The DCIT Central Circle-1(1), Ahmedabad V. M/s. Sanjeet Motors Finance Pvt. Ltd, Ahmedabad

ITA 202/AHD/2021

AI Insights

The case involves Sanjeet Motor Finance Pvt. Ltd., which faced reassessment under section 147 of the Income Tax Act, 1961, for the Assessment Year 2008-09. The reassessment was initiated based on information from a search and seizure operation, which suggested that the company had received substantial share capital and premium from dubious sources. The Assessing Officer (AO) reopened the assessment, leading to additional income being assessed. The assessee contested the reopening and the subsequent reassessment, which led to the CIT(A) quashing the reassessment order. The Revenue appealed against the CIT(A)'s decision, which was upheld by the Tribunal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135592 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-03-2023
• Assessment Year: 2008-2009
• Appeal Filed On: 26-08-2021
• Other Referred Cases: GKN Driveshafts (India) Pvt Ltd vs. ITO, CIT vs. Kelvinator of India Ltd, Ganesh Housing Corporation Ltd. Vs. DCIT & Another, M/s Ferromatik Milacron India Ltd vs. ITO
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus Share capital; Income from undisclosed sources; Search and seizure; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Borrowed satisfaction; Set aside
• Section: 147; 148; 132; 271(1)(c); 144; 139; 143(3); 153A; 133(6); 143(1)

Judgement Text

आयकर आयकरआयकर आयकर अपी अपीअपी अपीलीय लीयलीय लीय अिधकरण अिधकरणअिधकरण अिधकरण, अहमदाबाद अहमदाबादअहमदाबाद अहमदाबाद यायपीठ यायपीठ यायपीठ यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’ A’’ BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER आयकर अपील सं./ITA Nos. 202 & 203/AHD/2021 िनधा रण िनधा रणिनधा रण िनधा रण वष वष वष वष /Asstt. Year: 2008-2009 D.C.I.T, Central Circle-1(1), Ahmedabad. Vs. Sanjeet Motor Finance Pvt. Ltd., G-6, Meghalaya Flat, Nr. Sardar Patel Colony, Naranpura, Ahmedabad-380013. PAN: AAMCS8522L (Applicant) (Respondent) Revenue by : Shri Pravin Verma, Sr.D.R Assessee by : Shri Tushar Hemani, Sr. Advocate with Shri Parimalsinh B. Parmar & Shri Vijay Govani A.Rs सुनवाई क तारीख/Date of Hearing : 09/03/2022 घोषणा क तारीख /Date of Pronouncement: 05/04/2023 आदेश आदेशआदेश आदेश/O R D E R PER WASEEM AHMED ACCOUNTANT MEMBER: The captioned two appeals have been filed at the instance of the assessee against the separate order of the Learned Commissioner of Income Tax (Appeals)- 11, Ahmedabad, (in short “Ld. CIT(A)”) arising in the matter of assessment order passed under s. 144 and penalty order passed 271(1)(c) of the Income Tax Act 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2008-2009. ITA no.202/AHD/2021 Asstt. Year 2008-09 2 First, we take up ITA No. 202/Ahd/2021, an appeal by the Revenue for A.Y 2008-09 2. The Revenue has raised the following grounds of appeal: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred while holding the reopening proceedings u/s 147 is legally not tenable and hence the same is quashed, as the reopening was done on the basis of borrowed satisfaction and the 'reason to believe' was drawn by the Assessing Officer without application of mind. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the contention of the assessee that it has disclosed truly and fully disclosed its actual income during the earlier proceedings, despite the assessee itself admitted that the 'peak balance in bank statement' of Rs.1,60,00,000- is its actual fund, which was not disclosed during the earlier proceedings. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O. 4. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent. 3. The 1 st issue raised by the Revenue is that the learned CIT(A) erred in holding that the assessment framed under section 147 read with section 143(3) of the Act is bad in law. 4. The facts in brief are that the assessee in the present case is a private limited company and filed its original return of income under section 139 of the Act dated 27 th of March 2009 declaring an income at Rs. NIL which was processed under section 143(1) of the Act. Subsequently, the assessment was framed on the assessee under the provisions of section 143(3) read with section 147 of the Act vide order dated 23 February 2010 wherein income was assessed at Rs. 54,000/- after making disallowances of the shares issue expenses. 5. Subsequently, the AO as on 27 th March 2015 received information from DDIT(Inv.) Unit-2(3) Ahmedabad that there was search and seizure operation under section 132 of the Act carried on the assesse company including the directors dated 10 March 2015. It was reported that during the post search inquiry ITA no.202/AHD/2021 Asstt. Year 2008-09 3 it was revealed that the assessee company during the year under consideration received an amount of Rs. 50.24 crores by way of share capital and premium. One of the share subscriber which was also part of the search was found to be engaged in activity of providing bogus share capital by layering fund in the web of companies. Therefore, the existence, genuineness and creditworthiness of share subscriber of the Assessee Company and their sources of their fund were not substantiated. Accordingly, the AO formed reason to believe that income to the extent of Rs. 50.24 crores escaped assessment and issued notice for reopening assessment under section 148 of the Act as the year under consideration was outside purview of the provision of section 153A of the Act. 6. The AO finally framed the assessment under section 143(3) read with section 147 of the Act vide order dated 28 th March 2016 after making an addition of Rs. 1.6 crores on account of unaccounted income. 