Price Waterhouse & Co., [now known as Price Waterhouse & Co. Chartered Accountants LLP], Kolkata V. DCIT, Circle - 22, , Kolkata

ITA 1985/KOL/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7082 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 14-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Assessee Lawyers: C S AGARWAL SR ADV K M GU PTA; BIKASH KUMAR JAIN
• Keywords: Question of law; Tangible material; Difference of opinion; Revised return; Reason to believe; Change of opinion; Reassessment proceedings; TDS
• Section: 143(3); 244A; 143(1); 201; 143(2); 139(1); 44AB; 13; 147; 148; 37; 56; 28; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C, BENCH KO LKATA BEFORE SHRI A. T. VARKEY, JM & DR. A.L. SAINI, AM ITA NO.1985/KOL/2018 (ASSESSMENT YEAR: 2009-10) PRICE WATERHOUSE & CO, KOLKATA (NOW VERSUS KNOWN AS PRICE WATERHOUSE & CO CHARTERED ACCOUNTANTS LLP) BLOCK-EP, PLOT-Y-14, SALT LAKE CITY, SECTOR-V, KOLKATA 700091. VS. DCIT, CIRCLE-22, KOLKATA ./ ./PAN/GIR NO. : AAHFP0187A ( /APPELLANT ) .. ( / RESPONDENT ) APPELLANT BY : SHRI C.S AGARWAL, SR. ADV., K.M. GU PTA, ADV. & BIKASH KUMAR JAIN, CA RESPONDENT BY : DR. P. K. SRIHARI, CIT(DR) / DATE OF HEARING : 19/11/2019 /DATE OF PRONOUNCEMENT : 05/02/2020 / O R D E R PER DR. A. L. SAINI, AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE, PERTAIN ING TO ASSESSMENT YEAR 2009-10, IS DIRECTED AGAINST THE ORDER PASSED BY LD . COMMISSIONER OF INCOME TAX (APPEALS)-6, KOLKATA DATED 17.07.2018 WHICH IN TURN ARISES OUT OF AN ASSESSMENT ORDER PASSED BY ASSESSING OFFICER U/S 147/143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) DATED 26.02. 2015. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS FOLLOWS: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSEE RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL ON THE FOLLOWING GROUNDS: ITA NO.1985/KOL/2018 PRICE WATERHOUSE & CO. (NOW KNOWN AS PRICE WATERHOUSE & CO CHARTERED ACCO UNTANTS LLP) 2 1(A). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. COMMISSIONER OF INCOME-TAX (APPEALS) ['LD. CIT(APPEALS)'] ERRED IN CONFIRMING THE ACTION OF THE LD. ASSESSING OFFICER ['LD. AO'] IN REOPENING THE ASSESSMENT UNDER SECTION 148 OF THE ACT AND HENCE THE IMPUGNED REASSESSMENT IS BAD IN LAW, VOID-AB-INITIO AND LIAB LE TO BE QUASHED. 1(B). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (APPEALS) FAILED TO APPRECIATE THAT THE LD. A.O FAILED TO RECORD VALID REASONS IN THE EYES OF LAW WHICH WERE MODIFIED AND ALTERED BY HIM WHILE DISPOSING THE OBJECTION OF THE ASSESSEE, AND HENCE THE IMPUGNED REASSESSMENT PROCEEDING IS BAD IN LAW AND DESERVES TO BE QUASHED. 1(C). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (APPEALS) FAILED TO APPRECIATE THAT THE REASONS RECORDED WERE MERELY IN THE NATURE OF 'REASON TO SUSPECT' AND NOT 'REASON TO BELIEVE' AS THE REASSESSMENT SO FRAMED I S CONTRARY TO THE REASONS RECORDED FOR ALLEGED ESCAPEMENT OF INCOME. 1(D). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (APPEALS) ERRED IN HOLDING THAT THE IMPUGNED REASSESSMENT ORDER PASSED BY THE LD. AO IS CORRECT IN LAW, WITHOUT TAKING COGNIZANCE OF THE FACT THAT THE IMPUGNED REA SSESSMENT ORDER WAS PASSED WITH VARIATION, MODIFICATION, ALTERCATION OF THE RECORDED REASONS W HICH IS IMPERMISSIBLE UNDER THE LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT (APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS. 31,12,50,000 TREATING THE NON-REFUN DABLE GRANT RECEIVED BY THE ASSESSEE FROM PRICEWATERHOUSECOOPERS SERVICES BV, NETHERLANDS ('S ERVICES BV') AS REVENUE RECEIPT TAXABLE UNDER SECTION 28(IV) OF THE INCOME-TAX ACT, 1961. 3. ON THE FACTS AND IN LAW AND IN THE CIRCUMSTANCES OF THE CASE, UPON GIVING EFFECT TO THE GROUNDS HEREINABOVE, THE LD. AO BE DIRECTED TO CONSEQUENTIA LLY COMPUTE INTEREST UNDER SECTION 234B, 234D AND 244A OF THE INCOME-TAX ACT, 1961 AS PER TH E RELEVANT PROVISIONS OF THE ACT. THE ASSESSEE SUBMITS THAT THE ABOVE GROUNDS ARE IND EPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE ASSESSEE DESIRES LEAVE TO ADD TO OR ALTER, BY D ELETION, SUBSTITUTION OR OTHERWISE, ANY OR ALL OF THE ABOVE GROUNDS OF OBJECTIONS, AT ANY TIME BEFORE OR DURING THE HEARING OF THE APPEAL. 3. THE FACTS OF THE CASE WHICH CAN BE STATED QUITE SHORTLY ARE AS FOLLOWS: THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.09.2009. THE RETURN OF INCOME OF THE ASSESSEE WAS PROCESSED U/S. 143(1) OF THE I.T. ACT, 1961, ON 10.03.2011 AT THE TOTAL INCOME OF RS. NIL. SUBSEQUENTLY THE CASE WAS REOPEN ED U/S.148 OF THE I.T. ACT, 1961 ON 14.06.2013. THE REASON SO RECORDED BY AO ARE AS FOL LOWS: 'ON A PERUSAL OF RETURN OF INCOME FOR A.Y. 2009-10 , IT REVEALED THAT ASSESSEE HAS DECLARED GROSS RECEIPT OF PROFESSION AT RS.10,60,83 4/- IN THE PROFIT AND LOSS ACCOUNTS. THOUGH THE GROSS RECEIPT OF ASSESSEE IS MORE THAN R S.10,00,000/- ASSESSEE HAS REPORTED IN THE RETURN OF INCOME THAT HE IS NOT LIABLE FOR A UDIT UNDER SECTION 44AB OF THE INCOME TAX ACT. THAT MEANS THE AMOUNT OF RS.10,60,834/- SH OWN AS PROFESSIONAL RECEIPT IS NOT ASSESSABLE UNDER THE HEAD BUSINESS OR PROFESSION, I T IS ASSESSABLE AS INCOME FROM OTHER SOURCES. ITA NO.1985/KOL/2018 PRICE WATERHOUSE & CO. (NOW KNOWN AS PRICE WATERHOUSE & CO CHARTERED ACCO UNTANTS LLP) 3 AGAINST THIS RECEIPT OF RS.10,60,834/- THE ASSESSEE HAS CLAIMED A SUM OF RS.1,06,96,210/- BEING OTHER PROVISIONS (COLUMN NO. 39 OF THE PROFIT AND LOSS ACCOUNTS OF THE RETURN OF INCOME), DEBITED IN THE PROFIT AND LOSS ACCOUNTS. A S SUCH