Sabari Foundations P Ltd., CHENNAI V. ITO Corporate Ward 6(1), CHENNAI

ITA 2744/CHNY/2017

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8831 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 13-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Tangible material; Difference of opinion; Change of opinion; Revenue expenditure; TDS
• Section: 147; 148; 143(1); 143(2)

Judgement Text

आयकर अपीलीय अिधकरण, ‘सी’ यायपीठ,चे ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI ीमहावीर सह, उपा य एवं ी मनोज कुमार अ वाल, लेखा सद"यके सम BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A No.:2744/CHNY/2017 िनधा%रण वष%/ Assessment Year 2010 - 2011 M/s. Sabari Foundations Private Limited, New No.30, Old No.28, 6 th Main Road, Raja Annamalaipuram, Chennai – 600 028. PAN : AAECS 0298R Vs. The Income Tax Officer, Corporate Ward – VI (1), Aayakar Bhavan, New Block [7 th Floor], No.121, Nungambakkam High Road, Chennai – 600 034. (अपीलाथ /Appellant) ( यथ /Respondent) अपीलाथ क ओरसे/Appellant by : Mr. N. Arjun Raj, Advocate यथ क ओरसे/Respondent by : Mr. P. Sajit Kumar, JCIT सुनवाई क तारीख/Date of Hearing : 06.09.2022 घोषणा क तारीख/Date of Pronouncement : 09.09.2022 आदेश आदेशआदेश आदेश /O R D E R PER MAHAVIR SINGH, VP: This appeal by the Assessee is arising out of the order passed by the Commissioner of Income Tax (Appeals) – 15, Chennai in ITA No.026/2016-17/CIT(A)-15; dated 26.09.2017. The re-assessment [Under Dispute] was framed by the Income Tax Officer, Corporate Ward – 6(1), Chennai for the Assessment Year 2010 – 2011 u/s.143(3) :: 2 :: I.T.A No.:2744/CHNY/2017 r.w.s.147 of the Income Tax Act, 1961 (hereinafter “the Act”) vide his order dated 30.03.2016. 2. The first issue in this appeal of the Assessee is raised against the Commissioner of Income Tax (Appeals) confirming the action of the Assessing Officer in assuming the jurisdiction u/s.147 of the Act r.w.s.148 and reopening the assessment. For this, the Assessee has raised the following Ground Nos.2 to 5, as under: “2. The Commissioner of Income Tax (Appeals) erred in confirming the re-assessment after rejecting the grounds challenging the validity of the assumption of jurisdiction u/s.147 of the Act without assigning proper reasons and justification. 3. The Commissioner of Income Tax (Appeals) failed to appreciate that the order of re-assessment was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law. 4. The Commissioner of Income Tax (Appeals) failed to appreciate that the lack of fresh materials and non- compliance of the principles laid down by the Apex Court in the case reported in 259 ITR 19 in conducting the re-assessment proceedings would vitiate the decision rendered from paragraph nos.4.3 to 4.3.2 of the impugned order. 5. The Commissioner of Income Tax (Appeals) failed to appreciate that having noticed the reliance of the decision of the Jurisdictional High Court by the Appellant, non-consideration of the principles laid down by the Jurisdictional High Court in the case of M/s. TANMAC India Limited would vitiate the decision :: 3 :: I.T.A No.:2744/CHNY/2017 rendered in confirming the validity of the re- assessment.” 3. The brief facts of the case are that the Assessee Company filed its return of income for the relevant Assessment Year 2010 – 2011 on 02.11.2010 and the original assessment was completed by the Deputy Commissioner of Income Tax, Chennai u/s.143(3) of the Act vide order dated 28.03.2013. Subsequently, the Assessing Officer issued notice u/s.148 of the Act dated 28.11.2014 by recording the reasons. The Income Tax Officer recorded different reasons for reopening of the assessment but restricted the addition, qua first reason, that is the disallowance of the Directors’ remuneration of Rs.25,20,000/- claimed as the current year’s revenue expenditure, whereas according to the Assessing Officer this amount forms part of the indirect expenses of the project and accordingly the same is capital in nature. The Assessing Officer in the re-assessment proceedings noted that the Assessee Company suffers the burden of interest payment and bank changes during the year on borrowals :: 4 :: I.T.A No.:2744/CHNY/2017 towards sourcing the operations. According to the Assessing Officer, the nature of payment eroded the working capital and other income earned during the year and thereby this liability is an artificial liability. The Assessing Officer also noted that the Assessee Company follows the ‘percentage completion method’ for the revenue recognition and it has not returned any income from the project during the current year. Even, on this aspect, he noted that the remuneration of the Directors’ can be allowed, if the returned income from the project can be booked, but that is not the case. Aggrieved, the Assessee preferred an appeal before the Commissioner of Income Tax (Appeals). 4. Before the Commissioner of Income Tax (Appeals), the Assessee challenged the validity of re-opening of the assessment but the Commissioner of Income Tax (Appeals) relying on the decision of the Hon’ble Gujarat High Court in the case of Praful Chunilal Patel Vs. the Assistant Commissioner of Income Tax reported in 236 ITR 832 and :: 5 :: I.T.A No.:2744/CHNY/2017 the decision of the Hon’ble Punjab and Haryana High Court in the case of the Venus Industrial Corporation Vs. The Assistant Commissioner of Income Tax reported in 236 ITR 742 and the decision of the Hon’ble Bombay High Court in the case of Export Credit Guarantee Corporation of India Vs. Additional Commissioner of Income Tax reported in 350 ITR 651 confirmed the re-opening by observing in paragraph no.4.3.2, as under: “4.3.2 Hence, relying on the above decisions, re-opening of assessment u/s.147 is upheld and the grounds dismissed.” Aggrieved, the Assessee is in appeal before the Tribunal. 5. Before us, the learned Counsel for the Assessee first of all narrated the reasons recorded for issuance of notice u/s.148 of the Act which reads as under: “The reasons for reopening as sought, by you, are as under: 1) During the year in question, the Assessee has not completed any project, as per the Profit and Loss Account. However, the entire Director’s remuneration of :: 6 :: I.T.A No.:2744/CHNY/2017 Rs.25,20,000/- paid has been claimed as current year revenue expenditure. This amount shall form part of the indirect expenses of the project only and hence the entire amount has to be disallowed. 2) A debit of Rs.73,239/- has been effect as being loss from the sale of land. But there is no such sale of land as per the evidences filed. 3) The tax audit report of the Assessee in Form 3CD states that the provisions of Chapter XVIIB have not been compiled with. If that be the case, the claim of project cot incurred during the year for Rs.36,23,80,469/- needs to be examined vis-à-vis Section 40(a)(ia). 4) There is a claim of Rs.1,00,00,000 being received as supervision charges in the details filed by the Assessee. There is no corresponding claim of TDS. It appears to represent unexplained income that needs to be brought to tax now.” The learned Counsel for the Assessee stated that the Assessing Officer has acted only on the issue of the first reason as reason Nos.2, 3 and 4 are not the subject matter of re-assessment. The learned Counsel for the Assessee stated that these reasons were very much available before :: 7 :: I.T.A No.:2744/CHNY/2017 the Assessing Officer during the course of the original assessment proceedings and the Assessing Officer has not made any addition during the original assessment that was framed u/s.143(3) of the Act vide order dated 28.03.2013. For this, the learned Counsel for the Assessee relied on the decision of the Hon’ble Madras High Court in the case of TANMAC India Vs. Deputy Commissioner of Income Tax, Circle – I, Pondicherry, reported in [2017] 78 Taxmann.com 155 (Madras), [Tax Case (Appeal) No.1426 of 2007]. 6. On the other hand, the learned Senior Departmental Representative, Shri. P. Sajit Kumar, JCIT heavily relied on the reasons recorded and stated that the assessment is within four years and it is clearly covered by the Explanation 2 (c) of Section 147 of the Act. 7. We have heard the rival contentions and have gone through the facts and circumstances of the case. We noted that in the very reasons recorded by the Assessing Officer for issuance of the notice, we noted that the Assessee has :: 8 :: I.T.A No.:2744/CHNY/2017 not completed any project as per the Profit and Loss Account but had claimed the Directors’ remuneration of Rs.25,20,000/- as current year’s revenue expenditure. According to the Assessing Officer, this forms part of the indirect expenses of the project only and hence is not allowable. For this reason, the assessment was reopened by the Assessing Officer. We noted that the Hon’ble Madras High Court in the case of TANMAC India Vs. Deputy Commissioner of Income Tax, Circle – I, Pondicherry (supra) has considered an identical situation by following the decision of the Hon’ble Supreme Court in the case of Commissioner of Income Tax Vs. Kelvinator of India reported in [2010] 320 ITR 561 and held that “What is sought to be done by the re-assessment ought to have been achieved by scrutiny assessment proceedings. Having missed the bus earlier, the Department cannot be permitted to avail of the extended time limit in the absence of any new or tangible material. The Hon’ble Madras High Court has considered this issue in paragraph nos.10, 11 & 12, as under: :: 9 :: I.T.A No.:2744/CHNY/2017 “10. Let us now see the sequence of events that have transpired in this case. The Assessee filed a return of income pursuant to which, an intimation dated 01.12.1998 under section 143(1) (a) of the Act was issued. The provisions of Section 143(2) require that if the Assessing Officer considered it necessary or expedient to ensure that the Assessee has not understated income, claimed excessive loss or underpaid tax in any manner, the assessment is to be subject to further scrutiny, a notice under section 143(2) is liable to be issued and the assessment completed on or before 31.03.2001. This was not done in the present case. Subsequently, a notice under section 148 has been issued on 09.12.2002 under section 148 of the Income Tax Act taking advantage of the now extended limitation of four years to re-assess income on the basis of the same materials that were available with the authority as part of the record. 11. The phrase ‘reason to believe’ in Section 147 relates to such other new or tangible material as may have come to the knowledge of the Assessing Officer pursuant to the original proceedings for assessment. The Supreme Court in the case of Commissioner of Income Tax Vs. Kelvinator of India [2010] 320 ITR 561 / 1867 Taxmann 312 states thus in the context of the ‘belief’ that should form the basis for a re-assessment. ‘We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review, he has the power to reassess. But reassessment has to be based on fulfillment of certain pre- conditions and if the concept of ‘change of opinion’ is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of ‘change of opinion’ as in-built test to check abuse of power by the Assessing Officer. Hence, after 1 st April, 1989, the Assessing Officer has power to reopen, provided there is ‘tangible material’ to come to the conclusion that there is escapement of :: 10 :: I.T.A No.:2744/CHNY/2017 income from assessment. Reasons must have a link with the formation of the belief.’ 12. If the Assessing Officer, after issuing intimation u/s. section 143(1) does not to issue a notice u/s.143(2) of the Act to initiate proceedings for scrutiny of the return of income, the obvious conclusion is that he does not consider it necessary or expedient to do so, the inference being that the Return of Income filed in order. It is this opinion that cannot be arbitrarily changed by the Assessing Officer, to re-assess income on the basis of stale material, already on record. If, we thus keep in the mind, the above fundamental requirement of Section 147, it would be apparent that the exercise undertaken by the Revenue in this case is not one of the re-assessment, but of review. The reasons make it abundantly clearly that the re- assessment is sought to be initiated on the basis of the return of income and the enclosures which were available with the Assessing Officer since 02.11.2018 andf which ought to have prompted him to issue a notice under section 143(2) of the Act to conduct the proceedings under scrutiny. What is sought to be done by the re-assessment ought to have been achieved by scrutiny assessment proceedings. Having missed the bus earlier, the Department cannot be permitted to avail of the extended time limit in the absence of any new or tangible material, when the time for scrutiny assessment has elapsed on 31.03.2001, prior to issue of notice u/s.148. The notice under section 148 dated 09.12.2002 is thus an arbitrary exercise of power and a review of proceedings impermissible in law.” 8. We find from the facts of the present case and the reasons recorded by the Assessing Officer that similar situation is before us, as was before the Hon’ble Madras High Court in the case of TANMAC India Vs. Deputy Commissioner of Income Tax, Circle – I, Pondicherry :: 11 :: I.T.A No.:2744/CHNY/2017 (supra), and hence we quash the re-assessment and allow the appeal of the Assessee. As regards to the issue raised on merits regarding the disallowance of the Directors’ remuneration, we need not adjudicate the same, as we have already quashed the re- assessment. 9. In the result, the appeal of the Assessee in I.T.A No.:2744/CHNY/2017 is allowed. Order pronounced in the court on 9 th September, 2022 at Chennai. Sd/- Sd/- (मनोज कुमार अ वाल) (MANOJ KUMAR AGGARWAL) लेखा सद य/ACCOUNTANT MEMBER (महावीर िसंह ) (MAHAVIR SINGH) उपा य /VICE PRESIDENT चे ई/Chennai, दनांक/Dated, the 9 th September, 2022 IA, Sr. PS आदेशकी ितिलिपअ ेिषत/Copy to: 1. अपीलाथ /Appellant 2. थ /Respondent 3. आयकरआयु (अपील)/CIT(A) 4. आयकरआयु /CIT 5. िवभागीय ितिनिध/DR 6. गाड"फाईल/GF