7. The assessee carried the matter before the learned CIT(A) and challenged the initiation of the proceedings initiated by the revenue under the provisions of section 147 of the Act. The proceedings initiated under section 147 of the Act by the AO were assailed on the following reasoning by the assessee: i. objections were raised by the assessee against the initiation of the proceedings under section 147 of the Act before the AO vide letter dated 29 th February 2016 but the assessment has been framed under section 147 of the Act without disposing of the objections raised by the assessee against the reopening. ii. It was also alleged by the assessee before the learned CIT(A) that reopening of the assessment has been made merely on the basis of the report received from the DDIT(Inv.) and without proper verification of the seized materials. iii. The assessment under section 143(3) r.w.s. 147 of the Act was already concluded dated 23 rd February 2010 wherein detailed enquiry was made with respect to share capital and premium and thereafter, the same was ITA no.202/AHD/2021 Asstt. Year 2008-09 4 accepted as genuine. There was no fresh material before the AO to reopen the assessment. As such, the assessment was reopened merely on the basis of change of opinion of the AO which not allowed. iv. The proceedings under section 147 of the Act was initiated after the expiry of 4 years from of the end of relevant assessment year but there was no finding in the reasons recorded that there was failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment. 8. The learned CIT(A) after considering the submission of the assessee has held that assessment framed under section 147 of the Act was not sustainable and quashed the same on different footing. The relevant finding of learned CIT(A) is extracted as under: A. For not disposing objection 5.6 In the instant case also the order has been passed without disposing of the objection filed by the appellant against the issue of notice u/s.148 of the Act. Therefore, in view of the decision of Hon’ble Supreme Court in the of GKN Driveshafts and other decisions of the Hon’ble Jurisdictional High court cited supra the re-assessment order is liable to be quashed on the ground of no dealing with and/or disposing of the objection raised by the appellant. B. Borrowed satisfaction 5.19 Third party information is only an information and does not constitute reason to believe until and unless the third party information is subjected to investigation/further inquiry and on the basis thereof independent reasons are recorded by the Assessing Officer before issuance of notice under section148 of the Act. 5.20 The appellant has relied upon a latest decision in the case of Venus Group i.e. Shri Dilipkumar Lalwani and Other (107 Appeal) before the Honourable ITAT Ahmedabad Bench "A" wherein a similar issue has been dealt with by the Honourable ITAT vide it order dated 12.11.2020 vide Para No. 87 to 98 on pages 79 to 85 of the order. 5.21 Hence in view of the above the initiation of proceedings under Section 147/148 of the Act are not valid in the eyes of law and liable to be quashed for the reason that the AO failed to apply his mind. Thus the reasons were merely recorded on the borrowed satisfaction by the AO. The source for all the conclusions was of the investigation report without any separate seized material identified for A.Y. 2008-09. t Hence the order is quashed. C. Change of opinion ITA no.202/AHD/2021 Asstt. Year 2008-09 5 5.26 The A.O does not have the jurisdiction to invoke the provisio of section 147 of the Act if no fresh tangible material has come on the record for recording the reasons for initiating proceedings u/s. 147 of the Act. In the present case, the A.O : does not have any fresh tangible material as no incriminating material as regards , with A.Y. 2008-09 relevant to A.Y. 2007-08 has been found during the search proceedings of the appellant, before him for recording the reasons for initiating proceedings u/s. 147 of the Income Tax Act, 1961 and issuing the notice u/s. 148 of the Act for A.Y. 2008-09. The reassessment proceedings initiated by the A.O by issuing the notice u/s. 148 of the Act is thus invalid. The Hon'ble Jurisdictional Gujarat High Court decision wherein, it has been held that' reopening the case u/s. 147 of the Act by issuance of notice u/s.148 of the Act in invalid, if no fresh tangible material has been brought on record by the A.O to believe the escapement of income from taxation." Reliance is placed on the Hon'ble Jurisdictional Gujarat High Court in the case of Ganesh Housing Corporation Ltd. Vs. DCIT & Another reported in 350 ITR 131 (Guj.) [2013]. 5.27 In view of aforesaid facts of the case and legal submission, the issue of notice u/s.148 of the Act on the basis of reasons recorded on certain points which have already been examined by the then A.O. during the course of original assessment proceedings u/s. 143(3) of the Act and issue of notice without bring on record any new tangible material is merely a change of opinion and bad in eye of law and hence the proceedings initiated u/s. 147 is required to be dropped and notice u/s. 148 dated 30.03.2015 is required to be quashed. D. Reopening beyond the period of 4 years Hence in view of the above the initiation of proceedings under Section 147/148 of the Act are not valid in the eyes of law and liable to be quashed for the reason that the AO failed to apply his mind, there is no fresh tangible material and also the reasons were merely recorded on the borrowed satisfaction by the AO relying upon the Investigation Report and also the initiation of re-assessment proceeding is barred by limitation also for the reason that the notice has been issued beyond 4 years from the end of relevant assessment year without bringing on record any failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year. Hence in view of the above legal contentions the reopening made by the AO u/s.147 of IT Act is legally not tenable and hence the same is quashed. Consequently, the reassessment order is also is not sustainable. 9. Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us. 10. The learned DR before us reiterated the finding contained in the order of the AO. 11. On the contrary, the learned AR before us filed a paper book running from pages 1 to 123 and challenged the validity of the reopening of the assessment under section 147 r.w.s. 143(3) of the Act on numerous grounds i.e. borrowed satisfaction, change of opinion, objections were not disposed off by the AO before ITA no.202/AHD/2021 Asstt. Year 2008-09 6 framing the assessment and no allegation of the AO that there was failure on the part of the assessee to disclose all material facts fully and truly necessary for the assessment. The learned AR before us vehemently supported the order of the ld. CIT-A. 12. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the learned CIT(A) quashed the assessment proceeding under 143(3) r.w.s. 147 of the Act on four different reasons. The first reason being the reassessment order passed without disposing off the objection raised by the assessee against the reopening assessment. Hence, the AO violated the procedure laid down by the Hon’ble Supreme court in case of GKN Driveshafts (India) Pvt Ltd reported in 259 ITR 19. The second reason for which the learned CIT(A) quashed the proceedings under section 147 of the Act is that assessment was reopened on the basis of borrowed satisfaction. The third reason for quashing the reopening of the assessment that there was no fresh material available with the AO. As such, the AO reopened the assessment merely on change of opinion which not tenable under the provisions of the Act. The fourth and last reason for which assessment was quashed was that the assessment was reopened after the expiry of 4 years from the end of the relevant assessment year but there was finding or satisfaction of the AO that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. 12.1 However, the Revenue in the grounds of appeal before us has challenged the order of learned CIT(A) for quashing the reassessment order on the ground of borrowed satisfaction and reopening of the assessment after the expiry of 4 years in contravention of conditions prescribed under 1 st proviso to section 147(1) of the Act. In other words, the Revenue is not aggrieved for quashing of assessment order on the ground that same was framed without disposing of objection raised by the assessee and the re-assessment proceedings were based on mere change of opinion without having support of any fresh material. On this score alone, the ITA no.202/AHD/2021 Asstt. Year 2008-09 7 revenue loses in its appeal. In other words, even if we hold that the assessment was reopened based on independent satisfaction and there was no violation of conditions prescribed under first proviso to section 147(1) of the Act by the AO. Yet the fact is that the assessment order under section 143(3) r.w.s. 147 of the Act is bad in law as same has been framed in violation of rules laid down by the Hon’ble Supreme Court in case of GKN Driveshafts (India) Pvt Ltd (supra) i.e. without disposing of objection raised against the reopening which reached to the finality as the Revenue did not prefer any appeal on this ground. 12.2 Without prejudice to the above, we proceed to adjudicate the issue raised by the Revenue in its ground of appeal. We find that for the year under consideration an assessment under section 143(3) r.w.s. 147 of the Act was already completed vide order dated 23 rd February 2010. In such scenario, the proviso to section 147 of the Act puts embargo on reopening of the assessment under section 147 after the expiry of 4 years from the end of relevant assessment year if the assessment under section 143(3) of the Act was already made unless income escaped assessment due to the reason that the assessee failed to disclose fully and truly all material facts necessary for assessment. In the present case, notice for reopening of the assessment was issued well beyond the period of 4 years from the end of relevant assessment year i.e. 2008-09. We have perused the reasons recorded for reopening, where there is no allegation that the assessee failed to disclose all material facts fully and truly necessary for assessment. Thus, the limitation of 4 years and the conditions prescribed under first proviso to section 147 of the Act have to be complied with otherwise no action under section 147(1) of the Act can be taken. In holding so, we draw support and guidance from the judgment of Hon’ble Gujarat High Court in the case of M/s Ferromatik Milacron India Ltd vs. ITO reported in 45 taxmann.com 474 wherein it was held as under: 12. Having thus heard learned counsel for the parties, we may remind ourselves that in the present case, reopening is sought to be done beyond the period of 4 years from the end of the relevant assessment year. In that view of the matter, additional requirement flowing from the proviso to Section 147 of the Act, namely, that the income chargeable to tax has escaped assessment for the failure of the assessee to disclosetruly and fullyallmaterialfacts necessary for the assessment must be satisfied. In the present case, for the reasons recorded, the Assessing Officer did not ITA no.202/AHD/2021 Asstt. Year 2008-09 8 even allege that any income chargeable to tax had escaped assessment for the reasons noted above. Even otherwise, we do not see how the Revenue can contend that there was any failure on the part of the assessee to disclose truly and fully all material facts. 12.3 In view of the above, we hold that the notice issued for reopening of the assessment under section 148 of the Act is not sustainable on this ground. Hence, the finding of the learned CIT(A) in this regard hereby confirmed and ground of appeal of the Revenue is hereby dismissed. 12.4 Without prejudice to the above coming to next ground of revenue appeal. It is an undisputed fact that originally assessment under section 143(3) r.w.s. 147 of the Act was already concluded in case of the assessee as on 23 rd February 2010 wherein the predecessor AO made enquiry with respect to share capital along with premium raised during the year. The predecessor AO also made enquiry with share subscribers by issuing notice under section 133(6) of the Act to the share subscribers. Thereafter, the predecessor AO passed the assessment order and disallowed the share issue expense of Rs. 54,000/- only. Now the current AO reopened the assessment vide notice dated 30 th March 2015 again to examine the same credit of share capital and premium which has already been examined without having any fresh material. The reason recorded by the current AO nowhere referred any new material came before him except the DDIT (Inv.) unit- 2(3) of Ahmadabad about search and seizer proceedings carried out on the assessee and its directors and one of share subscriber who in the opinion of DDIT was engaged in the activity of accommodation entry. As such, there was no search material before the AO and also there was no specific information with regard to credit of share application money and premium in the books of the assessee not being genuine. Thus, it transpired that the current AO reopened the assessment merely on same set of facts and material which has already been verified/enquired by his/her predecessor. Thus, such action of the current AO to reopen the assessment on same set of facts is nothing but the change of opinion and same will amount to review of the order passed by predecessor AO which is not allowed under the provision of the Act. In holding so, we draw support and ITA no.202/AHD/2021 Asstt. Year 2008-09 9 guidance from the judgement of Hon’ble Supreme court in case of CIT vs. Kelvinator of India Ltd reported in 320 ITR 561. The relevant observation of the Hon’ble Supreme Court extracted as under: However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre- condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989 , Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987 , Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in section 147 of the Act. However, on receipt of representations from the Companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. 12.5 In view of the above and after considering the facts in totality, we do not find any reason to interfere in the finding of the learned CIT(A). Hence, the grounds of appeal raised by the Revenue are hereby dismissed. 12.6 In the result, the appeal filed by the Revenue is hereby dismissed. Coming to ITA No. 203/Ahd/2021 by the Revenue for A.Y. 2008-09 13. In the captioned appeal, the Revenue has challenged the order of the learned CIT(A) deleting the penalty levied under section 271(1)(c) of the Act. At the outset, we note that Revenue is also in appeal before us in the quantum proceedings for the year under consideration from which impugned penalty order arises. The quantum proceeding has been decided by us vide paragraphs No. 12 of this order where we have quashed the assessment order being bad in law. Thus, in our considered opinion, once the assessment order itself quashed and addition made therein has been deleted the question on levying of penalty under ITA no.202/AHD/2021 Asstt. Year 2008-09 10 section 271(1)(c) of the Act on the impugned addition does not arise. Hence, we do not find any merit in the appeal of the revenue. Thus, we hereby confirm the order of the learned CIT(A). Hence, the appeal of the Revenue is hereby dismissed. 13.1 In the result, the appeal of the Revenue is hereby dismissed. 14. In the combined result, both the appeals of the Revenue are hereby dismissed. Order pronounced in the Court on 05/04/2023 at Ahmedabad. Sd/- Sd/- (T.R SENTHIL KUMAR) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 05/04/2023 Manish