THE ASSESSEE HAS DETERMINED TOTAL LOSS FROM BUSINESS OR PROFESSION AT RS.96,35, 376/- FOR THE CURRENT YEAR. HOWEVER, THE PROVISIONS ARE CONTINGENT IN NATURE AND HENCE N OT ALLOWABLE AS IT IS NOT ALLOWABLE AS IT IS NOT CRYSTALLIZED LIABILITY. MOREOVER, PROVISI ONS HAVE BEEN CLAIMED AGAINST INCOME WHICH IS ASSESSABLE AS INCOME FROM OTHER SOURCES. T HE ASSESSEE'S CLAIM IS NOT ALLOWABLE AGAINST INCOME FROM BUSINESS OR PROFESSION AND ALSO AGAINST INCOME FROM OTHER SOURCES. IN THE BALANCE SHEET THE ASSESSEE HAS SHOWN UNDER T HE HEAD 'RESERVE AND SURPLUS' A CAPITAL RESERVE OF RS.31,12,50,000/-. FROM VERIFICA TION OF RETURN FOR A.Y. 2008-09 IT REVEALED THAT NO SUCH RESERVE HAS BEEN TRANSFERRED FROM EARLIER YEAR. SO IT IS CRYSTAL CLEAR THAT THE SAID CAPITAL RESERVE IS UNDISCLOSED INCOME OF ASSESSEE INTRODUCED AS CAPITAL. THE ABOVE AMOUNT IS INCOME OF THE ASSESSEE FROM UNDISCLOSED SOURCE. THE ASSESSEE VIDE LETTER DATED 24.07.2013 INTIMATED THAT HE FILED REVISED RETURN ON 24.07.2013 TO BE THE RETURN FILED U/S. 148 OF TH E I.T. ACT, 1961. THE REASON SO RECORDED U/S.147 WAS SENT TO THE ASSESSEE AND OBJEC TION, IF ANY, FOR THE REASON SO RECORDED AND REOPENED U/S.147, WAS ALSO SENT TO THE ASSESSEE VIDE LETTER DATED 14.02.2014. 4. IN COMPLIANCE TO THE NOTICE U/S.147 AND THE REAS ON SO RECORDED FOR RE-OPENED U/S.147 OF THE ACT, THE ASSESSEE HAD FILED OBJECTIO N AGAINST THE PROCEEDINGS U/S.147 OF INCOME TAX ACT, 1961. WHICH IS REPRODUCED BELOW: 1) INCOME FOR INR 10,60,834/- IN THIS CONNECTION IT IS SUBMITTED AS UNDER:- A) IT IS SUBMITTED THAT THE ALLEGATION MADE BY YOUR KINDSELF THAT THE RECEIPT OF INR 10,60,834/- IS ASSESSABLE UNDER THE HEAD 'INCOME FR OM OTHER SOURCES' CANNOT BE FACTUALLY OR LEGALLY SUSTAINED. A COPY OF THE AUDITED ACCOUNT S OF THE FIRM IS ENCLOSED IN ANNEXURE- 1, WHEREFROM YOUR KINDSELF WILL NOTE THAT THE ABOVE AMOUNT OF INR 10,60,834/-IS ARRIVED AT AS UNDER INR FEES BILLED TO CLIENT 9,50,000 INTEREST RECEIVED 1,10,834 TOTAL 10,60,834 B) DURING THE YEAR THE FIRM HAS RENDERED PROFESSION AL SERVICES TO ITS VARIOUS CLIENTS AND HAVE RAISED BILLS FOR FEES ON THEM FOR THE SERVICES RENDERED. CLIENT-WISE DETAIL OF FEES BILLED DURING THE YEAR IS ENCLOSED IN ANNEXURE-III. ACCORDINGLY, THE INCOME OF INR ITA NO.1985/KOL/2018 PRICE WATERHOUSE & CO. (NOW KNOWN AS PRICE WATERHOUSE & CO CHARTERED ACCO UNTANTS LLP) 4 9,50,000/- BILLED BY THE FIRM TO ITS CLIENTS TOWARD S RENDERING OF PROFESSIONAL SERVICES IS TAXABLE UNDER THE HEAD ' PROFITS & GAINS OF BUSINES S OR PROFESSION'. THE FIRM SUBMITS THAT IT IS NOT NECESSARY THAT THE FIRM HAS TO CARRY OUT ITS PROFESSIONAL ACTIVITIES THROUGH ITS EMPLOYEES ONLY. IT IS SUBMITTED THAT THE FIRM HAS C ARRIED OUT ITS PROFESSIONAL ACTIVITIES THROUGH ITS PARTNERS AND ACCORDINGLY, THE FEES EARN ED BY THE FIRM DURING THE YEAR UNDER CONSIDERATION IS IN THE NATURE OF PROFESSIONAL INCO ME AND SHOULD BE ASSESSED UNDER THE HEAD ' PROFITS & GAINS OF BUSINESS OR PROFESSION'. C) WE WOULD INVITE ATTENTION OF YOUR KINDSELF TO SE CTION 44AB OF THE ACT APPLICABLE FOR THE YEAR UNDER CONSIDERATION WHICH READS AS UNDER (RELE VANT PORTION) 'AUDIT OF ACCOUNTS OF CERTAIN PERSON CARRYING ON BU SINESS OR PROFESSION 44AB. EVERY PERSON- (A)......... (B) CARRYING ON PROFESSION SHALL, IF HIS GROSS REC EIPTS IN PROFESSION EXCEED [FIFTY] LAKH RUPEES IN ANY PREVIOUS YEAR; OR GET HIS ACCOUNTS OF SUCH PREVIOUS YEAR AUDITED BY A N ACCOUNTANT..... ON PERUSAL OF THE AFORESAID PROVISION OF THE ACT, Y OUR KINDSELF WILL NOTE THAT IN CASE OF AN ASSESSEE CARRYING ON PROFESSION, IS REQUIRED TO GET HIS ACCOUNTS AUDITED IN TERMS OF SECTION 44AB OF THE ACT IF HIS GROSS RECEIPTS IN PR OFESSION EXCEEDS TEN LAKH RUPEES IN ANY PREVIOUS YEAR. IN THE PRESENT CASE, YOUR KINDSELF WILL NOTE THAT T HE FIRM WHICH IS CARRYING ON PROFESSION, HAD GROSS RECEIPTS IN PROFESSION OF INR 9,50,000/- AS STATED ABOVE WHICH IS LESS THAN THE THRESHOLD OF RUPEES TEN LAKHS FOR APPLICATION OF SE CTION 44AB OF THE ACT FOR THE YEAR UNDER CONSIDERATION. YOUR KINDSELF WILL THEREFORE A PPRECIATE THAT THE PROVISIONS OF SECTION 44AB OF THE ACT WOULD NOT APPLY TO THE FIRM FOR THE YEAR UNDER CONSIDERATION. D) DURING THE YEAR, THE FIRM HAS MADE DEPOSITS IN I TS ORDINARY COURSE OF BUSINESS AS A MEASURE OF GOOD CASH MANAGEMENT AND HAS EARNED INTE REST THEREFROM AGGREGATING TO INR 1,10,834 AS NOTED ABOVE. YOUR KINDSELF WILL NOT E THAT IF SUCH INTEREST INCOME IS CONSIDERED ASSESSABLE UNDER THE HEAD 'INCOME FROM O THER SOURCES', THERE WOULD NOT BE ANY CHANGE IN THE NET RESULT OF COMPUTATION OF TOTA L INCOME FOR THE YEAR SINCE, AS PER THE PROVISIONS OF SECTION 71 OF THE ACT, THE ENTIRE INT EREST RECEIVED OF INR 1,10,834/- WOULD BE FULLY SET OFF AGAINST THE LOSS FOR THE YEAR COMP UTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. 2. CAPITAL RESERVE OF INR 31,12,50,000/- IN THIS CONNECTION YOUR KINDSELF WILL NOTE AS UNDER - A) THE ASSESSEE FIRM IS A MEMBER FIRM OF THE PRICEW ATERHOUSE COOPERS GLOBAL NETWORK OF FIRMS ('PWC NETWORK'). AT THE REQUEST OF THE FIR M, PRICE WATERHOUSE COOPERS SERVICES A COMPANY ORGANIZED UNDER THE LAWS OF THE NETHERLANDS, HAVING ITS PRINCIPAL PLACE OF BUSINESS AT FASCINATIO BOULEVARD 350, 3065 WB ROTHERDAM, THE NETHERLANDS ('PWC NETWORK') PROVIDED A NON-REFUNDABLE GRANT TO THE FIRM OF INR 31,12,50,000/- DURING THE FINANCIAL YEAR 2008-09 FOR THE PURPOSE O F MAINTAINING AND ENHANCING THE RESOURCES AND CAPABILITIES OF THE FIRM AS REFERRED IN THE GRANT AGREEMENT DATED 18 TH ITA NO.1985/KOL/2018 PRICE WATERHOUSE & CO. (NOW KNOWN AS PRICE WATERHOUSE & CO CHARTERED ACCO UNTANTS LLP) 5 JULY, 2008. THE SAID GRANT AMOUNT WAS RECEIVED BY T HE FIRM FROM PWC SERVICES BV THROUGH NORMAL BANKING CHANNELS. COPIES OF THE BANK REMITTANCE ADVICE RECEIVED FROM BANK ALONGWITH COPY OF THE GRANT AGREEMENT DATED 18TH JULY, 2008 ENTERED BETWEEN THE FIRM AND PWC SERVICES BV ARE ENCLOSED COLLECTIVELY IN ANNEXURE-IV. B) IN VIEW OF THE ABOVE, YOUR KINDSELF WILL APPRECI ATE THAT THE SUBJECT AMOUNT CANNOT BE ASSESSED AS INCOME IN THE HANDS OF THE FIRM. WE MAY ALSO MENTION THAT THE SUBJECT AMOUNT CANNOT BE TREATED AS UNDISCLOSED INCOME AS T HE FIRM HAS CREDITED THE AMOUNT IN ITS CAPITAL RESERVE AND HAS ALSO PROVIDED SUCH INFO RMATION TO YOUR KINDSELF BY LETTER DATED 24 TH JULY, 2013 (COPY ENCLOSED IN ANNEXURE V) FILED WIT H YOUR KINDSELF WELL BEFORE RECEIVING OF THE REASONS RECORDED FOR ISSUING IMPUG NED NOTICE U/S.147 OF THE ACT (RECEIVED ON 20 TH FEBRUARY, 2014). MOREOVER, THE NATURE AND SOURCE O F THE IMPUGNED AMOUNT HAVE BEEN DULY EXPLAINED TO YOUR KINDSELF AS ABOVE. 3. EXPENDITURE OF INR 1,06.96,210/- IN THIS CONNECTION, IT IS SUBMITTED BEFORE YOUR KIN DSELF AS UNDER A) YOUR KINDSELF WILL NOTE FROM THE AUDITED ACCOUNT S OF THE FIRM (ENCLOSED IN ANNEXURE I) THAT THE SUBJECT AMOUNT OF INR 1,06,96,210/- COMPRI SES OF THE FOLLOWING EXPENDITURES- INR BANK CHARGES 110 LEGAL EXPENSES 52,87,700 EXTERNAL CONSULTANTS PROFESSIONAL FEES 54,07,850 PRINTING & STATIONARY 500 TOTAL 1,06,96,210 IT IS SUBMITTED THAT ALL THE ABOVE EXPENSES HAVE BE EN INCURRED BY THE FIRM WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS OR PROF ESSION AND IS ACCORDINGLY ALLOWABLE AS DEDUCTION WHILE COMPUTING THE TOTAL INCOME OF THE F IRM. YOUR KINDSELF WILL NOTE THAT WHILE THE EXPENDITURE ON BANK CHARGES AND PRINTING & STATIONERY ARE ROUTINE EXPENDITURE, THE EXPENDITURE DEBITED UNDER THE ACCOUNT-HEAD 'LEGAL EXPENSES' HAVE BEEN INCURRED BY THE FIRM FOR THE PURPOSE OF REPRESENTATION INTER ALIA BEFORE THE ICAI, NEW DELHI IN THE MATTER OF AU DIT CARRIED OUT BY THE FIRM OF ERSTWHILE GLOBAL TRUST BANK FOR THE FINANCIAL YEAR 2002-03. THE EXPENSES DEBITED UNDER THE ACCOUNT HEAD EXTERNAL CONSULTANTS PROFESSIONAL FEES HAVE BEEN INCURRED FOR DRAFTING AND AMENDING LEGAL AGREEMENTS INCLUDING NON-COMPETE AGREEMENTS ETC. WHICH HAS ALSO BEEN POINTED OUT IN OUR LETTER DATED 24TH JULY, 201 3 FILED WITH YOUR KINDSELF. THUS, FROM THE ENCLOSED DETAILS, YOUR KINDSELF WILL APPRECIATE THAT NONE OF THE EXPENDITURE AGGREGATING TO INR 1,06,96,210/- ARE IN THE NATURE OF PROVISION AS ALLEGED. ITA NO.1985/KOL/2018 PRICE WATERHOUSE & CO. (NOW KNOWN AS PRICE WATERHOUSE & CO CHARTERED ACCO UNTANTS LLP) 6 WITH REGARD TO THE OBSERVATION MADE BY YOUR KINDSEL F THAT THE AMOUNT OF INR 1,06,96,210/- IS NOT INCURRED FOR EARNING OF THE PU RPORTED OTHER RECEIPT OF INR 10,60,834/- HENCE THE SAID EXPENDITURE IS NOT ALLOW ABLE AS DEDUCTION, IT IS SUBMITTED BEFORE YOUR KINDSELF THAT IT IS A SETTLED POSITION IN LAW THAT IT DOES NOT REQUIRE A PRESENCE OF A RECEIPT ON THE CREDIT SIDE TO JUSTIFY DEDUCTIO N OF AN EXPENSES. 5.THE LD ASSESSING OFFICER HAS CONSIDERED THE ABOVE OBJECTIONS RAISED BY THE ASSESSEE AND HAVING EXAMINED THE OBJECTIONS OF THE ASSESSEE, HELD THAT THE CONTENTION OF THE ASSESSEE'S OBJECTION WERE NOT TENABLE IN VIEW OF TH E FOLLOWINGS REASONS, WHICH ARE MENTIONED BELOW, ITEM-WISE: (I)INCOME OF RS.10,60,834/- YOU HAVE BEEN STATED THAT THE FIRM HAS RENDERED PRO FESSIONAL SERVICES TO ITS CLIENT AND HAS EARNED RS.9,50,000/- AS PROFESSIONAL RECEIPTS. YOU HAVE FURTHER CLAIMED THAT THE SERVICE HAS BEEN PROVIDED THROUGH ITS PARTNERS AND ACCORDINGLY THE RECEIPT IS PROFESSIONAL INCOME. YOU HAVE STATED THAT EVEN IF I NTEREST OF RS.1,10,834/- EARNED FROM THE DEPOSITS IN ORDINARY COURSE OF BUSINESS, IS CON SIDERED AS INCOME FROM OTHER SOURCES, IT MAKES NO DIFFERENCE TO TOTAL INCOME AS IT WILL B E FULLY SET OFF AGAINST CURRENT LOSSES. I HAVE CAREFULLY CONSIDERED YOUR SUBMISSION. YOUR C ONTENTIONS ARE NOT TENABLE. BEING A CHARTERED ACCOUNTANT FIRM DOES NOT MEAN THAT ALL RE CEIPT SHOULD BE CONSIDERED AS BUSINESS OR PROFESSIONAL RECEIPTS. AS FAR AS INTERE ST OF RS.1,10,834/- IS CONSIDERED IT IS ASSESSABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCE S' ONLY AS IT IS NOT A DIRECT OUTCOME OF THE ANY PROFESSIONAL ACTIVITY. FURTHER THERE IS NO APPARENT NEXUS BETWEEN YOUR PROFESSION ACTIVITY AND EARNING OF INTEREST. IN FAC T, THERE WAS NO PROFESSIONAL ACTIVITY OF ANY SORT IS CLEARLY DEMONSTRATED BY THE FACTS THAT THERE WAS, ABSOLUTELY NO ESTABLISHMENT EXPENSES INCURRED, NECESSARY FOR RUNNING OF ANY BUS INESS OR PROFESSION. YOUR ARGUMENT THAT FIRM HAS CARRIED OUT ITS PROFESSIONAL ACTIVITY THROUGH ITS PARTNERS IS PREPOSTEROUS AS NOT A SINGLE RUPEE HAS BEEN INCURRED FOR EARNING OF RS.9,50,000/-. (II).EXPENDITURE OF RS.1,06,96,210/- IN THE AFORESAID LETTER YOU HAVE DISCLOSED THAT THE SUM OF RS.1,06,96,210/- WAS INCURRED RELATION TO THE PROCEEDINGS BEFORE THE DISCIPLINARY AUTHORITIES FOR THE MATTER PERTAINING TO GTB FOR THE A.Y.2003-04. FROM YOUR STATEMENT IT IS CRYSTAL CLEAR THAT THE EXPENDITURE OF RS.1,06,96,210/- IS NOTHING TO DO WITH THE CURRE NT YEARS PROFESSION AND FURTHER IT MAY HAVE INCURRED FOR CULPABLE NEGLIGENCE, PROFESSIONAL MISCONDUCT AND UNETHICAL PRACTICES ADOPTED BY THE FIRM FOR THE VIOLATION OF THE LAWS & RULES UNDER WHICH THE PROFESSION OF ASSESSEE FIRM IS GOVERNED. ACCORDINGLY, PRIMA FACIE THE SAME WAS NOT ALLOWABLE EXPENSES AGAINST THE CURRENT YEARS INCOME. EVEN OTHERWISE AL SO THE SAME WAS NOT ALLOWABLE UNDER EXPLANATION TO SECTION 37 OF THE INCOME TAX ACT. (III).CAPITAL RESERVE OF RS.31.13 CRS. ITA NO.1985/KOL/2018 PRICE WATERHOUSE & CO. (NOW KNOWN AS PRICE WATERHOUSE & CO CHARTERED ACCO UNTANTS LLP) 7 YOU HAVE DISCLOSED THAT A FOREIGN COMPANY AND PWC N ETWORKING FIRM PRICE WATERHOUSE COOPERS SERVICES BV, NETHERLANDS HAS GIVEN YOU A SU M OF RS.31.13 CRS FOR THE PURPOSE OF MAINTAINING AND ENHANCING THE RESOURCES AND CAPA BILITIES OF THE FIRM. FROM THE COPY OF AGREEMENT BETWEEN YOU AND PWC BV, FILED ALONG WI TH THE AFORESAID LETTER, IT REVEALED THAT THIS WAS GIVEN AS NON REFUNDABLE, FOR ACQUISIT ION OF A FIRM M/S. DALAL AND SHAH. ON THIS BASIS YOU SIMPLY STATED THAT THE NON REFUNDABL E AMOUNT WAS NOT TAXABLE AS INCOME. I HAVE CAREFULLY CONSIDERED YOUR OBJECTIONS RAISED IN THIS REGARDS. YOUR CONTENTIONS ARE REJECTED OUT RIGHTLY. IN VIEW OF THE PROVISIONS OF SECTION 4 AND 5 OF THE INCOME TAX ACT, THE AFORESAID AMOUNT WAS FULLY TAXABLE BEING CASUAL AND NON RECURRING RECEIPT. IN THE CASE OF DELHI STOCK EXCHANGE ASSOCIATION LTD. VS. C IT (41 ITR 495) THE HON'BLE SUPREME COURT HAS HELD THAT 'IT IS NOT HOW AN ASSES SEE TREATS ANY MONEY RECEIVED BUT WHAT IS THE NATURE OF THE RECEIPT WHICH IS DECISIVE OF ITS BEING TAXABLE'. THE NATURE OF NON REFUNDABLE AMOUNT OF RS.31.13 CRS BEING CASUAL AND NON RECURRING THE SAME WAS TAXABLE AND PRIMA FACIE THE SAME IS ASSESSABLE UNDER THE HE AD 'INCOME FROM OTHER SOURCES'. IN CASE OF CIT VS MOGUL LINES LTD. (46 ITR 590) THE HO N'BLE BOMBAY HIGH COURT HAS HELD THAT THE MATTER OF TAXABILITY CANNOT BE DECIDED ON THE BASIS OF ENTRIES WHICH THE ASSESSEE MAY CHOOSE TO MAKE IN HIS ACCOUNT BUT HAS TO BE DEC IDED IN ACCORDANCE WITH THE PROVISION OF THE LAW. HENCE THERE CANNOT BE A DISPU TE THAT WHETHER THE SAID SUM OF RS.31.13 CRS IS TAXABLE OR NOT AS IT IS FULLY TAXAB LE UNDER THE PROVISIONS OF INCOME TAX ACT. THERE MAY BE DISPUTE ABOUT ITS TAXABILITY UNDE R SECTION 28 OF THE INCOME TAX ACT OR SECTION 56 OF THE INCOME TAX ACT WHICH CAN BE DECID ED AFTER MAKING ENQUIRY. THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF EKLINGII TRUST VS CIT (158 ITR 810) HAS HELD THAT THE NAME GIVEN TO A TRANSACTION BY THE PARTIES CONC ERNED DOES NOT NECESSARILY DECIDE THE NATURE OF TRANSACTION. IN SUCH SITUATION THE QUESTI ON ALWAYS IS WHAT IS THE REAL CHARACTER OF THE PAYMENT NOT WHAT THE PARTIES CALL IT. ON THE FACTS AND CIRCUMSTANCES THE REAL CHARACTER OF THE PAYMENT WAS NOT REFUNDABLE CASUAL RECEIPT FROM GROUP COMPANY WITH WHICH THE FIRM HAS NO BUSINESS TRANSACTIONS, AND W AS FULLY TAXABLE. I WOULD LIKE TO ADD HERE THAT THE AGREEMENT BETWEEN YOU AND PWC BV IS DOUBTFUL AS IT IS NOT UNDERSTOOD AS TO WHY THE SAID COMPANY WOULD GIV E YOU SUCH A SUBSTANTIAL AMOUNT NON-REFUNDABLE AND THAT TO WHEN YOU HAVE NO BUSINES S TRANSACTION WITH THAT COMPANY. THE AGREEMENT WAS MADE EFFECTIVE ON 18.07.2008 AND THE SAME DATE MONEY WAS TRANSFERRED TO YOUR ACCOUNT THOUGH THE AGREEMENT WA S SIGNED BY YOU ON 23.10.2008 AND ON 07.10.2008 BY OTHER PARTY. WHAT WAS THE AMOUNT O F INTEREST, IF ANY, EARNED ON THIS SUM OF AMOUNT HAS NEVER BEEN DISCLOSED. FURTHER THE ENTIRE AMOUNT HAS BEEN GIVEN AS LOAN TO SOME OF THE PARTNERS OF THE FIRM THOUGH THE SCRUTINY OF THEIR BANK STATEMENT REVEALED NO SUCH AMOUNT TRANSFERRED IN THEIR ACCOUN TS. IN VIEW OF THE AFORESAID THERE IS NO MERIT IN YOUR OBJECTIONS. CONSIDERING THE REASON RECORDED BY THE AO U/S. 147 OF THE I.T. ACT, THE OB JECTIONS RAISED BY YOU ARE NOT ACCEPTABLE. HENCE THE OBJECTION RAISED BY YOU AGAIN ST THE REOPENING OF THE ASSESSMENT IS HEREBY REJECTED. ITA NO.1985/KOL/2018 PRICE WATERHOUSE & CO. (NOW KNOWN AS PRICE WATERHOUSE & CO CHARTERED ACCO UNTANTS LLP) 8 6. SINCE THE ASSESSING OFFICER REJECTED THE OBJECTI ON RAISED BY ASSESSEE FOR REOPENING ASSESSMENT U/S 147 OF THE ACT. THEREFORE, AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) WHO HAS CONFIRMED THE ACTION OF THE ASSESSING OFFIC ER. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 7. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE THR OUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD CIT(A) AND OTHER MATERIALS BROUGHT ON RECORD. BEFOR E US, LD COUNSEL REITERATED THE SUBMISSIONS MADE BEFORE THE LD CIT(A). ON THE O THER HAND, THE LD. DR FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKE N BY THE ASSESSING OFFICER, WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. WE NOTE THAT THE ASSESSEE, FIRM OF CHARTERED ACCOUNTANTS, FILED A RETURN OF INCOME ON 30.09.2009. THE ASSESSEE FIRM H AS COME INTO EXISTENCE ON 01.04.1996. HOWEVER, THERE HAD BEEN CHANGES IN THE CONSTITUTION OF THE FIRM FROM TIME TO TIME BOTH IN RESPECT OF PARTNERS AS WELL AS IN THEIR SHARING RATIO IN THE PROFIT AND LOSS. INCOME DECLARED FOR THE AY 2009-10 , AS PER THE RETURN OF INCOME AGGREGATED TO RS. (-) 96,35,376/-. NO ASSESSMENT HA S BEEN FRAMED U/S 143(3) OF THE ACT, ONLY INTIMATION U/S 143(1) WAS ISSUED BY T HE DEPARTMENT. A NOTICE U/S 148 OF THE ACT HAD BEEN ISSUED ON 14.06.2013. RETU RN OF INCOME FILED PURSUANT TO NOTICE ISSUED U/S 148 OF THE ACT ON 24.07.2013. A COPY OF THE LETTER SUPPLYING REASONS TO BELIEVE ON 14.02.2014 (I.E. NOTE OF SATI SFACTION RECORDED BY THE AO) PROVIDED TO ASSESSEE. ASSESSEES OBJECTIONS FILED B EFORE AO DATED 24.03.2014 SUPPORTED BY THE FOLLOWING DOCUMENTS/EVIDENCES I) COPY OF AUDITED ACCOUNTS OF THE FIRM. II) COPY OF PARTNERSHIP DEEDS- A) DATED 01.07.2008. THE FIRM CARRIED ITS PROFESSION D URING THE FY 2008-09 UNDER THIS DEED OF PARTNERSHIP. ITA NO.1985/KOL/2018 PRICE WATERHOUSE & CO. (NOW KNOWN AS PRICE WATERHOUSE & CO CHARTERED ACCO UNTANTS LLP) 9 B) 2 ND SUPPLEMENTAL PARTNERSHIP DEED DATED 01.04.2007, TO THE DEED OF PARTNERSHIP DATED 1.04.2004. THE DEED DATED 01.04.2 007 IS STATED TO BE 2 ND SUPPLEMENTAL DEED, SINCE THERE WAS THE 1 ST SUPPLEMENTAL DEED TO THE DEED OF PARTNERSHIP DATED 01.10.2004. C) SUPPLEMENTARY DEED DATED 24.06.2010 (W.E.F. 01.08.2 008) D) BANK REMITTANCE ADVICE RECEIVED FROM BANK ALONG WIT H A GRANT AGREEMENT DATED 18.07.2008, EXECUTED BETWEEN PRICEWATERHOUSECOOPERS SERVICES BV, NETHERLANDS AND THE FIRM. THEREAFTER, AO FRAMED AN ASSESSMENT U/S 143(3)/147 OF THE ACT ON 26.02.2015 DETERMINING INCOME OF RS. 31,23,10,220/-, INTER-ALI A MAKING THE FOLLOWING TWO ADDITIONS/DISALLOWANCES: (I) DISALLOWANCE OF RS. 1,06,95,600/-,DEBITED UNDER THE HEAD LEGAL EXPENSES. (II) AN ADDITION OF RS. 31,12,50,000/- REFLECTED IN THE BALANCE SHEET UNDER THE HEAD CAPITAL RESERVE. THE SAID SUM REPRESENT ED A NON-REFUNDABLE GRANT RECEIVED BY THE FIRM FROM PRICEWATERHOUSECOOPERS SE RVICES BV, NETHERLANDS FOR THE PURPOSES OF MAINTAINING AND ENHANCING THE RESOU RCES AND CAPABILITIES OF THE FIRM, AS STATED IN GRANT AGREEMENT DATED 18.07.2008 . ON APPEAL, THE LEARNED CIT(APPEALS) UPHELD THE VALI DITY OF INITIATION OF PROCEEDING UNDER SECTION 147 OF THE ACT AND ALSO UP HELD THE ADDITION OF RS. 31,12,50,000/- RECEIVED BY THE ASSESSEE AS NON-REFU NDABLE GRANT UNDER SECTION 28(IV) OF THE ACT. HOWEVER, HE DELETED THE DISALLOW ANCE (SUBJECT TO DIRECTIONS TO AO TO VERIFY TDS) OF RS. 1,06,95,600/-. SUBSEQUENTLY, THE AO VIDE ORDER DATED 5 SEPTEMBER 2018 HAS GIVEN RELIEF OF RS. 1,06,95,600 AFTER VERIFYING THAT TDS WAS DULY DEDUCTED BY THE ASSESSEE. 8. FIRST OF ALL, LET US EXAMINE THE FINDINGS OF THE LD CIT(A) IN RESPECT OF VALIDITY OF REOPENING THE ASSESSMENT UNDER SECTION 147 OF TH E ACT, WHICH ARE GIVEN BELOW FOR READY REFERENCE: ITA NO.1985/KOL/2018 PRICE WATERHOUSE & CO. (NOW KNOWN AS PRICE WATERHOUSE & CO CHARTERED ACCO UNTANTS LLP) 10 I HAVE PERUSED THE DETAILED TECHNICAL AND LEGAL SU BMISSIONS MADE BY THE ASSESSEE BASED ON VARIOUS JUDICIAL PRONOUNCEMENTS IN THIS REGARD. HOW EVER, BEFORE DEALING WITH THE VARIOUS ASPECTS SUBMITTED BY THE ASSESSEE, IT IS RELEVANT TO ADD TH AT IN CASE WHERE ASSESSMENT IS NOT COMPLETED U/S 143(3) OF THE ACT, IT IS MERELY A CASE OF RETURN BE ING PROCESSED U/S 143(1)(A) OF THE ACT. HENCE, SUCH JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE ASS ESSEE HAVE NO BEARING ON THE FACTS OF THE PRESENT CASE. RELIANCE IN THIS REGARD, IS PLACED ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF INDU LATA RANGWALA VS. DCIT [W.P. (C) 1393/ 2002], WHEREIN IT WAS HELD AS UNDER: 35.1 THE UPSHOT OF THE ABOVE DISCUSSION IS THAT WHE RE THE RETURN INITIALLY FILED IS PROCESSED UNDER SECTION 143(1) OF THE ACT, AND AN INTIMATION IS SEN T TO AN ASSESSEE, IT IS NOT AN 'ASSESSMENT' IN THE STRICT SENSE OF THE TERM FOR THE PURPOSES OF SECTIO N 147 OF THE ACT. IN OTHER WORDS, IN SUCH EVENT, THERE IS NO OCCASION FOR THE AO TO FORM AN OPINION AFTER EXAMINING THE DOCUMENTS ENCLOSED WITH THE RETURN WHETHER IN THE FORM OF BALANCE SHEET, AU DITED ACCOUNTS, TAX AUDIT REPORT ETC.' FROM THE ABOVE DECISION, IT IS CLEAR THAT THE CONTE NTION OF THE ASSESSEE THAT INITIATION OF REASSESSMENT IS INVALID, IS LIABLE TO BE REJECTED A S THERE IS NO OPINION FORMED EARLIER, BY THE AO, WITH RESPECT TO THE ISSUES RECORDED IN THE REASONS OF REOPENING THE CASE. EVEN THE OBJECTIONS RAISED BY THE ASSESSEE WERE NOT DENIED, THAT THERE IS ESCAPEMENT OF INCOME. ON THE CONTRARY, IT HAS ONLY MADE CERTAIN LEGAL AVERMENTS, WHICH HAS BEEN D ULY EXAMINED BY THE AO IN THE REASSESSMENT ORDER. IN VIEW OF THE ABOVE, I AM OF THE OPINION THAT ISSU ANCE OF NOTICE U/S 148 OF THE ACT, BY THE AO IS CORRECT IN LAW, AND WHICH HAS BEEN COMPLETED STRICT LY IN ACCORDANCE WITH THE DECISION RENDERED IN THE CASE OF GKN DRIVESHAFT(SUPRA). ACCORDINGLY, THE FIRST AND SECOND GROUND OF THE ASSESSEE ARE DISMISSED. WE NOTE THAT LD CIT(A) DISMISSED THE GROUNDS RAISED BY THE ASSESSEE IN RESPECT OF VALIDITY OF REOPENING U/S 147 OF THE ACT STATING TH AT ASSESSEE`S ASSESSMENT WAS NOT COMPLETED U/S 143(3) OF THE ACT, IT IS MERELY A CAS E OF RETURN BEING PROCESSED U/S 143(1)(A) OF THE ACT. WHERE THE RETURN INITIALLY FI LED IS PROCESSED UNDER SECTION 143(1) OF THE ACT, AND AN INTIMATION IS SENT TO AN ASSESSEE, IT IS NOT AN 'ASSESSMENT' IN THE STRICT SENSE OF THE TERM FOR TH E PURPOSES OF SECTION 147 OF THE ACT. IN OTHER WORDS, IN SUCH EVENT, THERE IS NO OCC ASION FOR THE AO TO FORM AN OPINION AFTER EXAMINING THE DOCUMENTS ENCLOSED WITH THE RETURN WHETHER IN THE FORM OF BALANCE SHEET, AUDITED ACCOUNTS, TAX AUDIT REPORT ETC. NOW WE SHALL EXAMINE ISSUE-WISE, TO UNDERSTAND WHETHER ASSESSING OFFICER HAS RIGHTLY EXERCISED HIS JURISDICTION U/S 147 OF THE ACT: (I)INCOME OF RS.10,60,834/-. THE AO WAS OF THE VIEW THAT THE RECEIPT OF INR 10,60,834/- IS ASSESSABLE UNDER THE HEAD 'INCOME FR OM OTHER SOURCES', WHICH WAS ITA NO.1985/KOL/2018 PRICE WATERHOUSE & CO. (NOW KNOWN AS PRICE WATERHOUSE & CO CHARTERED ACCO UNTANTS LLP) 11 FACTUALLY INCORRECT AS THE ASSESSEE HAS SUBMITTED B REAK UP OF RS. 10,60,834/- IN HIS RETURN OF INCOME WHICH IS GIVEN BELOW: INR FEES BILLED TO CLIENT 9,50,000 INTEREST RECEIVED 1,10,834 TOTAL 10,60,834 DURING THE YEAR THE FIRM HAS RENDERED PROFESSIONAL SERVICES TO ITS VARIOUS CLIENTS AND HAVE RAISED BILLS FOR FEES ON THEM FOR THE SERVICES RENDERED. CLIENT-WISE DETAIL OF FEES BILLED DURING THE YEAR WAS SUBMITTED BY ASSESSEE BE FORE AO. ACCORDINGLY, THE INCOME OF INR 9,50,000/- BILLED BY THE FIRM TO ITS CLIENTS TO WARDS RENDERING OF PROFESSIONAL SERVICES IS TAXABLE UNDER THE HEAD ' PROFITS & GAIN S OF BUSINESS OR PROFESSION'. ANOTHER GRIEVANCE OF THE AO WAS THAT ASSESSEE DID NOT GET H IS ACCOUNTS AUDITED UNDER SECTION 44AB OF THE ACT. WE NOTE THAT IN CASE OF AN ASSESSE E CARRYING ON PROFESSION, (FOR A.Y. 2009-10), IS REQUIRED TO GET HIS ACCOUNTS AUDITED I N TERMS OF SECTION 44AB OF THE ACT IF HIS GROSS RECEIPTS IN PROFESSION EXCEEDS TEN LAKH R UPEES IN ANY PREVIOUS YEAR. IN THE ASSESSEE`S CASE UNDER CONSIDERATION THE GROSS RECEI PTS ARE RS. 9,50,000/-, THEREFORE ASSESSEE IS NOT REQUIRED TO GET HIS ACCOUNTS AUDITE D U/S 44AB OF THE ACT. INTEREST INCOME OF RS. 1,10,834/- DOES NOT FALL UNDER THE HEAD INC OME FROM BUSINESS OR PROFESSION THEREFORE IT DOES NOT COME UNDER THE AMBIT OF TAX A UDIT. THE ASSESSEE WHICH IS CARRYING ON PROFESSION, HAD GROSS RECEIPTS IN PROFESSION OF INR 9,50,000/- ONLY, AS STATED ABOVE WHICH IS LESS THAN THE THRESHOLD OF RUPEES TEN LAKH S FOR APPLICATION OF SECTION 44AB OF THE ACT FOR THE YEAR UNDER CONSIDERATION. THEREFORE , TAX AUDIT PROVISIONS ARE NOT APPLICABLE TO THE ASSESSEE. THEREFORE, SO FAR THIS ISSUE/ ITEM IS CONCERNED THE RE IS NO TANGIBLE MATERIAL BEFORE THE AO TO FRAME REASON TO BELIEVE THAT INCOME HAS ESCAPE D ASSESSMENT, HENCE REASSESSMENT PROCEEDINGS ARE NOT VALID. (II).EXPENDITURE OF RS.1,06,96,210/-: THE ASSESSEE SUBMITTED THE PARTICULARS OF THESE EXPENSES AS FOLLOWS: ITA NO.1985/KOL/2018 PRICE WATERHOUSE & CO. (NOW KNOWN AS PRICE WATERHOUSE & CO CHARTERED ACCO UNTANTS LLP) 12 INR BANK CHARGES 110 LEGAL EXPENSES 52,87,700 EXTERNAL CONSULTANTS PROFESSIONAL FEES 54,07,850 PRINTING & STATIONARY 500 TOTAL 1,06,96,210 IT IS SUBMITTED THAT ALL THE ABOVE EXPENSES HAVE BE EN INCURRED BY THE FIRM WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS OR PROF ESSION AND IS ACCORDINGLY ALLOWABLE AS DEDUCTION WHILE COMPUTING THE TOTAL INCOME OF THE F IRM. THE EXPENDITURE ON BANK CHARGES AND PRINTING & STATIONERY ARE ROUTINE EXPEN DITURE, THE EXPENDITURE DEBITED UNDER THE ACCOUNT-HEAD 'LEGAL EXPENSES' HAVE BEEN INCURRE D BY THE FIRM FOR THE PURPOSE OF REPRESENTATION INTER ALIA BEFORE THE ICAI, NEW DELH I IN THE MATTER OF AUDIT CARRIED OUT BY THE FIRM OF ERSTWHILE GLOBAL TRUST BANK FOR THE FIN ANCIAL YEAR 2002-03. THE EXPENSES DEBITED UNDER THE ACCOUNT HEAD EXTERNAL CONSULTANTS PROFESSIONAL FEES HAVE BEEN INCURRED FOR DRAFTING AND AMENDING LEGAL AGREEMENTS INCLUDING NON-COMPETE AGREEMENTS ETC. AO WAS OF THE VIEW THAT ASSESSEE MADE PROVISIO NS OF RS.1,06,96,210/-. WE NOTE THAT NONE OF THE EXPENDITURE AGGREGATING TO INR 1,06,96, 210/- ARE IN THE NATURE OF PROVISION AS ALLEGED. THESE EXPENSES HAVE BEEN DISCLOSED IN T HE RETURN OF INCOME FILED BY THE ASSESSEE U/S 139 OF THE ACT THEREFORE IT IS NOT A N EW TANGIBLE MATERIAL TO REOPEN THE ASSESSMENT U/S 147 OF THE ACT. (III).CAPITAL RESERVE OF RS. 31,12,50,000/-: THE ASSESSEE FIRM IS A MEMBER FIRM OF THE PRICE WATERHOUSE COOPERS GLOBAL NETWORK OF FIRMS (' PWC NETWORK'). AT THE REQUEST OF THE FIRM, PRICE WATERHOUSE COOPERS SERVICES A COMPA NY ORGANIZED UNDER THE LAWS OF THE NETHERLANDS, HAVING ITS PRINCIPAL PLACE OF BUSINESS AT FASCINATIO BOULEVARD 350, 3065 WB ROTHERDAM, THE NETHERLANDS ('PWC NETWORK') PROVI DED A NON-REFUNDABLE GRANT TO THE FIRM OF INR 31,12,50,000/- DURING THE FINANCIAL YEAR 2008-09 FOR THE PURPOSE OF MAINTAINING AND ENHANCING THE RESOURCES AND CAPABIL ITIES OF THE FIRM AS REFERRED IN THE GRANT AGREEMENT DATED 18 TH JULY, 2008. THE SAID GRANT AMOUNT WAS RECEIVED BY THE FIRM FROM PWC SERVICES BV THROUGH NORMAL BANKING CHANNEL S. COPIES OF THE BANK REMITTANCE ITA NO.1985/KOL/2018 PRICE WATERHOUSE & CO. (NOW KNOWN AS PRICE WATERHOUSE & CO CHARTERED ACCO UNTANTS LLP) 13 ADVICE RECEIVED FROM BANK ALONG WITH COPY OF THE GR ANT AGREEMENT DATED 18TH JULY, 2008 ENTERED BETWEEN THE FIRM AND PWC SERVICES BV WERE SUBMITTED BY THE ASSESEEE. THE SAID GRANT IS MENTIONED IN THE RETURN OF INCOME FILED BY THE ASSESSEE U/S 139 OF THE ACT THEREFORE IT IS NOT A NEW TANGIBLE MATERIAL TO REOPEN THE ASSESSMENT U/S 147 OF THE ACT. 9. WE NOTE THAT THE ISSUES/ITEMS FOR WHICH AO HAS R EASONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, HAD ALREADY BEEN DISCLOSED BY T HE ASSESSEE IN THE RETURN OF INCOME FILED BY THE ASSESSEE U/S 139 OF THE ACT THEREFORE THESE ISSUES NOTED ABOVE IN PARA 8 OF OUR ORDER ARE NOT TANGIBLE MATERIAL TO REOPEN THE A SSESSMENT U/S 147 OF THE ACT. WE NOTE THAT IN ASSESSEE`S CASE NO ASSESSMENT WAS CARRIED O UT BY AO U/S 143(3) OF THE ACT AND ONLY INTIMATION HAS BEEN ISSUED UNDER SECTION 143(1 ) OF THE ACT. HOWEVER, WE NOTE THAT ASSESSING OFFICER HAS EVERY POWER TO ISSUE NOTICE U NDER SECTION 143(2) OF THE ACT TO DO THE SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT, WHIC H HE HAS FAILED TO DO SO IN THE ASSESSEE`S CASE AND FOR THAT ASSESSEE SHOULD NOT BE PENALIZED. THE ASSESSEE HAS DISCLOSED EVERY ITEM/ISSUE IN THE RETURN OF INCOME FILED BY T HE ASSESSEE U/S 139 OF THE ACT, AND AO FAILED TO POINT OUT ANY NEW TANGIBLE MATERIAL TO RE OPEN THE ASSESSMENT U/S 147 OF THE ACT. WE NOTE THAT HONBLE SUPREME COURT IN CIT VS. KELVI NATOR OF INDIA LTD. (REPORTED IN 320 ITR 561 (SC) WHEREIN IT WAS HELD AS FOLLOWS: THE POWER TO REOPEN UNDER THE AMENDED SECTION 147 IS MUCH WIDER, ONE NEEDS TO GIVE A SCHEMATIC INTERPRETATION TO THE WORDS REASO N TO BELIEVE FAILING WHICH SECTION 147 WOULD GIVE ARBITRARY POWERS TO THE AO T O RE-OPEN ASSESSMENTS ON THE BASIS OF MERE CHANGE OF OPINION, WHICH CANNOT BE PER SE REASON TO RE-OPEN. ONE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BE TWEEN 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 FULFILMENT OF CERTAIN PRE-CONDITION AND IF THE CONCEPT OF CHANGE OF OPINION IS REMOVED, AS CONTE NDED ON BEHALF OF THE DEPARTMENT, THEN, IN THE GARB OF RE-OPENING THE ASS ESSMENT, REVIEW WOULD 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 1.4.19 89, THE AO HAS POWER TO RE- OPEN, PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. ITA NO.1985/KOL/2018 PRICE WATERHOUSE & CO. (NOW KNOWN AS PRICE WATERHOUSE & CO CHARTERED ACCO UNTANTS LLP) 14 THEREFORE, AS NOTED ABOVE THE ASSESSEE HAS DISCLO SED EVERY ITEM/ISSUE IN THE RETURN OF INCOME FILED BY IT U/S 139 OF THE ACT, AND AO FA ILED TO POINT OUT ANY NEW TANGIBLE MATERIAL TO REOPEN THE ASSESSMENT U/S 147 OF THE ACT. THEREFORE, THE REASSESSMENT PROCEEDINGS IN THE ASSESSEE`S CASE IS NOT VALID. 10. WE NOTE THAT IN THE INSTANT CASE, REASSESSMENT WAS INITIATED BY THE LD. A.O ON ACCOUNT OF THE FOLLOWING REASONS: (A) PROFESSIONAL RECEIPT OF 10,60,834/- IS NOT ASSE SSABLE UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION, BUT UNDER INCOME FROM OTHER SOURCES; AND TAX AUDITED REPORT DID NOT GET BY ASSESSEE. (B) EXPENDITURE OF RS. 1,06,96,210/- (PERTAINING TO LEGAL EXPENSES AND EXTERNAL CONSULTANTS FEES) IS CONTINGENT IN NATURE AND HENCE NOT ALLOWABLE AND AS SUCH A REVENUE OF RS. 10,69,210 IS CHARGEABLE TO TAX AS ESCAPED IN COME. (C) CAPITAL RESERVE OF RS. 31,12,50,000/- IS UNDISC LOSED INCOME AND ASSESSABLE AS INCOME FROM OTHER SOURCES. ON PERUSAL OF THE RECORDED REASONS, IT IS PERTINENT TO NOTE THAT THE INFORMATION PERTAINING TO THE ABOVE POINTS WERE ALREADY AVAILABLE WITH THE LD. AO. RELEVANT EXTRACTS OF THE REASONS RECORDED BY THE LD. AO IN INITIATING THE RE ASSESSMENT PROCEEDINGS, DEMONSTRATING THE SAID FACT, HAS BEEN REPRODUCED BE LOW: 'ON A PERUSAL OF RETURN OF INCOME FOR A.Y.2009-10, IT REVEALED THAT ASSESSEE HAS DECLARED GROSS RECEIPT OF PROFESSION AT RS.10,60,83 4/- IN THE PROFIT AND LOSS ACCOUNTS....' '....AGAINST THIS RECEIPT OF RS. 10,60,834/- WHICH IS ASSESSABLE AS INCOME FROM OTHER SOURCES, ASSESSEE HAS CLAIMED A SUM OF RS. 1, 06,96,210/- BEING OTHER PROVISIONS (COLUMN NO.39 OF THE PROFIT AND LOSS ACCOUNTS OF TH E RETURN OF INCOME), DEBITED IN THE PROFIT AND LOSS ACCOUNTS.' ITA NO.1985/KOL/2018 PRICE WATERHOUSE & CO. (NOW KNOWN AS PRICE WATERHOUSE & CO CHARTERED ACCO UNTANTS LLP) 15 'IN THE BALANCE SHEET THE ASSESSEE HAS SHOWN UNDER THE HEAD 'RESERVE AND SURPLUS' A CAPITAL RESERVE OF RS. 31,12,50,000/-. F ROM VERIFICATION OF RETURN FOR A.Y.2008-09 IT REVEALED THAT NO SUCH RESERVE HAS BE EN TRANSFERRED FROM EARLIER YEAR....' THE LD COUNSEL SUBMITTED BEFORE US THAT AO COULD NO T HAVE INVOKED THE PROVISIONS OF SECTION 147 OF THE ACT, SINCE NO FRESH TANGIBLE MAT ERIAL HAD SURFACED, A CONDITION PRECEDENT TO INVOKE THE PROVISIONS OF SECTION 147 O F THE ACT. REASSESSMENT PROCEEDINGS HAD BEEN INITIATED MERELY TO SCRUTINIZE THE RETURN OF INCOME WHICH IS IMPERMISSIBLE. PROVISIONS OF SECTION 147 OF THE ACT CANNOT BE RESO RTED TO, TO VERIFY OR TO MAKE FURTHER ENQUIRY, AS HELD BY THE HON`BLE SUPREME COURT IN TH E CASE OF CHHUGAMAL RAJPAL VS. S. P. CHALIHA AND ORS., 79 ITR 603 (SC). THE ASSESSEE FILED RETURN OF INCOME U/S 139(1) OF THE ACT, WHEREIN THE ASSESSEE HAS DISCLOSED EACH IT EM/ISSUE AND THERE IS NO TANGIBLE MATERIAL BEFORE THE AO TO REOPEN ASSESSMENT. IN THE ABSENCE OF SURFACING OF ANY FRESH TANGIBLE MATERIAL, INITIATION OF PROCEEDINGS U/S 14 7 OF THE ACT IS WITHOUT JURISDICTION AS HELD BY HON`BLE SUPREME COURT IN THE CASE OF ACIT V S. ICICI SECURITIES PRIMARY DEALERSHIP LTD.., 348 ITR 299 (SC). WHERE NO ASSESSMENT HAD BEEN MADE U/S 143(3), IT CA NNOT BE CONCLUDED THAT THE INCOME HAS ESCAPED ASSESSMENT, FOR THAT LD COUNSEL RELIED ON THE JUDGMENT OF THE HON`BLE DELHI HIGH COURT IN THE CASE OF VED & CO., 302 ITR 328, WHEREIN IT WAS HELD AS FOLLOWS: 2. THE ASSESSEE HAD FILED ITS RETURN OF INCOME ON 29TH SEPT., 1994 DECLARING AN INCOME OF RS. 17,88,830. WITHOUT PROCESSING THE RETURN, THE AO ON 5TH JUNE, 1996 RECORDED REASONS FOR ISSUING A NOTICE TO THE ASSESSEE FOR REASSESSMENT ON THE GROUND THAT THE AS SESSEE HAS WRONGLY CLAIMED EXCESSIVE DEDUCTION UNDE R S. 80-O OF THE IT ACT, 1961 AND THAT INCOME HAS ESC APED ASSESSMENT. THEREAFTER, ON 11TH JUNE, 1996 THE RETURN OF INCOME WAS PROCESSED BY THE AO UNDER S. 143(1)(A) OF THE ACT AND ON THE SAME DATE NOTICE WAS ISSUED TO THE A SSESSEE UNDER S. 148 OF THE ACT REQUIRING IT TO FIL E ITS RETURN OF INCOME. 3. IN CIT VS. KELVINATOR OF INDIA LTD. (2002) 174 CTR (DEL)(FB) 617 : (2002) 256 ITR 1 (DEL)(FB), A FULL BENCH OF THIS COURT OBSERVED THAT AN ORDER OF ASSES SMENT CAN BE PASSED EITHER IN TERMS OF SUB-S. (1) O F S. 143 OR SUB-S. (3) OF S, 143 OF THE ACT. INSOFAR AS THE PRESENT CASE IS CONCERNED, IT IS AN ADMITTED PO SITION THAT NO ASSESSMENT ORDER WAS PASSED UNDER S. 143(3) OF THE ACT AND THAT THE RETURN OF THE ASSESSEE WAS PROCESSED UNDER S. 143(1) OF THE ACT ONLY ON 11TH J UNE, 1996. 4. IN TRUSTEES OF H.E.H. THE NIZAMS SUPPLEMENTAL FAMI LY TRUST VS. CIT (2000) 159 CTR (SC) 114 : (2000) 242 ITR 381 (SC), THE SUPREME COURT OBSERVED : ITA NO.1985/KOL/2018 PRICE WATERHOUSE & CO. (NOW KNOWN AS PRICE WATERHOUSE & CO CHARTERED ACCO UNTANTS LLP) 16 'IT IS SETTLED LAW THAT UNLESS THE RETURN OF INCOME ALREADY FILED IS DISPOSED OF, NOTICE FOR REASSESSM ENT UNDER S. 148 OF THE IT ACT, 1961, CANNOT BE ISSUED, I.E. NO REASSESSMENT PROCEEDINGS CAN BE INITIATED SO LONG AS ASSESSMENT PROCEEDINGS PENDING ON THE BASIS OF RETURN ALREADY FILED ARE NOT TERMINATED.' 5. FROM THE DATES THAT WE HAVE MENTIONED ABOVE AND THE LAW AS LAID DOWN, IT IS CLEAR THAT ASSESSMENT PROCEEDINGS TERMINATED UNDER S. 143(1) OF THE ACT O NLY ON 11TH JUNE, 1996. IN OTHER WORDS, ON 5TH JUNE , 1996, WHEN THE AO MADE UP HIS MIND TO ISSUE A NOTIC E TO THE ASSESSEE UNDER S. 147/148 OF THE ACT, A VA LID RETURN OF INCOME FILED BY THE ASSESSEE WAS STILL PE NDING BEFORE HIM AND WHICH COULD HAVE BEEN PROCESSE D. 6. IT IS SUBMITTED BY LEARNED COUNSEL FOR THE REVENUE THAT SINCE THE PERIOD FOR ISSUING A NOTICE TO THE ASSESSEE UNDER S. 143(2) OF THE ACT HAD ALREADY ELA PSED, AND THE AO WAS OF THE VIEW THAT INCOME HAD ESCAPED ASSESSMENT, THE AO HAD NO OPTION BUT TO RES ORT TO CL. (B) OF EXPLN. 2 TO S. 147 OF THE ACT FOR INITIATING REASSESSMENT PROCEEDINGS. THIS CLAUSE RE ADS AS FOLLOWS : 'SEC. 147 XXXXX EXPLANATION 1 : XXXXX EXPLANATION 2 : FOR THE PURPOSES OF THIS SECTION, T HE FOLLOWING SHALL ALSO BE DEEMED TO BE CASES WHERE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, NA MELY : (A) XXXX (B) WHERE A RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE BUT NO ASSESSMENT HAS BEEN MADE AND IT IS NOTICED BY THE AO THAT THE ASSESSEE HAS UNDERSTA TED THE INCOME OR HAS CLAIMED EXCESSIVE LOSS, DEDUCTION, ALLOWANCE OR RELIEF IN THE RETURN; (C) XXXXX' 7. THE SUBMISSION MADE BY LEARNED COUNSEL FOR THE REVE NUE IS THAT A RETURN OF INCOME WAS FURNISHED BY THE ASSESSEE AND BEFORE ANY ASSESSMENT WAS FRAMED, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAD UNDERSTATED ITS INCOME AND CLAIMED EXCESSIVE DEDUCT ION IN THE RETURN AND, THEREFORE, ACTION COULD BE T AKEN UNDER SS. 147 AND 148 OF THE ACT. CONSEQUENTLY, THE CONCLUSION ARRIVED AT BY THE TRIBUNAL WAS INCORREC T. 8. WE ARE OF THE OPINION THAT IN VIEW OF THE DECISIONS THAT WE HAVE MENTIONED ABOVE, FOR THE PURPOSES OF INITIATING REASSESSMENT PROCEEDINGS, THE AO COULD N OT HAVE MADE UP HIS MIND THAT THE INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT WHILE A VALID RETUR N WAS STILL PENDING BEFORE HIM. IF THE AO HAD ALLOW ED THE TIME TO ELAPSE FOR TAKING ACTION UNDER S. 143(2 ) OF THE ACT, IT WAS ENTIRELY HIS OWN DOING. WHAT T HE AO IS NOW TRYING TO DO IN AN INDIRECT (AND INCORRECT) MANNER IS WHAT HE COULD NOT HAVE DONE DIRECTLY. 9. THE FURTHER CONTENTION RAISED ON BEHALF OF THE REVE NUE IS THAT EVEN IF NO ASSESSMENT ORDER WAS FRAMED, THE AO COULD ISSUE A NOTICE FOR REASSESSMENT. WE AR E OF THE VIEW THAT IF NO ASSESSMENT HAD BEEN MADE, THERE WAS NO OCCASION FOR THE AO TO CONCLUDE THAT I NCOME HAD ALREADY ESCAPED ASSESSMENT. 10. THIS BEING THE POSITION, WE ARE OF THE OPINION THAT NO SUBSTANTIAL QUESTION OF LAW ARISES FOR OUR CONSIDERATION AND WE DO NOT FIND ANY ERROR IN THE V IEW THAT HAS BEEN TAKEN BY THE TRIBUNAL IN THIS REG ARD. 11. CONSEQUENTLY, THE APPEAL IS DISMISSED. 11. THEREFORE, IN THE LIGHT OF THE AFORESAID JUDICI AL PRECEDENTS AND OTHER CASE LAWS, WE NOTE THAT TO INITIATE REOPENING OF THE ASSESSMENT, THE LD. AO MUST HAVE 'REASON TO ITA NO.1985/KOL/2018 PRICE WATERHOUSE & CO. (NOW KNOWN AS PRICE WATERHOUSE & CO CHARTERED ACCO UNTANTS LLP) 17 BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. SUCH REASON TO BELIEVE MUST BE BASED ON SOME MATERIAL COMING TO THE POSSES SION OF THE LD. ASSESSING OFFICER WHICH MAY TRIGGER REASON TO SUSPECT. IT MUST BE KEP T IN MIND THAT THE REASON TO BELIEVE MUST HAVE A RATIONAL CONNECTION WITH OR RELEVANT BE ARING ON THE FORMATION OF THE BELIEF, I.E, THERE MUST BE THE DIRECT NEXUS OR LINK BETWEEN THE MATERIAL AND THE FORMATION OF SUCH BELIEF. SINCE IN THE INSTANT CASE, THE ISSUES/ITEMS FOR WHICH THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENT HAD ALREADY BEEN DISCLOSED BY THE ASSESSEE IN THE RETURN OF INCOME FILED BY HIM U/S 139(1) OF THE ACT. THE ASSE SSING OFFICER HAVING NOT CARRIED OUT THE SCRUTINY ASSESSMENT WITHIN THE PRESCRIBED STATU TORY LIMIT, CANNOT BE GIVEN ANOTHER INNINGS FOR NO FAULT OF THE ASSESSEE AND THEREFORE IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT REASON TO BELIEVE WHICH IS THE JURISDICTIONAL PRECONDITION TO REOPEN THE ASSESSMENT AS REQUIRED B Y THE LAW HAS NOT BEEN MET IN THE REASONS RECORDED IN THE INSTANT CASE AND THEREFORE THE ACTION OF THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT IS NULL IN THE EYES OF LAW AN D HENCE WE ARE INCLINED TO QUASH THE INITIATION OF REASSESSMENT PROCEEDINGS BEING AB-INI TIO VOID. 12. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 05/02/20 20. SD/- (A. T. VARKEY) SD/- (A. L. SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA; DATED:05./02/2020 RS, SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE ASSESSEE- PRICE WATERHOUSE & CO, KOLKATA (NO W VERSUS KNOWN AS PRICE WATERHOUSE & CO CHARTERED ACC OUNTANTS LLP) 2. / THE RESPONDENT.- DCIT, CIRCLE-22, KOLKATA 3. ( ) / THE CIT(A), ITA NO.1985/KOL/2018 PRICE WATERHOUSE & CO. (NOW KNOWN AS PRICE WATERHOUSE & CO CHARTERED ACCO UNTANTS LLP) 18 4. / CIT 5. ! $$% , % , / DR, ITAT, KOLKATA 6. ( / GUARD FILE. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR, I.T.A.T, KOLKATA BENCHES, KOLKATA .