Central Cottage Industries Corporation of India Ltd., Delhi V. DCIT, New Delhi

ITA 1781/DEL/2015

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2758 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 30-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Assessee Lawyers: S KRISHNAN V RAJA KUMAR
• Keywords: Depreciation; Search and seizure; Period of limitation; Tangible material; Difference of opinion; Assessment record; Reason to believe; Change of opinion; Reassessment proceedings; Set aside
• Section: 143(3); 142(1); 201; 147; 148; 154; 15

Judgement Text

ITA NO. 1781/DEL/2015 ASSESSMENT YEAR: 2007-08 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT ME MBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBE R ITA NO. 1781/DEL/2015 ASSESSMENT YEAR: 2007-08 CENTRAL COTTAGE INDUSTRIES CORPORATION OF INDIA LTD., 1 ST FLOOR, WEAVERS SERVICE CENTRE, (DC HANDLOOM), BHARAT NAGAR, DELHI-110052 (PAN: AAACC2702N) VS DCIT, CIRCLE-5(2) NEW DELHI. APPELLANT RESPONDENT ASSESSEE BY : SHRI S. KRISHNAN, V. RA JAKUMAR, ADVOCATE DEPARTMENT BY: MS ASHIMA NEB, SR. DR DATE OF HEARING : 04.06.2019 DATE OF PRONOUNCEMENT : 31.08.2019 O R D E R PER SUDHANSHU SRIVASTAVA, JM: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, NEW DELHI {CIT (A)} DATED 24.12.2014 PERTAINING TO ASSESSMENT YEAR 2007-08. 2.0 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS A PUBLIC SECTOR UNDERTAKING ENGAGED IN PROMOTION AN D TRADING OF HANDICRAFTS AND ALLIED ITEMS. THE ORIGINAL RETURN OF INCOME WAS FILED DECLARING AN INCOME OF RS. 14,55,85,510/- . THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME TAX ACT, 196 1 ITA NO. 1781/DEL/2015 ASSESSMENT YEAR: 2007-08 2 (HEREINAFTER CALLED 'THE ACT') VIDE ORDER DATED 25. 09.2009 AFTER MAKING CERTAIN DISALLOWANCES WHICH WERE IN THE NATU RE OF DEPRECIATION OF COMPUTER ACCESSORIES AND PRIOR PERI OD EXPENSES. THE ASSESSEES APPEAL BEFORE THE LD. COMMISSIONER O F INCOME TAX (A) WAS SUCCESSFUL INASMUCH AS THE LD. COMMISSIONER OF INCOME TAX (A) DELETED ALL THE ADDITIONS AND DISALLOWANCES EXCEPT FOR A DISALLOWANCE OF RS. 784/-. 2.1 SUBSEQUENTLY, THE ASSESSING OFFICER ISSUED NOT ICE U/S 154 VIDE NOTICE DATED 6.9.2010 INTENDING TO RECTIF Y THE ASSESSMENT ORDER BY PROPOSING A DISALLOWANCE OF RS. 11,88,14,381/- BEING ALLEGED AD HOC PROVISION MADE FOR LIABILITY ON ACCOUNT OF RENT. THE ASSESSEE GAVE A DETAILED R EPLY TO THE ASSESSING OFFICER AND SUBMITTED THAT THE PROPOSED D ISALLOWANCE OF RS. 11,88,14,381/- ALREADY STOOD OFFERED FOR TAX ATION IN THE RETURN OF INCOME FILED BY THE ASSESSEE AND, THEREFO RE, THERE WAS NO CAUSE FOR ANY FURTHER PROCEEDINGS IN THE MATTER. THE ASSESSING OFFICER DROPPED THE PROCEEDINGS U/S 154 O F THE ACT. 2.2 SUBSEQUENTLY, ON 30.03.2012, THE ASSESSING OFF ICER ISSUED NOTICE U/S 148 PROPOSING TO REASSESS THE INC OME OF THE ASSESSEE. ON REQUEST OF THE ASSESSEE, THE REASONS FOR REOPENING ITA NO. 1781/DEL/2015 ASSESSMENT YEAR: 2007-08 3 THE CASE WERE SUPPLIED TO THE ASSESSEE WHICH ARE RE PRODUCED HEREUNDER:- THE ASSESSEE FILED RETURN SHOWING INCOME OF RS. 14,55,85,510/- ON 30.10.2007. THE ASSESSMENT WAS COMPLETED ON 25,09,2009 ON TOTAL INCOME OF RS. 145949410/-. THE ASSESSMENT RECORDS WERE EXAMINED & FOUND THAT AS PER SCHEDULE 10 OF BALANCE SHEET, A PROVISION OF RS. 171432333/- WAS MADE ON ACCOUNT OF OTHER PROVISIONS. THE PROVISION BEING AN UNASCERT AINED LIABILITY SHOULD HAVE BEEN DISALLOWED AND ADDED BAC K TO THE INCOME OF THE ASSESSEE. OUT OF TOTAL PROVISIONS , A SUM OF RS. 120991491/- HAS ALREADY BEEN ADDED BY THE ASSESSEE U/S 40(A)(I)(A). BUT REST AMOUNT OF RS.50440842/- HAS NOT BEEN ADDED BY THE ASSESSEE. THUS, THE ASSESSEE CLAIMED EXCESS EXPENSES/DEDUCTIO N AT RS. 50440842/- AND THE SAME HAS ESCAPED ASSESSMENT. THE INCOME CHARGEABLE TO TAX AT RS. 50440842/- HAS ESCAPED ASSESSMENT FOR THE A.Y 2007- 08. I HAVE THEREFORE REASON TO BELIEVE THAT INCOME OF RS. 171432333/- HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147. 2.3 THE ASSESSEE OBJECTED TO THE ISSUANCE OF NOTIC E U/S 148 AND SUBMITTED ITS PRELIMINARY OBJECTIONS WHEREI N IT WAS SUBMITTED THAT THE PREREQUISITE FOR INITIATING PROC EEDINGS U/S 148 OF THE ACT DID NOT EXIST AS THE ASSESSEE HAD TRULY AND FAIRLY DISCLOSED ALL THE MATERIAL FACTS DURING THE ASSESSM ENT PROCEEDINGS ITSELF AND THAT THERE WERE NO NEW FACTS WHICH HAD COME TO THE NOTICE OF THE ASSESSING OFFICER SO AS T O JUSTIFY THE ASSUMPTION OF JURISDICTION U/S 148. IT WAS ALSO SU BMITTED THAT IN SUCH A CASE, PROPOSED REASSESSMENT TANTAMOUNT TO CH ANGE OF ITA NO. 1781/DEL/2015 ASSESSMENT YEAR: 2007-08 4 OPINION. HOWEVER, THE ASSESSING OFFICER REJECTED T HE OBJECTIONS RAISED BY THE ASSESSEE AND PROCEEDED TO MAKE AN ADD ITION OF RS. 4,19,42,469/- ON ACCOUNT OF PROVISION FOR RENT OF A BARRACKS, JANPATH, NEW DELHI PAYABLE TO THE DIRECTORATE OF ES TATES UNDER THE HEAD PROVISIONS. THE ASSESSING OFFICER WAS O F THE VIEW THAT THE ASSESSEE HAD TREATED THE LIABILITY AS CONTINGEN T AT THE TIME OF FINALISATION OF ACCOUNTS. THE REASSESSMENT WAS COM PLETED ON AN INCOME OF RS. 18,78,91,880/-. 2.4 AGGRIEVED, THE ASSESSEE APPROACHED THE LD. FIR ST APPELLATE AUTHORITY CHALLENGING THE VALIDITY OF REA SSESSMENT PROCEEDINGS. THE ASSESSEE ALSO CHALLENGED THE ADDI TION ON MERITS. HOWEVER, THE LD. COMMISSIONER OF INCOME TA X (A) DISMISSED THE ASSESSEES CHALLENGE TO THE REOPENING OF THE ASSESSMENT PROCEEDINGS ON THE LEGAL ISSUE. THE LD. COMMISSIONER OF INCOME TAX (A) ALSO DISMISSED THE A SSESSEES CHALLENGE TO THE ADDITION ON MERITS. 2.5 NOW, THE ASSESSEE IS BEFORE THIS TRIBUNAL CHAL LENGING THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN HOLDING ITA NO. 1781/DEL/2015 ASSESSMENT YEAR: 2007-08 5 PROCEEDINGS PURSUANT TO THE NOTICE U/S 148 OF THE A CT TO BE VALID IN THE ADMITTED ABSENCE OF ANY FRESH MATER IAL IN THE SUBJECT CASE; 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE CIT(A) ERRED IN CONFIRMIN G THE RE-ASSESSMENT ORDER DATED 30.11.2012 ON ERRONEOUS AND EXTRANEOUS REASONINGS; 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT (A) ERRED IN CONFIRMING TH E RE-ASSESSMENT ORDER DATED 30.11.2012, WHICH IS CLEA RLY BASED ON A CHANGE OF OPINION; 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE CIT (A) HAS ERRED IN DISALLOWI NG THE RENT PAYABLE TO DIRECTORATE OF ESTATES IN A SUM OF RS. 4,19,42,469/-, ERRONEOUSLY HOLDING IT TO BE A CONTINGENT LIABILITY. ALL THE ABOVE ACTIONS, BEING FALLACIOUS AND AGAINST LAW, MERIT TO BE QUASHED, WITH DIRECTIONS FOR APPROPRIAT E RELIEF TO THE APPELLANT. THE APPELLANT CRAVES LEAVE TO ADD, DELETE, MODIFY AND/OR FOREGO ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 3.0 THE LEARNED AUTHORISED REPRESENTATIVE (LD. AR) SUBMITTED THAT A PERUSAL OF THE REASONS RECORDED (A S HAVE BEEN REPRODUCED IN THE EARLIER PART OF THE ORDER) WOULD DEMONSTRATE THAT THE REASONS ARE COMPLETELY CRYPTIC AND A READI NG OF THE REASONS WOULD NOT ENABLE ANY PERSON TO UNDERSTAND A S TO WHICH TRANSACTION THE ASSESSING OFFICER WAS REFERRING TO AND AS TO HOW THE BELIEF OF INCOME ESCAPING ASSESSMENT WAS FORMED . THE LD. AR FURTHER SUBMITTED THAT EVEN THE AMOUNT MENTIONED IN THE ITA NO. 1781/DEL/2015 ASSESSMENT YEAR: 2007-08 6 REASONS WAS NOT CORRECT. IT WAS SUBMITTED THAT IT WAS APPARENT THAT THERE WAS NO APPLICATION OF MIND BY THE ASSESS ING OFFICER AT THE TIME OF RECORDING OF REASONS. IT WAS FURTHER S UBMITTED THAT A PERUSAL OF REASONS WOULD SHOW THAT THERE WAS NO NEW MATERIAL IN POSSESSION OF THE ASSESSING OFFICER AND THAT HE HAD PROCEEDED WITH THE REASSESSMENT ONLY ON THE BASIS OF REAPPRAI SAL OF THE EXISTING MATERIAL AND, THEREFORE, IT WAS A CASE OF CHANGE OF OPINION WHICH WAS NOT A VALID GROUND FOR THE PURPOS E OF ASSUMPTION OF JURISDICTION U/S 148. 3.1 IT WAS SUBMITTED THAT EARLIER THE ASSESSING OF FICER HAD ISSUED NOTICE U/S 154 TO WHICH THE ASSESSEE HAD DUL Y FILED A REPLY WHEREIN IT HAD BEEN POINTED OUT TO THE ASSESS ING OFFICER THAT OUT OF THE TOTAL AMOUNT OF RS. 17.14 CRORE BOO KED AS PER SCHEDULE 10 OF THE BALANCE SHEET AS OTHER PROVISIO NS, A SUM OF RS. 4.19 CRORE PERTAINED TO PROVISION OF RENT OF A BARRACKS, JANPATH PAYABLE TO THE DIRECTORATE OF ESTATES. IT WAS FURTHER SUBMITTED THAT IT HAD BEEN SPECIFICALLY SUBMITTED B EFORE THE ASSESSING OFFICER THAT THE LIABILITY OF RS. 4.19 CR ORE WAS AN ASCERTAINED LIABILITY AS PER A COPY OF CLAIM OF LET TER OF DIRECTORATE OF ESTATES (PLACED AT PAGES 14-20 OF THE PAPER BOOK ). IT WAS SUBMITTED THAT THE PROCEEDINGS U/S 154 WERE DROPPED AND ITA NO. 1781/DEL/2015 ASSESSMENT YEAR: 2007-08 7 THEREAFTER REASSESSMENT PROCEEDINGS WERE INITIATED ON THE SAME ISSUE IN A MECHANICAL MANNER AND WITHOUT EVEN CONSI DERING THE FACT THAT THE 154 PROCEEDINGS ON THE SAME ISSUE HAD BEEN DROPPED. IT WAS SUBMITTED THAT IT ALSO DEMONSTRATE D THAT WHILE THERE WAS NO APPLICATION OF MIND TO THE MATERIAL BE FORE THE ASSESSING OFFICER, THE REASSESSMENT WAS ALSO BASED ON CHANGE OF OPINION BECAUSE THE SAME ISSUE WAS THE SUBJECT MATT ER OF PROCEEDINGS U/S 154 WHICH STOOD DROPPED AFTER RECTI FICATION OF THE ISSUE BY THE ASSESSEE. 3.2 THE LD. AR ALSO DREW OUR ATTENTION TO NOTICE U /S 142(1) DATED 13.01.2009 PLACED AT PAGE 126 OF THE P APER BOOK AND SUBMITTED THAT QUESTION NO. 6 OF THE SAID NOTIC E MERITS PARTICULAR ATTENTION WHEREIN THE ASSESSING OFFICER HAD ASKED THE ASSESSEE TO EXPLAIN THE COMPARATIVE GROSS PROFIT RA TE AND THE REASON FOR THE FALL OF GROSS PROFIT IN THE YEAR. I T WAS FURTHER SUBMITTED THAT IN RESPONSE THERETO, THE ASSESSEE HA D SUBMITTED THAT THE RATE OF GP HAD FALLEN BECAUSE AN AMOUNT OF RS. 4.19542/- CRORE ON ACCOUNT OF RENT OF A BARRACKS WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT. IT WAS SUBMITTED THAT , THUS, EVEN AT THE TIME OF ASSESSMENT, THE ASSESSING OFFICER WAS A WARE THAT THE IMPUGNED AMOUNT PERTAINED TO LIABILITY OF RENT FOR THE PREMISES AT ITA NO. 1781/DEL/2015 ASSESSMENT YEAR: 2007-08 8 A BARRACKS JANPATH FOR THE PERIOD 16.10.1999 TO 1 0.10.2001. IT WAS ALSO SUBMITTED THAT EVEN DURING THE COURSE OF A SSESSMENT PROCEEDINGS U/S 154, THE ASSESSING OFFICER WAS DULY MADE AWARE OF THE SAID LIABILITY OF RENT. 3.3 IT WAS SUBMITTED THAT RELIANCE WAS BEING PLACE D ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF STATE BANK OF INDIA VS. ACIT REPORTED IN (2018) 96 TAXMAN N.COM 77 (BOMBAY) WHEREIN THE HONBLE BOMBAY HIGH COURT HAD HELD THAT WHEN A CLAIM IS ACCEPTED IN THE DOCUMENTS WHICH WAS FUNDAMENTAL TO ASSESSMENT UNDER THE INCOME TAX ACT, IT MUST NECESSARILY BE INFERRED THAT THE ASSESSING OFFICER HAD APPLIED HIS MIND TO SUCH CLAIM AT THE PASSING OF THE ASSESSMENT ORDER. IT WAS SUBMITTED THAT SINCE THE CLAIM OF THE ASSESSEE HAD BEEN ACCEPTED EARLIER U/S 143(3) AND SUBSEQUENTLY U/S 15 4 OF THE ACT AND THE PROCEEDINGS WERE DROPPED, THE ACTION OF THE ASSESSING OFFICER AMOUNTED TO CHANGE OF OPINION WHICH SHOULD NOT BE SUSTAINED IN VIEW OF THE SETTLED LEGAL PRECEDENTS. 3.4 IT WAS ALSO SUBMITTED BY THE LD. AR THAT THE O BJECTIONS OF THE ASSESSEE TO THE REASSESSMENT PROCEEDINGS WER E DISMISSED BY THE ASSESSING OFFICER BY A NON-SPEAKING ORDER IN ASMUCH AS NOT A SINGLE OBJECTION TAKEN BY THE ASSESSEE STOOD ADDRESSED. IT ITA NO. 1781/DEL/2015 ASSESSMENT YEAR: 2007-08 9 WAS PRAYED THAT THE REASSESSMENT PROCEEDINGS BE QUA SHED IN VIEW OF THE SUBMISSIONS. 4.0 IN RESPONSE, THE LD. SENIOR DEPARTMENTAL REPRESENTATIVE (SR. DR) SUBMITTED THAT IT WAS AN IN CORRECT CONTENTION OF THE ASSESSEE THAT THE OBJECTIONS OF T HE ASSESSEE HAD NOT BEEN DISPOSED OF IN A PROPER MANNER BY THE ASSE SSING OFFICER. IT WAS SUBMITTED THAT WHILE DISPOSING OF THE OBJECT IONS, IT HAD BEEN DULY MENTIONED BY THE ASSESSING OFFICER THAT I T WAS A SETTLED JUDICIAL PRECEDENT THAT EVEN IF A MISTAKE O R ERROR COMMITTED BY ASSESSING AUTHORITY DURING THE ORIGINA L ASSESSMENT, IS DETECTED SUBSEQUENTLY, THE SAME WOUL D CONSTITUTE A REASON TO BELIEVE ON THE PART OF THE ASSESSING OF FICER TO RE-OPEN THE ASSESSMENT SUBSEQUENTLY, IF THE ASSESSING OFFI CER AT THE TIME OF ORIGINAL ASSESSMENT DID NOT CONSCIOUSLY APPLY HI S MIND TO THE MATTER. IT WAS SUBMITTED THAT IN THE INSTANT CASE, THE ORIGINAL ORDER U/S 143(3) DID NOT ADDRESS THE ISSUE OF OTHE R PROVISION OF RS. 17.14 CRORE SHOWN IN THE BALANCE SHEET/INCLUDED RS. 4.19 CRORE ADDED BY THE ASSESSING OFFICER AND, THEREFORE , THE INITIATION OF REASSESSMENT PROCEEDINGS WAS PERFECTLY VALID IN THE CASE OF THE ASSESSEE. THE LD. SR. DR SUBMITTED THAT THE ASSESS ING OFFICER WAS JUSTIFIED IN REOPENING THE ASSESSMENT FOR THE R EASONS ITA NO. 1781/DEL/2015 ASSESSMENT YEAR: 2007-08 10 MENTIONED IN THE RECORDED REASON TO BELIEVE AND T HAT THERE WAS AN INDEPENDENT APPLICATION OF MIND BY THE ASSESSING OFFICER IN THIS CASE. 4.1 THE LD. SR. DR PLACED RELIANCE ON THE FOLLOWIN G JUDICIAL PRECEDENTS TO SUPPORT HER CONTENTION THAT THE INITI ATION OF REASSESSMENT PROCEEDINGS WAS NOT BAD IN LAW:- I) KRISHNA DEVELOPERS & COMPANY VS DCIT. (2017) 84 TAXMANN.COM 166 (GUJARAT) II) EUREKA STOCK AND SHARE BROKING SERVICES LTD. VS CIT . (2017) 82 TAXMANN.COM 10 (SC)/(2017) 248 TAXMAN 81 (SC) III) GUJARAT AMBUJA EXPORTS LTD. VS DCIT. (2017) 86 TAXMANN.COM 69 (GUJARAT) IV) PCIT VS PARAMOUNT COMMUNICATION (P.) LTD. (2017-TIO L- 253-SC-IT) V) PCIT VS PARAMOUNT COM MUNICATION (P.) LTD. (2017) 79 TAXMANN.COM 409 (DELHI)/(2017) 392 ITR 444 (DELHI) VI) INDU LATA RANGWALA VS DCIT (2017) 80 TAXMANN.COM102(DELHI)(2016) 384 ITR 337 (DELHI)/(2016) 286 CTR 474 (DELHI) VII) THAKORBHAI MAGANBHAI PATEL VS ITO (2017) 78 TAXMANN .COM 201 (SC)/(2017) 245 TAXMAN 333 (SC) VIII) THAKORBHAI MAGANBHAI PATEL VS ITO (2017) 79 TAXMANN .COM 409 (DELHI)/(2017) 392 ITR 444 (DELHI) IX) ARAVALI INFRAPOWER LTD. VS PCIT (2017-TIQL-42-SC-IT ) X) ARAVALI INFRAPOWER LTD. VS DCIT (2017) 77 TAXMANN.C OM 322 (DELHI)/(2017) 390 ITR 456 (DELHI) XI) YOGENDRAKUMAR GUPTA VS ITO (51 TAXMANN.COM 383) (SC)/(2014) 227 TAXMAN 374 (SC) XII) RAYMOND WOOLLEN MILLS LTD. V. ITO AND OTHERS (236 I TR 34) ITA NO. 1781/DEL/2015 ASSESSMENT YEAR: 2007-08 11 XIII) R.K. MALHOTRA ITO VS KASTURBHAI LALBHAI (1977) 109 ITR 537 (SC) XIV) CIT VS P.V.S. BEEDIES (P.) LTD. (1999) 103 TAXMAN 2 94 (SC)/(1999) 237 ITR 13 (SC/(1999) 155 CTR 538 (SC) XV) ACIT VS RAJESH JHAVERI STOCK BROKERS (P.) LTD (2007 ) 161 TAXMAN 316 (SC)/(2007) 291 ITR 500 (SC)/(2007) 210 CTR 30 (SC) XVI) YUVRAJ V. UNION OF INDIA (315 ITR 84) (SC) XVII) ANKIT FINANCIAL SERVICES LTD. VS DCIT (2017) 78 TAXMANN.COM 58 (GUJARAT) 4.2 IT WAS PRAYED THAT ASSESSEES APPEAL BE DISMIS SED. 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE A LSO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE REASONS RECORDED BY THE ASSESSING OFFIC ER FOR THE INITIATION OF REASSESSMENT PROCEEDINGS. WE HAVE AL SO PERUSED THE ORIGINAL ASSESSMENT ORDER U/S 143(3) VIDE ORDER DAT ED 25.09.2009 WHICH WAS PASSED SUBSEQUENT TO THE ISSUA NCE OF NOTICE DATED 13.01.2009. AS POINTED OUT BY THE LD. AR, THE ASSESSING OFFICER IN QUESTION NO. 6 OF THE SAID NOT ICE HAD RAISED A QUERY ABOUT THE REASONS FOR THE DECLINE IN GROSS PR OFIT AND THE ASSESSEE VIDE ITS REPLIES DATED 22.01.2009 AND 9.2. 2009 HAD DULY EXPLAINED THE REASON FOR FALL IN GROSS PROFIT AND A CHART EXPLAINING THE REASON FOR DECLINE IN GROSS PROFIT (PLACED AT P AGE 84 OF THE ITA NO. 1781/DEL/2015 ASSESSMENT YEAR: 2007-08 12 PAPER BOOK) WAS ALSO FILED BEFORE THE AO WHEREIN IT HAS BEEN MENTIONED THAT THE RATIO OF NET PROFIT OF TURNOVER DECLINED IN THE YEAR UNDER CONSIDERATION DUE TO RENT OF MUMBAI BRAN CH PREMISES, RENT OF A BARRACKS AND PROVISION FOR PA Y REVISION. THUS, THE INFORMATION REGARDING RENT OF A BARRACK S WAS VERY MUCH BEFORE THE ASSESSING OFFICER AT THE TIME OF TH E PASSING OF THE ORIGINAL ASSESSMENT ORDER. FURTHER, WE HAVE AL SO PERUSED THE NOTICE U/S 154/155 OF THE ACT DATED 6.10.2010 AND I N THIS NOTICE ALSO, THE ISSUE UNDER CONSIDERATION WAS OTHER PROV ISIONS AMOUNTING TO RS. 17,14,32,333/-. THE ASSESSEE SUBM ITTED A REPLY TO THE NOTICE U/S 154 VIDE REPLY DATED 15.09. 2010 IN WHICH THE ASSESSEE HAS PROVIDED A BREAK UP OF PROVISION O F RS. 17,14,32,333/- AND THIS AMOUNT INCLUDED PROVISION O F RENT OF A BARRACKS AMOUNTING TO RS. 4,19,42,469/- I.E. THE IM PUGNED AMOUNT. THE ASSESSEE ALSO ENCLOSED A COPY OF THE C LAIM LETTER OF THE DIRECTORATE OF ESTATES TO SUBSTANTIATE THAT THI S AMOUNT WAS AN ASCERTAINED LIABILITY. IT IS ALSO SEEN THAT BOT H THE PARTIES HAVE ACCEPTED THAT THE 154 PROCEEDINGS WERE DROPPED BY T HE ASSESSING OFFICER. THUS, IT IS VERY MUCH APPARENT THAT THE IS SUE OF THE RENT OF A BARRACKS WAS DULY EXAMINED BY THE ASSESSING OFFICER, FIRST DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND FOR THE SECOND ITA NO. 1781/DEL/2015 ASSESSMENT YEAR: 2007-08 13 TIME DURING THE COURSE OF PROCEEDINGS U/S 154 AND I N BOTH THESE PROCEEDINGS, NO ADVERSE INFERENCE WAS DRAWN BY THE ASSESSING OFFICER INASMUCH AS THE RETURNED INCOME WAS ACCEPTE D DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS AND T HE PROCEEDINGS INITIATED U/S 154 WERE DROPPED WITHOUT MAKING ANY ADDITION. 5.1 A PERUSAL OF THE RECORD AS WELL AS THE REASONS WOULD ALSO INDICATE THAT THERE WAS NO FRESH MATERIAL WHIC H HAD COME IN POSSESSION OF THE ASSESSING OFFICER PRIOR TO THE IS SUANCE OF NOTICE U/S 148 AND EVEN IN THE REASONS, THE ASSESSING OFFI CER HAS DULY STATED THAT THE ISSUE CAME TO LIGHT AFTER THE ASSES SMENT RECORDS WERE EXAMINED AND IT WAS FOUND THAT AS PER SCHEDULE 10 OF THE BALANCE SHEET, CERTAIN AMOUNT OF PROVISION WAS MADE WHICH SHOULD HAVE BEEN DISALLOWED AND ADDED BACK TO THE I NCOME OF THE ASSESSEE. THUS, IT IS A CLEAR CASE WHERE THE ASSES SING OFFICER HAS HAD A CHANGE OF OPINION ON THE ISSUE SINCE THE ASSE SSING OFFICER HAD RAISED A SPECIFIC QUERY REGARDING FALL IN GROSS PROFIT AND IT HAD BEEN SUBMITTED THAT THE REASON FOR THE FALL IN GROSS PROFIT, AMONGST OTHER REASONS, WAS ALSO RENT OF A BARRACK S. IT FOLLOWS BY IMPLICATION THAT THE ISSUE WAS DULY CONSIDERED BY T HE ASSESSING OFFICER AT THE TIME OF ORIGINAL ASSESSMENT ITSELF. SECONDLY, EVEN ITA NO. 1781/DEL/2015 ASSESSMENT YEAR: 2007-08 14 THE PROCEEDINGS U/S 154 WHICH WERE INITIATED ON THE SAME ISSUE WERE SUBSEQUENTLY DROPPED BY THE ASSESSING OFFICER. THEREFORE, ON THE FACTS OF THE CASE, WE ARE PRIMA FACIE OF THE VIEW THAT THE ASSESSING OFFICER HAS BY NECESSARY IMPLICATION ALLO WED THE ASSESSEES CLAIM IN THE ORIGINAL ASSESSMENT PROCEED INGS ITSELF. 5.2 IT IS ALSO AN ACCEPTED POSITION THAT THE ASSES SMENT ORDERS WOULD NECESSARILY DEAL WITH THE CLAIM BEING DISALLOWED AND NOT WITH THE CLAIMS BEING ALLOWED. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF C.I.T. VS. NIRMA CHEMICAL WORK S PVT. LTD. REPORTED IN (2009) 309 ITR 67 HAS HELD THAT IF THE ASSESSING OFFICER WAS TO DEAL WITH ALL THE CLAIMS WHICH WERE TO BE ALLOWED IN THE ASSESSMENT ORDER, THE RESULT WOULD BE AN EPIC T OME AS IT WOULD CAST AN IMPOSSIBLE BURDEN ON THE ASSESSING OF FICER CONSIDERING HIS WORK LOAD AND PERIOD OF LIMITATION. THUS, IN THE PRESENT CASE, IT MUST NECESSARILY BE INFERRED THAT THE ASSESSING OFFICER HAD APPLIED HIS MIND AT THE TIME OF PASSING OF THE ASSESSMENT ORDER BY NOT DISALLOWING THE SAME IN THE ASSESSMENT ORDER FRAMED U/S 143(3) AS HE WAS SATISFIED WITH TH E SAME. THEREFORE, ASSUMPTION OF JURISDICTION, IN OUR CONSI DERED OPINION, WOULD PRIMA FACIE AMOUNT TO CHANGE OF OPINION. ITA NO. 1781/DEL/2015 ASSESSMENT YEAR: 2007-08 15 5.3 WE ARE FORTIFIED BY JUDGMENT OF THE HONBLE BO MBAY HIGH COURT IN THE CASE OF STATE BANK OF INDIA VS. A CIT (SUPRA) WHEREIN A SIMILAR VIEW WAS TAKEN BY THE HONBLE BOM BAY HIGH COURT. 5.4 IN CIT VS. KELVINATOR OF INDIA LTD. (256 ITR 1 ) THE FULL BENCH OF THE HONBLE DELHI HIGH COURT WAS CONSIDERI NG A CASE OF REOPENING U/S 147 WITHIN FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR. THE COURT HELD THAT WHEN A REGULAR ORDER OF ASSESSMENT IS PASSED IN TERMS OF SECTION 143 (3) OF THE ACT, A PRESUMPTION CAN BE RAISED THAT SUCH AN ORDER HAS BE EN PASSED ON APPLICATION OF MIND. IT WAS HELD THAT IF IT BE H ELD THAT AN ORDER WHICH HAS BEEN PASSED PURPORTEDLY WITHOUT APPLICATI ON OF MIND WOULD ITSELF CONFER JURISDICTION UPON THE ASSESSING OFFICER TO REOPEN THE PROCEEDING WITHOUT ANYTHING FURTHER, THE SAME WOULD AMOUNT TO GIVING PREMIUM TO AN AUTHORITY EXERCISING QUASI- JUDICIAL FUNCTION TO TAKE BENEFIT OF ITS OWN WRONG. IT WAS HELD THAT SECTION 147 OF THE ACT DOES NOT POSTULATE CONFERMEN T OF POWER UPON THE ASSESSING OFFICER TO INITIATE REASSESSMENT PROCEEDINGS UPON A MERE CHANGE OF OPINION. ON APPEAL BY THE DEP ARTMENT TO THE HONBLE SUPREME COURT HELD DISMISSING THE APPEA L: ITA NO. 1781/DEL/2015 ASSESSMENT YEAR: 2007-08 16 THOUGH THE POWER TO REOPEN UNDER THE AMENDED S. 14 7 IS MUCH WIDER, ONE NEEDS TO GIVE A SCHEMATIC INTERPRET ATION TO THE WORDS REASON TO BELIEVE FAILING WHICH S. 147 WOULD GIVE ARBITRARY POWERS TO THE AO TO RE-OPEN ASSESSME NTS ON THE BASIS OF MERE CHANGE OF OPINION, WHICH CANNOT BE PER SE REASON TO RE-OPEN. ONE MUST ALSO KEEP IN MIND THE C ONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO RE- ASSESS. THE AO HAS NO POWER TO REVIEW; HE HAS THE POWER TO RE- ASSESS. BUT RE-ASSESSMENT HAS TO BE BASED ON FULFIL LMENT OF CERTAIN PRE-CONDITION AND IF THE CONCEPT OF CHANGE OF OPINION IS REMOVED, AS CONTENDED ON BEHALF OF THE DEPARTMEN T, THEN, IN THE GARB OF RE-OPENING THE ASSESSMENT, REVIEW WO ULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF CHANGE OF OPI NION AS AN IN-BUILT TEST TO CHECK ABUSE OF POWER BY THE AO. HENCE, AFTER 1.4.1989, THE AO HAS POWER TO RE-OPEN, PROVID ED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION TH AT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LIVE LINK WITH THE FORMATION OF THE BELIEF. THIS IS SUPPORTED BY CIRCULAR NO.549 DATED 31.10.1989 WHICH CLARIFIED THAT THE WORDS REASON TO BELIEVE DID NOT MEAN A CHANGE OF OPINION. 5.5 ALTHOUGH THE DEPARTMENT HAS ALSO CITED A NUMBE R OF JUDICIAL PRECEDENTS IN ITS FAVOUR, WE ARE AFRAID TH AT THEY DO NOT HELP THE CAUSE OF THE REVENUE AS THE FACTUAL MATRIX IN THOSE CASES ARE ENTIRELY DIFFERENT AND THE ASSESSEES CASE IS A KIN TO THE JUDICIAL PRECEDENTS WHICH WE HAVE CITED ABOVE. THUS , ON THE FACTS ITA NO. 1781/DEL/2015 ASSESSMENT YEAR: 2007-08 17 OF THE CASE AND THE SETTLED JUDICIAL PRECEDENT, IT IS OUR CONSIDERED OPINION THAT SINCE THE REASSESSMENT PROCEEDINGS IN THIS CASE WERE BASED ON A CHANGE OF OPINION, THE SAME CANNOT BE SUSTAINED. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) AND QUASH THE REASSE SSMENT PROCEEDINGS. 6.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE STAN DS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2019. SD/- SD/- (N.K. BILLAIYA) (SUDHANSH U SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31ST AUGUST, 2019 GS COPY FORWARDED TO: - 1) APPELLANT 2) RESPONDENT 3) CIT(A) 4) CIT 5) DR BY ORDER ASSTT. REGISTRAR ITA NO. 1781/DEL/2015 ASSESSMENT YEAR: 2007-08 18 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER