M/s. Kamnath Oil Mill, Keshod V. The Income Tax Officer, Ward-1(1), JUNAGADH

ITA 241/RJT/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6686 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 06-02-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 04-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C P BHATIA SR DR
• Assessee Lawyers: DM RINDANI
• Keywords: Reopening of assessment; Additional evidence; Difference of opinion; Reason to believe; Change of opinion
• Section: 40A(3); 147; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT [ CONDUCTED THROUGH E-COURT AT AHMEDABAD ] BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.241/RJT/2014 ( / ASSESSMENT YEAR : 2005-06) M/S.KAMNATH OIL MILL NEAR T.B. HOSPITAL KESHOD / VS. THE ITO WARD-1(1) JUNAGADH ./ ./ PAN/GIR NO. AACFK 2097 H ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI D.M. RINDANI, AR ! / RESPONDENT BY : SHRI C.P. BHATIA, SR.DR ' #$% ! & / DATE OF HEARING 09/02/2017 '( ! & / DATE OF PRONOUNCEMENT 23/02/2017 / O R D E R PER PRADIP KUMAR KEDIA, AM : THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-IV, RAJK OT [CIT(A) IN SHORT] DATED 28/02/2014 PERTAINING TO ASSESSMENT Y EAR (AY) 2005-06. ITA NO.241/RJT/ 2014 M/S. KAMNATH OIL MILL VS. ITO ASST.YEAR 2005-06 - 2 - 2. BRIEFLY STATED, THE RETURN OF INCOME FOR AY 200 5-06 WAS FILED DECLARING TOTAL INCOME OF RS.NIL. THE RETURN WAS S UBJECTED TO SCRUTINY AND THE ASSESSMENT UNDER S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') WAS FINALIZE D DETERMINING THE TOTAL INCOME AT RS.28,400/-. THEREAFTER, NOTICE UNDER S. 148 OF THE ACT WAS ISSUED ON 29/03/2011 SEEKING TO REOPEN THE COMPLETE D ASSESSMENT. THE RE-ASSESSMENT ORDER WAS CONSEQUENTLY FINALIZED AFTE R MAKING ADDITIONS/DISALLOWANCES OF RS.22,04,321/- OWING TO ALLEGED VIOLATION OF SECTION 40A(3) TOWARDS CASH PAYMENT FOR PURCHASES O F RAW-MATERIAL IN EXCESS OF PRESCRIBED LIMIT. THE RE-ASSESSMENT ORD ER WAS THUS FRAMED DETERMINING THE RE-ASSESSED INCOME AT RS.22,32,721/ -. 3. THE ASSESSEE CHALLENGED THE RE-ASSESSMENT ORDER BEFORE THE CIT(A). ON BOTH COUNTS NAMELY VALIDITY OF JURISDI CTION ASSUMED UNDER S.148 OF THE ACT AS WELL AS MERITS OF DISALLOWANCES . THE CIT(A) HOWEVER, DID NOT FIND MERIT ANY JURISDICTIONAL DEFE CT ALLEGED BY THE ASSESSEE. THE PLEA ON MERIT WERE ALSO REJECTED BY CIT(A). THE CIT(A) CONSEQUENTLY DISMISSED THE APPEAL OF THE ASSESSEE O N ALL COUNTS. 4. AGGRIEVED BY THE AFORESAID ORDER OF THE CIT(A), THE ASSESSEE HAS FILED APPEAL BEFORE THE TRIBUNAL. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER:- ITA NO.241/RJT/ 2014 M/S. KAMNATH OIL MILL VS. ITO ASST.YEAR 2005-06 - 3 - 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS )-IV, RAJKOT ERRED IN CONFIRMING THE REOPENING OF ASSESSMENT U/S .148 OF THE I.T.ACT 1961. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS )-IV, RAJKOT ERRED IN NOT ADMITTING ADDITIONAL EVIDENCE SUBMITTE D BY THE APPELLANT DURING THE COURSE OF APPELLATE PROCEEDING S BY HOLDING THAT THE REASONS GIVEN BY THE APPELLANT DO NOT CONS TITUTE SUFFICIENT CAUSE FOR NOT PRODUCING THE EVIDENCE BEFORE THE ASS ESSING OFFICER. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS )-IV, RAJKOT FAILED TO APPRECIATE THAT THE APPELLANT WAS PREVENT ED BY SUFFICIENT CAUSE FROM PRODUCING THE EVIDENCE BEFORE THE ASSESS ING OFFICER. 4. ON MERITS, THE LEARNED COMMISSIONER OF INCOME-T AX (APPEALS)-IV, RAJKOT ERRED IN CONFIRMING THE DISALL OWANCE OF RS.22,04,321/- MADE BY THE ASSESSING OFFICER U/S.40 A(3) BY WAY OF GROUNDNUT PURCHASES FROM NON-AGRICULTURISTS. 5. SINCE THE ASSESSEE HAS RAISED LEGAL QUESTION ON USURPTION OF JURISDICTION BY THE ASSESSING OFFICER (AO) TO RE-OP EN THE COMPLETED ASSESSMENT IN THE INSTANT CASE, IT WOULD BE PERTIN ENT TO DEAL WITH THE AFORESAID QUESTION AT THE OUTSET. 6. THE LD.AR FOR THE ASSESSEE AT THE OUTSET SUBMITT ED THAT THE AO HAS WRONGLY ASSUMED THE JURISDICTION FOR MAKING RE-ASSE SSMENT BY ISSUING NOTICE UNDER S.148 OF THE ACT WITHOUT AUTHORITY OF LAW. THE LD.AR SUBMITTED THAT THE INGREDIENTS OF SECTION 147/148 A RE NOT FULFILLED IN THE INSTANT CASE TO ENABLE THE AO TO EXERCISE JURISDICT ION AND TO PROCEED WITH RE-ASSESSMENT PROCEEDINGS. THE LD.AR FURTHER SUBMI TTED THAT THE ITA NO.241/RJT/ 2014 M/S. KAMNATH OIL MILL VS. ITO ASST.YEAR 2005-06 - 4 - ASSESSMENT HAS BEEN RE-OPENED WITHOUT MEETING THE R EQUIREMENTS OF FIRST PROVISO TO SECTION 147 OF THE ACT. THE LD.AR NEXT SUBMITTED THAT THE ASSESSMENT WAS EARLIER COMPLETED UNDER S.143(3) AND THE NOTICE FOR RE- ASSESSMENT HAS BEEN ISSUED AFTER FOUR YEARS FROM TH E END OF THE RELEVANT AY 2005-06. THUS, THE AO WAS ENTITLED TO EXERCISE JURISDICTION UNDER S.147 OF THE ACT ONLY UPON FULFILLMENT OF ADDITIONA L CONDITIONS IMPOSED UNDER FIRST PROVISO TO SECTION 147 OF THE ACT. IT WAS ALLEGED THAT THE AO HAS ISSUED THE NOTICE UNDER S.147/148 OF THE ACT WI THOUT MEETING THESE REQUIREMENTS OF FIRST PROVISO TO SECTION 147 OF TH E ACT. IT WAS FURTHER CONTENDED THAT THE ORIGINAL ASSESSMENT WAS MADE AFT ER PROPER ENQUIRY. THE MATERIAL PLACED BEFORE THE AO WAS LATER REVIEWE D BY THE INTERNAL AUDIT PARTY AND BASED ON THE RECOMMENDATION OF INTE RNAL AUDIT PARTY ON REVIEW OF THE MATERIAL PLACED IN THE FILE OF THE A O, THE AO PROCEEDED TO INVOKE PROVISIONS OF SECTION 147 OF THE ACT. IN TH IS REGARD, THE LD.AR ADVERTED OUR ATTENTION TOWARDS COPY OF LETTER RECE IVED FROM THE OFFICE OF THE INCOME TAX OFFICER-INTERNAL AUDIT PARTY-III-25/ 02/2009 ANNEXED AT PAGE NOS.12&13 OF THE PAPER-BOOK. THE LD.AR OBJEC TED TO THE ACTION OF THE AO FOR ISSUING NOTICE UNDER S.148 OF THE ACT AND CONTENDED THAT THE VIEW OF BY THE AUDIT PARTY AS ADOPTED BY AO DOE S NOT GIVE RISE TO A LEGALLY SOUND BASIS FOR INVOKING THE PROVISIONS OF SECTION 147 OF THE ACT. THE ACTION OF THE AO IS NOTHING BUT CHANGE OF OPINI ON ON THE SAME ISSUE BASED ON REVIEW OF MATERIAL ALREADY PLACED ON RECOR D AS PER THE FINDINGS OF THE INTERNAL AUDIT PARTY. IT WAS THUS ALLEGED T HAT THIS ACT OF THE AO IS ITA NO.241/RJT/ 2014 M/S. KAMNATH OIL MILL VS. ITO ASST.YEAR 2005-06 - 5 - NOT SUSTAINABLE IN LAW. THE LD.AR ALSO SUBMITTED T HAT IT IS NOT DISCERNIBLE FROM THE RECORD AS TO WHAT MATERIAL FAC TS WERE NOT DISCLOSED FULLY AND TRULY WHICH HAS RESULTED IN ALLEGED ESCAP EMENT OF INCOME. IT WAS THUS CONTENDED THAT THE AO HAS WRONGFULLY ASSUM ED THE JURISDICTION VESTED UNDER S.147 OF THE ACT WITHOUT MEETING LEGAL REQUIREMENTS. IT WAS SUBMITTED IN CONSEQUENCE THAT THE CIT(A) COMMITTED ERROR IN SUSTAINING THE WRONGFUL ACTION OF THE AO IN ASSUMING THE JURIS DICTION FOR RE- ASSESSMENT WHICH REQUIRES TO BE QUASHED AND SET ASI DE. 7. THE LD.DR, ON THE OTHER HAND, RELIED UPON THE OR DER OF THE CIT(A) DEALING WITH THE ISSUE OF VALIDITY OF USURPTION OF JURISDICTION UNDER S.147 OF THE ACT AND SUBMITTED THAT SUBSTANTIAL AMOUNT OF PURCHASES OF RAW- MATERIAL I.E. GROUNDNUT PEGGED AT STAGGERING AMOUNT OF RS.1,18,94,000/- HAS BEEN MADE IN CASH AND THAT TOO ABOVE RS.20,000/ - AND THEREFORE 20% OF THE AFORESAID PURCHASES AMOUNTING TO RS.23,78,80 0/- SHOULD HAVE BEEN DISALLOWED BY THE AO IN THE ORIGINAL ASSESSMENT WHE RE HE FAILED TO DO SO. IN THE CIRCUMSTANCES, THE AO HAS CORRECTLY RE-OPENE D THE ASSESSMENT IN ACCORDANCE WITH LAW AFTER TAKING NECESSARY APPROVAL S OF THE SUPERIOR AUTHORITY CONTEMPLATED UNDER S.151 OF THE ACT. IT WAS THUS PLEADED THAT NO INTERFERENCE WITH THE ORDER OF THE CIT(A) IS CAL LED FOR ON THE LEGAL GROUND RAISED BY THE ASSESSEE. ITA NO.241/RJT/ 2014 M/S. KAMNATH OIL MILL VS. ITO ASST.YEAR 2005-06 - 6 - 8. THE LEGAL ISSUE ON VALIDITY OF ASSUMPTION OF JU RISDICTION UNDER S.147/148 IS DEALT WITH HEREUNDER. 8.1. THE REASONS RECORDED UNDER S.148(2) GIVING CAU SE FOR ISSUANCE OF NOTICE UNDER S.148 IS PERTINENT TO DETERMINE THE IS SUE. ACCORDINGLY, THE REASONS SO RECORDED BY THE AO IS REPRODUCED HEREUND ER:- IN THIS CASE, THE ASSESSEE HAS FILED RETURN OF INC OME ON 22.7.2005 DECLARING TOTAL INCOME OF RS.NIL/-. IT IS NOTICED BY THE INTERNAL AUDIT PARTY THE ASSESSEE HAS SHOWN TO HAVE PURCHASE D COTTON FROM VARIOUS PERSONS IN CASH THAT TOO ABOVE RS.20,000/-. IN LIGHT OF THE PROVISIONS OF SECTION 40A(3), 20% OF RS.1,18,94,000 /- I.E. RS.23,78,800/- TO BE DISALLOWED. PRIMA FACIE THIS IS A CASE OF ESCAPEMENT OF INCOME OF RS.23,78,800/- FOR A.Y. 200 5-06. HENCE, I HAVE REASON TO BELIEVE THAT THE ASSESSEE IS HAVIN G ESCAPED INCOME OF RS.23,78,800/- WITHIN THE MEANING OF SECT ION 147 OF THE I.T.ACT, 1961. 