WELMICRON PVT. LTD., Baroda V. The q Income Tax Officer, Baroda

ITA 2419/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1342 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 02-06-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 26-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS SMITI SAMANT
• Keywords: Reopening of assessment; Gross profit estimation; Tangible material; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 142(1); 147; 145; 148

Judgement Text

, SMC IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA NO.2419/AHD/2011 / ASSTT. YEAR: 2004-2005 WELMICRON PVT. LTD. PADRA JAMUBSAR ROAD NR. VILLAGE DABHASA TALUKA PADRA DIST. BARODA 391 440. PAN : AAACW 5398 Q VS ITO, WARD - 4(4) BARODA. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : MS.URVASHI SHODHAN REVENUE BY : MRS.SMITI SAMANT, SR.DR / DATE OF HEARING : 02/06/2016 / DATE OF PRONOUNCEMENT: 02/06/2016 $%/ O R D E R [ORAL] THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAI NST THE ORDER OF THE LD.CIT(A)-III, BARODA DATED 29.8.2011 PASSED IN THE ASSTT.YEAR 2004-05. 2. THOUGH THE ASSESSEE HAS TAKEN FOUR GROUNDS OF AP PEAL, BUT ITS GRIEVANCES REVOLVE AROUND TWO SUBSTANTIAL ISSUES, V IZ. THE LD.CIT(A) HAS ERRED IN CONFIRMING REOPENING OF ASSESSMENT AND ADD ITION OF RS.14,50,980/- WHICH WAS ADDED BY THE AO ON ACCOUNT OF LOW GP. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 1.11.2004 DECLARING TOTAL INCOME AT NIL. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND N OTICE UNDER SECTION 143(2) WAS ISSUED ON 11.10.2004 WHICH WAS DULY SERV ED UPON THE ASSESSEE. THE LD.AO HAS PASSED THE ASSESSMENT ORDE R UNDER SECTION ITA NO.2419/AHD/2011 2 143(3) OF THE ACT DATED 16.11.2006 AND DETERMINED T HE TAXABLE INCOME OF THE ASSESSEE AT RS.2,82,080/-. THE LD.AO HARBOU RED A BELIEF THAT INCOME HAS ESCAPED FROM TAXATION, THEREFORE, HE REC ORDED HIS REASONS AND ISSUED NOTICE UNDER SECTION 148 OF THE INCOME T AX ACT DATED 27.3.2009. THE REASONS ARE AVAILABLE AT PAGE NO.26 OF THE PAPER BOOK. IT IS PERTINENT TO TAKE NOTE OF THE REASONS, IN ORD ER TO APPRECIATE, WHETHER THE LD.AO HAS SUFFICIENT MATERIALS TO HARBO R A BELIEF THAT THE INCOME WAS ESCAPED ASSESSMENT OR NOT. THE REASONS READ AS UNDER: ANNEXURE (RECORDING THE REASONS FOR INITIATING PROCEEDINGS U /S.148) IN THIS CASE, THE ASSESSEE FILED ITS RETURN OF INCO ME ON 01.11.2004 DECLARING INCOME OF RS.NIL AND ASSESSMENT U/S.143(3 ) OF THE ACT WAS COMPLETED ON 16.11.2006 AT TOTAL INCOME OF RS.2 82076/- 2. IT IS SEEN THAT THERE IS DRASTIC FALL IN SALES C OMPARED TO PREVIOUS YEAR WHEREAS THERE IS STEEP RISE IN CONSUM PTION OF RAW MATERIAL AND POWER/FUEL AS COMPARED TO IMMEDIATE PR EVIOUS YEAR. SR.NO. FY (2003-04) (IN LACS) F./R.02-03 (IN LACS) % OF INCREASE/ DECREASE COMPARED TO PREVIOUS YEAR 1.SALES 40.71 RS.51.26 -20% 2.RAW MATERIAL CONSUMED 43.00 RS.19.61 +119% 3.POWER/FUEL CONSUMPTION 29.79 RS.25.13 +18% 4.GROSS PROFIT 11.15 RS.26.93 -58% AS WOULD BE SEEN ABOVE, THE CONSUMPTION OF RAW MATE RIAL AND POWER/FUEL HAS INCREASE INEXPLICABLY AS COMPARED TO THE IMMEDIATE PREVIOUS YEAR BY 119% AND 18% RESPECTIVELY WHEREAS THERE IS SHARP DECLINE IN SALES Y O Y BASIS BY 20% AND THE GP DECL ARED IS DOWN BY 58% AS COMPARED TO IMMEDIATE PREVIOUS YEAR. IT IS EVIDENTIARY AND ABUNDANTLY CLEAR FROM ABOVE DATA THAT THE EXPENSES ARE NOT COMMENSURATE WITH THE SALES SHOWN, THE AUDITOR, IN FORM 3CD (ITEM 'NO'.2) HAS OBSERVED THAT RECORD OF RAW MATERIALS A RE NOT MAINTAINED SYSTEMATICALLY AND THE ASSESSEE SHOULD MAINTAIN QUA NTIATIVE VALUE RECORDS OF ALL THE RAW MATERIALS, PACKING MATERIALS , CONSUMABLE, STORES ITA NO.2419/AHD/2011 3 & SPARES BY SYSTEMATIC SWAY IN FORMAT PRESCRIBED BY COMPANIES ACT. FURTHER, THE ASSESSEE HAS NOT FURNISHED COGENT OR C ORROBORATIVE EVIDENCE TO JUSTIFY THE DECLINE IN GP. IN VIEW OF D EFECTS IN, BOOKS OF ACCOUNT VERIFICATION OF INVENTORY AND DISCREPANCY T HEREIN AS OBSERVED BY THE AUDITOR AND ALSO ASSESSEE'S FAILURE TO OFFER PLAUSIBLE EXPLANATION AND COGENT EVIDENCE IN RESPECT OF FALL 'IN GP PROVI SION OF SECTION 145 ARE APPLICABLE AND ACCORDING GP IS TO BE ESTIMATED ON VERIFICATION. DATE : 19.03.2009 SD/- (S.R.PANDE) INCOME TAX OFFICER, WD-4(4) BARODA. THE LD.AO HAS PASSED THE ASSESSMENT ORDER ON 24.12 .2009 AND DETERMINED THE TAXABLE INCOME AT RS.17,33,060/-. T HE LD.AO HAS MADE ADDITION OF RS.14,50,980/- ON ACCOUNT OF FALL IN GP . 4. APPEAL TO THE CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 5. THE LD.COUNSEL FOR THE ASSESSEE, WHILE IMPUGNING THE ORDER OF THE LD.CIT(A) CONTENDED THAT DURING THE COURSE OF ORIGI NAL ASSESSMENT PROCEEDINGS, THE LD.AO HAS ISSUED A QUESTIONNAIRE U NDER SECTION 142(2) OF THE INCOME TAX ACT, AND CALLED FOR NECESSARY DET AILS WITH REGARD TO GP DISCLOSED BY THE ASSESSEE. SHE DREW OUR ATTENTI ON TOWARDS PAGE NO.15 AND 16 OF THE PAPER BOOK, WHEREIN COPY OF THE SHOW CAUSE NOTICE ISSUED UNDER SECTION 142(1) OF THE ACT IS AVAILABLE . SHE DREW MY ATTENTION TOWARDS, PARTICULARLY, SERIAL NO.11. THI S QUESTION READS AS UNDER: 11. COMPARATIVE STATEMENT SHOWING GROSS PROFIT WOR KING AND NET PROFIT WORKING FOR CURRENT YEAR AND PRECEDING T WO YEARS. IN CASE OF FALL, EXPLANATION THEREOF. 6. ACCORDING TO THE LD.COUNSEL FOR THE ASSESSEE, TH ERE IS NO FRESH TANGIBLE MATERIAL CAME TO THE POSSESSION OF THE AO EXHIBITING THE FACT THAT INCOME HAS ESCAPED THE ASSESSMENT. THE LD.AO HAS REAPPRAISED HIMSELF WITH THE MATERIAL ALREADY MADE AVAILABLE BY THE ASSESSEE DURING ITA NO.2419/AHD/2011 4 THE SCRUTINY ASSESSMENT. THUS, ACCORDING TO THE LD .COUNSEL FOR THE ASSESSEE, THE ASSESSMENT HAS BEEN REOPENED ON THE B ASIS OF CHANGE OF OPINION, WHICH IS NOT SUSTAINABLE IN THE EYES OF LA W. FOR BUTTRESSING THE CONTENTION, SHE RELIED UPON THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR INDIA LTD., 320 I TR 561. 7. ON THE OTHER HAND, THE LD.AR CONTENDED THAT THE LD.FIRST APPELLATE AUTHORITY HAS TAKEN COGNIZANCE OF THIS DECISION AND MADE REFERENCE OF THE LAW LAY DOWN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF PRAFUL CHUNILAL PATEL, 263 ITR 832. SHE ALSO POINTED OUT THAT THE LD.FIRST APPELLATE AUTHORITY HAS MADE REFERENCE TO THE DECIS ION OF HONBLE MADRAS HIGH COURT WHO HAS TAKEN INTO CONSIDERATION THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF KELVINATOR IND IA LTD. (SUPRA). SHE DREW OUR ATTENTION TOWARDS PARA 4.1.4 OF THE ORDER, AND CONTENDED THAT IF ON APPRAISAL OF THE MATERIAL AVAILABLE WITH THE AO, IT CAME OUT THAT INCOME HAS ESCAPED ASSESSMENT, THEN, THE AO WOULD B E JUSTIFIED TO FORM A BELIEF THAT ASSESSMENT REQUIRED TO BE REOPEN ED BY ISSUANCE OF NOTICE UNDER SECTION 148 OF THE INCOME TAX ACT. 8. I HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GON E THROUGH THE RECORD CAREFULLY. THE FULL BENCH OF THE HONBLE DE LHI HIGH COURT IN THE CASE OF KELVINATOR INDIA LTD. (SUPRA) HAS OBSERVED THAT IN CASE OF SCRUTINY ASSESSMENT, IT IS TO BE ASSUMED THAT THE A O HAS APPLIED HIS MIND ON ALL THE ISSUES AND THE BASIS OF EXISTENCE O F MATERIAL, HE CANNOT ISSUE NOTICE UNDER SECTION 148, EVEN WITHIN FOUR YE ARS FROM END OF THE ASSESSMENT YEAR. THE HONBLE DELHI HIGH COURT DID NOT AGREE WITH THE VIEW TAKEN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF PRAFUL CHUNILAL PATEL (SUPRA). THIS DECISION OF THE HONB LE DELHI HIGH COURT HAS BEEN UPHELD BY THE HONBLE SUPREME COURT, MEANING T HEREBY, IMPLIEDLY, VIEW TAKEN BY THE HONBLE GUJARAT HIGH C OURT IN THE CASE OF PRAFUL CHUNILAL PATEL (SUPRA) WAS NOT APPROVED BY T HE HONBLE SUPREME ITA NO.2419/AHD/2011 5 COURT. RECENTLY, HONBLE DELHI HIGH COURT HAS CONSI DERED ALL THESE ASPECTS IN THE CASE OF INDU LATA RANGWALA VS. DCIT IN WRIT PETITION NO.1393 OF 2002 DECIDED ON 18.5.2016, WHEREIN THE H ONBLE DELHI HIGH COURT HAS CONSIDERED THE DECISION IN THE CASE OF PR AFUL CHNILAL PATEL AS WELL AS KELVINATOR INDIA LTD. (SUPRA). THE FINDING OF THE HONBLE DELHI HIGH COURT IS WORTH NOTE. IT READS AS UNDER: SUMMARY OF THE LEGAL POSITION 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 SENT TO AN ASSESSEE, IT IS NOT AN 'AS SESSMENT' 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 ENCLO SED WITH THE RETURN WHETHER IN THE FORM OF BALANCE SHEET, AUDITE D ACCOUNTS, TAX AUDIT REPORT ETC. 35.2 THE FIRST PROVISO TO SECTION 147 OF THE ACT AP PLIES ONLY (I) WHERE THE INITIAL ASSESSMENT IS UNDER SECTION 143 ( 3) OF THE ACT AND (II) WHERE SUCH REOPENING IS SOUGHT TO BE DONE AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT A SSESSMENT YEAR. IN OTHER WORDS, THE REQUIREMENT IN THE FIRST PROVISO TO SECTION 147 OF THERE HAVING TO BE A FAILURE ON THE PART OF THE ASSESSEE 'TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS' DOES NOT AT ALL APPLY WHERE THE INITIAL RETURN HAS BEEN PROCESS ED UNDER SECTION 143 (1) OF THE ACT. 35.3 AS EXPLAINED IN RAJESH JHAVERI STOCK BROKERS ( P) LTD. (SUPRA) 'AN INTIMATION ISSUED UNDER SECTION 143 (1) CAN BE SUBJECTED TO PROCEEDINGS FOR REOPENING', SO LONG AS THE INGREDI ENTS OF SECTION 147 ARE FULFILLED'. 35.4 EXPLANATION 2 (B) BELOW SECTION 147 STATES THA T FOR THE PURPOSES OF SECTION 147, WHERE A RETURN OF INCOME H AS BEEN FURNISHED BY THE ASSESSEE BUT NO ASSESSMENT HAS BEE N MADE AND IT IS NOTICED BY THE AO THAT THE ASSESSEE HAS UNDER STATED THE INCOME AND CLAIMED EXCESSIVE LOSS, DEDUCTION, ALLOW ANCE AND RELIEF IN THE RETURN THEN THAT 'SHALL ALSO BE DEEME D TO BE A CASE WHERE THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSE SSMENT'. 35.5 AS EXPLAINED BY THE SUPREME COURT IN RAJESH JH AVERI STOCK BROKERS P. LTD. (SUPRA) AND REITERATED BY IT IN ZUA RI ESTATE ITA NO.2419/AHD/2011 6 DEVELOPMENT AND INVESTMENT CO. LTD. (SUPRA) AN INTI MATION UNDER SECTION 143 (1) (A) CANNOT BE TREATED TO BE AN ORDE R OF ASSESSMENT. THERE BEING NO ASSESSMENT UNDER SECTION 143 (1) (A), THE QUESTION OF CHANGE OF OPINION DOES NOT ARI SE. 35.6 WHEREAS IN A CASE WHERE THE INITIAL ASSESSMENT ORDER IS UNDER SECTION 143 (3), AND IT IS SOUGHT TO BE REOPE NED WITHIN FOUR YEARS FROM THE EXPIRY OF THE RELEVANT ASSESSMENT YE AR, THE AO HAS TO BASE HIS 'REASONS TO BELIEVE' THAT INCOME HA S ESCAPED ASSESSMENT ON SOME FRESH TANGIBLE MATERIAL THAT PRO VIDES THE NEXUS OR LINK TO THE FORMATION OF SUCH BELIEF. IN A CASE WHERE THE INITIAL RETURN IS PROCESSED UNDER SECTION 143 (1) O F THE ACT AND AN INTIMATION IS SENT TO THE ASSESSEE, THE REOPENING O F SUCH ASSESSMENT NO DOUBT REQUIRES THE AO TO FORM REASONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, BUT SUCH REASON S DO NOT REQUIRE ANY FRESH TANGIBLE MATERIAL. 35.7 IN OTHER WORDS, WHERE REOPENING IS SOUGHT OF A N ASSESSMENT IN A SITUATION WHERE THE INITIAL RETURN IS PROCESSE D UNDER SECTION 143 (1) OF THE ACT, THE AO CAN FORM REASONS TO BELI EVE THAT INCOME HAS ESCAPED ASSESSMENT BY EXAMINING THE VERY RETURN AND/OR THE DOCUMENTS ACCOMPANYING THE RETURN. IT IS NOT NECESSARY IN SUCH A CASE FOR THE AO TO COME ACROSS SOME FRESH TANGIBLE MATERIAL TO FORM 'REASONS TO BELIEVE' THAT INCOME HAS ESCAPED ASSESSMENT. 35.8 IN THE ASSESSMENT PROCEEDINGS PURSUANT TO SUCH REOPENING, IT WILL BE OPEN TO THE ASSESSEE TO CONTEST THE REOP ENING ON THE GROUND THAT THERE WAS EITHER NO REASON TO BELIEVE O R THAT THE ALLEGED REASON TO BELIEVE IS NOT RELEVANT FOR THE F ORMATION OF THE BELIEF THAT INCOME CHARGEABLE TO TAX HAS ESCAPED AS SESSMENT. 35.9 THE DECISIONS OF THIS COURT AND OTHER COURTS T O THE EXTENT INCONSISTENT WITH THE ABOVE DECISIONS OF THE SUPREM E COURT CANNOT BE SAID TO REFLECT THE CORRECT LEGAL POSITIO N. 9. IN THE LIGHT OF THE ABOVE, IF I EXAMINE THE FACT S OF THE PRESENT CASE, IN ORDER TO REOPEN THE ASSESSMENT, WHERE THE SCRUTINY ASSESSMENT HAS ALREADY UNDERTAKEN, EVEN BEFORE THE END OF THE FOUR YEARS, THE AO SHOULD POSSESS SOME FRESH TANGIBLE MATERIAL, WHICH CAME TO THE POSSESSION OF THE AO AFTER THE CONCLUSION OF THE AS SESSMENT. A BARE PERUSAL OF QUESTIONNAIRE AND THE PARTICULAR QUESTIO N RAISED AT SERIAL ITA NO.2419/AHD/2011 7 NO.11, I AM OF THE VIEW THAT THE AO HAS ALREADY GON E THROUGH ALL THE MATERIAL IN THE SCRUTINY ASSESSMENT AND NO FRESH MA TERIAL CAME TO HIS POSSESSION. THEREFORE, I ALLOW THE APPEAL OF THE AS SESSEE AND QUASH REASSESSMENT ORDER. 10. IN RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE COURT ON 2 ND JUNE, 2016 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER