M/s Man Diesel & Turbo India Ltd., Maharashtra V. DCIT, New Delhi

ITA 4295/DEL/2015

• Counselvise Citation: [2024] 130 COUNSELVISE.COM (IT) 5530 (ITAT-DELHI)
• Duration Of Justice: 9 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2024
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 11-08-2024
• Assessment Year: 2003-2004
• Appeal Filed On: 01-07-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NIDHI SINGH
• Keywords: Reopening of assessment; Depreciation; Reason to believe
• Section: 147; 148; 143(3); 250; 143(2)

Judgement Text

1 ITA no. 4295/Del/2015 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E”: NEW DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER ITA no. 4295/Del/2015 A.Y. 2003-04 Man Diesel & Turbo India Ltd., (formerly known as Man Diesel India Ltd.), E-73, MIDC, Waluj, Aurangabad, Maharashtra. PAN: AAACM 0320 L Vs DCIT, Circle 6(1), New Delhi. APPELLANT RESPONDENT Appellant by None Respondent by Ms. Nidhi Singh, Sr. DR Date of hearing 12.08.2024 Date of pronouncement 20.08.2024 O R D E R PER KUL BHARAT, JM: This appeal, by the assessee, is directed against the order of the learned Commissioner of Income-tax (Appeals)-6, Delhi, dated 18.03.2015, pertaining to the assessment year 2003-04. The assessee has raised following grounds of appeal: 2 ITA no. 4295/Del/2015 “1. The Learned Commissioner of Income-tax (Appeals) has erred in law and on facts in not quashing the action under section 147 Income-tax Act, 1961 and in not annulling the impugned assessment order considering the fact that notice for re-opening the assessment under section 147 of the Income-tax Act, 1961 was issued beyond the time limit provided under first proviso to section 147 of the Income tax Act, 1961; 2. Without prejudice to ground no. 1, the Learned Commissioner of Income- tax (Appeals) has erred in law and on facts in not quashing the action under section 147 Income-tax Act, 1961 and in not annulling the impugned assessment order considering the fact that the notice under the section 148 of the Income-tax Act, 1961 was not properly served on the appellant; 3. Without prejudice to ground no. 1 and ground no. 2, the Learned Commissioner of Income-tax (Appeals) has grossly erred both on facts and in law in disallowing legitimate business expenses amounting to Rs. 2,449,970/- recorded in the books of account as 'provisions for expenses" following the mercantile system of accounting. 4. The appellant craves leave to add/alter any of the grounds of appeal before or at the time of hearing.” 2. At the time of hearing no one attended the proceedings on behalf of the assessee despite issue of notice for hearing. From the record it is seen that no one has been attending the proceedings on behalf of the assessee. It is also seen from the record that assessee had made request for transfer of appeal but the request of the assessee was declined. Under these facts, since despite several opportunities given, there is no representation on behalf of the assessee, the appeal of the assessee is taken up for hearing in absence of the assessee and is being disposed of after hearing learned DR and on the basis of material available on record. 3 ITA no. 4295/Del/2015 3. Facts of the case, in brief, are that for A.Y. 2003-04, under consideration, the assessee was engaged in the business of erection & commissioning of diesel generating sets, trading of spares, after sales support services and engine design services. The assessee filed its return of income on 28.11.2003 declaring income at NIL. The case was selected for scrutiny. The assessment was completed u/s 143(3) of the Income-tax Act, 1961 (the ‘Act’) vide order dated 29.03.2006 by adding Rs. 13,44,671/-. Aggrieved against it the assessee preferred appeal to the learned CIT(A) who vide order dated 15.06.2010 passed under section 250 of the Act allowed the assessee’s appeal. Subsequently, after recording reasons, the case was reopened u/s 147 of the Act. Rejecting the assessee’s contention that no notice u/s 148 of the Act was served on the assessee the AO vide order dated 26.11.2010 completed the assessment u/s 147/143(3) of the Act by adding Rs. 24,29,970/- on account of provisions of unaccounted expenses, at a total income of Rs. 2,80,91,882/-. After setting off carried forward losses/ unabsorbed depreciation, total income was assessed at Nil. Aggrieved against it assessee preferred appeal before the learned CIT(Appeals) who vide impugned order dated 18.03.2015 dismissed the appeal by affirming the action of the AO. Aggrieved against this the assessee is in appeal before this Tribunal. 4 ITA no. 4295/Del/2015 4. We have heard learned DR and gone through the material available on record. Apropos to grounds 1 & 2, relating to issuance of notice for re-opening the assessment under section 147 beyond the time limit and non receipt of notice u/s 148 of the Act, we find that the learned CIT(Appeals) adjudicated these issues, inter alia, by observing as under: “5.1.1 I have carefully considered the facts of the case, the findings of the AO and the submission of the A/R of appellant. In Ground No. 1 of appeal the appellant has taken the plea that AO has erred in (a) Reopening the assessment under section 147 without complying with the mandatory statutory conditions prescribed under section 147 to 151 of the Act, (b) Disposing the application for the non-receipt of the notice issued under section 148 of the Income Tax Act 1961, without giving opportunity of being heard, (c) Not providing the reasons for reopening the case and (d) Not providing the opportunity for furnishing the documents/ explanations for the disallowances made. 5.1.2 The facts of the case are that original assessment 143(3) in this case was completed on 29.03.2006. Thereafter, the case was reopened and proceedings u/s 147 was initiated by the AO on the basis of reason recorded on 17.03.2010. Satisfaction was also expressed by the CIT on 19.03.2010 on the reasons recorded by the AO. Thereafter, notice u/s 148 was issued to the assessee on 23.03.2010 by speed post at the address shown in the LT. return which was duly served as the notice did not return unserved. The notice was issued within a period of 6(six) years form the end of the relevant assessment year within the time limit prescribed u/s 149. The reasons of reopening were also provided to the assessee. AO has recorded the reasons of reopening of this case u/s 147 of LT Act as under "From the records it has been found that the assessee has debited Rs 24,49,970/- in profit & loss a/c which were in the nature of provision of 'unaccounted expenses (1922824.55) and provision of unaccounted purchases (527145.20). As the provisions are not an allowable deduction, the same should not have been claimed by the assessee. 5 ITA no. 4295/Del/2015 I therefore, have reason to believe that the income of Rs 24,49,970/- has escaped assessment within the meaning of section 147 of the IT Act, 1961 due to omission on the part of the assessee to include this sum into its income for the relevant previous year." From the reasons recorded it is evident that the assessee has debited Rs 24,49,970/-in profit & loss a/c which were in the nature of provision of 'unaccounted expenses (1922824.55) and provision of unaccounted purchases (527145.20). As the provisions are not an allowable deduction, the same should not have been claimed by the assessee. Therefore, AO had reason to believe that the income of Rs 24,49,970/- has escaped assessment within the meaning of section 147 of the LT.Act, 1961 5.1.3 Notice u/s 143(2) of LT. Act was issued on 18.10.2010 & 08.11.2010 and the same were duly served upon the assessee. Shri Greenize Jain, Ms Nidhi Verma and Shri Mohit Khemka, CA/ARs attended before the AO on 18.11.2010 & 26.11.2010 and made the submissions as called for. The objections raised by the assessee were disposed off by the AO vide order dated 26.11.2010. The above income escaping assessment because of the claim of provision as deduction was never disclosed by the appellant in the original assessment proceeding u/s 143(3). In view of the above, the A.O is justified in expressing satisfaction that there is reason to believe that income has escaped assessment. 5.1.4 For the purpose of initiation of proceedings u/s 147, mere existence of prima facie belief that income chargeable to tax had escaped assessment, is sufficient. Sufficiency of reasons for forming the belief is not a requirement. Reliance in this regard is placed on the decision of Hon'ble Delhi High Court in the case of A.G. Holdings (P) Ltd. vs. ITO in W.P. (C) 8031/2011 and in the case of CIT vs. Nova Promoters & Finlease (P) Ltd. (2012) 18 Taxmann.com 217 (Delhi) where it is held that at the time of issuing the notice to reopen the assessment, the Assessing Officer is only expected to form a prima facie or tentative belief that income chargeable to tax had escaped assessment. Whether the addition has to be made or not is a matter to be decided on merits in the course of the reassessment proceeding. 5.1.5 Submission of the appellant, that initiation of proceeding u/s 147 by the AO is a mere change of opinion is of no merit. Because, the issue on 6 ITA no. 4295/Del/2015 account of which the proceedings u/s 147 were initiated by the A.O., were never examined by the A.O. at the time of original assessment u/s 143(3) on 29.03.2006. When there is no discussion on the issue in the assessment order and no details were called for by the Assessing Officer or filed by the assessee on the issue, no finding either positive or negative was arrived at during the course of the original assessment proceedings, therefore, there is no question of change of opinion. Relaince is placed on Ess Kay Engineering Co. (P) Ltd. vs. CIT (SC) 247 ITR 818, Revathy C.P. Equipments Ltd. vs. DCIT & Ors. (Mad) 241 ITR 856 and EMA India Ltd. vs. ACIT (All) 30 DTR 82 5.1.6 In the case of M/s Consolidated Photo & Finvest Ltd. vs. ACIT 2006 (151 Taxman 41 Del). Hon'ble Delhi High Court has held that even if the assessing officer gathered a reason to believe from the very same records as had been subject matter of completed assessment proceedings, still notice u/s 148 will be valid and that the principle that a mere change of opinion cannot be a basis for re-opening completed assessment would have no application where order of assessment does not address itself to the aspect which is the basis for re-opening of the assessment. Since these issues had not been addressed by the assessing officer while passing the original assessment order, therefore, the ratios laid down by Hon'ble Court in the cases of M/s Consolidated Photo & Finvest Ltd. vs. ACIT 2006 (151 Taxman 41 Del) are squarely applicable to the facts of the appellant's case and the assessing officer was well within his powers to issue the notice u/s 148 reopening the assessment. 5.1.7 The appellant also contended that the assessee company has duly disclosed fully and truly all material facts necessary for its assessment. Further, there is no allegation in the reasons for reopening that the assessee company has failed to disclose fully and truly all material facts necessary for its assessment for the relevant assessment year. Therefore, assessee contended that the notice issued was invalid, being time-barred. The above contention is without any merit because the provisions' claimed by the assessee as deduction was neither disclosed in the Profit & Loss account nor in the tax audit report nor in the notes to the account by the auditor. Section 147 of the Act enables an assessing officer to reopen an assessment after the expiry of four years, if the AO has reason to believe that by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, an income assessable to tax has 7 ITA no. 4295/Del/2015 escaped assessment. Explanation 1 to proviso to section 147 further clarifies that production before the assessing officer of books of accounts and other evidence does not exonerate the assessee from the duty to make full and true disclosure of material facts, if some material necessary for assessment lay embedded in books of accounts or other evidence which the assessing officer could have uncovered with due diligence but did not. Then, production of account books or other evidence will not tantamount to full and true disclosure of material facts. For clarity of the same, Explanation 1 below proviso to section 147 is reproduced as under:- "Explanation 1 Production before the AO of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of the foregoing proviso." 5.1.8 The 'provisions' claimed by the assessee as deduction could not be discovered by the AO from the materials filed at the time of original assessment although the AO could have discovered it with due diligence. Therefore, it is evident that the assessee has failed to disclose fully and truly the necessary material facts. Further there is no requirement as per the 1.T.Act that in the reasons recorded the AO should record that that the assessee has failed to disclose fully and truly the necessary material facts.. The only requirement is that if an assessment u/s 143(3) or 147 is already made, proceedings u/s 147 can be initiated by recording the reasons only if the assessee has failed to disclose fully and truly the necessary material facts. In the instant case since the assessee has failed to disclose fully and truly the necessary material facts, therefore, AO initiated proceedings u/s 147 by recording the proper reason. 5.1.9 In the case of ALA Firm vs. CIT 189 ITR 285 (SC), the Hon'ble Supreme Court has held that the assessing officer rightly initiated the proceedings for re-assessment after becoming aware of the relevant High Court decision even though it was available at the time of original assessment. The Hon'ble Court gave a view that the result of this decision is that the statute does not require that the information must be extraneous to the records. It is enough if the material, on the basis of which the reassessment proceedings are sought to be initiated, came to the notice of the ITO subsequent to the original assessment. If the ITO had considered and formed an opinion on the said material in the original assessment itself 8 ITA no. 4295/Del/2015 then he would be powerless to start the proceedings for the re-assessment. Where, however the ITO had not considered the material and subsequently came by the material from the record itself, then such a case would fall within the scope of section 147(c) of the Act.” 5.1.10 The appellant also contended that aforesaid notice u/s 148 was never received by the assessee company. That no notice has been served to the principal officer of the assessee company at their registered address at Aurangabad (Maharashtra). It was submitted that the address of the assessee company was changed in the year 2007. Assessee also submitted that the same incumbent officer has issued notice under section 143(2) of the Act dated 04.02.2010 for the AY 2007-08 which clearly shows that the AO was aware of their changed address. Assessee submitted that AO has also communicated the order u/s 147 of the Act at the registered address of the assessee company at Aurangabad(Maharashtra). Assessee submitted that the letter for the change in address was filed in the office of the jurisdictional AO on 30.09.2009. The above contention of the assessee is without any merit. In the PAN data base, address of the assessee is showing two addresses, first at 4-7C, DDA Shopping Centre, New Friends Colony, New Delhi and another one at E-73, Wajui, MIDC, Distt. Aurangabad(Mah)-431136. In the return filed, the assessee has shown the first address. Therefore, at the time of service of the notice u/s 148 of the Act Le. on 23.03.2010, the New Delhi address was valid address. Further, the notice sent by speed post did not return unserved. Therefore, it is clear that notice was duly served upon the assessee. Reliance is placed on Capital Gem Overseas (P) Ltd. vis ITO(ITAT, Del)101 ITD 117. The contention that letter for change of address was filed on 30.09.2009 and notice u/s 143(2) for the AY 2007-08 was issued at the changed address, is also without any merit. Because in the above letter and the notice for AY 2007-08, name is shown as "Man Diesel India Ltd." whereas the name of the assessee at the time of original assessment for AY 2003-04 was Man B & w Diesel India Ltd which was reopened by the AO u/s 147. There is no mention in the letter that name of the assessee is changed to Man Diesel India Ltd. The AO has also recorded that notice was validly served by post on the assessee on 23.03.2010 and the notice has not returned back to till date. The contention that assessment order u/s 147 was communicated at the Aurangabad address, is also without any merit, because the issue is service of notice u/s 148 and not service of assessment order. Taking, the totality of the facts and circumstances of this case into consideration, I reject the contentions of the 9 ITA no. 4295/Del/2015 Id. AR and uphold the reopening of the assessment u/s 147. Therefore, the appeal fails in this ground.” 5. In our considered view the learned CIT(Appeals) after discussing the issue in detail, including the case laws canvassed before him, rejected the contention made on behalf of the assessee relating to non-service of notice u/s 148 and upheld the reopening of assessment u/s 147. We see no reason to take a different view in the matter. Accordingly, impugned order of learned CIT(A) relating to validity of reopening u/s 147 of the Act is upheld. Accordingly, ground nos. 1 & 2 raised by the assessee are dismissed. 6. In ground no. 3 the assessee has challenged the disallowance of Rs. 24,49,970/- made on account of provisions of unaccounted expenses. We find that the learned CIT(A) has adjudicated this issue, inter alia, observing as under: “5.2.1 In the additional ground of appeal the appellant has taken the plea that Assessing Officer erred in disallowing provision for unaccounted expenses amounting to Rs 2,449,970/-. AO observed that in the balance sheet under the head "current liabilities" the assessee has shown "other liabilities" at Rs 48,68,583/-. In the bifurcation of "other liabilities", the assessee has submitted that amounts payable (expenses) are Rs 19,22,824.55 and payable(purchase) are Rs 5,27,145.20 on account of 'provisions' of unaccounted expenses. Both of these expenses are not only unaccounted but these are provisional in nature. Therefore, AO held that the same cannot be allowed to the assessee. The provisions cannot be allowed to the assessee, since the same are not ascertained liability. Therefore, the claim of the assessee to the extent of Rs 24.49.970/- is considered as non-genuine claim 10 ITA no. 4295/Del/2015 and accordingly the same added by the AO to the total income of the assessee. 5.2.2 There is no dispute that provision made for unaccounted expenses and purchases were claimed as deduction by the assessee. The appellant submitted that it created the provision for various expenses amounting to Rs 24,49,970/-. Assessee submitted that on account of non availability of bills/invoices at the time of finalization of accounts, the appellant created provisions in respect of the said expenses in its books of accounts for the year ending 31st March, 2003. The bills and invoices were received by the assessee in the next financial year. Since the bills and invoices were not raised on the assessee during the year under consideration, therefore, it is evident that the liabilities are not ascertained liability during the year. It is established legal position that only liability which is definite and ascertainable can be allowed as deduction. In view of the above, the AO is fully justified in making the above addition of unascertained provisional liability claimed as deduction. The appeal fails in this ground.” 7. A perusal of the impugned order on the issue in question would reveal that in upholding the disallowance of Rs. 24,49,970/- on account of provision of unaccounted expenses the learned CIT(A) has given a categorical finding that bills and invoices were not raised on the assessee during the year under consideration and there was no ascertained liability. In arriving at its conclusion the learned CIT(A) has discussed the issue in detail. The assessee has not brought any evidence contradicting the finding of learned CIT(Appeals). In the absence of any such evidence, we see no reason to take a different view in the matter. Accordingly, impugned order of learned CIT(A) on the issue in question is upheld. Consequently, ground no. 3 taken by the assessee is dismissed. 11 ITA no. 4295/Del/2015 8. Ground no. 4 is general and requires no adjudication. 9. In the result, assessee’s appeal is hereby dismissed. pronounced in open court on 20 th August, 2024. Sd/- Sd/- (BRAJESH KUMAR SINGH) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 20.08.2024. *MP* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI