ACIT, Patiala V. M/s H.K. Associates, Patiala

ITA 266/CHANDI/2011

• Counselvise Citation: 26621514 RSA 2011
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-12-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 16-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: K P BAJAJ
• Keywords: Depreciation; Business expenditure; Tangible material; Difference of opinion; Reason to believe; Change of opinion
• Section: 147; 148; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE MS.SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 265&266/CHD/2011 A.Y. 2003-04 & 2004-05 ACIT, CIRCLE, V M/S H.K.ASSOCIATES, PATIALA. 1-KHANDARI VILLA, BHUPINDRA ROAD, PATIALA. PAN: AACFH-3275M & CO 50 & 51/CHD/2011 IN ITA NO. 265 & 266/CHD/2011 M/S H.K.ASSOCIATES, V ACIT, CIRCLE, 1-KHANDARI VILLA PATIALA. BHUPINDRA ROAD, PATIALA. (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI N.K.SAINI ASSESSEE BY : SHRI K.P.BAJAJ DATE OF HEARING : 08.12.2011 DATE OF PRONOUNCEMENT : 13.12.2011 ORDER PER MEHAR SINGH, AM THE PRESENT APPEALS FILED BY THE REVENUE AND THE CROSS OBJECTIONS BY THE ASSESSEE HAVE BEEN FILED AG AINST THE ORDER DATED, 13.01.2011, PASSED BY THE LD. CIT( A), FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 RESPECTIVE LY. 2 2. IN APPEAL FOR THE ASSESSMENT YEAR 2003-04 (ITA 265/CHD/2011), THE REVENUE HAS RAISED THE FOLLOWING GROUND OF APPEAL: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.89,28,654/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF EXPENSES WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD CLAIMED THE SAME IN CONTRAVENTION OF THE AGREEMENT WITH KANDHARI BEVERAGES P.LTD. AND HAD, THUS, FAILED TO BOOK THE SAME IN ACCORDANCE WITH THE MERCANTILE SYSTEM OF ACCOUNTING. 3. IN APPEAL FOR ASSESSMENT YEAR 2004-05 (ITA 266/CHD/2011), THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.64,25,912/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF EXPENSES WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD CLAIMED THE SAME IN CONTRAVENTION OF THE AGREEMENT WITH KANDHARI BEVERAGES P.LTD. AND HAD, THUS, FAILED TO BOOK THE SAME IN ACCORDANCE WITH THE MERCANTILE SYSTEM OF ACCOUNTING. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.24,35,869/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF SALARY & INTEREST PAID TO PARTNERS, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD FAILED TO FILE THE REQUISITE CERTIFIED COPY OF PARTNERSHIP DEED WITH THE RETURN AS PER SECTION 184(2) OF THE INCOME-TAX ACT,1961. 3 4. THE GROUNDS OF CROSS OBJECTION RAISED BY THE ASS ESSEE VIDE CO/50/CHD/2011 IN ITA NO. 265/CHD/2011 FOR THE ASSESSMENT YEAR 2003-04 ARE REPRODUCED HEREUNDER : 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) FAILED TO APPRECIATE THAT THE RE- OPENING OF ASSESSMENT WAS BARRED BY LIMITATION. 2. THAT WITHOUT PREJUDICE TO ABOVE, THE LD. CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE VALIDITY OF RE- OPENING OF THE ASSESSMENT BY THE LD. AO ON CHANGE OF OPINION. 5. IN THE COURSE OF PROCEEDINGS BEFORE THE BENCH, L D. 'AR' IN SUPPORT OF HIS CROSS-OBJECTION VEHEMENTLY CONTEN DED THAT IT IS A CLASSICAL CASE OF CHANGE OF OPINION ON THE PART OF THE AO WHILE INVOKING THE PROVISIONS OF SECTION 147 REA D WITH SECTION 148 OF THE ACT. HE REFERRED TO THE ORIGINA L ASSESSMENT ORDER DATED 29.3.2006 PASSED U/S 143(3) OF THE ACT WHEREBY THE FOLLOWING ADDITIONS WERE MADE : I) DISALLOWANCE OF SALARY PAID RS.9,00,000/- TO SHRI J.S.KANDHARI II) ADDITION ON ACCOUNT OF RS.8,03,593/- DEPRECIATION ON BUSES & COMPUTER III) ADDITION U/S 40A(2)(B) RS.3,88,800/- IV) ADDITION ON ACCOUNT OF CAR RS.3,33,438/- DEPRECIATION ------------------- TOTAL ADDITION RS.24,25,831/- ------------------- 6. THE CIT(A) VIDE ORDER DATED 22.9.2006 DELETED TH E ADDITION OF RS.9 LACS AND ALSO DELETED THE DISALLOW ANCE OF DEPRECIATION CLAIMED ON COMPUTER AT RS.4,57,283/- A ND ON BUSES AT RS.3,46,310/-. THE CIT(A), ALLOWED PARTIA L RELIEF, 4 IN RESPECT OF DISALLOWANCE OF RS.3,88,800/- MADE BY THE AO U/S 40A(2)(B) OF THE ACT. THE CIT(A) RESTRICTED THE DISALLOWANCE OF CAR EXPENSES AND DEPRECIATION DISAL LOWED BY THE AO AT RS.3,33,438/- AT 1/6 TH OF SUCH EXPENSES. THUS, LD. CIT(A) PARTIALLY DISALLOWED THE APPEAL FILED BY THE ASSESSEE. 7. LD. 'AR' FURTHER CONTENDED THAT ALL NECESSARY DE TAILS AND STATEMENTS SUCH AS PROFIT & LOSS ACCOUNT, BALAN CE SHEETS, NECESSARY BILLS AND VOUCHERS WERE PRODUCED BEFORE THE AO. THEREFORE, IT IS NOT A CASE OF DISCOVERY O F ANY NEW ITEM OF ESCAPEMENT OF INCOME WITHIN THE MEANING OF SECTION 147 READ WITH SECTION 148 OF THE ACT. IT IS A CLEAR CASE OF CHANGE OF OPINION WHICH IS NOT PERMISSIBLE UNDER VA RIOUS JUDICIAL VERDICTS AND THE STATUTORY PROVISIONS. 8. LD. 'DR' ON THE OTHER HAND, PLACED RELIANCE ON T HE ORDER PASSED BY THE AO AND CIT(A). LD. CIT(A), VID E ORDER DATED 13.1.2011 AGAINST RE-ASSESSMENT ORDER FRAMED U/S 143(3) READ WITH SECTION 147 OF THE ACT UPHELD RE-O PENING OF THE ASSESSMENT PROCEEDINGS U/S 147 READ WITH 148 OF THE ACT. THE FINDINGS OF THE CIT(A) ON THE ISSUE OF UP HOLDING OF RE-OPENING OF THE ASSESSMENT ARE REPRODUCED HEREUND ER : 4.7 MERELY BECAUSE THE APPELLANT HAD PRODUCED THE COPY OF THE AGREEMENT BETWEEN THE APPELLANT AND M/S KBPL AT THE TIME OF ORIGINAL ASSESSMENT WOULD NOT MEAN THAT THE APPELLANT HAD DISCLOSED ALL THE MATER IAL FACTS IN THE ORIGINAL ASSESSMENT. THE APPELLANT COU LD HAVE MADE THE CLAIM FOR THE EXPENSES INCURRED BUT THESE WERE NOWHERE EXAMINED IN THE ORIGINAL ASSESSMENT. THEREFORE, GROUND FOR JURISDICTION CAN NOT BE QUESTIONED. MERE DISCLOSURE OF THE AGREEMENT 5 WOULD NOT FORECLOSE JURISDICTION OF AO TO REASSESS THE CONTENTS OF THE AGREEMENT AND ITS CLAUSES ALONGWITH THE EXPENDITURE CLAIMED THEREOF BECAUSE THE SAME WA S NOT THE SUBJECT MATTER OF SCRUTINY AT THE TIME OF ORIGINAL ASSESSMENT. THE ARGUMENT THAT AO COULD HAV E FOUND OUT THE CORRECT POSITION BY FURTHER PROBING T HE MATTER DOES NOT EXONERATE THE APPELLANT FROM HIS DU TY TO MAKE FULL AND TRUE DISCLOSURE OF MATERIAL FACTS. RELIANCE IS PLACED ON SOHAR SIRAJ LOKHAND WALA V.KAMAT (MG) (1994) 210 ITR 956 (BOM) AND CIT V EASTERN CARVALHO (1999) 237 ITR 549 (BOM). THE MERE PRODUCTION OF RECORD AND EVIDENCE IS NOT ENOUGH AND DISCLOSURE HAS TO BE OF ALL THE MATERIAL AND RELEVA NT FACTS NECESSARY FOR THE ASSESSMENT EVEN IF SUCH OMISSION WAS NOT DELIBERATE BUT ONLY INADVERTENT ST ILL JURISDICTION FOR RE-ASSESSMENT CANNOT BE BARRED. TH US AS PER THE PROVISO TO SECTION 147 RE-ASSESSMENT PROCEEDINGS CAN BE VALIDLY INITIATED BEYOND FOUR YE ARS FROM THE END OF THE ASSESSMENT YEAR IN WHICH THE ORIGINAL ASSESSMENT HAS BEEN FRAMED. AS LONG AS ESCAPEMENT OF INCOME IS ATTRIBUTABLE TO APPELLANTS FAILURE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FA CTS NECESSARY FOR ASSESSMENT FOR THAT ASSESSMENT YEAR THE RE-OPENING IS VALID. FURTHER THE QUESTION OF ST ATUS CAN ALSO BE DETERMINED AFRESH IN RE-ASSESSMENT PROCEEDINGS AS HELD IN SURMUKH SINGH UPPAL (DR.) V CIT (1983) 144 ITR 191 (P&H) AND CIT V DEO RAM KALMAN (1981) 197 ITR 245 (PATNA). 4.8 ONCE THE INGREDIENTS OF SECTION 147 ARE SATISFI ED AS IN THE PRESENT CASE THEN IT IS OPEN TO THE AO TO EXERCISE THAT POWER NOTWITHSTANDING THE FACT THAT OTHER REMEDIES ARE OPEN TO HIM UNDER THE ACT. IN VI EW OF THIS DISCUSSION, THE ACTION OF THE AO IN ISSUING NOTICE U/S 148 AND RE-OPENING OF ASSESSMENT U/S 147 ARE UPHELD. 6 9. WE HAVE CAREFULLY PERUSED THE FACTS OF THE CASE, RIVAL SUBMISSIONS AND THE RELEVANT RECORD MADE AVAILABLE. AS IS EVIDENT THAT IN THE FINAL ASSESSMENT FRAMED U/S 143 (3) BY THE AO VIDE ORDER DATED 29.3.2006, CERTAIN ADDITION S AS INDICATED ABOVE WERE MADE BY THE AO. THE LD. CIT(A) , BEFORE WHOM THE SAID ASSESSMENT ORDER WAS SUBJECT MATTER O F APPEAL, PASSED ORDER DATED 22.09.2006, PARTIALLY AL LOWING THE APPEAL OF THE ASSESSEE AS INDICATED ABOVE. THE DEPARTMENT FILED AN APPEAL AGAINST THE ORDER OF THE CIT(A), BEFORE THE ITAT WHICH WAS DISMISSED VIDE ORDER DATE D 29.08.2007 IN ITA NO.884/CHD/2006 (A.Y. 2003-04). SUBSEQUENTLY, THE AO ISSUED NOTICE ON 01.12.2008 U/ S 148 OF THE ACT AND REOPENED THE IMPUGNED ASSESSMENT ON THE GROUND THAT CERTAIN EXPENSES WERE CLAIMED BY THE AS SESSEE, IN THE PROFIT & LOSS ACCOUNT. A REFERENCE WAS MADE BY THE AO, TO THE AGREEMENT BETWEEN THE ASSESSEE AND ITS P RINCIPAL M/S KANDHARI BEVERAGES PVT.LTD., IN THE RECORDED RE ASONS. A BARE PERUSAL OF THE CLEAR AND UNDISPUTED FACT-SIT UATION OF THE PRESENT CASE, AS DISCUSSED ABOVE, CLEARLY REVEALS THAT THE AO ACTED ARBITRARILY AND AGAINST THE EXPRESS PROVIS IONS OF SECTION 147 READ WITH SECTION 148 OF THE ACT. THE AO SOUGHT TO REOPEN THE CASE, ON IDENTICAL SET OF FACT S AND CIRCUMSTANCES WHICH WERE BEFORE HIM, WHILE PASSING THE ORIGINAL ASSESSMENT ORDER U/S 143(3), ON 29.03.2006 . THE ORIGINAL ASSESSMENT ORDER TRAVELED UPTO ITAT, AS IN DICATED ABOVE AND THE REVENUE FAILED TO RECEIVE ANY BENEFIT S IN RESPECT OF ADDITIONS MADE BY THE AO, IN THE ORIGINA L ASSESSMENT ORDER AGAINST WHICH APPEAL WAS PARTIALLY ALLOWED 7 BY THE FIRST APPELLATE AUTHORITY VIDE ORDER DATED 2 2.09.2006. THE AO BEING QUASI- JUDICIAL AUTHORITY, ARROGATED S TATUTORY JURISDICTION UPON HIMSELF, IN THE ABSENCE OF EXISTE NCE OF JURISDICTIONAL FACT, IN THE PRESENT CASE. THEREFOR E, IT IS A CASE, WHERE THE AO PATENTLY IGNORED THE EXPRESS PRO VISIONS AND THE LEGISLATIVE INTENT CONTAINED U/S 147 READ W ITH 148 OF THE ACT. NEEDLESS TO SAY THAT THE ORDER OF THE INFERIOR AUTHORITY STANDS MERGED WITH THE ORDER OF THE SUPER IOR APPELLATE AUTHORITY AND THIS CASE IS NO EXCEPTION T O THE SAID DOCTRINE OF MERGER. THE HON'BLE SUPREME COURT IN T HE CASE OF KANHAYAHMED & OTHERS V STATE OF KERALA & ANOTHER (2000) 245 ITR 360 (SC) HELD THAT THE DOCTRINE OF MERGER I S COMMON LAW FOUNDED ON THE PRINCIPLES OF PROPRIETY IN THE H IERARCHY OF THE JUSTICE. THE LOGIC UNDERLINED THE DOCTRINE I S THAT THERE CANNOT BE MORE THAN ONE OPERATIVE DECREE OR ORDER G OVERNING THE SAME SUBJECT MATTER, AT A GIVEN POINT OF TIME. WHEN A DECREE OR ORDER PASSED BY AN INFERIOR COURT, TRIBUN AL OR AUTHORITY IS SUBJECT TO REMEDY AVAILABLE UNDER THE LAW BEFORE A SUPERIOR FORUM, THEN, THOUGH THE DECREE OR ORDER UNDER CHALLENGE CONTINUES TO BE EFFECTIVE AND BINDING. I TS FINALITY IS TO BE IN JEOPARDY. ONCE THE SUPERIOR COURT HAS DISPOSED OF THE LIS BEFORE IT EITHERWAY WHETHER THE DECREE OR ORDER UNDER APPEAL IS SET ASIDE OR MODIFIED OR AUTHORITY WHICH IS FINAL/BINDING AND OPERATIVE DECREE OR ORDER WHEREIN MERGES THE DECREE OR ORDER PASSED BY THE COURT, TRIBUNAL O R AUTHORITY BELOW. IN THE PRESENT CASE, THE ORIGINAL ASSESSMENT ORDER PASSED BY THE AO DOES NOT SURVIVE AND THE ORDER OF THE CIT(A) AND THE ITAT RESPECTIVELY DEALI NG WITH 8 VARIOUS ISSUES ONLY SURVIVES. THEREFORE, AO HAS NO JURISDICTION TO UPSET THIS FINALITY, BEING THE LOWE R AUTHORITY, IN THE MATTER. 10. NEEDLESS TO SAY THAT THE DETAILS, DOCUMENTS AND THE IMPUGNED AGREEMENT WERE BEFORE THE AO, AT THE TIME OF PASSING ORIGINAL ASSESSMENT ORDER DATED 29.03.2006 U/S 143(3) OF THE ACT. FOR THE SAME ASSESSMENT YEAR, T HE AO IS NOT COMPETENT IN TERMS OF STATUTORY PROVISIONS OF S ECTION 147 READ WITH 148 TO REVIEW AND REVERSE THE SAID AS SESSMENT ORDER, ON THE SAME SET OF FACTS AND CIRCUMSTANCES. THIS VIEW HAS ATTAINED FINALITY IN TERMS OF VARIOUS JUDICIAL PRONOUNCEMENTS OF THE APEX COURT AS ALSO OF THE HIG H COURT. IN THIS CONTEXT, DECISION OF THE HON'BLE SU PREME COURT IN THE CASE OF CIT V KELVINATOR (INDIA) LTD. (2000) 187 TAXMAN 312 (S.C) IS AN AUTHORITY. HON'BLE SUPREME COURT IN THE CASE OF GANGA SARAN & SONS P.LTD. V ITO (198 7) 130 ITR 1 (S.C), ITO V NAWAB MIR BARKAT ALI KHAN BAHADU R (1974) 97 ITR 239 (S.C) AND RAYMOND WOOLLEN MILLS L TD. V ITO (1999) 236 ITR 37 (S.C) CLEARLY HELD THAT BELIE F U/S 147 READ WITH 148 OF THE ACT MUST NOT BE ARBITRARY OR I RRATIONAL BUT BASED ON RELEVANT AND MATERIAL REASONS. IN THE PRESENT CASE, THE AO SOUGHT TO REOPEN THE ASSESSMENT FOR TH E PURPOSE OF RE-CONSIDERING AND MODIFYING THE ORIGINA L ASSESSMENT ORDER, UNDER THE SAME SET OF FACTS AND CIRCUMSTANCES. THE REASONS RECORDED BY THE AO BEIN G IRRELEVANT AND, THUS, FAIL TO PASS THE STATUTORY TE ST CONTEMPLATED WITHIN THE MEANING OF RELEVANT PROVISI ONS OF SECTION 147 READ WITH 148 AND THE JUDICIAL VERDICTS OF THE 9 HON'BLE APEX COURT AND VARIOUS HIGH COURTS. IT MAY BE PROPER TO SAY IN THE PRESENT CASE THAT THE AO DID N OT ENTERTAIN THE BELIEF, IN GOOD-FAITH AND SUCH BELIEF WAS MERELY PRETENCE, IN THE LIGHT OF THE REASONS RECORDED BY T HE AO, TO INVOKE THE PROVISIONS OF SECTION 147 READ WITH 148 OF THE ACT. THEREFORE, SUCH ACTION OF THE AO IS CONTRARY TO THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF S.NARAYANAPPA V CIT (1967) 63 ITR 219 (S.C). 11. IN THE PRESENT CASE, THE ASSESSEE HAD DECLARED ALL THE FACTS AND ALL RELEVANT DETAILS, ON WHICH ORIGINAL A SSESSMENT WAS FRAMED U/S 143(3) OF THE ACT. HOWEVER, THE AO, ON MERE CHANGE OF OPINION INVOKED THE PROVISIONS OF SECTION 147 READ WITH 148 OF THE ACT. THIS APPROACH OF THE AO IS CO NTRARY TO THE DECISION OF THE HON'BLE SUPREME COURT, IN THE C ASE OF CIT V BHANJI LAVJI (1971) 79 ITR 582 WHEREIN IT WAS HELD THAT IN A CASE WHERE THE PRIMARY FACTS NECESSARY FO R ASSESSMENT ARE FULLY AND PURELY DISCLOSED, THE ITO WILL NOT BE ENTITLED TO CHANGE OF OPINION, TO COMMENCE PROCE EDINGS FOR RE-ASSESSMENT. THE HON'BLE SUPREME COURT IN THE CASE OF NAWAB MIR BARKAT ALI KHAN BAHADUR (SUPRA) HELD THAT HAVING SECOND THOUGHT ON THE SAME MATERIAL, AND OMI SSION TO DRAW THE CORRECT LEGAL PRESUMPTIONS DURING THE O RIGINAL ASSESSMENT DO NOT WARRANT THE INITIATION OF PROCEED INGS U/S 147 OF THE ACT. SIMILAR VIEW HAS BEEN EXPRESSED BY THE HON'BLE SUPREME COURT, IN THE CASE OF KELVINATOR IN DIA LTD. (2010) 320 ITR 561 (S.C), IS REPRODUCED HEREUNDER U NDER : RE-ASSESSMENT-OPINION AND REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT TO BE RECORDED-AFTER AMENDMENT IN 1989 ONLY ONE CONDITION REMAINED, 10 VIZ., THAT REASON TO BELIEVE THAT INCOME HAS ESCAPE D ASSESSMENT HAS TO BE RECORDED IN WRITING-THERE MUST BE TANGIBLE MATERIAL FOR THE FORMATION OF THE BELIE F- INCOME-TAX ACT,19961, S.147-CBDT CIRCULAR NO. 549 DATED OCTOBER 31,1989. THE CONCEPT OF CHANGE OF OPINION ON THE PART OF T HE AO TO REOPEN AN ASSESSMENT DOES NOT STAND OBLITERATED AFTER THE SUBSTITUTION OF SECTION 147 O F THE INCOME-TAX ACT,1961, BY THE DIRECT TAX LAWS (AMENDMENT) ACTS,1987 AND 1989. AFTER THE AMENDMENT, THE AO HAS TO HAVE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT BUT THIS DOES NOT IMPLY THAT THE AO CAN REOPEN AN ASSESSMENT ON MERE CHANGE OF OPINION. THE CONCEPT OF CHANGE OF OPINION MUST BE TREATED AS AN IN-BUILT TEST TO CHE CK THE ABUSE OF POWER. HENCE AFTER APRIL 1,1989 THE AO HAS POWER TO REOPEN AN ASSESSMENT, PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION TH AT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASON MUST HAVE A LINK WITH THE FORMATION OF THE BELIEF. DECISIONS OF THE DELHI HIGH COURT IN CIT V KELVINAT OR OF INDIA LTD. (2002) 256 ITR 1 (FB) AND CIT V EICHE R LTD. (2007) 294 ITR 310 AFFIRMED. 12. IN VIEW OF THE ABOVE FACTUAL DISCUSSIONS, THE F INDINGS OF THE LD. CIT(A), IN THE MATTER UPHOLDING THE ACTION OF THE AO IN INVOKING PROVISIONS OF SECTION 147/148 OF THE A CT CANNOT BE SUSTAINED. THEREFORE, THE ASSESSEE SUCCEEDS IN HIS CROSS OBJECTIONS. 13. IN THE RESULT, THE CO NO.50/CHD/2011 FILED BY T HE ASSESSEE, AS DISCUSSED ABOVE, IS ALLOWED AND THE AP PEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2003-04 VIDE IT A 11 NO.265/CHD/2011 IS DISMISSED IN VIEW OF THE ABOVE SUSTAINABILITY OF THE CROSS OBJECTION RAISED BY THE ASSESSEE WHEREBY THE FINDINGS OF THE LD. CIT(A) IN THE MATTE R OF UPHOLDING THE ACTION OF THE AO IN INVOKING THE PROV ISIONS OF SECTION 147/148 WAS HELD AS UNSUSTAINABLE. 14. THE GROUNDS OF CROSS OBJECTION RAISED BY THE AS SESSEE VIDE CO/51/CHD/2011 IN ITA NO. 266/CHD/2011 FOR THE ASSESSMENT YEAR 2004-05 ARE REPRODUCED HEREUNDER : 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE VALIDITY OF RE-OPENING OF ASSESSMENT WITHOUT BEING TERMINATION OF THE PROCEEDINGS ON THE VOLUNTARY RETURN FILED BY THE ASSESSEE. 2. THAT WITHOUT PREJUDICE TO ABOVE, THE LD. CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE VALIDITY OF RE- OPENING OF THE ASSESSMENT BY THE LD. AO ON CHANGE OF OPINION. 15. THE UNDISPUTED FACTS AS CULLED OUT FROM THE REL EVANT RECORDS ARE THAT THE ASSESSMENT IN THE CASE OF THE APPELLANT FOR THE ASSESSMENT YEAR 2004-05 WAS FRAMED ON 18.12 .2006 U/S 143(3) OF THE INCOME-TAX ACT. THE ASSESSEE FIL ED ITS RETURN OF INCOME IN THE STATUS OF A FIRM. HOWEVER, THE AO COMPLETED THE ASSESSMENT AFTER ADOPTION OF AOP STAT US. THE RELEVANT PART OF THE IMPUGNED ASSESSMENT ORDER IS REPRODUCED HEREUNDER : RETURN DECLARING AN INCOME OF RS.15437051/- HAS BEEN FILED ON 1.11.2004 WHICH WAS ACCOMPANIED BY AUDITED REPORT IN FORM NO. 3CB & 3CD CONSISTING OF PROFIT AND LOSS ACCOUNT, BALANCE SHEET ALONGWITH 12 COMPUTATION OF INCOME, COPIES OF CHALLANS AND OTHER MISCELLANEOUS DOCUMENTS. THIS RETURN WAS PROCESSED U/S 143(1)(A) ON 21.5.2005 AND A REFUND TO THE TUNE OF RS.17,730/- WAS GRANTED. SUBSEQUENTLY, THE CASE WAS SELECTED INTO SCRUTINY BASIS IN VIEW OF BOARDS INSTRUCTIONS. ACCORDINGLY, STATUTORY NOTICES U/S 142(1)/143(2) ALONGWITH A DETAILED QUESTIONNAIRE WE RE ISSUED AND SERVED UPON THE ASSESSEE. IN RESPONSE TO THESE NOTICES, SHRI S.K.BAJAJ, ADVOCATE AND SHMANEE J GUPTA, ACCOUNTANT HAS ATTENDED THE PROCEEDINGS FROM TIME TO TIME. THE REQUISITE INFORMATION AS CALLED F OR HAS BEEN FURNISHED BY THE ASSESSEE WHICH HAS BEEN PLACED ON RECORDS. BOOKS OF ACCOUNT PRODUCED HAVE BEEN TEST CHECKED. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MARKETING SURVEYERSHIP AND COMMISSION AGENCY IN SOF T DRINKS AS MENTIONED IN THE AUDITED REPORT. THE ASSESSEE FIRM IS A PROMOTER OF THE PRODUCTS OF ITS PRINCIPAL COMPANY STYLED AS M/S KANDHARI BEVERAGES LTD. CHANDIGARH. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS BROUGHT TO MY NOTICE THAT ONE O F THE PARTNER SHRI J.S.KADHARI HAD EXPIRED ON 17.9.20 03 AND THE FIRM WAS RECONSTITUTED WITH THE REMAINING T WO PARTNERS FROM 18.9.2003 AND THE ASSESSEE HAS FILED DIFFERENT BALANCE SHEETS ONE FOR THE PERIOD 1.4.200 3 TO 17.9.2003 AND SECOND FOR THE PERIOD 18.9.2003 TO 31.3.2004 ALONGWITH PHOTOCOPY OF PARTNERSHIP DEED WHICH WAS EXECUTED ON 15.10.2003 AND WAS MADE EFFECTIVE FROM 17.9.2003. ON THE BASIS OF THESE DOCUMENTS, THE ASSESSMENT OF THE FIRM IS BEING COMPLETED IN THE STATUS OF AOP. 16. THE IMPUGNED ASSESSMENT ORDER WAS CHALLENGED BE FORE THE CIT(A) BY THE ASSESSEE AND THE LD. CIT(A) VIDE ORDER DATED 23.10.2008 ADJUDICATED THE ISSUE IN FAVOUR OF THE ASSESSEE AS IS EVIDENT FROM PARA 2.5 REPRODUCED HER EUNDER : 13 2.5 I HAVE GONE THROUGH THE ASSESSMENT ORDER, RECORDS OF THE ASSESSMENT, SUBMISSIONS MADE BY THE LD. COUNSEL FOR THE ASSESSEE AND REPLY FILED BY THE AO. IT IS A FACT THAT THE ASSESSEE FILED THE RETURN OF INCOME IN THE STATUS OF FIRM IT IS ALSO A FACT THAT THE ASSESSMENT WAS MADE IN THE STATUS OF AOP PERUSAL OF THE RECORDS AND THE SUBMISSION MADE BY THE AO ALSO SHOW THAT NEITHER ANY NOTICE FOR FILING THE RE TURN IN THE STATUS OF AOP WAS ISSUED NOR ANY VOLUNTARY RETURN WAS FILED BY THE ASSESSEE IN THAT STATUS. E VEN SUBSEQUENTLY, CONFRONTED ABOUT THIS FACT AS DISCUSS ED ABOVE, THE AO HIMSELF IN HIS REPORT HAS CONSIDERED ABOUT THIS LAPS AND EVEN WHEN AGAIN FRESH OPPORTUNITY WAS GIVEN BY THIS OFFICE ORDER SHEET EN TRY 21.10.2008 THE SUBSEQUENT AO BY ORDERSHEET ENTRY DATED 23.10.2008 HAS RELIED UPON HIS PREDECESSORS REPORT AND STATED THAT HE HAS NOTHING NEW TO ADD IN THE MATTER. UNDER SUCH CIRCUMSTANCES THE LAW LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CI T V ADINARAYAN MURTHY (SUPRA) FOLLOWED BY THE DECISIONS OF HON'BLE RAJASTHAN HIGH COURT AND ALLAHABAD HIGH COURT IS FULLY APPLICABLE ON THE FAC TS OF THE CASE. EVEN THE AO HAS CONCEDED TO THE SAME. IN VIEW OF THESE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSMENT MADE IN THE STATUS OF AOP IS HEREBY ANNULLED. HOWEVER, THE AO IS AT LIBERTY TO TAKE APPROPRIATE REMEDIAL LEGAL ACTION AS PER LAW. 17. THE CIT(A) ANNULLED THE ASSESSMENT MADE BY THE AO IN THE STATUS OF AOP AS NEITHER ANY NOTICE FOR FILING THE RETURN IN THE STATUS OF AOP WAS ISSUED NOR ANY VOLUNTARY R ETURN WAS FILED BY THE ASSESSEE IN THAT STATUS. THE AO W AS AFFORDED EFFECTIVE, PROPER AND REASONABLE OPPORTUNI TY TO CONFRONT THIS FACTUM OF STATUS AND NO EXPLANATION W AS FILED 14 BY THE AO AS IS EVIDENT FROM THE ORDER OF THE CIT(A ) REPRODUCED ABOVE. 18. IT IS ESTABLISHED PROPOSITION OF LAW THAT ORDER PASSED BY THE LOWER AUTHORITY MERGES WITH THE ORDER PASSED BY THE SUPERIOR AUTHORITY. IN THE PRESENT CASE, THE ONLY OPERATIVE ORDER IS THE ORDER PASSED BY THE CIT(A) AND THE IMP UGNED ASSESSMENT ORDER ANNULLED BY THE CIT(A) CEASES TO E XIST. THIS PRINCIPLE HAS BEEN LAID DOWN BY THE HON'BLE SU PREME COURT IN THE CASE OF KANHAYAHMED & OTHERS V STATE OF KERALA & ANOTHER (2000) 245 ITR 360. IT LAYS DOWN THAT THERE CANNOT BE MORE THAN ONE DECREE OR OPERATIVE O RDER GOVERNING THE SAME SUBJECT MATTER AT A GIVEN POINT OF TIME. ACCORDINGLY, THE ORDER OF THE CIT(A) IS THE ONLY OR DER OPERATIVE IN THIS CASE. 19. IT IS INTERESTING TO NOTE THAT THE LD. AO WAS O BSESSED WITH THE LAST SENTENCE OF THE CIT(A) OBSERVING AS HOWEVER, THE AO IS AT LIBERTY TO TAKE APPROPRIATE REMEDIAL L EGAL ACTION AS PER LAW. THIS OBSERVATION OF THE LD. CIT(A) DOES NOT MEAN THAT THE AO IS AT LIBERTY WITH PLENARY STA TUTORY JURISDICTION AVAILABLE TO HIM, TO INVOKE ANY PROVIS ION OF THE ACT WHICH FALLS BEYOND THE STATUTORY JURISDICTION. IN THE PRESENT CASE, THE AO INVOKED THE PROVISIONS OF SECT ION 147 READ WITH SECTION 148 OF THE ACT BY RECORDING REASO N ON 1.12.2008 U/S 148 OF THE ACT AND TO TAKE REMEDIAL A CTION. THE REASONS RECORDED BY THE AO ARE REPRODUCED HEREU NDER : THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AB OVE MENTIONED ASSESSMENT YEAR DECLARING AN INCOME OF 15 RS.1,54,37,051/- ON 1.11.2004. THE CASE WAS SELECTE D FOR SCRUTINY AND WAS COMPLETED U/S 143(3) OF THE IT ACT 1961 ON 18.12.2006 AT AN INCOME OF RS.2,11,64,910/- IN THE STATUS OF AOP AFTER MAKING FOLLOWING ADDITIONS : I) DISALLOWANCE OF SALARY & RS.24,35,869/- INTEREST PAID TO PARTNERS II) DISALLOWANCE ON ACCOUNT OF RS. 6,92,708/- DEPRECIATION ON COMPUTER & BUSES LEASED OUT TO SISTER CONCERN. III) DISALLOWANCE ON ACCOUNT OF RS.2,49,200/- SALARY & CONVEYANCE ALLOWANCE PAID TO PERSONS U/S 40(2)(B) IV) DISALLOWANCE ON ACCOUNT OF RS.4,00,082/- CAR EXPENSES & CAR DEPRECIATION V) ADDITION ON ACCOUNT OF RS.19,50,000/- CAPITAL INTRODUCED BY THE PARTNER ---------------------- TOTAL ADDITION RS.57,27,859/- ------------------- HOWEVER, IN APPEAL THE LD. CIT(A) HAS ANNULLED THE ASSESSMENT FRAMED IN THE STATUS OF AOP AND HAS GIVEN HIS FINDING THAT THE AO IS AT LIBERTY TO TAKE APPROPRIATE REMEDIAL LEGAL ACTION AS PER LAW VIDE HIS ORDER NO.178/IT/CIT(A)/PTA/06-07 DATED 23.10.2008. THUS, THE ASSESSMENT OF THE ASSESSEE HAS ESCAPED ASSESSMENT IN THE STATUS OF THE FIRM. WITHOUT PREJUDICE TO THE ABOVE, ON PERUSAL OF AN AGREEMENT BETWEEN THE ASSESSEE AND ITS PRINCIPAL I. E. M/S KANDHARI BEVERAGES P.LTD. IT IS FOUND THAT THE ASSESSEE HAS BEEN APPOINTED AS COMMISSION AGENT BY THE PRINCIPAL M/S KBPL PARA (1) OF THE SAID AGREEME NT STATES: THAT THE PRINCIPAL APPOINTS THE COMMISSION AGENT F OR THE SALE OF GOODS MANUFACTURED OR PROVIDED OR PROVIDED BY THE PRINCIPAL. THE DUTY OF THE SAID COMMISSION AGENT SHALL BE MARKETING OF GOODS, 16 COLLECTION OF SALE PROCEEDS ETC. THE SAID AGENT SHA LL ALWAYS USE THE NAME OF THE PRINCIPAL. NO SALE THROU GH CASH/CHEQUE OR OTHERWISE SHALL BE COLLECTED BY THE AGENT IN ITS OWN NAME. THESE SALES SHALL BE MADE BY THE COMMISSION AGENT ON BEHALF OF THE PRINCIPAL. FURTHER, PARA (6) OF THE AGREEMENT STATES AS UNDER : THAT THE GOODS SHALL BE DISPATCHED DIRECTLY BY THE PRINCIPAL TO THE PURCHASER AND ALL THE EXPENSES CONNECTED WITH THE SALE OF GOODS SHALL BE BORNE BY THE PRINCIPAL. SUCH EXPENSES MAY BE COST OF ADVERTISEMENT, RENT OF OFFICE OR WAREHOUSE, WAGES A ND SALARIES OF PERSONNEL, DISCOUNT OR CONCESSION ALLOW ED TO PURCHASER, ELECTRICITY AND WATER CHARGES OF OFFI CE OR WAREHOUSE OR ANY OTHER EXPENSES WHICH ARE DIRECTLY CONNECT WITH SALE OF GOODS. FURTHERMORE, ON PERUSAL OF PROFIT AND LOSS ACCOUNT OF THE ASSESSEE FOR THE PERIOD UNDER CONSIDERATION, IT IS NOTICED THAT THE ASSESSEE HAS CLAIMED FOLLOWING EXPENSES, INTER-ALIA : 1. SALARY ESTABLISHMENT 16,21,274/- 2. OFFICE RENT PAID 1,02,000/- 3. ELECTRICITY EXPENSES 88,679/- 4. GENERATOR EXPENSES 16,999/- 5. ADVERTISEMENT EXPENSES 48,06,960/- FURTHER ALSO THAT AS PER INDIAN CONTRACT ACT, 1872, AN AGENT IS A PERSON EMPLOYED TO DO ANY ACT FOR ANOT HER OR TO REPRESENT ANOTHER IN DEALINGS WITH THIRD PERS ON. THE PERSON FOR WHOM SUCH ACT IS DONE OR WHO IS SO REPRESENTED IS CALLED THE PRINCIPAL ALL THE CONDU CT OF THEIR MUTUAL BUSINESS RELATIONS IS GOVERNED BY THE AGREEMENT SIGNED BETWEEN THEM. KEEPING IN VIEW THE FACTS MENTIONED ABOVE, IT IS CL EAR THAT THE ASSESSEE HAS CLAIMED VARIOUS EXPENSES IN CONTRAVENTION OF AGREEMENT BETWEEN IT AS AN AGENT AND THE PRINCIPAL THEREOF AND THE EXPENSES CONNECTE D 17 WITH THE SALES CLAIMED BY THE ASSESSEE AS BUSINESS EXPENDITURE (SUPRA) ARE DISALLOWABLE. ACCORDINGLY, I HAVE REASON TO BELIEVE THAT THE INCO ME OF THE ASSESSEE CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR THE ASSESSMENT YEAR 2004-05 WITHIN THE MEANING OF SECTION 147 OF THE IT ACT. 20. A BARE PERUSAL OF THE REASONS RECORDED BY THE A O REVEALS THAT AO HAS FAILED TO APPLY HIS MIND AND ME RELY FOLLOWED THE GENERAL OBSERVATIONS MADE BY THE CIT(A ), AS DISCUSSED EARLIER. IT IS INTERESTING TO NOTE THAT AO HAS ALSO REFERRED TO THAT APPELLATE ORDER PASSED BY THE CIT( A) WHILE RECORDING REASONS UNDER SECTION 148. THUS, THE AO INTENDED TO RECTIFY OMISSION AND COMMISSION ON HIS PART BY WAY OF INVOKING THE PROVISION OF SECTION 148 OF THE ACT. SUCH PROVISIONS CAN BE INVOKED ONLY ON FULFILLMENT OF THE STATUTORY CONDITIONS SPECIFIED THEREIN. IN THE PRE SENT CASE, THE AO HAS MECHANICALLY AND WITHOUT APPLICATION OF MIND INVOKED THE PROVISIONS OF SECTION 147 READ WITH SEC TION 148 OF THE ACT, WITH A VIEW TO TAKING REMEDIAL ACTION A GAINST HIS LAPSE, IN COMPLETING THE ASSESSMENT U/S 143(3) OF T HE ACT AND CONSCIOUSLY ADOPTING THE STATUS AS AOP VIZ-A-VI Z STATUS, IN WHICH THE RETURN WAS FILED BY THE ASSESSEE I.E. FIRM. IN SUCH FACT-SITUATION, THE PROVISIONS OF SECTION 147 READ WITH 148 CANNOT BE INVOKED. IT IS A PATENT CASE OF CHAN GE OF OPINION ON THE PART OF THE AO. IN THE ORIGINAL ASSE SSMENT ORDER PASSED U/S 143 OF THE ACT, CONSCIOUS DECISI ON WAS TAKEN TO FINALIZE THE ASSESSMENT, IN THE STATUS OF AOP. HOWEVER, WHEN THE SAME ASSESSMENT ORDER WAS ANNULLE D ON LEGAL AND FACTUAL MATRIX OF THE CASE BY THE CIT(A), THE AO 18 CHANGED TRACK AND TOOK A U-TURN, IN INVOKING THE PR OVISIONS OF SECTION 147 READ WITH SECTION 148. THIS APPROAC H OF THE QUASI-JUDICIAL AUTHORITY IS INDEFENSIBLE, IN THE LI GHT OF THE STATUTORY-JURISDICTION U/S 147 R.W.S. 148 OF THE AC T PROVISIONS INVOKED BY THE AO AND IN THE CONTEXT OF SCHEME OF THE ACT. THEREFORE, THE CROSS OBJECTIONS RAISED BY THE ASSESSEE ARE ALLOWED AND THE FINDINGS OF THE CIT(A) , AS CONTAINED, IN HIS ORDER DATED 13.1.2011, UPHOLDING THE ACTION OF THE AO, IN INVOKING THE PROVISIONS OF SEC TION 147/148 IS REVERSED. THE HON'BLE CIT(A) IN PARA 4.7 OF THE IMPUGNED ORDER, DATED 13.1.2011, UPHELD THE FINDING S OF THE AO, BY OBSERVING THAT ONCE THE INGREDIENTS OF SECTI ON 147 ARE SATISFIED, AS IN THE PRESENT CASE, THEN IT IS O PEN TO THE AO, TO EXERCISE THAT POWER NOTWITHSTANDING THE FACT THAT OTHER REMEDIES ARE OPEN TO HIM UNDER THE ACT. IN V IEW OF THIS, THE ACTION OF THE AO IN INVOKING SECTION 148 AND RE- OPENING OF ASSESSMENT U/S 147 WAS UPHELD BY THE CIT (A). NEEDLESS TO SAY THAT THE LD. CIT(A), COMPLETELY IGN ORED THE FACTUAL MATRIX OF THE CASE AND MIS-INTERPRETED THE RELEVANT PROVISIONS OF SECTION 147 READ WITH SECTIO N 148, IN THE LIGHT OF THE FACTUAL SITUATION OF THE P RESENT CASE AND THE DECISION OF THE HON'BLE SUPREME COURT DISCUSSED IN THE FOREGOING PARAGRAPHS OF THIS ORDER . 21. IT IS A CLEAR CASE OF CHANGE OF OPINION ON THE PART OF THE AO, AS IS EVIDENT FROM THE PERUSAL OF THE REASONS R ECORDED BY THE AO. THE AO IS INCOMPETENT TO INVOKE THE PRO VISIONS OF SECTION 147 READ WITH SECTION 148 OF THE ACT, ON THE 19 FOUNDATION OF MERE CHANGE OF OPINION, AS IS EVIDENT FROM THE PERUSAL OF VARIOUS CASE LAWS DISCUSSED ABOVE. HAVI NG REGARD TO THE FACT SITUATION OF THE PRESENT CASE, O NCE THE AO HAS CONSCIOUSLY ADOPTED STATUS OF THE ASSESSEE AS A OP WHILE PASSING THE SCRUTINY ASSESSMENT ORDER U/S 143(3) OF THE ACT, HE IS WITHOUT JURISDICTION TO INVOKE PROVISIONS OF SECTION 147 READ WITH SECTION 148, ON THE FOUNDATION OF SIM ILAR SET OF FACTS AND CIRCUMSTANCES, WITH A VIEW TO REVERT T O THE ORIGINAL STATUS, AS FIRM, DISCLOSED BY THE ASSESS EE, IN THE RETURN OF INCOME. SIMILARLY, ALL THE STATEMENTS, SU CH AS PROFIT & LOSS ACCOUNT AND BALANCE SHEET WERE BEFORE AO WHILE MAKING CERTAIN DISALLOWANCES, IN RESPECT OF E XPENSES AND THE AO CANNOT REOPEN THE CASE FOR MAKING FURTHE R DISALLOWANCE OF EXPENSES ALREADY SHOWN, IN THE PROF IT & LOSS ACCOUNT BY THE ASSESSEE WHICH WERE AVAILABLE BEFORE HIM, AT THE TIME OF PASSING THE ORIGINAL ASSESSMENT ORDER U /S 143(3) OF THE ACT. CONSEQUENTLY, THE FINDINGS OF THE CIT( A), IN UPHOLDING THE INVOCATION OF JURISDICTION BY THE AO U/S 147 READ WITH SECTION 148 UNDER IDENTICAL SET OF FACTS AND CIRCUMSTANCES CANNOT BE SUSTAINED AND, HENCE, THE S AME ARE REVERSED. THEREFORE, THE ASSESSEE SUCCEEDS IN HIS CROSS OBJECTION. 22. HAVING REGARD TO THE FINDINGS GIVEN BY US, IN R ESPECT OF C.O.NO. 51/CHD/2011, THE APPEAL OF THE REVENUE IN ITA NO. 266/CHD/2011 FOR THE ASSESSMENT YEAR 2 004-05 20 IS DISMISSED. 23. IN THE RESULT, THE CO NOS. 50 & 51/CHD/2011, FI LED BY THE ASSESSEE ARE ALLOWED AND THE APPEALS OF THE REV ENUE IN ITA NOS. 265 & 266/CHD/2011 (A.Y. 2003-04 & 2004-05 ) ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH DEC.,2011. SD/- SD/- (SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 13 TH DEC.,2011. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT,DR ASSISTANT REGISTRAR, ITAT CHANDIGARH