MOTILAL R. TODI, MUMBAI V. ACIT 7(3), MUMBAI

ITA 2910/MUM/2013

• Counselvise Citation: 291019914 RSA 2013
• Duration Of Justice: 2 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 23-07-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 15-04-2013
• Court: TRIBUNAL
• Department Lawyers: J K GARGDR
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Reopening of assessment; Business income; Audit objection; Tangible material; Difference of opinion; Competent authority; Assessment record; Tax effect; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148; 2; 15

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.2910/MUM/2013 ASSESSMENT YEAR: 2006-07 MOTILAL R. TODI, TODI ESTATE, SUNMILL COMPOUND, LOWER PAREL (W), MUMBAI-400 013 / VS. ACIT 7(3), MUMBAI- ( '#$ /ASSESSEE) ( / REVENUE) P.A. NO.AADPT9266G '#$ / ASSESSEE BY DR. K. SHIVARAM (AR) / REVENUE BY MR . J. K. GARG ( DR ) % & ' ( / DATE OF HEARING : 26/08/2015 ! ' ( / DATE OF ORDER: 22/09/2015 ! / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST ORDER DATED 22.02.2013, PASSED BY THE LD. COMMISSIO NER OF INCOME TAX (APPEALS)-13, MUMBAI {HEREINAFTER CALLED AS CIT(A)}, FOR THE ASSESSMENT YEAR 2006-07, AGAINST T HE ORDER MOTILAL R. TODI 2 PASSED U/S 147 R.W.S. 143(3), BY THE ASSESSING OFFI CER (HEREINAFTER CALLED AS AO). THE ASSESSEE HAS RAIS ED FOLLOWING GROUNDS OF APPEAL:- 1. THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING ACTION OF THE A.O. FOR REOPENING THE ASSESSMENT WITHOUT PROPERLY APPRECIATING THE FACT OF THE CASE AND LAWS APPLICABLE THERETO. 2. THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING ACTION OF THE A.O. FOR REOPENING THE ASSESSMENT ON THE BASIS OF AUDIT OBJECTION WHICH IS NOT PERMISSIB LE IN LAW. 3. THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING ACTION OF THE A.O. AS TO INCOME EARNED ON TRANSACTIO N IN SHARES OF RS.91 ,28,881/- SUBJECT TO SIT IS TAXA BLE UNDER THE HEAD 'INCOME FROM BUSINESS OR PROFESSION' INSTEAD OF 'CAPITAL GAIN' DECLARED BY THE APPELLANT WITHOUT PROPERLY APPRECIATING THE FACT OF THE CASE AND LAWS APPLICABLE THERETO. 4. THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING TH E ACTION OF THE A.O. TO HOLD THE APPELLANT AS A 'SHARE TRADER' INSTEAD OF AN 'INVESTOR' WITHOUT PROPERLY APPRECIATING FACTS OF THE CASE AND LAWS APPLICABLE THERETO. 5. THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING TH E ACTION OF THE A.O. IN DISALLOWING EXPENSES OF RS.24,OOO/- U/S 40(A)(IA) OF THE ACT. 6. THE APPELLANT PRAYS THAT INCOME EARNED FROM TRANSACTION IN SHARES MAY BE DIRECTED TO BE TAXED A S 'CAPITAL GAIN' INSTEAD OF 'BUSINESS INCOME'. 7. THE APPELLANT PRAYS THAT THE ABOVE DISALLOWANCES CONFIRMED MAY BE DELETED. 8. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY GROUND OF APPEAL AT THE TIME OF HEARING OR BEFORE. MOTILAL R. TODI 3 2. THE BRIEF FACTS ARE THAT IN THIS CASE ASSESSEE H AD FILED RETURN OF INCOME ON 27-10-2006 U/S 139(1) AND ORIG INAL ASSESSMENT WAS DONE BY AO U/S 143(3) VIDE ORDER DAT ED 15.12.2008. SUBSEQUENTLY, THIS CASE WAS REOPENED U/ S 147 AND AO FRAMED RE-ASSESSMENT ORDER DATED 31.12.2012 U/S 143 READ WITH 147 OF THE INCOME TAX ACT 1961. AGAIN ST THIS, THE ASSESSEE FILED AN APPEAL BEFORE LD. CIT(A), WHE REIN HE CHALLENGED THE ACTION OF THE AO OF RE-OPENING OF AS SESSMENT U/S 147 AND ALSO CHALLENGED ADDITIONS MADE BY THE A O ON MERITS. LD. CIT(A) DID NOT ACCEPT THE SUBMISSIONS O F THE ASSESSEE WITH RESPECT TO RE-OPENING AND THEREFORE, RE-OPENING WAS UPHELD BY THE LD. CIT(A). ON MERITS ALSO, NO RE LIEF WAS GIVEN BY THE LD. CIT(A) TO THE ASSESSEE. 3. BEING AGGRIEVED, THE ASSESSEE HAS FILED AN APPEA L BEFORE THE ITAT, WHEREIN THE ASSESSEE HAS TAKEN THE GROUNDS IN RESPECT TO REOPENING, AS WELL AS ON MERITS. 4. DURING THE COURSE OF HEARING, LD. COUNSEL OF ASS ESSEE BEGAN HIS ARGUMENTS BY CHALLENGING THE RE-OPENING D ONE BY THE AO. ATTENTION OF THE BENCH WAS DRAWN BY HIM UPO N THE REASONS RECORDED BY THE AO AND IT WAS SUBMITTED THA T THE REOPENING WAS BAD IN LAW. IT WAS FURTHER SUBMITTED BY HIM THAT THE REASONS HAVE BEEN RECORDED WITHOUT THERE B EING ANY FRESH TANGIBLE MATERIAL COMING INTO THE POSSESSION OF THE AO. IT HAS BEEN SUBMITTED BY HIM THAT THE AO HAS RECORD ED THE REASONS ON THE BASIS OF SAME SET OF MATERIAL AND RE CORDS WHICH WERE AVAILABLE AT THE TIME OF FRAMING OF ORIG INAL ASSESSMENT U/S 143(3). RELIANCE WAS PLACED BY THE L D. MOTILAL R. TODI 4 COUNSEL IN THIS REGARD ON THE JUDGMENT OF ITAT MUMB AI IN THE CASE OF HV TRANSMISSIONS LTD. IN ITA NO.2230/MUM/201 0 AND ON THE JUDGMENT OF DELHI HIGH COURT IN THE CASE OF CIT V. ORIENT CRAFT LTD.(2013) 354 ITR 536. IT WAS ALSO SU BMITTED THAT IN ANY CASE, THERE WAS CHANGE OF OPINION ON TH E PART OF AO WHILE RECORDING IMPUGNED REASONS AND THEREFORE REOPENING OF THE CASE WAS INVALID ON THIS GROUND AL SO. IT WAS ARGUED, IN NUTSHELL THAT THE REOPENING IS BEYOND JU RISDICTION AND NEEDS TO BE QUASHED. 5. ON THE OTHER HAND, LD. DR HAS ARGUED THAT THE RE ASONS RECORDED BY THE AO ARE VALID IN THE EYES OF LAW. IT HAS BEEN FURTHER SUBMITTED BY HIM THAT REOPENING HAS BEEN DO NE WITHIN THE PERIOD OF FOUR YEARS FROM THE END OF THE IMPUGN ED ASSESSMENT YEAR. IT HAS BEEN FURTHER SUBMITTED THAT THERE WAS NO CHANGE OF OPINION, BECAUSE IN THE ORIGINAL PROCE EDINGS, VARIOUS ASPECTS WERE OVER-LOOKED BY THE AO AND AFTE R RECONSIDERING THE MATERIAL AVAILABLE ON RECORD, IT WAS NOTICED BY THE AO THAT INCOME HAS ESCAPED FROM ASSESSMENT. RELYING UPON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN T HE CASE OF DR. AMINS PATHOLOGY LABORATORY VS JCIT 252 ITR 673 (BOM), IT WAS ALSO SUBMITTED THAT THERE BEING NO FO RMATION OF OPINION ON THE PART OF THE AO IN ORIGINAL ASSESSMEN T ORDER, REOPENING WAS VALID AND THE SAME NEEDS TO BE UPHELD . ON SPECIFIC QUERY FROM THE BENCH TO LD. DR WITH RESPEC T TO ANY FRESH MATERIAL, HE COULD NOT CONTROVERT THE SUBMISS IONS OF THE LD. COUNSEL THAT THERE WAS NO FRESH TANGIBLE MATERI AL COMING INTO POSSESSION OF THE AO BEFORE RECORDING THE IMPU GNED MOTILAL R. TODI 5 REASONS. HOWEVER, HE REITERATED THAT THERE WAS NO C HANGE OF OPINION ON THE PART OF THE AO WHILE RECORDING REASO NS FOR REOPENING OF THIS CASE. 6. WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE THR OUGH THE ORDERS OF THE LOWER AUTHORITIES. WE HAVE ALSO GONE THROUGH THE REASONS RECORDED. IT WAS NOTED BY US THAT PER USAL OF THE REASONS RECORDED, AVAILABLE AT PAGE NO.21 TO 22 O F THE PAPER BOOK, INDICATED THAT THESE REASONS HAVE BEEN RECO RDED BY THE AO ON THE BASIS OF RECORDS AVAILABLE WITH HIM SINCE THE TIME OF FRAMING OF ORIGINAL ASSESSMENT PROCEEDINGS U/S 143( 3) VIDE ORDER DATED 15.12.2008. THESE REASONS HAVE BEEN R ECORDED ON 22.02.2011. LD. DR HAS MADE AN ATTEMPT TO JUSTIF Y THESE REASONS ON THE GROUND THAT THE ISSUES RAISED IN T HE IMPUGNED REASONS WERE NOT CONSIDERED BY THE AO AT T HE TIME OF ORIGINAL ASSESSMENT PROCEEDINGS. BEFORE WE PROCE ED FURTHER IN THIS REGARD, WE FIND IT APPROPRIATE TO REPRODUCE THE REASONS, AS RECORDED BY THE AO: DATE :22.02.2011 IN THIS CASE, THE ASSESSMENT FOR A.Y.2006-07 WAS COMPLETED U/S.143(3) OF THE I.T. ACT, 1961 VIDE ORD ER DATED 15.12.2008 OF DCIT-7(3),MUMBAI, ASSESSING THE INCOME OF THE ASSESSEE AT RS.1,03,20,800/- AS - AGAINST THE RETURNED INCOME OF RS.1,00,10,778/-. I) PERUSAL OF THE RECORDS REVEAL THAT ASSESSEE HAS DERIVED DIVIDEND INCOME TO THE TUNE OF RS.14,S8,519R. HOWEVER, THE DISALLOWANCE WITH REGARD TO SECTION 1 4A OF THE I.T. ACT HAS REMAINED T O BE GIVEN EFFECT. II) THE ASSESSEE HAS RETURNED SHORT TERM CAPITAL GAIN TO THE TUNE OF RS.91,28,881/- AND THE SAME HAS MOTILAL R. TODI 6 BEEN ASSESSED AS SUCH. HOWEVER, EXAMINATION OF THE LIST OF DETAILS OF SHARE TRANSACTION UNDER THE HELD 'SHORT TERM CAPITAL GAIN' REVEAL THE FOLLOWING NUMBER OF TRANSACTIONS :- THE TOTAL-NUMBER OF TRANSACTIONS OF PURCHASE AND SALES DURING THE YEAR IS SHOWN AT 334. ON TEST CHECK OF THE YEAR'S TRANSACTION, THE- NUMBE R OF TRANSACTIONS AT RANDOM IS AS UNDER :- AUGUST 2005 -122 JANUARY 2006 -55 MAY 2005 -41 JUNE 2005 -53 JULY 2005 -66 SEPTEMBER 2005 -76 DECEMBER 2005 -53 FREQUENCY AND PATTERN OF TRANSACTION :- THE FREQUENCY AND RETENTION OF THE SHARES AFTER PURCHASE ARE INVARIABLY WITHIN A PERIOD OF 3 MONTHS AND MANY OF THESE TRANSACTIONS OF PURCHASE AND SALES ARE EFFECTED BETWEEN A PERIOD OF 2 TO 1 5 DAY S. IN ADDITION, THERE HAVE BEEN TRADING THROUGH KOTAK SECURITIES OF 41 SCRIPS AND NO. OF SHARES TRADED IS 45,453/-. QUANTUM OF SALES :- THE TOTAL VALUE OF PURCHASE OF SHARES IN THE 334 TRANSACTIONS EFFECTED DURING THE YEAR WORKS OUT TO RS.6,69,79,280/-. SIMILARLY, THE TOTAL QUANTUM OF SALES FOR THE YEAR WORKS OUT TO RS. 7,61,08,161/-. FROM THE ABOVE CHARACTERISTICS WITH REGARD TO THE TRANSACTION IT APPEARS THAT PRIMA FACIE THESE TRANSACTIONS ARE IN THE NATURE OF BUSINESS AND TRAD E AND NOT INVESTMENT ORIENTED. TAX EFFECT ON THIS ACCOUNT WORKS OUT TO RS.27,38,664/-. III) PERUSAL OF THE PROFIT AND LOSS ACCOUNT AND THE SUBMISSIONS ON RECORD REVEAL THAT TDS HAS REMAINED MOTILAL R. TODI 7 TO BE DEDUCTED IN ACCORDANCE WITH CHAPTER-XVII(A) OF THE I.T. ACT, ON PROFESSIONAL FEES OF RS.24,OOO/-. IT SHOULD BE THEREFORE DISALLOWED U/S 40(A)(IA) R.W.S.200(1) OF THE I.T. ACT, 1961. THEREFORE I HAVE REASON TO BELIEVE THAT THE INCOME OF THE ASSESSEE CHARGEABLE TO TAX, HAS ESCAPED ASSESSMENT FOR A.Y.2006-07. PROCEEDINGS U/S147 OF THE ACT ARE THEREFORE INITIATED. ISSUE NOTICE U/S 148 OF THE ACT. 6.1. THE PROVISIONS OF SECTION 147 HAVE BEEN ENSHRI NED IN THE STATUTE WITH A VIEW TO ENABLE THE AO TO ASSESS THE ESCAPED INCOME. FOR THIS PURPOSE, THE AO HAS BEEN CONFERRE D WITH THE REQUISITE POWERS UNDER THE LAW TO REOPEN AN ALREADY CONCLUDED ASSESSMENT. ON THE OTHER HAND, THE CONST ITUTION OF OUR COUNTRY HAS ATTACHED GREAT SANCTITY TO THE C ONCEPT OF FINALITY OF LITIGATION. THUS, BY MAKING SUITABLE PR OVISIONS AT APPROPRIATE PLACES IN THE STATUTE ITSELF, LEGISLATU RE HAS ENSURED THAT SWORD OF LITIGATION SHOULD NOT BE KEPT HANGING ON THE HEADS OF THE LITIGATING PARTIES, BE IT THE GOVERNME NT OR THE CITIZENS. THATS WHY, STRICT PROVISIONS WITH REGAR D TO ASSUMPTION OF JURISDICTION, ESPECIALLY IN CASES OF ALREADY CONCLUDED ASSESSMENTS, HAVE BEEN KEPT ON THE STATUT E. 6.2. IN THE INCOME TAX ACT, THE PROVISIONS OF SECTI ON 147 TO 151 OF THE ACT DEAL WITH THE ISSUES OF REOPENING OF THE ASSESSMENT AND FRAMING OF THE RE-ASSESSMENT ORDER B Y THE AO. IN THESE PROVISIONS, ON THE ONE HAND, REQUISITE POWERS HAVE BEEN GIVEN TO THE AO TO CARRY OUT THE TASK OF BRINGING TO TAX THE ESCAPED INCOME, BUT SIMULTANEOUSLY, ON THE OTHER HAND, CERTAIN FETTERS HAVE BEEN PROVIDED WITHIN THE FRAME MOTILAL R. TODI 8 WORK OF THESE PROVISIONS TO ENSURE THAT THESE PROVI SIONS ARE USED ONLY IN DESERVING CASES AND NO UNDUE HARDSHIP IS CAUSED TO THE TAXPAYERS BY REOPENING THEIR CASES, AFTER LA PSE OF SO MANY YEARS. THESE PROVISIONS DEAL WITH THE ISSUES O F DETERMINING THE NATURE, SCOPE OF POWERS AND OBLIGAT IONS ASSIGNED BY THE LEGISLATURE TO THE AO WITH REGARD T O ASSUMPTION OF JURISDICTION BY THE AO, FOR REOPENING OF THE CASE AND FOR MAKING THE ASSESSMENT OF THE REOPENED CASE. VARIOUS COURTS HAVE HELD THAT SINCE THESE PROVISIONS DEAL W ITH THE JURISDICTIONAL ISSUES, THESE HAVE TO BE FOLLOWED ST RICTLY AND APPLIED LITERALLY, BY THE OFFICERS FOR REOPENING OF THE ASSESSMENT AND FOR FRAMING THE RE-ASSESSMENT ORDERS . THE COMPLIANCE OF THE MANDATORY CONDITIONS HAS TO BE MA DE BY THE AO AT VARIOUS STAGES, AS PRESCRIBED IN THESE PROVIS IONS. THE COMPLIANCE OF THESE MANDATORY CONDITIONS HAS BEEN I NTEGRATED IN THESE PROVISIONS, IN A STEP-WISE MANNER. MANY CO URTS OF OUR COUNTRY HAVE EXPLAINED, IN VARIOUS CASES, SIGNIFICA NCE OF THESE STATUTORY REQUIREMENTS, TIME TO TIME. 6.3. THUS, TAKING HELP FROM THESE JUDGMENTS, RELEVA NT PROVISIONS OF LAW, FIXING OBLIGATIONS UPON THE AO F OR MAKING MANDATORY COMPLIANCES, IN A STEP-WISE MANNER, FOR V ALID ASSUMPTION OF JURISDICTION FOR REOPENING AND REFRAM ING OF RE- ASSESSMENT ORDER, CAN BE SUMMARIZED AS UNDER: (I) AVAILABILITY OF THE NEW TANGIBLE MATERIAL INDIC ATING ESCAPED INCOME OF THE ASSESSEE, WHICH SHOULD HAVE COME INTO POSSESSION OF THE AO, AFTER THE PASSING O F MOTILAL R. TODI 9 ORIGINAL ASSESSMENT ORDER, WHETHER U/S 143(3) OR 143(1), (II) RECORDING OF THE REASONS BY THE AO: REASONS RECORDED SHOULD NOT BE BASED UPON THE CHANGE OF OPINION OF THE ASSESING OFFICER. REASONS SHOULD B E SUCH THAT ANY PERSON OF ORDINARY PRUDENCE SHOULD BE IN A POSITION TO MAKE A BELIEF ABOUT ESCAPEMENT OF INCOME ON THE BASIS OF FACTS NARRATED AND MATERIAL REFERRED TO, IN THE REASONS RECORDED. THE REASO NS SHOULD SHOW THAT, THERE IS RATIONAL NEXUS AND CAUSE & EFFECT RELATIONSHIP BETWEEN THE MATERIAL SOUGHT BE RELIED UPON IN THE REASONS AND BELIEF SOUGHT TO BE FORMED BY THE AO ABOUT ESCAPEMENT OF INCOME. (III) IN CASE; REOPENING IS SOUGHT TO BE DONE BY THE AO A FTER EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR AND THE ORIGINAL ASSESSMENT WAS FRAMED U/S 143(3) THEN REASONS CAN BE RECORDED ONLY IF THERE WAS FAILURE ON THE PART OF THE ASSESSEE IN DISCLOSURE OF MATERIAL OF FACTS, AS HAS BEEN ENVISA GED IN FIRST PROVISO TO SECTION 147. (IV) BEFORE ISSUING NOTICE U/S 148, THE AO HAS TO OBTAIN , ON THE REASONS RECORDED BY HIM, SANCTION FOR REOPENING OF THE CASE, FROM THE COMPETENT AUTHORITY AS ENVISAGED U/S 151 VIZ. ADDITIONAL COMMISSIONER OR T HE COMMISSIONER OF INCOME TAX, AS THE CASE MAY BE. BEFORE GRANTING ITS SANCTION, THE SANCTIONING AUTHO RITY MOTILAL R. TODI 10 IS REQUIRED TO RECORD ITS SATISFACTION BASED UPON I TS INDEPENDENT APPLICATION OF MIND, MAKING OUT A CAS E THAT AS PER THE FACTS NARRATED AND MATERIAL REFERRE D TO IN THE REASONS RECORDED BY THE AO, A BELIEF CAN B E FORMED ABOUT ESCAPEMENT OF INCOME AND CASE SOUGHT TO BE REOPENED IS A FIT CASE FOR REOPENING U/S 147. (V) AFTER OBTAINING THE SANCTION, THE AO IS REQUIRE D TO ISSUE AND SERVE NOTICE U/S 148 UPON THE ASSESSEE, WITHIN THE TIME LIMIT AS PRESCRIBED U/S 149, TO ENA BLE HIM TO ASSUME JURISDICTION TO REOPEN THE ASSESSMENT . (VI) THE ASSESSEE IS REQUIRED TO FILE TO RETURN OF INCO ME, IN RESPONSE TO NOTICE U/S 148 AND MAY REQUEST FOR THE COPY OF REASONS. (VII) THE AO IS BOUND, AS PER LAW, TO PROVIDE A CERTIFIED AND VERBATIM COPY OF REASONS TO THE ASSESSEE. (VIII) THE ASSESSEE MAY FILE ITS OBJECTIONS BEFORE THE AO, TO THE REASONS RECORDED, IF ANY. (IX) IN PURSUANCE TO JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF GKN DRIVESHAFTS 259 ITR 19 (SC), THE AO IS OBLIGED TO DISPOSE OF THESE OBJECTIONS AND INTIMATE THE SAME TO THE ASSESSEE, BEFORE PROCEEDIN G FURTHER WITH THE REASSESSMENT PROCEEDINGS. (X) THEREAFTER, THE AO IS OBLIGED UNDER THE LAW TO ISSUE AND SERVE NOTICE U/S 143(2) TO ENABLE HIM TO MAKE MOTILAL R. TODI 11 ASSESSMENT OF THE RETURN FILED BY THE ASSESSEE IN RESPONSE TO NOTICE ISSUED UNDER SECTION 148. (XI) FRAMING OF THE RE-ASSESSMENT ORDER BY THE AO U/S 147/143(3) AFTER PROVIDING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE AND CONSIDERING REPLIES AND EVIDENCES OF THE ASSESSEE, AND ALL OTHER APPLICABLE PROVISIONS OF THE ACT. 6.4. THE AFORESAID COMPLIANCES HAVE TO BE MADE BY T HE AO U/S 147 TO 151 OF INCOME TAX ACT, 1961 READ WITH OTHER RELEVANT PROVISIONS OF THE ACT, IN A STEP-WISE AND CHRONOLOG ICAL MANNER. THEREFORE, VALIDITY OF THE REOPENING PROCEE DINGS INITIATED BY THE AO, CAN BE EXAMINED IN THIS STEP-W ISE OR CHRONOLOGICAL MANNER ONLY. 6.5. THUS, COMING BACK TO THE FACTS AND CIRCUMSTANC ES OF THE CASE BEFORE US, WE ARE REQUIRED TO EXAMINE THE FIRS T THING FIRST I.E. WHETHER, IN THIS CASE, THERE WAS ANY FRESH TAN GIBLE MATERIAL IN THE POSSESSION OF THE AO AT THE TIME OF RECORDING OF THE REASONS. IN CASE, THE FIRST CONDITION IS FULF ILLED, THEN WE ARE REQUIRED TO EXAMINE THE COMPLIANCE OF PRESCRIBE D CONDITIONS AT THE NEXT STEP, AND SO ON. IN CASE, TH E FIRST CONDITION ITSELF IS NOT FULFILLED, THE PROCEEDINGS BECOME INVALID IN THE EYES OF LAW, THERE AND THEN, AND THERE WOULD NOT BE ANY REQUIREMENT TO EXAMINE ANY FURTHER. IF THE CASE OF THE AO FAILS ON THE FIRST STEP ITSELF, WE WOULD NOT BE REQUIRED TO LOOK INTO THE OTHER SUBSEQUENT ASPECTS, AS PROCEEDINGS WILL B ECOME INVALID IN THE EYES OF LAW AT THE VERY INCEPTION. MOTILAL R. TODI 12 6.6 . IN THE PRESENT CASE, IT WAS NOTICED BY US THA T THE CASE OF THE ASSESSE IS THAT THERE WAS NO FRESH TANGIBLE MAT ERIAL IN THE POSSESSION OF AO AT THE TIME OF RECORDING OF IMPUGN ED REASONS. A PERUSAL OF THE REASONS RECORDED BY THE AO IN THIS CASE REVEALS THAT AT THE TIME OF RECORDING OF THESE REASONS THE AO HAD EXAMINED ORIGINAL ASSESSMENT RECORDS ONLY AN D NO FRESH MATERIAL HAD COME IN THE POSSESSION OF THE AO . IN RESPONSE TO OUR SPECIFIC QUERY ALSO, LD DR COULD NO T POINT OUT ANY FRESH MATERIAL AVAILABLE WITH THE AO AT THE TIM E OF REOPENING OF THE CASE OF THE ASSESSEE. THUS, ASSERT ION OF THE ASSESSEE THAT THERE WAS NO FRESH MATERIAL WITH AO F OR REOPENING OF THIS CASE, REMAINED UNCONTROVERTED. 6.7. UNDER THESE FACTS AND CIRCUMSTANCES, LET US NO W EXAMINE SETTLED POSITION OF LAW ON THIS ISSUE. IT HAS BEEN HELD IN VARIOUS JUDGMENTS COMING FROM VARIOUS COURTS THAT A VAILABILITY OF FRESH TANGIBLE MATERIAL IN THE POSSESSION OF AO AT THE TIME OF RECORDING OF IMPUGNED REASONS IS A SINE QUA NONE , BEFORE THE AO CAN RECORD REASONS FOR REOPENING OF THE CASE . WE BEGIN WITH THE JUDGMENT OF HONBLE SUPREME COURT IN THE C ASE OF CIT VS. KELVINATOR INDIA LTD. 320 ITR 561 (SC), LAY ING DOWN THAT FOR REOPENING OF THE ASSESSMENT, THE AO SHOULD HAVE IN ITS POSSESSION TANGIBLE MATERIAL. THE TERM TANGI BLE MATERIAL HAS BEEN UNDERSTOOD AND EXPLAINED BY VARIOUS COURTS SUBSEQUENTLY. THERE HAS BEEN UNANIMITY OF THE COURT S ON THIS ISSUE THAT IN ABSENCE OF FRESH MATERIAL INDICATING ESCAPED INCOME, THE AO CANNOT ASSUME JURISDICTION TO REOPEN ALREADY CONCLUDED ASSESSMENT. MOTILAL R. TODI 13 6.8. RECENTLY, HONBLE DELHI HIGH COURT IN THE CASE OF PR. CIT VS TUPPERWARE INDIA PVT. LTD. , IN ITS ORDER DT 10-8-15 (ITA NO 415/2015 ) GOT AN OCCASION TO ANALYSE LATEST POSITI ON OF LAW ON THIS ISSUE. AFTER DISCUSSING MANY JUDGMENTS ON THIS ISSUE, IT WAS HELD THAT EVEN IN THE CASE OF ORIGINAL ASSESSME NT ORDER HAVING BEEN PASSED U/S 143(1), IT IS MANDATORY FOR THE AO TO HAVE IN ITS POSSESSION, FRESH TANGIBLE MATERIAL BEF ORE REOPENING OF THE CASE. 6.9 IN THE CASE OF BOMBAY STOCK EXCHANGE LTD. (WRIT PETITION NO.2468 DT. 12.06.2014) (89 CCH 118), HONBLE BOMBA Y HIGH COURT OBSERVED AS UNDER: 5. IT IS PERTINENT TO NOTE THAT RESPONDENT NO.1 HA S NOT SET OUT IN THE REASONS WHICH FACT OR OTHER MATERIAL WAS NOT DISCLOSED BY THE PETITIONER THAT LED TO INCOME ESCA PING ASSESSMENT. IN FACT, ON GOING THROUGH THE REASONS, WE FIND THAT RESPONDENT NO.1 HAS COME TO THE CONCLUSION/BEL IEF THAT INCOME HAD ESCAPED ASSESSMENT ON THE BASIS OF THE MATERIAL ALREADY BEFORE HIM AND NO NEW TANGIBLE MATERIAL HAS BEEN RELIED UPON BY RESPONDENT NO.1 TO COME THE SAID CONCLUSION/BELIEF. THIS IS CLEAR FROM THE USE OF THE WORDS ON PERUSAL OF THE RECORDS IT IS NOTICED..... ..., FURTHER PERUSAL OF STATEMENT 2 ENCLOSED WITH THE COMPUTATION OF INCOME SHOWS....... AND IT IS FURT HER NOTICED...... IN THE IMPUGNED NOTICE. 6.10. IN THE CASE OF CIT VS. ORIENT CRAFT LTD. 354 ITR 536, IT WAS OBSERVED BY HONBLE DELHI HIGH COURT THAT IN THE SAID MOTILAL R. TODI 14 CASE , REASONS FOR REASSESSMENT DISCLOSED THAT AO REACHED BELIEF THAT THERE WAS ESCAPEMENT OF INCOME 'ON GOIN G THROUGH THE RETURN OF INCOME' FILED BY ASSESSEE AFTER HE AC CEPTED RETURN U/S. 143(1) WITHOUT SCRUTINY, AND NOTHING MO RE. IN THESE FACTS, IT WAS HELD BY THE HONBLE HIGH COURT THAT IT WAS NOTHING BUT REVIEW OF EARLIER PROCEEDINGS AND ABUSE OF POWER BY AO. IT WAS FURTHER HELD THAT SINCE THERE WAS NO WHISPER IN REASONS RECORDED, OF ANY TANGIBLE MATERIAL WHICH CA ME TO POSSESSION OF AO SUBSEQUENT TO ISSUE OF INTIMATION, THEREFORE, IT WAS AN ARBITRARY EXERCISE OF POWER CONFERRED U/S 147. THUS, REOPENING WAS HELD TO BE INVALID ON THIS GROUND ITS ELF. 6.11. IN THE CASE OF MOHAN GUPTA (HUF) VS. CIT 366 ITR 115, SAME VIEW HAS BEEN FOLLOWED BY HONBLE DELHI HIGH C OUT. 6.12. FURTHER, IN THE CASE OF CIT VS. K. L. ARORA IN ITA 118/2014 DATED 21-04-2014, HONBLE DELHI HIGH COU RT OBSERVED AS UNDER: THIS COURT IS OF THE OPINION THAT NO FAULT CAN BE FOUND WITH THE TRIBUNALS ORDER. IT IS WELL SETTLED THAT IN ORDER TO ISSUE A VALID REASSESSMENT NOTICE, THE AO HAS TO BE SATISFIED ON T HE BASIS OF TANGIBLE MATERIAL OR INFORMATION SUBSEQUENTLY AVAIL ABLE TO HIM THAT THE ASSESSEE HAD NOT MADE FULL AND TRUE DISCLOSURE WHICH LED TO INCOME ESCAPING ASSESSMENT AT THE STAG E WHEN THE ORIGINAL ASSESSMENT WAS COMPLETED. SHORT OF THAT A RE- APPRECIATION OF THE EXISTING MATERIALS WHICH REALLY AMOUNTS TO REVIEW IS IMPERMISSIBLE. THE TRIBUNAL, IN THE CIRCU MSTANCES OF THIS CASE WAS JUSTIFIED IN CONCLUDING THAT RE-ASSES SMENT PROCEEDINGS THEMSELVES WERE NOT IN ACCORDANCE WITH LAW AND CONSEQUENTLY DISMISSING THE REVENUES APPEAL. NO QUE STION OF LAW ARISES FOR CONSIDERATION. MOTILAL R. TODI 15 6.13. IN THE CASE OF CIT VS. SHRI ATUL KUMAR SWAMI IN ITA NO. 112/2014 DATED 18-03-2014 REPORTED AT 52 TAXMAN N.COM 47, HONBLE DELHI HIGH COURT OBSERVED AS UNDER: ..REOPENING OF ASSESSMENT IS VALID IF IT IS BASED ON TANGIBLE MATERIAL TO JUSTIFY CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOMEIN INSTANT CASE NOTE FORMING P ART OF RETURN CLEARLY MENTIONED AND DESCRIBED NATURE OF TH E RECEIPT UNDER A NON-COMPETE AGREEMENTREASONS FOR ISSUANCE OF NOTICE U/S 147 NOWHERE MENTIONED THAT REVENUE CAME UP WITH ANY OTHER FRESH MATERIAL WARRA NTING REOPENING OF ASSESSMENTMERE CONCLUSION OF PROCEEDI NGS U/S 143(1) IPSO FACTO DOES NOT BRING INVOCATION OF POWERS FOR REOPENING ASSESSMENTREOPENING OF ASSESSMENT WAS UNJUSTIFIEDREVENUES APPEAL DISMISSED. 6.14. FURTHER RELIANCE CAN BE PLACED ON THE DETAILE D JUDGMENT IN THE CASE OF MADHUKAR KHOSLA VS. ACIT 367 ITR 165 (DELHI), WHEREIN IT HAS BEEN HELD THAT THE REOPENING IS NOT PERMITTED UNDER THE LAW UNLESS IT IS BASED ON FRESH TANGIBLE MATERIAL AND THAT IF THE REASONS TO BELIEVE ARE NOT BASED ON NEW, TANGIBLE MATERIALS , THE REOPENING AMOUNTS TO AN IMPERMISSIBLE REVIEW . IT HAS BEEN FURTHER OBSERVED THAT : THE FOUNDATION OF THE AOS JURISDICTION AND THE RAI SON DETRE OF A REASSESSMENT NOTICE ARE THE REASONS TO BELIEVE. NOW THIS SHOULD HAVE A RELATION OR A LINK WITH AN OBJECTIVE FACT, IN THE FORM OF INFORMATION OR FACTS EXTERNAL TO THE MATERIALS ON THE RECORD. SUCH EXTERNAL FACTS OR MATERIAL CONSTITUTE THE DRIVER, OR THE KEY WHICH ENABLES THE AUTHORITY TO LEGITIMATELY RE-OPEN THE COMPLETED ASSESSMENT. IN ABSENCE OF THIS OBJECTIVE TRIGGER, THE AO DOES NOT POSSESS JURISDICTION TO REOPEN THE ASSESSM ENT. IT IS AT THE NEXT STAGE THAT THE QUESTION, WHETHER THE RE- OPENING OF ASSESSMENT AMOUNTS TO REVIEW OR CHANG E OF OPINION ARISES. IN OTHER WORDS, IF THERE ARE NO R EASONS TO BELIEVE BASED ON NEW, TANGIBLE MATERIALS, THEN T HE MOTILAL R. TODI 16 REOPENING AMOUNTS TO AN IMPERMISSIBLE REVIEW. HERE, THERE IS NOTHING TO SHOW WHAT TRIGGERED THE ISSUANCE OF N OTICE OF REASSESSMENT NO INFORMATION OR NEW FACTS WHICH LE D THE AO TO BELIEVE THAT FULL DISCLOSURE HAD NOT BEEN MADE ( KELVINATOR OF INDIA LTD [(2010)320 ITR 561 (SC)] AND ORIENT CRAFT LTD [(2003)354 ITR 536 (DELHI)] FOLLOWED, USHA INTERNATIONAL [(2012)348 ITR 485 (DEL) (FB)] REFERRED) 6.15. IN THE CASE OF CIT VS JYOTI DEVI 218 CTR 264, HONBLE RAJASTHAN HIGH COURT HELD THAT SINCE REVENUE COULD NOT POINT OUT ANY INFORMATION OR MATERIAL WHICH HAD SUB SEQUENTLY COME TO THE NOTICE OF THE AO TO ENABLE HIM TO FORM THE REQUISITE BELIEF THAT ANY INCOME LIABLE TO BE ASSES SED HAD ESCAPED ASSESSMENT, THEREFORE, THE INITIATION OF RE ASSESSMENT PROCEEDINGS WAS NOT VALID. 6.16. HONBLE MADRAS HIGH COURT IN THE CASE OF BAPALAL & CO. EXPORTS 289 ITR 37, HELD THAT IN THE ABSENCE OF ANY NEW MATERIAL, THE AO IS NOT EMPOWERED TO REOPEN AN ASSE SSMENT IRRESPECTIVE OF THE FACT WHETHER IT WAS MADE UNDER S. 143(1) OR S. 143(3). 