Assessing Officer is under the obligation to arrive at such conclusion that the assessee failed to disclose all material facts necessary for the assessment after applying his mind and verification of the facts. But the Assessing Officer has not done so. In holding so we draw support and guidance from the judgment of the Bombay High court in case of Gateway Leasing (P.) Ltd vs. ACIT reported in 117 taxmann.com 442 where it was held as under: “35. Having discussed the above, we may once again revert back to the reasons furnished by Respondent No. 2 for re-opening of assessment under Section 147 of the Act. After referring to the information received following search and seizure action carried out in the premises of Shri Naresh Jain, it was stated that information showed that Petitioner had traded in the shares of M/s. Scan Steels Ltd., and was in receipt of Rs. 23,98,014.00 and therefore, Respondent No. 2 Page | 8 172/SRT/2020/AY.2009-10 D. P. Vekariya concluded that he had reasons to believe that this amount had escaped assessment within the meaning of Section 147 of the Act. 36. First of all it would be evident from the materials on record that Petitioner had disclosed the above information to the Assessing Officer in the course of the assessment proceedings. All related details and information sought for by the Assessing Officer were furnished by the petitioner. Several hearings took place in this regard where-after the Assessing Officer had concluded the assessment proceedings by passing assessment order under Section 143 (3) of the Act. Thus it would appear that Petitioner had disclosed the primary facts at its disposal to the Assessing Officer for the purpose of assessment. He had also explained whatever queries were put by the Assessing Officer with regard to the primary facts during the hearings. 37. In such circumstances, it cannot be said that Petitioner did not disclose fully and truly all material facts necessary for the assessment. Consequently, Respondent No. 2 could not have arrived at the satisfaction that he had reasons to believe that income chargeable to tax had escaped assessment. In the absence of the same, Respondent No. 2 could not have assumed jurisdiction and issued the impugned notice under Section 148 of the Act.” 39. The entire basis for reopening the assessment is on the premise that there was a cash transaction of a huge amount, and having regard to the same, there was no true and full disclosure. We have already explained that this issue of cash transaction is nothing but a mere guess, and at the cost of repetition, the transaction of sale was not with K.Star Corporation. M/s. K.Star Corporation, in the present case, is the second buyer. 40. In our opinion, there is no escapement of income chargeable to tax. The conditions precedent for resorting to reopening of the assessment under Section 147 of the Act 1961 are not satisfied in the present case.” 13. Based on the facts narrated above, we note that in the assessee`s case in the reasons supplied to the assessee, there is no whisper, what to speak of any allegation, that the assessee had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period, as explained above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. Therefore, based on these facts and circumstances, we do not find any infirmity in the order of ld CIT(A), hence we confirm and approve the findings of ld CIT(A) and dismiss the grounds raised by the Revenue Page | 9 172/SRT/2020/AY.2009-10 D. P. Vekariya 14. Since we have dismissed the appeal of the Revenue holding that reassessment proceedings are bad in law and thus confirmed the findings of Ld. CIT(A), therefore, we do not adjudicate Revenue`s other grounds raised on merits, as they become infructuous. 15. In the result, the appeal filed by the Revenue is dismissed, Order is pronounced in the open court on 30/06/2022 by placing the result on the Notice Board as per Rule 34(5) of the Income Tax (Appellate Tribunal) Rule 1963. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat Ǒदनांक/ Date: 30/06/2022 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat