Prime Ceramics Pvt.Ltd., Baroda V. The Income Tax Officer, Ward-4(3), Baroda

ITA 355/AHD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6135 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 15-06-2017
• Assessment Year: 1999-2000
• Appeal Filed On: 12-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROOP CHAND
• Assessee Lawyers: ANIL R SHAH
• Keywords: Reopening of assessment; Reason to believe; Revenue expenditure; Reassessment proceedings
• Section: 143(3); 148

Judgement Text

SMC-ITA NO. 355/AHD/2016 PRIME CERAMICS PVT LTD VS. ITO ASSESSMENT YEAR: 1999-2000 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD [ BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER ] ITA NO. 355/AHD/2016 ASSESSMENT YEAR : 1999-2000 PRIME CERAMICS PVT LTD ............A PPELLANT AT & POST : GAVASAD, PADRA JAMBUSAR ROAD, PADRA ROAD, VADODARA [PAN AABCP 3755 D] VS. INCOME-TAX OFFICER WARD-4(3), BARODA .......................RESPONDENT APPEARANCES BY: ANIL R. SHAH FOR THE APPELLANT ROOPCHAND FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 02.02.2018 DATE OF PRONOUNCING THE ORDER : 05.02.2018 O R D E R 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HA S CHALLENGED CORRECTNESS OF THE ORDER DATED 17 TH NOVEMBER 2015 PASSED BY THE CIT(A)-2, VADODARA, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) R.W.S. 14 7 OF THE INCOME-TAX ACT, 1961, FOR THE ASSESSMENT YEAR 1999-2000. 2. ONE OF THE GRIEVANCES TAKEN UP BY THE ASSESSEE, IN THIS APPEAL, IS AGAINST LEARNED CIT(A)S UPHOLDING THE VALIDITY OF REASSESS MENT PROCEEDINGS. I WILL TAKE IT UP FIRST. 3. TO ADJUDICATE ON THIS APPEAL, IT IS SUFFICIENT T O TAKE NOTE OF THE FACT THAT THE REASSESSMENT PROCEEDINGS ARE SAID TO HAVE BEEN INIT IATED FOR THE FOLLOWING REASONS:- 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR AY 2002-03, IT IS NOTICED THAT ASSESSEE HAS CLAIMED DEFERRED REVENUE EXPENSES OF RS.1,44,827/-. THE CAPITAL EMPLOYED AS FURNISHED BY THE ASSESSEE I S RS.50,15,560 AND 2.5% OF THE SAME IS WORKED OUT TO RS.1,25,369 AND 1 /5 TH OF THE SAME COMES TO RS.25,077. THE ASSESSEE IS ENTITLED FOR DEDUCTI ON OF RS.25,077. THE DIFFERENCE OF RS.1,19,750 IS DISALLOWABLE. I HAVE REASON TO BELIEVE THAT THE SMC-ITA NO. 355/AHD/2016 PRIME CERAMICS PVT LTD VS. ITO ASSESSMENT YEAR: 1999-2000 PAGE 2 OF 4 INCOME TO THE EXTENT OF RS.1,19,750 HAS ESCAPED ASS ESSMENT. NOTICE U/S 148 IS ISSUED. 4. ON A PERUSAL OF THE ABOVE REASONS, IT IS EVIDENT THAT THE ASSESSING OFFICER HAS PROCEEDED ON THE BASIS THAT DEFERRED REVENUE EXPEND ITURE CAN BE ALLOWED AS DEDUCTION UNDER SECTION 35D BUT THEN THERE IS NO BA SIS FOR THIS UNDERLYING ASSUMPTION. AS A MATTER OF FACT, IT IS ALSO CLEAR F ROM MATERIAL ON RECORD THAT THE DEFERRED REVENUE EXPENDITURE INCURRED BY THE ASSESS EE IS NOT OF THE NATURE WHICH CAN BE COVERED BY SECTION 35D. 5. WHEN I POINTED OUT THE ABOVE FACTS TO THE LEARNE D DEPARTMENTAL REPRESENTATIVE, HE TRIED TO JUSTIFY THE REOPENING O N THE BASIS OF FACTORS OTHER THAN SET OUT IN THE REASONS RECORDED FOR REOPENING THE ASSES SMENT, EVEN AS HE COULD NOT DEMONSTRATE TO ME, FROM THE CASE RECORDS WHICH WERE SHOWN TO ME DURING THE HEARING, ANY OTHER REASONS RECORDED FOR REOPENING. IT IS ONLY ELEMENTARY THAT THE REASONS RECORDED FOR REOPENING THE ASSESSMENT, THAT THE ASSESSING OFFICER RELIES ON, CANNOT BE SUPPLEMENTED OR FORTIFIED AT A LATER STAG E. WHILE ON THIS ASPECT OF THE MATTER, I MAY REFER TO THE FOLLOWING OBSERVATIONS M ADE BY A DIVISION BENCH OF THIS TRIBUNAL IN THE CASE OF BIR BAHADUR SINGH SIJWALI V S. ITO (ITA NO.3814/DEL/2011; ORDER DATED 20.01.2015):- 6. A PLAIN LOOK AT THE REASONS FOR REOPENING THE A SSESSMENT, AS PRODUCED BEFORE US, SHOW THAT THESE REASONS WERE RECORDED AF TER THE NOTICE WAS SERVED ON 14 TH SEPTEMBER 2009 AS A MENTION ABOUT THE FACT OF SERVICE OF NOTICE IS SET OUT IN THE RECORDED REASONS ITSELF. IT IS ONLY ELEMENTARY THAT THE REASONS ARE TO BE RECORDED BEFORE ISSUANCE OF NOTICE, AND I N THE ABSENCE OF ANY REASONS FOR REOPENING HAVING BEEN RECORDED PRIOR TO REOPENING OF ASSESSMENT, THE REASSESSMENT PROCEEDINGS FAIL FOR T HIS SHORT REASON ALONE. HON'BLE BOMBAY HIGH COURT, IN THE CASE OF PRASHANT S. JOSHI VS. ITO [(2010) 230 CTR (BOM) 232.] HAS OBSERVED: 'THE AO MUST HAVE REASONS TO BELIEVE THAT SUCH IS THE CASE (I.E. ANY INCOME CHARGEABLE T O TAX HAS ESCAPED ASSESSMENT FOR A PARTICULAR YEAR) BEFORE HE PROCEED S TO ISSUE NOTICE UNDER S. 147'. IN OTHER WORDS, WHEN NO REASONS ARE RECORDED FOR REOPENING THE ASSESSMENT PRIOR TO ISSUANCE OF NOTICE, THE REASSES SMENT PROCEEDINGS MUST FAIL FOR THAT REASON ALONE. HOWEVER, FOR THE REASON S WE WILL SET OUT NOW, THE CONCLUSIONS WILL BE NO DIFFERENT EVEN IF IT IS PRES UMED THAT THIS COMMUNICATION, EXTRACTS FROM WHICH ARE REPRODUCED BEFORE, ONLY CON VEYS THE REASONS ALREADY RECORDED PRIOR TO ISSUANCE OF NOTICE. 7. IT IS WELL SETTLED IN LAW THAT REASONS, AS RECOR DED FOR REOPENING THE REASSESSMENT, ARE TO BE EXAMINED ON A STANDALONE BA SIS. NOTHING CAN BE SMC-ITA NO. 355/AHD/2016 PRIME CERAMICS PVT LTD VS. ITO ASSESSMENT YEAR: 1999-2000 PAGE 3 OF 4 ADDED TO THE REASONS SO RECORDED, NOR ANYTHING CAN BE DELETED FROM THE REASONS SO RECORDED. HON'BLE BOMBAY HIGH COURT, IN THE CASE OF HINDUSTAN LEVER LTD. VS. R.B. WADKAR [(2004) 268 ITR 332], HA S, INTER ALIA, OBSERVED THAT '..........IT IS NEEDLESS TO MENTION THAT THE REASO NS ARE REQUIRED TO BE READ AS THEY WERE RECORDED BY THE AO. NO SUBSTITUTION OR DE LETION IS PERMISSIBLE. NO ADDITIONS CAN BE MADE TO THOSE REASONS. NO INFERENC E CAN BE ALLOWED TO BE DRAWN ON THE BASIS OF REASONS NOT RECORDED. IT IS F OR THE AO TO DISCLOSE AND OPEN HIS MIND THROUGH THE REASONS RECORDED BY HIM. HE HAS TO SPEAK THROUGH THE REASONS.' THEIR LORDSHIPS ADDED THAT 'THE REASO NS RECORDED SHOULD BE SELF-EXPLANATORY AND SHOULD NOT KEEP THE ASSESSEE G UESSING FOR REASONS. REASONS PROVIDE LINK BETWEEN CONCLUSION AND THE EVI DENCE....'. THEREFORE, THE REASONS ARE TO BE EXAMINED ONLY ON THE BASIS OF THE REASONS AS RECORDED. THE NEXT IMPORTANT POINT IS THAT EVEN THOUGH REASON S, AS RECORDED, MAY NOT NECESSARILY PROVE ESCAPEMENT OF INCOME AT THE STAGE OF RECORDING THE REASONS, SUCH REASONS MUST POINT OUT TO AN INCOME E SCAPING ASSESSMENT AND NOT MERELY NEED OF AN INQUIRY WHICH MAY RESULT IN D ETECTION OF AN INCOME ESCAPING ASSESSMENT. UNDOUBTEDLY, AT THE STAGE OF R ECORDING THE REASONS FOR REOPENING THE ASSESSMENT, ALL THAT IS NECESSARY IS THE FORMATION OF PRIMA FACIE BELIEF THAT AN INCOME HAS ESCAPED THE ASSESSMENT AN D IT IS NOT NECESSARY THAT THE FACT OF INCOME HAVING ESCAPED ASSESSMENT I S PROVED TO THE HILT. WHAT IS, HOWEVER, NECESSARY IS THAT THERE MUST BE SOMETH ING WHICH INDICATES, EVEN IF NOT ESTABLISHES, THE ESCAPEMENT OF INCOME FROM A SSESSMENT. IT IS ONLY ON THIS BASIS THAT THE ASSESSING OFFICER CAN FORM THE BELIEF THAT AN INCOME HAS ESCAPED ASSESSMENT. MERELY BECAUSE SOME FURTHER INV ESTIGATIONS HAVE NOT BEEN CARRIED OUT, WHICH, IF MADE, COULD HAVE LED TO DETECTION TO AN INCOME ESCAPING ASSESSMENT, CANNOT BE REASON ENOUGH TO HOL D THE VIEW THAT INCOME HAS ESCAPED ASSESSMENT. IT IS ALSO IMPORTANT TO BEA R IN MIND THE SUBTLE BUT IMPORTANT DISTINCTION BETWEEN FACTORS WHICH INDICAT E AN INCOME ESCAPING THE ASSESSMENTS AND THE FACTORS WHICH INDICATE A LEGITI MATE SUSPICION ABOUT INCOME ESCAPING THE ASSESSMENT. THE FORMER CATEGORY CONSISTS OF THE FACTS WHICH, IF ESTABLISHED TO BE CORRECT, WILL HAVE A CA USE AND EFFECT RELATIONSHIP WITH THE INCOME ESCAPING THE ASSESSMENT. THE LATTER CATEGORY CONSISTS OF THE FACTS, WHICH, IF ESTABLISHED TO BE CORRECT, COULD L EGITIMATELY LEAD TO FURTHER INQUIRIES WHICH MAY LEAD TO DETECTION OF AN INCOME WHICH HAS ESCAPED ASSESSMENT. THERE HAS TO BE SOME KIND OF A CAUSE AN D EFFECT RELATIONSHIP BETWEEN REASONS RECORDED AND THE INCOME ESCAPING AS SESSMENT. WHILE DEALING WITH THIS ASPECT OF THE MATTER, IT IS USEFU L TO BEAR IN MIND THE FOLLOWING OBSERVATIONS MADE BY HON'BLE SUPREME COURT IN THE C ASE OF ITO VS LAKHMANI MEWAL DAS [(1976) 103 ITR 437], ' THE REAS ONS FOR THE FORMATION OF THE BELIEF MUST HAVE RATIONAL CONNECTION WITH OR RE LEVANT BEARING ON THE FORMATION OF THE BELIEF. RATIONAL CONNECTION POSTUL ATES THAT THERE MUST BE A DIRECT NEXUS OR LIVE LINK BETWEEN THE MATERIAL COMI NG TO THE NOTICE OF THE ITO AND THE FORMATION OF THIS BELIEF THAT THERE HAS BEE N ESCAPEMENT OF THE INCOME OF THE ASSESSEE FROM ASSESSMENT IN THE PARTICULAR Y EAR BECAUSE OF HIS FAILURE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. IT IS NO DOUBT TRUE THAT THE COURT CANNOT GO INTO SUFFICIENCY OR ADEQUACY OF THE MATER IAL AND SUBSTITUTE ITS OWN OPINION FOR THAT OF THE ITO ON THE POINT AS TO WHET HER ACTION SHOULD BE INITIATED FOR REOPENING ASSESSMENT. AT THE SAME TIME WE HAVE TO BEAR IN MIND THAT IT IS NOT ANY AND EVERY MATERIAL, HOWSOEVER VAGUE AND IND EFINITE OR DISTANT, REMOTE SMC-ITA NO. 355/AHD/2016 PRIME CERAMICS PVT LTD VS. ITO ASSESSMENT YEAR: 1999-2000 PAGE 4 OF 4 AND FARFETCHED, WHICH WOULD WARRANT THE FORMATION O F THE BELIEF RELATING TO ESCAPEMENT OF THE INCOME OF THE ASSESSEE FROM ASSES SMENT. 6. IN VIEW OF THE ABOVE DISCUSSIONS, AND BEING OF THE OPINION THAT REASONS FOR REOPENING THE ASSESSMENT, AS SHOWN TO ME, ARE NOT S USTAINABLE IN LAW, I QUASH THE REASSESSMENT PROCEEDINGS. AS I QUASH THE REASSESSM ENT PROCEEDINGS AND AS ASSESSEE SUCCEEDS FOR THIS REASON ALONE, I SEE NO N EED TO DEAL WITH OTHER GROUNDS OF APPEAL WHICH ARE NOW WHOLLY ACADEMIC. 7. IN THE RESULT, THE APPEAL IS ALLOWED IN THE TERM S INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 5 TH FEBRUARY, 2018. SD/- PRAMOD KUMAR (ACCOUNTANT M EMBER) AHMEDABAD, THE 5 TH DAY OF FEBRUARY, 2018 **BT COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD 1. DATE OF DICTATION: .....FOUR PAGES MANUSCRIPTS OF HONBLE AM IS ATTACHED .........02.02.2018 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: .. 02.02.2018....... 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR . P.S./P.S.: .. 05.02.2018 . 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: 05.02.2018... 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK : . 06.02.2018.. .... 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK : . 7. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER: