The ACIT, Circle-5, RAJKOT-GUJARAT V. M/s. Roto Screentech Pvt. Ltd., RAJKOT-GUJARAT

ITA 19/RJT/2012

• Counselvise Citation: [2012] 120 COUNSELVISE.COM (IT) 0145 (ITAT-RAJKOT)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 16-10-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 12-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANKUR GARG
• Keywords: Reopening of assessment; Non-deduction of tax; Difference of opinion; Assessment record; Reason to believe; Change of opinion
• Section: 147

Judgement Text

: : IN THE INCOME TAX APPELLATE TRIBUNAL: RAJKOT BENCH: RAJKOT . .. . . . . . . .. . . . . . # # # # BEFORE SHRI T. K. SHARMA JM AND SHRI D. K. SRIVASTA VA AM ITA NO. 19/RJT/2012 / ASSESSMENT YEAR 2005-06 ACIT, CIR- 2 V. M/S. ROTO SCREENTECH PVT. LTD. RAJKOT 301, SILVER CHAMBERS TAGORE ROAD, RAJKOT. PAN: AABC3206K C.O. NO. 03/RJT/2012 / ASSESSMENT YEAR 2005-06 M/S. ROTO SCREENTECH PVT. LTD. V. ACIT, CIR- 2, RA JKOT DATE OF HEARING: 16.10.2012 DATE OF PRONOUNCEMENT: 30.10.2012 FOR THE REVENUE: ANKUR GARG, DR FOR THE ASSESSEE: KALPESH DOSHI, FCA / // / ORDER . .. . . . . . /D. K. SRIVASTAVA: THE APPEAL FILED BY THE DEPARTMENT AND THE MEMORANDUM OF CROSS OBJECTIONS FILED BY THE ASS ESSEE ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A) ON 18-11-2011. FOR THE SAKE OF CONVENIENCE, THEY ARE BEING DISPOSE OF BY A CONSOLIDATED ORDER. 2. IN ITA NO. 19/RJT/2012, THE DEPARTMENT HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN TREATING THE ASSESSMENT FRAMED AS ANNULLED WITHOUT CONSIDERING T HE FACTS BROUGHT ON RECORD BY THE AO. THE AO HAD SUFFICIENT REASON FOR REOPENING THE ASSESSMENT U/S.147 OF THE ACT. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.20,11,251/- MADE BY THE AO ON ACCOUNT OF DISALLO WANCE OF FREIGHT CHARGES, WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD. 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.7,57,852/- MADE BY THE AO ON ACCOUNT OF DISALLOW ANCE OF CLEARING AND FORWARDING CHARGES ON WHICH TDS WAS NOT DEDUCTE D, WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD. 4. ON THE FACTS OF THE CASE AND IN LAW THE LD. CIT( A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 5. ANY OTHER GROUND THAT THE REVENUE MAY RAISE BEFO RE OR DURING HEARING PROCEEDINGS BEFORE THE HONBLE ITAT. 2 ITA19/RJT/2012 & C.O.03/RJT/2012 6. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE C IT(A)-IV RAJKOT MAY KINDLY BE SET-ASIDE AND THAT OF ASSESSING OFFICER B E RESTORED. 3. IN C.O. NO. 03/RJT/2012, THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT, THE LEARNED CIT(A) HAS NOT DECIDED THE ISS UE ON MERITS AND HAS ONLY CONSIDERED THE FIRST GROUND OF APPEAL AGAINST THE VALIDITY OF REOPENING U/S.148 OF THE I.T. ACT. 2. THAT, THE LEARNED CIT(A) HAS NOT CONSIDERED THE WRONG DISALLOWANCE OF THE FREIGHT CHARGES AND CLEARING AND FORWARDING CHARGES OF RS.27,69,103/- U/S. 40(A)(IA) ON ACCOUNT OF NON-DED UCTION OF TDS U/S.194C OF THE I.T. ACT. 3. THAT, THE FINDINGS OF LEARNED CIT(A) TO THE ABOV E EXTENT ARE NOT JUSTIFIED AND ARE BAD IN LAW. 4. THE ASSESSEE IS A PRIVATE LIMITED COMPANY. IT I S ENGAGED IN THE BUSINESS OF MANUFACTURING OF ARTICLE LEATHER AND PVC CLOTH. IT FILED ITS ORIGINAL RETURN OF INCOME ON 25-10-2005 RETURNING TOTAL INCOME AT RS.63,52,12 0/-. ASSESSMENT U/S.143(3) OF THE INCOME-TAX ACT WAS COMPLETED ON 20-12-2007 ASSE SSING THE TOTAL INCOME AT RS.64,01,008/-. NOTICE U/S.147/148 OF THE INCOME-TA X ACT WAS ISSUED ON 19-07-2010 AFTER RECORDING THE FOLLOWING REASONS:- AS PER SECTION 40(A)(IA) OF THE IT ACT 1961 (EFFEC TIVE FROM A.Y. 2005-06) ANY INTEREST, COMMISSION OR BROKERAGE, FEES OR ANY AMOU NT PAYABLE TO RESIDENT CONTRACTOR OR SUB CONTRACTOR FOR CARRYING OUT ANY W ORK (INCLUDING LABOUR SUPPLY) ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION HAS NO T PAID INTO CENTRAL GOVERNMENTS ACCOUNT DURING THE PREVIOUS YEAR OR IN SUBSEQUENT YEAR BEFORE EXPIRY OF THE TIME PRESCRIBED U/S.200(1), WILL NOT BE ALLOWED FOR COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD :PROFITS AND GAINS OF THE BUSINESS OR PROFESSION. A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF ARTIFICIAL LEATHER & PVC CLOTH FILED, ITS RETURN FOR A.Y. 2005-06 ON 25/ 10/2005 DECLARING TOTAL INCOME OF RS.6352120/-, ASSESSMENT OF WHICH WAS COM PLETED AFTER SCRUTINY IN DECEMBER 2007 DETERMINING INCOME OF RS.6401008/- . SCRUTINY OF ASSESSMENT RECORDS REVEALED THAT THE ASSESSEE HAD S HOWN FOLLOWING EXPENSES IN PROFIT AND LOSS ACCOUNT. SR. NO. PAYMENT TO AMT. IN RS. SCHEDULE NO. 1 YARN JOB WORK 2080409 12 2 DISCOUNT AND COMMISSION 1607697 15 3 FREIGHT 4107742 13 4 CLEARING & FORWARDING CHARGES 1813258 13 3 ITA19/RJT/2012 & C.O.03/RJT/2012 ASSESSEE VIDE LETTER DTD.30/11/2007, STATED THAT TH E TDS WAS DEDUCTED IN RESPECT OF EXPENDITURE SHOWN SR. NO.1 & 2 ABOVE. BU T IN RESPECT OF REMAINING EXPENDITURE AT SR. NO.3 AND 4 DETAILS OF MONTHLY EXPENDITURE FURNISHED. NO DETAILS WERE, HOWEVER CALLED FOR AND KEPT ON RECORD TO SHOW WHETHER TDS WAS DEDUCTED AND PAID TO GOVT. A/C. IN RESPECT OF EXPENDITURE OF RS.5921000/- (I.E. SR. NO.3 & 4). THE SAME WAS THEREFORE REQUIRED TO BE DISALLOWED AS EXPENDITURE WHILE COMPUTING TAXABLE I NCOME AND ADDED BACK TO THE INCOME OF THE ASSESSEE. OMISSION TO DISALLO W THE SAME RESULTED IN UNDERASSESSMENT OF INCOME TO THE TUNE OF RS.5921000 /- AND CONSEQUENT SHORT LEVY OF TAX OF RS.2881632/- INCLUDING INTERES T U/S.234B OF RS.714991/- (FOR 33 MONTHS). I HAVE, THEREFORE, REASONS TO BELIEVE THAT INCOME C HARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF EXPLANATIO N 2(B) OF SECTION 147 OF THE I.T. ACT 1961. 5. ON BEING SUPPLIED THE COPIES OF THE AFORESAID RE ASONS RECORDED BY THE AO FOR INITIATING PROCEEDINGS U/S.147/148, THE ASSESSE E FILED WRITTEN OBJECTIONS BEFORE THE AO WHICH READ AS UNDER:- 1. WE ARE IN RECEIPT OF THE COPY OF REASON RECORDED FOR REOPENING OF ASSESSMENT FOR A.Y. 2005-06. 2. IN THIS REGARD, WE HAVE TO STATE THAT WE HAVE RE CEIVED THE COPY OF LETTER FOR IN WHICH THE REASONING HAS BEEN REPRODUC ED, HOWEVER THE ORIGINAL COPY OF REASONING RECORDED HAS NOT BEEN SU PPLIED. IT IS THEREFORE, REQUESTED TO SUPPLY THE PHOTO COPY OF RE ASONING RECORDED. 3. YOU ARE FURTHER REQUESTED TO KINDLY LOOK AT THE REASON RECORDED FOR REOPENING, VIDE LETTER DATED 11-03-2010 IT HAS BEEN REPRODUCED, IN THE SAID LETTER, IT IS SPECIFICALLY STATED THAT THE ASS ESSMENT WAS COMPLETED U/S.143 (3) OF THE I.T. ACT FURTHER, THE AO HAS S PECIFICALLY CALLED FOR THE DETAILS FOR TDS ON ACCOUNT OF EXPENSES OF YARN JOB WORK, DISCOUNT AND COMMISSION, FREIGHT AND CLEARING AND F ORWARDING CHARGES. 4. THE ASSESSEE HAS VIDE LETTER DATED 30-11-2007 HA S SUBMITTED DETAILS OF TDS IN THESE ACCOUNTS AND ALSO SUBMITTED MONTHLY ACCOUNTS FOR EXPENSES. 5. WE HAVE ALSO FURNISHED DETAILED COPY OF ACCOUNT OF EXPENSES LIKE FREIGHT AND CLEARING AND FORWARDING EXPENSES. 6. THE ASSESSEE HAS ALSO FURNISHED DETAILS OF TDS I N RESPONSE TO NOTICE DATED 29-10-2007 VIDE PARA 11 OF THE LETTER, THE CO PY OF LETTER IS ENCLOSED FOR YOUR KIND CONSIDERATION. 4 ITA19/RJT/2012 & C.O.03/RJT/2012 7. THE ASSESSEE HAS ALSO FURNISHED THE COPY OF ACCO UNTS OF BOTH THE ABOVE EXPENSES AND ALSO LIST OF SUNDRY DEBTORS AND CREDITORS IN RESPONSE TO LETTER DATED 29-10-2007. 8. THE AO AFTER VERIFICATION OF ALL THESE DOCUMENTS AND BOOKS OF ACCOUNTS HAS ALSO FURTHER CALLED FOR DETAILS OF TDS ON SPECIFIC ITEMS OF JOB WORK AND COMMISSION, THE SAME WAS ALSO FURNISHE D DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 9. THEREFORE, IT IS OUR RESPECTFUL SUBMISSION THAT THE AO HAS COMPLETED THE ASSESSMENT AFTER VERIFICATION ALL THE RELEVANT DOCUMENTS, TDS ACCOUNT, EXPENSES ACCOUNT AND BOOKS OF ACCOUNTS PRO DUCED BEFORE US; THEREFORE THE AO ON THIS ASPECT HAS COMPLETED T HE ASSESSMENT BY APPLYING HIS MIND. 10 THEREFORE, THE PROPOSED REOPENING OF ASSESSMENT MERELY ON THE GROUND THAT THE EXPENSES SHOULD HAVE BEEN VERIFIED IN PARTICULAR MANNER WOULD AMOUNT TO CHANGE OF OPINION AND THE SA ME IS NOT PERMITTED IN THE REOPENING ASSESSMENT, THE ISSUE HA S BEEN RECENTLY DECIDED BY THE SUPREME COURT IN THE CASE OF KELVINATOR OF INDIA LTD. V/S. CIT CIVIL APPEAL NOS.2009-2011 OF 2003 , COPY OF JUDGMENT FOR YOUR RECORD AND REFERENCE IS ENCLOSED. 11. THEREFORE, IT IS OUR RESPECTFUL SUBMISSION THAT WHEN EVERYTHING IS CALLED FOR BY THE AO AND HAS ALSO BEEN AVAILABLE ON RECORD AND THE ORDER IS BASED ON SUCH MATERIAL, THE SAME ORDER CAN NOT BE REOPENED. THEREFORE, IN THE PRESENT CASE, THE COPY OF FREIGHT ACCOUNT AND CLEARING AND FORWARDING ACCOUNT IS SUBMITTED, FURTH ER TDS DETAILS ARE ALSO SUBMITTED AND THE AO FURTHER CALLED FOR MONTHL Y DETAILS OF THESE TWO EXPENSES. THEREFORE, NOW THE AO HAS NOT POWER TO REOPEN THE ASSESSMENT ON VARY SAME GROUND U/S.148 OF THE I.T. ACT. 12. THEREFORE, IT IS REQUESTED TO CONSIDER OUR ABOV E SUBMISSION AND DROP THE REOPENING PROCEEDINGS. 6. THE OBJECTIONS FILED BY THE ASSESSEE WERE DISPOS ED OFF BY THE AO VIDE HIS LETTER DATED 27-07-2010, WHICH READS AS UNDER:- 2. IN THIS CONNECTION IT IS TO INFORM THAT THE RET URN OF INCOME FOR THE A.Y. 2005-06 WAS FILED DECLARING THE TOTAL INCOME AT RS. 6352120/-. THE SCRUTINY ASSESSMENT WAS COMPLETED ON 20/12/2008 ASSESSING TH E INCOME AT RS.6401008/-. SCRUTINY OF THE ASSESSMENT RECORDS HAS REVEALED THA T NO DETAILS WERE CALLED FOR AND KEPT ON RECORD DURING THE COURSE OF SCRUTIN Y ASSESSMENT PROCEEDINGS REGARDING THE FOLLOWING EXPENDITURE: 1) FREIGHT EXP. RS.4107742/- 2) CLEARING & FORWARDING EXP. RS.1813258/- 5 ITA19/RJT/2012 & C.O.03/RJT/2012 3. AS PER THE CONTENTION VIDE ABOVE REFERRED LETTER THE DETAILS, VIDE SUBMISSION DT.30/11/2007, WERE PROVIDED IN RESPECT OF DEDUCTION OF TDS ON EXPENDITURE. THEREFORE THE REQUEST IS MADE TO DROP THE PROCEEDINGS W.R.T. THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F KELVINATOR OF INDIA LTD. V/S. CIT CIVIL APPEAL NOS.2009-2011 OF 2003. 4. ON VERIFICATION OF THE RECORDS IT IS OBSERVED TH AT THE SUBMISSION DT.30/11/2007 CONTAINED ONLY THE MONTHWISE SUMMARY OF THE ABOVE TWO EXPENDITURES. NO DETAILS IN RESPECT OF TDS DEDUCTIO N ON ABOVE TWO EXPENDITURES HAVE BEEN SUBMITTED. 5. THE REOPENING OF THE ASSESSMENT IS THEREFORE NOT ON THE GROUND OF CHANGE IN OPINION AND THEREFORE RELIANCE ON THE DEC ISION OF THE HONBLE SUPREME COURT IN THE CASE OF KELVINATOR OF INDIA LT D. V/S. CIT CIVIL APPEAL NOS.2009-2011 OF 2003 CAN NOT BE PLACED. 6. WITH ABOVE REMARK THE PROCEEDINGS INITIATED U/S. 147 OF THE ACT IN THIS CASE CAN NOT BE DROPPED. THE REQUEST TO DROP THE P ROCEEDINGS IS, THEREFORE NOT ACCEPTED. 7. AFTER REJECTING THE OBJECTIONS RAISED BY THE ASS ESSEE AGAINST THE INITIATION OF PROCEEDINGS U/S 147/148, THE ASSESSING OFFICER COMP LETED THE ASSESSMENT U/S.143(3) R.W.S. 147 OF THE INCOME-TAX ACT ON 30-1 1-2010. PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT A SUM OF RS.27,69,103/- HAS BEEN DISALLOWED BY THE AO U/S.40(A)(IA), WITH THE FOLLOWING OBSERVATIONS:- 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED TO SUBMIT THE DETAILS & DOCUMENTARY EVIDENCES IN RESPECT OF THE TDS MADE ON FREIGHT CHARGES OF RS.4107742/- AND ON CLEA RING & FORWARDING CHARGES OF RS.1813258/-. THE ASSESSEE VIDE SUBMISSION DT. 18/11/10 FILED THE DETAILS. THE SAME ARE VERIFIED AND PLACED ON RECORD. ON PERUSAL OF THE DETAILS AND DOCUMENTARY EVIDENCE SUBMITTED BY THE ASSESSEE IT IS REVEALED THAT THE ASSESSEE HAS DEDUC TED THE TDS ON THE ABOVE SAID EXPENDITURES IN THE FOLLOWING MANNER. PARTICULARS TOTAL EXP. TDS DEDUCTED ON EXP. NO TDS DEDUCTION ON EXP. FREIGHT CHARGES 4107742/- 2096491/- 2011251/- CLEARING & FORWARDING CHARGES. 18,13258/- 1055406/- 757852/- 6 ITA19/RJT/2012 & C.O.03/RJT/2012 THEREBY THE ASSESSEE HAS FAILED TO FULFILL THE LIAB ILITY OF TDS DEDUCTIONS AS PER THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. FURTHER DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAS SUBMITTED SATISFACTORY EVIDENCES IN SUPPORT OF ITS CLAIM OF NON LIABILITY OF TDS ON THE EXPENDITURES ON WHICH THE TDS HAS NOT BEEN D EDUCTED. IN VIEW OF THE ABOVE FACT THE EXPENDITURES TOWARDS FREIGHT CHARGES TO THE TUNE OF RS.2011251/- AND TOWARDS CLEARING & FORWARD ING CHARGES TO THE TUNE OF RS.757852/- ON WHICH THE TDS IS NOT DEDUCTE D IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME. ADD: RS. 27,69,103/- 8. AGGRIEVED BY THE AFORESAID DISALLOWANCE MADE BY THE AO, THE ASSESSEE FILED APPEAL BEFORE THE CIT (A) IN WHICH THE VALIDITY OF INITIATION OF PROCEEDINGS U/S.147/148 WAS CHALLENGED. THE ACTION OF THE AO IN MAKING THE AFORESAID DISALLOWANCE WAS ALSO CHALLENGED BEFORE THE CIT (A) . THE LD. CIT (A) TOOK THE VIEW THAT THE INITIATION OF PROCEEDINGS BY THE AO U/S.14 7/148 WAS INVALID AND RESULTANTLY HE ANNULLED THE ORDER OF ASSESSMENT PASSED BY THE A O. IN THIS VIEW OF THE MATTER, HE DID NOT ADJUDICATE UPON THE CORRECTNESS OF THIS DISALLOWANCE MADE BY THE AO U/S.40(A)(IA). 9. THE LD. CIT (A) HAS GIVEN THE FOLLOWING REASONS FOR ANNULLING THE ORDER OF RE- ASSESSMENT PASSED BY THE AO:- 6. I HAVE GONE THROUGH THE ASSESSMENT ORDER, SUBMI SSIONS OF APPELLANT AND ASSESSMENT RECORDS. I FIND THAT THE REASON OF R EOPENING THE ASSESSMENT WAS THAT DURING THE ORIGINAL ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER CALLED FOR DETAILS OF TDS DEDUCTED ON YARN JOB WOR K EXPENDITURE AND DISCOUNT AND COMMISSION. HOWEVER, THE ASSESSIN G OFFICER DID NOT CALL FOR THE DETAILS OF DEDUCTION OF TDS IN RESPECT OF FREI GHT AND CLEARING & FORWARDING CHARGES. THERE WAS AN OBJECTION OF REVE NUE AUDIT OFFICER THAT BECAUSE THE DETAILS OF DEDUCTION OF TDS IN RESPECT OF FREIGHT AND CLEARING & FORWARDING CHARGES WAS NOT CALLED FOR BY THE ASSES SING OFFICER DURING THE ORIGINAL ASSESSMENT PROCEEDINGS, THESE EXPENSES WER E REQUIRED TO BE DISALLOWED FOR DEDUCTION. I FIND THAT ASSESSING OFF ICER DID NOT COLLECT ANY FURTHER MATERIAL TO REACH A CONCLUSION THAT TDS WAS REALLY DEDUCTIBLE ON THE WHOLE AMOUNT OF EXPENDITURE OF FREIGHT AND CLEAR ING & FORWARDING CHARGES TOTALING RS.5921000/- AND IT WAS NOT DEDUCTED BY TH E APPELLANT AND THEREFORE THE EXPENDITURE WAS LIABLE FOR DISALLOWANCE. IN AB SENCE OF DETAILS OF DEDUCTION OF TDS FREIGHT AND CLEARING & FORWARDI NG CHARGES IN RECORDS IT CANNOT BE PRESUMED THAT THERE WAS A DEFAULT IN RESP ECT OF TDS ON ALL PAYMENTS OF FREIGHT AND CLEARING & FORWARDING CH ARGES. WITHOUT THE EXISTENCE OF THESE FACTS, NO ASSESSING OFFICER WHO IS PRESUMED TO KNOW THE 7 ITA19/RJT/2012 & C.O.03/RJT/2012 INCOME TAX LAWS REASONABLY WELL COULD HAVE REACHED A BELIEF THAT THERE IS A DEFAULT OF DEDUCTION OF TDS OF A CERTAIN AMOUNT FRO M THE CLAIM OF DEDUCTION OF EXPENDITURE OF FREIGHT AND CLEARING & FORWARD ING CHARGES. THE TOTAL AMOUNT OF DISALLOWANCE EXPENDITURE OF RS.5921000/- IS MENTIONED ON THE PRESUMPTION THAT ON EVERY PAYMENT TO EACH PARTY UND ER THESE EXPENSES THERE WAS A DEFAULT OF TDS. THIS PRESUMPTION THAT O N EVERY PAYMENT TO EACH PARTY UNDER THESE EXPENSES THERE WAS A DEFAULT OF T DS. THIS PRESUMPTION IN THE PRESENT CASE MAKES THE REASON TO REOPEN THE ASS ESSMENT EQUIVALENT TO REASON TO SUSPECT ON A HYPOTHESIS RATHER THAN A BEL IEF ON ANY POINTED MATERIAL OR INFORMATION IN RECORDS. THEREFORE THE PRIMARY CONDITION TO REOPEN THE ASSESSMENT U/S.147, THAT THE ASSESSING OFFICER SHOULD HAVE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, IS ABSE NT IN THE PRESENT CASE BECAUSE ASSESSING OFFICER DID NOT HAVE ANY EVIDENCE ON RECORD TO FORM SUCH BELIEF WHEN HE ISSUED NOTICE U/S.148. THE ABSENCE OF ANY EVIDENCE IN RESPECT OF DETAILS OF DEDUCTION OF TDS IN RESPECT O F FOR ANY PAYMENT TO ANY PARTY FOR FREIGHT AND CLEARING & FORWARDING CHAR GES HAS EQUAL PROBABILITY OF A DEFAULT OR NO DEFAULT OF MAKING TDS, IE 50% P ROBABILITY. IF THERE ARE ONLY TWO PAYMENTS FOR THESE EXPENDITURES, THE PROBABILIT Y OF DEFAULT IN BOTH THE PAYMENTS IS (0.5 X 0.5) = 0.25, IE 25%. THE PROBAB ILITY OF THERE BEING DEFAULT IN ALL PAYMENTS, AS THE NUMBER OF PAYMENTS OR PARTI ES INCREASE, GOES ON DECREASING EXPONENTIALLY IN ABSENCE OF ANY EVIDENCE . THEREFORE THE PROBABILITY OF DEFAULT IN MAKING TDS IN ALL THE PAY MENTS OF FREIGHT AND CLEARING & FORWARDING CHARGES TOTALING RS.5921000 /- IS ALMOST NEGLIGIBLE. THE REASON OF ASSESSING OFFICER IS FORMED ON A PROB ABILITY WHICH IS ALMOST NEGLIGIBLE. SUCH EXTREMELY SMALL PROBABILITY CANNO T BE A REASON TO FORM ANY BELIEF THAT INCOME OF RS.5921000/- HAS ESCAPED ASSE SSMENT. ASSESSING OFFICER HAS ISSUED NOTICE U/S.148 ON PROBABILITY TH AT APPELLANT DEFAULTED IN DEDUCTING TAX AT SOURCE IN RESPECT OF FREIGHT AND CLEARING & FORWARDING CHARGES AND AS FAR AS THE AMOUNT OF CORRESPONDING INCOME OF SUCH DEFAULT OF RS.5921000/- IS CONCERNED, IT CAN BE SAID WITH C ERTAINTY THAT ASSESSING OFFICER HAD NO KNOWLEDGE OF THE QUANTUM OF SUCH DEF AULT WHEN HE WROTE THIS AMOUNT IN HIS REASONS TO REOPEN THE ASSESSMENT. REA SON TO BELIEVE SHOULD LEAD TO A BELIEF THAT INCOME HAS ESCAPED ASSESSMENT . IT CANNOT BE SAID THAT THE ASSESSING OFFICER COULD HAVE A CAUSE OR JUSTIFI CATION TO THINK OR SUPPOSE THAT INCOME HAS ESCAPED ASSESSMENT ON MERE PROBABIL ITY OR HYPOTHESIS THAT APPELLANT HAS DEFAULTED IN DEDUCTION OF TAX AT SOUR CE WITHOUT THERE BEING ANY DETAIL OF SUCH DEFAULT IN RECORD. AS A RESULT, THE PRIMARY CONDITION OF REOPENING U/S.147 OF THE I.T. ACT IS NOT SATISFIED AND ASSESSING OFFICER CANNOT ACQUIRE JURISDICTION TO REOPEN THE ASSESSMENT. THE REASSESSMENT FRAMED IS, THEREFORE, ANNULLED. 8 ITA19/RJT/2012 & C.O.03/RJT/2012 10. AGGRIEVED BY THE ORDER PASSED BY THE CIT(A), TH E DEPARTMENT IS NOW IN APPEAL BEFORE THIS TRIBUNAL. THE ASSESSEE HAS ALSO FILED MEMORANDUM OF CROSS- OBJECTIONS AGAINST NON ADJUDICATION BY THE CIT (A) OF THE GROUND OF APPEAL DIRECTED AGAINST DISALLOWANCE OF FREIGHT AND CLEARING & F ORWARDING CHARGES AMOUNTING TO RS.27,69,103/-. 11. IN SUPPORT OF APPEAL, THE LD. DEPARTMENTAL REPR ESENTATIVE SUBMITTED THAT NOTICE U/S.147/148 WAS ISSUED BY THE AO WELL WITHIN FOUR YEARS OF THE END OF THE ASSESSMENT YEAR UNDER APPEAL AND THEREFORE THE VALI DITY OF INITIATION OF PROCEEDINGS U/S 147/148 HAS TO BE EXAMINED WITH REFERENCE TO TH E CONDITIONS STIPULATED IN THE MAIN PROVISIONS OF SEC.147 AND NOT IN THE PROVISO T O SEC.147 OF THE INCOME-TAX ACT. HE SUBMITTED THAT THE ASSESSING OFFICER, WHILE COMP LETING ORIGINAL ASSESSMENT, HAD NEITHER CALLED FOR DETAILS REGARDING DEDUCTION OF T DS OUT OF FREIGHT CHARGES AND CLEARING & FORWARDING CHARGES AMOUNTING TO RS.41,07 ,742/- NOR CONSIDERED THE ISSUE AT THE TIME OF ORIGINAL ASSESSMENT NOR TOUCHE D UPON THEM IN THE ORIGINAL ORDER OF ASSESSMENT. IN THIS CONNECTION, HE INVITED OUR A TTENTION TO THE ISSUES RAISED IN THE QUESTIONNAIRE DATED 29-10-2007 ISSUED BY THE AO AT THE ORIGINAL ASSESSMENT STAGE AND SUBMITTED THAT NONE OF THE QUESTIONS RAISED IN THE SAID NOTICE RELATED TO DISALLOWANCE U/S.40(A)(IA) ON ACCOUNT OF NON-DEDUCT ION OF TAX AT SOURCE OUT OF FREIGHT AND CLEARING & FORWARDING CHARGES. HE A LSO TOOK US THROUGH THE LETTER/REPLY DATED 30-11-2007 SUBMITTED BY THE ASSE SSEE BEFORE THE AO AT THE ORIGINAL ASSESSMENT STAGE AND SUBMITTED THAT NO INF ORMATION WAS FURNISHED BY THE ASSESSEE WITH REGARD TO THE ISSUE OF NON-DEDUCTION OF TAX AT SOURCE OUT OF FREIGHT AND CLEARING & FORWARDING CHARGES. HE SUBMITTED T HAT THE ASSESSEE HAD NEVER FILED RELEVANT DETAILS REGARDING APPLICABILITY OF S EC.40(A)(IA) ON ACCOUNT OF NON- DEDUCTION OF TAX AT SOURCE OUT OF FREIGHT CHARGES A ND CLEARING & FORWARDING CHARGES AT THE ORIGINAL ASSESSMENT STAGE AND RESULTANTLY TH IS ISSUE WAS NEVER CONSIDERED OR ADJUDICATED UPON BY THE AO WHILE PASSING THE ORIGIN AL ORDER OF ASSESSMENT. ON THE AFORESAID FACTUAL MATRIX, THE LD. DEPARTMENTAL REPR ESENTATIVE SUBMITTED THAT THE AO COULD NOT BE SAID TO HAVE FORMED ANY OPINION IN THI S BEHALF AT THE ORIGINAL ASSESSMENT STAGE AND THEREFORE THE INITIATION OF PR OCEEDINGS U/S.147 COULD NOT BE SAID TO BE BASED ON CHANGE OF OPINION. 12. HIS SECOND SUBMISSION WAS THAT THE PROVISIONS O F SECTION 40(A)(IA) AUTOMATICALLY APPLY WHENEVER THERE IS NON-DEDUCTION /PAYMENT OF TAX AT SOURCE IN ACCORDANCE WITH LAW. HE SUBMITTED THAT THE MATERIAL S AVAILABLE ON RECORD BEFORE THE AO SUGGESTED THAT THERE WAS NON-DEDUCTION OF TAX ON SOURCE AND HENCE THE AFORESAID EXPENSES WERE REQUIRED TO BE DISALLOWED. ACCORDING TO HIM, NON- DISALLOWANCE OF SUCH EXPENDITURE HAD CAUSED ESCAPEM ENT OF INCOME FROM TAX. HE CONTENDED THAT THE AO WAS THEREFORE JUSTIFIED IN FO RMING THE BELIEF THAT THE INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT AND ACCORD INGLY ISSUE OF NOTICE BY HIM IN THIS BEHALF WAS VALID AND IN CONFORMITY WITH LAW . ACCORDING TO HIM, THE ISSUE UNDER APPEAL WAS SQUARELY COVERED IN FAVOUR OF THE DEPART MENT BY THE JUDGMENT OF THE 9 ITA19/RJT/2012 & C.O.03/RJT/2012 HONBLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS P. LTD. V. ACIT 291 ITR 500 (SC). 13. IN REPLY, THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ORIGINAL ORDER OF ASSESSMENT WAS PASSED AFTER D ETAILED SCRUTINY DURING WHICH ALL EXPENSES WERE VERIFIED BY THE AO. ACCORDING TO HIM, ORIGINAL ORDER OF ASSESSMENT WAS PASSED U/S.143(3) AFTER DUE CONSIDERATION OF AL L THE ASPECTS OF THE CASE INCLUDING THE APPLICABILITY OF SEC.40(A)(IA) TO FRE IGHT CHARGES AND CLEARING & FORWARDING CHARGES. HE INVITED OUR ATTENTION TO PAR A-5 OF THE LETTER DATED 30-11-2007 SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE THE AO I N WHICH MONTH-WISE DETAILS OF FREIGHT CHARGES AND CLEARING & FORWARDING CHARGES W ERE FURNISHED BEFORE THE AO. HE SUBMITTED THAT THE INITIATION OF PROCEEDINGS U/S .147/148 WAS BASED ON MERE CHANGE OF OPINION. IN SUPPORT OF HIS SUBMISSION, HE RELIED UPON SEVERAL JUDGMENTS WHICH ARE AS UNDER:- 1. CIT V. KALVINATOR OF INDIA LTD. 174 CTR 617 2. CARTINI INDIA LTD. V. ACIT & ORS. 224 CTR 82 3. ACIT V. O.P. CHAWLA 116 TTJ 755 4. ADANI EXPORT V. DCIT 240 ITR 224 5. RUBAMIN LIMITED V. LOVE KUMAR SPECIAL CIVIL APPLICATION NO. 16901 OF 2011. 7. PRASAD KOCH TECHNIK TECH PVT. LTD. V. ACIT SPECIAL CIVIL APPLICATION NO.16074 & 16076 OF 2011 8. ITO V. FREIGHT SYSTEMS (INDIA) (P) LTD. 103 TTJ 103 9. ITO V. INDIAN ROAD LINES 45 DTR 49 (ASR) 10. SHRI VISHRAM K. GORASIA V. ITO ITA NO.196/RJT/2 012 11. ACIT V. P.P. OVERSEAS ITA NO.733/MUM/2010 12. ITO V. DR. WILLMAR SCHWABE INDIA (P) LTD. 95 TT J 53 13. SCIT V. M/S. CHOICE SANITARYWARE ITA NO. 274/RJ T/2008 14. M/S. S.K. TEKRIWAL V. DCIT ITA NO.1135/KOL/2010 . 14 WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CON SIDERED THEIR SUBMISSIONS INCLUDING JUDICIAL AUTHORITIES REFERRED TO BY THEM. NOTICE FOR ASSESSMENT WAS ISSUED BY THE AO U/S.147/148 BEFORE THE EXPIRY OF FOUR YEA RS FROM THE END OF THE ASSESSMENT ORDER UNDER APPEAL. THEREFORE, THE VALID ITY OF THE IMPUGNED NOTICE NEEDS TO BE DECIDED WITH REFERENCE TO THE STATUTORY REQUIREMENTS OF THE MAIN PROVISIONS OF SEC.147 AND NOT THE PROVISO TO SECTIO N 147. UNDER THE MAIN PROVISIONS OF SECTION 147, THE ASSESSING OFFICER IS AUTHORIZED TO ISSUE NOTICE WITHIN FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR IF HE HAS REASON TO BELIEVE THAT THE INCOME CHARGEABLE TO INCOME TAX HAS ESCAPED ASSESSM ENT. HE IS NOT REQUIRED TO SATISFY ANY OTHER CONDITION. EXPENSES/PAYMENTS, WHI CH ARE SUBJECT MATTER OF DEDUCTION OF TAX AT SOURCE, CANNOT BE ALLOWED AS DE DUCTION UNLESS TAX HAS BEEN DEDUCTED AT SOURCE IN CONFORMITY WITH LAW. PRIMA FA CIE, FREIGHT CHARGES AND CLEARING & FORWARDING CHARGES ARE SUBJECT MATTER OF DEDUCTIO N OF TAX AT SOURCE U/S.194C. UNLESS THERE IS EVIDENCE TO SHOW THAT THE TAX HAS BEEN DEDUCTED AT SOURCE IN ACCORDANCE WITH LAW, PAYMENTS/EXPENSES ON ACCOUNT O F HIRING CHARGES AND CLEARING & FORWARDING CHARGES ARE LIABLE TO BE DISALLOWED U/ S.40(A)(IA). THIS ASPECT OF THE MATTER SOMEHOW ESCAPED THE ATTENTION OF THE AO COMP LETING THE ORIGINAL 10 ITA19/RJT/2012 & C.O.03/RJT/2012 ASSESSMENT. IN THIS VIEW OF THE MATTER, THE PRIMA F ACIE SATISFACTION OF THE AO THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT CAN NOT BE SAID TO BE WITHOUT BASIS OR ARBITRARY OR IRRATIONAL. PRIMA FACIE, HIS BELIEF IN THIS BEHALF IS A BONA FIDE BELIEF. AT THE STAGE OF ISSUE OF NOTICE, THE ONLY Q UESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COUL D HAVE FORMED THE REQUISITE BELIEF. WHETHER THE MATERIALS WOULD CONCLUSIVELY PR OVE THE ESCAPEMENT OF INCOME IS NOT OF CONCERN AT THE STAGE OF INITIATION OF PROCEE DINGS U/S 147 BECAUSE THE FORMATION OF BELIEF BY THE AO IS WITHIN THE REALM O F HIS SUBJECTIVE SATISFACTION. IN OUR VIEW, THE REQUIREMENTS OF THE MAIN PROVISIONS OF SE C.147 ARE FULLY SATISFIED. IN ACIT V. RAJESH JHAVERI STOCK BROKERS P. LTD. 291 ITR 500 (SC) THE HONBLE SUPREME COURT HAS HELD: IN OTHER WORDS IF THE ASSESSING OF FICER FOR WHATEVER REASON HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMEN T IT CONFERS JURISDICTION TO REOPEN THE ASSESSMENT. RESPECTFULLY FOLLOWING THE AFORESAID JUDGMENT, WE HOLD THAT THE AO WAS JUSTIFIED IN ISSUING THE IMPUGNED N OTICE. 15. WITHOUT PREJUDICE TO THE AFORESAID, ANOTHER IMP ORTANT FACTOR THAT CANNOT BE LOST OF SIGHT IS THAT THE ASSESSEE HAS NOT DISCLOSE D RELEVANT FACTS REGARDING NON- DEDUCTION OF TAX AT SOURCE OUT OF FREIGHT CHARGES A ND CLEARING & FORWARDING CHARGES AND RESULTANT APPLICABILITY OF THE PROVISIONS OF SE CTION 40(A)(IA) AT THE STAGE OF ORIGINAL ASSESSMENT. 16. THE AO THEREAFTER DISCOVERED THE FACTS FROM THE RECORD OF THE ASSESSEE THAT THE DISALLOWANCE THAT WAS CALLED FOR ON THE FACTS O F THE CASE WAS NEITHER MADE IN THE ORIGINAL ORDER OF ASSESSMENT NOR EXAMINED AT TH E ORIGINAL ASSESSMENT STAGE. HE THEREFORE ISSUED NOTICE U/S 147/148 TO TAX THE INCO ME THAT HAD ESCAPED ASSESSMENT. HIS ACTION IN DOING SO IS DULY SUPPORTE D BY THE JUDGMENT IN KALYAJI MAVJI & CO. V. CIT, 102 ITR 287, 297 (SC) IN WHICH IT HAS BEEN HELD THAT INFORMATION MAY BE OBTAINED EVEN FROM THE RECORD OF THE ORIGIN AL ASSESSMENT FROM AN INVESTIGATION OF THE MATERIALS ON THE RECORD, OR TH E FACTS DISCLOSED THEREBY OR FROM OTHER INQUIRY OR RESEARCH INTO FACTS OR LAW. 17. THE SUBMISSION OF THE ASSESSEE THAT THE INITIAT ION OF PROCEEDINGS U/S 147/148 IS BASED ON CHANGE OF OPINION AND THEREFORE IS BAD IN LAW, IS ALSO UNTENABLE FOR THE REASON THAT THERE IS NO MATERIAL ON RECORD TO HOLD THAT THE AO HAD EITHER EXAMINED THE ISSUE OR FORMED ANY OPINION IN THAT BEHALF IN T HE ORIGINAL ORDER OF ASSESSMENT. IT IS A CASE WHERE THE AO HAS NEITHER CONSIDERED THE I SSUE NOR FORMED ANY OPINION IN THAT BEHALF WHILE PASSING THE ORIGINAL ORDER OF ASS ESSMENT. IT CANNOT THEREFORE BE SAID THAT THE INITIATION OF THE PROCEEDINGS U/S 147 /148 IS BASED ON CHANGE OF OPINION. THE VIEW THAT WE ARE TAKING IN THE MATTER IS FULLY SUPPORTED BY THE JUDGMENT OF FULL BENCH OF THE HONBLE DELHI HIGH COURT IN CI T V. USHA INTERNATIONAL LTD., 25 TAXMANN.COM 200. RESPECTFULLY FOLLOWING THE AFORESA ID JUDGMENT, THE PLEA OF THE ASSESSEE IN THIS BEHALF IS REJECTED. 11 ITA19/RJT/2012 & C.O.03/RJT/2012 18. IN VIEW OF THE FOREGOING, GROUND NO.1 TAKEN BY THE DEPARTMENT IS ALLOWED. 19. APROPOS GROUND NOS.2 AND 3 TAKEN BY THE DEPARTM ENT AND THE GROUNDS TAKEN BY THE ASSESSEE IN ITS MEMORANDUM OF CROSS-OB JECTIONS, WE FIND THAT THE ISSUE IN THE AFORESAID GROUNDS OF APPEAL/CROSS-OBJE CTIONS HAS NEITHER BEEN CONSIDERED NOR ADJUDICATED UPON BY THE CIT(A) THOUG H THEY WERE TAKEN BEFORE HIM. WE THEREFORE DIRECT THE LD. CIT(A) TO ADJUDICATE UP ON THE AFORESAID GROUNDS OF APPEAL IN CONFORMITY WITH LAW AFTER GIVING REASONAB LE OPPORTUNITY OF HEARING TO BOTH THE PARTIES. 20. RESULTANTLY, THE APPEAL FILED BY THE DEPARTMENT IS PARTLY ALLOWED WHILE THE MEMORANDUM OF CROSS-OBJECTIONS FILED BY THE ASSESSE E IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ( * 30.10.2012 ( ORDER PRONOUNCED ON 30.10-2012 SD/- SD/- ( . . / T. K. SHARMA) ( .. / D. K. SRIVASTAVA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER /RAJKOT: 30-10-2012 NVA/- ( (( ( -. -. -. -. /. /. /. /. / COPY OF ORDER FORWARDED TO:- 1.2 / APPELLANT- THE ASSTT. COMMISSIONER OF INCOME-TAX , CIR-5, RAJKOT 2 -42 / RESPONDENT- M/S. ROTO SCREENTECH PVT. LTD., RAJK OT 3. 8 / CONCERNED CIT-III, RAJKOT 4. 8- / CIT (A)-IV, RAJKOT 5. . -, , / DR, ITAT, RAJKOT 6. / GUARD FILE / BY ORDER TRUE COPY. SENIOR PRIVATE SECRETARY, ITAT , RAJKOT