8.2. BEFORE WE LOOK INTO THE REASONS SO RECORDED, I T WILL BE PERTINENT TO NOTICE THAT THE INSTANT CASE PERTAINS TO AY 2005-06 WHERE THE ASSESSMENT ORDER WAS EARLIER FRAMED UNDER S.143(3) VIDE ORDER DATED 06/02/2007. AS POINTED OUT ON BEHALF OF THE ASSESSEE FROM THE P APER-BOOK FILED, A COPY OF QUESTIONNAIRE DATED 01/06/2007 ISSUED IN TH E COURSE OF ORIGINAL PROCEEDINGS SEEKS TO MAKE ENQUIRY ABOUT ALL PAYMENT S MADE EXCEEDING RS.20,000/- WITH REFERENCE TO SECTION 40A(3) OF THE ACT IN RESPECT OF PURCHASES/EXPENSES DEBITED TO PROFIT & LOSS ACCOUNT IN CASH ETC. THUS, AS PER THE QUESTIONNAIRE SPECIFIC SHOW CAUSE WAS IS SUED EXAMINING THE ITA NO.241/RJT/ 2014 M/S. KAMNATH OIL MILL VS. ITO ASST.YEAR 2005-06 - 7 - ISSUE ON THE TOUCHSTONE OF SECTION 40A(3) OF THE ACT. THE ASSESSMENT WAS THEREAFTER FRAMED WHEREIN NO DISALLOWANCE WAS M ADE IN CONSEQUENCE OF AFORESAID ENQUIRY. 8.3. SUBSEQUENTLY, AN INTERNAL AUDIT MEMO PREPARED DATED 25/05/2009 (PLACED IN PAPER-BOOK) MAKES OUT A CASE OF PURPORTE D INFRINGEMENT OF SECTION 40A(3) OF THE ACT OSTENSIBLY ON REVIEW OF EXISTING RECORDS. IN CONSEQUENCE THEREOF, THE AO APPEARS TO HAVE RECORDE D REASON FOR RE- OPENING THE COMPLETED ASSESSMENT AFTER FOUR YEARS F ROM THE END OF THE RELEVANT AY 2005-06 AS NOTED IN EARLIER PARAS. 8.4 IN THE BACKGROUND OF AFORESAID FACTS, WE NOW TA KE NOTICE OF THE REASONS RECORDED(SUPRA). A BARE PERUSAL OF THE REA SONS RECORDED SUGGESTS THAT THE AO HAS PROPELLED HIMSELF TO ACT ON THE FIN DINGS OF THE INTERNAL AUDIT PARTY. ALTHOUGH THE AO HAS REITERATED THE ST ATUTORY LANGUAGE EMPLOYED IN SECTION 147 OF THE ACT THAT HE HOLDS R EASONS TO BELIEVE THAT CHARGEABLE INCOME TO THE EXTENT OF RS.23,78,800/- H AS ESCAPED ASSESSMENT, WE DO NOT FIND ANY PROCESS OF REASONING FOR HOLDING SUCH BELIEF EXCEPT REFERENCE TO THE MEMO OF THE INTERNAL AUDIT PARTY. IT IS NOT DISCERNIBLE FROM THE REASONS RECORDED AS TO HOW THE ENQUIRY MADE ON THE VERY ISSUE AT THE TIME OF THE ORIGINAL ASSESSMENT SUFFERED FROM ERROR AND WAS UNSUSTAINABLE ON FACTS AND LAW. IT IS WELL SET TLED THAT MARE REVIEW OF EXISTING FACTS BY THE SAME AUTHORITY LATER TO COME TO A DIFFERENT ITA NO.241/RJT/ 2014 M/S. KAMNATH OIL MILL VS. ITO ASST.YEAR 2005-06 - 8 - CONCLUSION AND THEREBY RE-OPENING THE COMPLETED ASS ESSMENT IS NOT PERMISSIBLE IN LAW. NOTABLY, SECTION 40A(3) IS NOT PLENARY IN NATURE BUT IS SUBJECT TO CERTAIN EXCEPTIONS AS PROVIDED IN RUL E 6DD OF THE IT RULES 1963. THEREFORE, WHILE RAISING SPECIFIC QUESTION O N THE SUBJECT MATTER IN CONTROVERSY AND THEREAFTER ACCEPTING THE CASH PURCH ASES WOULD GIVE LOGICAL INFERENCE THAT AN OPINION ON THE ISSUE WAS FRAMED BY THE STATUTORY AUTHORITY WHEREBY DISALLOWANCE UNDER S.40A(3) WAS N OT FOUND ATTRACTED. BESIDES, ON REVIEW OF EXISTING FACTS ON RECORDS, TH E INTERNAL AUDIT PARTY APPEARS TO HAVE COME TO A DIFFERENT CONCLUSION. TH E AO SEEMS TO HAVE MERRILY ADOPTED THE OPINION OF THE INTERNAL AUDIT P ARTY AS REASON TO BELIEVE ON ESCAPEMENT OF INCOME WITHOUT ANY INDEPEN DENT APPLICATION OF MIND. NEEDLESS TO SAY, RE-OPENING IS NOT PERMISSIB LE ON A MERE CHANGE OF OPINION ON THE SAME ISSUE EXAMINED EARLIER. THEREF ORE, IT IS DIFFICULT TO AGREE THAT THE AO HAS PASSED THE STRINGENT REQUIREM ENT OF LAW FOR CONFERMENT OF POWER UNDER S.147 OF THE ACT. SECT ION 147 IS A SUBSTANTIVE PROVISION GRANTING JURISDICTION TO REOP EN COMPLETED ASSESSMENT AND THEREFORE CONDITIONS STIPULATED THER EIN ARE STRICTLY REQUIRED TO BE ADHERED. SECTION 147 IS STRUCTURED WITH INBUILT SAFEGUARDS. THE AO IS NOT PERMITTED EXERCISE THE POWER UNDER S. 147 ARBITRARILY OR MECHANICALLY. 9. IN THE INSTANT CASE, WE FIND THAT THE ACTION U NDER S.147 WAS SOUGHT TO BE TAKEN IN RESPECT OF ASSESSMENT COMPLETED UNDER S .143(2) EARLIER AFTER ITA NO.241/RJT/ 2014 M/S. KAMNATH OIL MILL VS. ITO ASST.YEAR 2005-06 - 9 - EXPIRY OF FOUR YEARS FROM THE END OF RELEVANT ASSES SMENT ORDER ALLEGING ESCAPEMENT OF INCOME FROM TAXATION. THEREFORE, TH E ACTION OF THE AO IS ALSO REQUIRED TO BE TESTED ON THE TOUCHSTONE OF EMB ARGO PLACED BY THE FIRST PROVISO TO SECTION 147 OF THE ACT. THE FIRST PROVISO TO SECTION 147 OF THE ACT PLACES ADDITIONAL RESTRICTIONS ON THE AO FO R USURPTION OF JURISDICTION. AS PER THE PROVISO, THE ESCAPEMENT O F CHARGEABLE INCOME SHOULD BE BY REASONS OF THE FAILURE ON THE PART OF THE ASSESSEE TO INTER-ALIA DISCLOS FULLY AND TRULY ALL MATERIAL FACTS NECESSAR Y FOR ASSESSMENT OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR. WE DO NOT FIND ANYTHING IN THE REASONS RECORDED WHICH GOES TO DEMONSTRATE THAT THE ASSESSEE HAS FAILED TO DISCLOSE ANY MATERIAL FACT RELEVANT FOR A SSESSMENT. AT THE FIRST PLACE, THERE IS NO ALLEGATION OF THE AO ON THIS SCO RE IN THE REASONS RECORDED AS NOTED ABOVE. WE DO NOT FIND ANYTHING ON RECORD TO SHOW AS TO WHAT MATERIAL FACTS REMAINED TO BE DISCLOSED BY THE ASSESSEE IN THE ORIGINAL ASSESSMENT PROCEEDINGS. THE RE-ASSESSMENT ORDER PASSED UNDER S.147 ALSO DOES NOT PORTRAY ANY CONCERN OF THE AO O N THIS ASPECT. OSTENSIBLY, THE CONDITIONS STIPULATED UNDER FIRST P ROVISO UNDER S.147 IS NOT COMPLIED WITH. IN THIS EVENT, PROVISIONS OF SE CTION 147 OF THE ACT COULD NOT HAVE BEEN TRIGGERED. THE ENTIRE REASSES SMENT PROCEEDINGS, THUS, IS WITHOUT JURISDICTION AND LIABLE TO ANNULLE D. THE CONSEQUENT RE- ASSESSMENT ORDER IS ALSO THEREFORE LIABLE TO BE ST RUCK DOWN AND CANCELLED. WE DO SO ACCORDINGLY. ITA NO.241/RJT/ 2014 M/S. KAMNATH OIL MILL VS. ITO ASST.YEAR 2005-06 - 10 - 10. IN VIEW OF OUR FINDING THAT THE ISSUANCE OF NO TICE UNDER S.147/148 IS VOID AB INITIO AND ACCORDINGLY RE-ASSESSMENT ORDER IS WITHOUT JUR ISDICTION AND THEREFORE ILLEGAL, WE DO NOT CONSIDER IT EXPEDI ENT TO DEAL WITH THE MERITS OF THE FACTUAL ASPECTS OF THE CASE. 11 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOW ED. ORDER PRONOUNCED IN THE COURT ON 23/02/2 017 AT AHMEDABAD. SD/- SD/- ( RAJPAL YADAV) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD ; DATED 23/02/2017 ..#, $.,#../ T.C. NAIR, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. - & ' .& / CONCERNED CIT 4. ' .& ( ) / THE CIT(A)-IV, RAJKOT 5. 2$34 ,&,# , , /DR,ITAT, RAJKOT 6. 4?@ A% / GUARD FILE. / BY ORDER, 2& ,& //TRUE COPY// / ( DY./ASSTT.REGISTRAR) %&, / ITAT, RAJKOT