6.17. RECENTLY, MUMBAI BENCH OF ITAT IN THE CASE HV TRANSMISSIONS LTD. IN I.T.A NO. 2230/MUM/2010 HELD THAT EVEN THOUGH ORIGINAL ASSESSMENT WAS MADE UNDER S. 1 43(1) AND NOT UNDER S. 143(3), ASSESSEE HAVING MADE FULL DISCLOSURE OF ITS INCOME, AO WAS NOT JUSTIFIED IN REOPENING TH E ASSESSMENT IN THE ABSENCE OF ANY NEW MATERIAL. HON BLE BENCH HAS RELIED UPON THIRD MEMBER JUDGMENT FROM MUMBAI B ENCH MOTILAL R. TODI 17 OF ITAT IN THE CASE TELCO DADAJEE DHACKJEE LTD VS DCIT ( ITA NO 4613/MUMBAI/2013 DT 12-5-2010), IN SUPPORT OF TH IS VIEW. 6.18. SIMILAR VIEW HAS BEEN EXPRESSED BY HONBLE DE LHI BENCH OF ITAT IN THE CASE OF M/S NEXGEN SCHOOL OF BUSINESS VS. DEPUTY COMMISSIONER OF INCOME TAX, [ITA NO. 5609/DEL/2010] HOLDING THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED TO INITIATE THE REOPENING PROCEEDINGS IN ABSENCE OF ANY NEW INFORMATION OR MATERIAL ON RECORD SINCE THE DATE OF FILLING AND PROCESSING OF THE RETURN OF INCOME. 6.19. IN THE PRESENT CASE, IT HAS ALREADY BEEN DISC USSED THAT ADMITTED FACTS ARE THAT THERE WAS NO FRESH MATERIAL COMING INTO THE POSSESSION OF THE AO, AT THE TIME OF RECOR DING OF THE REASONS. THESE FACTS HAVE NOT BEEN REBUTTED BY LD DR ALSO. THE CASE LAW RELIED UPON BY LD DR IN THE CASE OF DR . AMINS PATHOLOGY, SUPRA IS NOT APPLICABLE ON THE ISSUE BEI NG DECIDED HERE. THE ISSUE THAT IN ABSENCE OF ANY FRESH MATERI AL, WHETHER AO CAN PROCEED TO RECORD REASONS, WAS NOT BEFORE HO NBLE HIGH COURT, THEREFORE HONBLE HIGH COURT HAD DECIDE D THE ISSUE OF CHANGE OF OPINION IN THAT CASE. IN THE CAS E BEFORE US, AS DISCUSSED ABOVE, WE ARE NOT GOING INTO THAT ISSU E. IN OUR CONSIDERED OPINION, AT THIS STAGE, WE NEED NOT GO I NTO THE OTHER ASPECT I.E. WHETHER THERE WAS CHANGE OF OPINI ON OR NOT. THIS ISSUE HAS BEEN APTLY CLARIFIED BY HONBLE HIGH COURT IN THE CASE OF MADHUKAR KHOSLA, (SUPRA), WHEREIN IT HA S BEEN HELD BY THEIR LORDSHIPS THAT EXTERNAL FACTS OR MATE RIAL CONSTITUTE THE DRIVER, OR THE KEY WHICH ENABLES THE AO TO MOTILAL R. TODI 18 LEGITIMATELY REOPEN THE COMPLETED ASSESSMENT AND IN ABSENCE OF THIS OBJECTIVE TRIGGER, THE AO DOES NOT POSSES S JURISDICTION TO REOPEN THE ASSESSMENT. FURTHER, MOST IMPORTANTLY , IT WAS HELD BY THE HONBLE HIGH COURT THAT IT IS AT THE NE XT STAGE WHEN THE QUESTION, WHETHER THE REOPENING OF ASSESSM ENT AMOUNTS TO REVIEW OR CHANGE OF OPINION ARISES. IN OTHER WORDS, IF THERE ARE NO NEW TANGIBLE MATERIALS, TH EN THERE WOULD BE NO REASONS TO BELIEVE, AND CONSEQUENTLY REOPENING WOULD BE AN IMPERMISSIBLE REVIEW. UNDER THESE CIRCU MSTANCES THERE WOULD NOT ARISE ANY NEED TO GO THE NEXT STAGE TO EXAMINE THE NEXT QUESTION, I.E., WHETHER THERE WAS REVIEW OR CHANGE OF OPINION. THE CONDITION WITH RESPECT TO AVAILABI LITY OF NEW TANGIBLE MATERIAL IS STEP ANTERIOR TO THE CONDITIO N OF NO CHANGE OF OPINION OR REVIEW. 6.20 THUS, IN VIEW OF JUDGMENTS DIRECTLY ON THE ISS UE UNDER CONSIDERATION, AS DISCUSSED IN PARAS 6.7 TO 6.18, A BOVE, REOPENING DONE BY LD. AO IN THE ABSENCE OF FRESH TA NGIBLE MATERIAL, IS INVALID AND BAD IN LAW. THEREFORE, THE INITIATION OF REASSESSMENT PROCEEDINGS WAS NOT VALID. THUS, RE-AS SESSMENT ORDER FRAMED IN PURSUANCE TO INVALID REOPENING IS I LLEGAL; THE SAME IS HEREBY QUASHED. SINCE ASSESSMENT ORDER HAS BEEN QUASHED ON JURISDICTIONAL GROUND ITSELF, OTHER GROU NDS ARE NOT BEING ADJUDICATED. MOTILAL R. TODI 19 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND SEPTEMBER 2015. SD/- (JOGINDER SINGH ) SD/- (ASHWANI TANEJA) ' # / JUDICIAL MEMBER $ # / ACCOUNTANT MEMBER % & MUMBAI; ) DATED : 22/09/2015 CTX? P.S/. .. ! %'&'( )(*& / COPY OF THE ORDER FORWARDED TO : 1. +,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 % 1 ( + ) / THE CIT, MUMBAI. 4. 0 0 % 1 / CIT(A)- , MUMBAI 5. 34 .' , 0 +( ' 5 , % & / DR, ITAT, MUMBAI 6. 6# 7& / GUARD FILE. ! / BY ORDER, /3+ . //TRUE COPY// +/, - (DY./ASSTT. REGISTRAR) , % & / ITAT, MUMBAI