Asst. Commissioner of Income Tax, Central Circle-3(2), Hyderabad V. Venkateswara Flexo-Pack Private Limited , Hyderabad

ITA 465/Hyd/2020

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 8046 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-A
• Assessment Year: 2008-2009
• Appeal Filed On: 30-08-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Depreciation; Difference of opinion; Reason to believe; Change of opinion
• Section: 148; 139; 143(3); 113; 153

Judgement Text

ITA No.465/Hyd/2020 1 IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A ‘ Bench, Hyderabad (Through Video Conferencing) Before Shri A. Mohan Alankamony, Accountant Member AND Shri S.S. Godara, Judicial Member ITA No.465/Hyd/2020 Assessment Year: 2008-09 The Asst. Commissioner of Income Tax, Central Circle – 3(2), Hyderabad. Vs. M/s. Venkateswara Flexo- Pack Pvt. Ltd., 7-4-150/3, Sy.No.252, Gagan Pahad Village, Rajendranagar Mandal, R.R. Dist., Hyderabad – 501232. PAN : AABCV1132C (Appellant) (Respondent) Assessee by: Shri P. Murali Mohan Rao Revenue by : Shri B. Sunil Kumar. Date of hearing: 25/10/2021 Date of pronouncement: 22/11/2021 O R D E R Per S. S. Godara, J.M. This Revenue’s appeal for A.Y 2008-09 arises from the Commissioner of Income Tax (Appeals)-11, Hyderabad’s order dated 31.01.2020, in case No.017/2016-17 involving proceedings under section 143(3) r.w.s. 147 of Income Tax Act, 1961 (in short, “the Act”). Heard both the parties. Case files perused. ITA No.465/Hyd/2020 2 2. The Revenue’s sole substantive grievance challenges correctness of the CIT(A)’s action quashing the impugned re- opening vide following detailed discussion : “7. I have considered the assessment order, material placed before me, the written submissions of the assessee, Remand Report of the Assessing Officer, rebuttal of the assessee on the Remand Report of Assessing Officer and the case laws relied upon by the appellant and the AO. The grounds taken as above by the appellant are against the validity of the re-opening the assessment u/s.147 of the I.T. Act, 1961. The basic contention of the assessee is that the AO has not recorded satisfaction as to failure on part of the assessee as required under first proviso to sec.147 as the case was already scrutinized and order ujs.143(3) was passed. Secondly, the case was re-opened on the very same issue and the assessee has filed all the details called for, the basis of re-opening amounts to 'change of opinion', which is not allowed as per various judicial pronouncements on the issue. The assessee also raised the contention that the AO did not apply his own mind to come to the conclusion that income has escaped assessment rather he based his satisfaction solely on information received from Investigation wing. 8. The reasons recorded by AO for reopening by way of issue of notice u/s 148 as communicated to the appellant are as under: "In this case, certain findings are received from ITO(Inv), Unit-Il, Hyderabad vide letter dt.17. 03.2015. It was stated in the case of M/s. Tirumala Trading basing on the Suspicious Transaction Report, enquiries have been conducted and consequently a statement from the MD of the assessee company M/s. Venkateshwara Flexo Pack P Ltd was recorded. It was noticed by the ITO(Inv), that some Kolkata based companies made investments in MI s. Venkateshwara Flexo Pack P ltd in the form of share capital. The shares allotted to these companies were subsequently transferred to other companies in Kolkata and finally the shares were purchased by the Directors and family members of the Directors. The shares were allotted to the Kolkata companies at a premium in the range of Rs.25/- to Rs.35/- whereas the shares transferred to the Directors and family members of the Directors at the rate of Rs. 5/- It is further reported by the ITO(Inv) that enquiries were conducted at the given address of the concerns to whom share were allotted and subsequent transfers were made by these groups in Kolkata. During these enquiries it was found that no concern was running from the said premises and also no person was able to provide any information about these concerns. The findings were put before the MD of the assessee company, Sri. Narendra Kumar Goyal (the principal officer of this group), could not provide any plausible explanation. ITA No.465/Hyd/2020 3 In the absence of proper explanation and from the outcome of the enquiries it is crystal clear that the group brought dubious investment in the form of share capital from the concerns of non- existing entities (paper companies at the address as provided by this group). The dubious investments brought into share capital needs to be brought to tax by reopening of assessments by issuing notice u/s.148 of the I.T Act, 1961." 8.1 In this case, the assessment year involved is 2008-09. The return of income originally was filed on 30.09.2008. The same was revised on 03.04.2009 and the assessment ujs.143(3) of the I. T Act was completed on 27.12.2010. The notice ujs.148 is issued on 27.03.2015. It means it is a case where the scrutiny assessment was completed which is sought to be reopened after four years from the end of the assessment year. The provisions applicable to the present case are as under: “147. If the (Assessing) officer (has reason to believe) that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned(hereinafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-section(3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year;" 8.1.1 As the scrutiny assessment was completed in the case and sought to be re-opened after four years, the first proviso is clearly applicable. The scope and function of proviso as held by the Hon'ble Supreme Court in the case of CIT Vs. Indo Mercantile Bank Ltd (1959) 36 ITR, is as under : “........The proper function of a proviso is that it qualifies the generality of the main enactment by providing an exception and taking out as it were, from the main enactment, a portion which, but for the proviso would fall within the main enactment. Ordinarily it is foreign to the proper function of a proviso to read it as providing something by way of an addendum or dealing with a subject which is foreign to the main enactment. It is a fundamental rule of construction that a proviso must be considered with relation to the principal matter to which it stands as a proviso. Therefore, it ITA No.465/Hyd/2020 4 is to be construed harmoniously with the main enactment. (Per Das, CJ) in Abdul Jabar Butt vs. State of Jammu & Kashmir (1957) SCR 51, 59 Bhagwati, J., in Ram Narain Sons Ltd Vs. Asst. Commissioner of Sales Tax (1955) 2 SCR 483, said: It is a cardinal rule of interpretation that a proviso to a particular provision of a statute only embraces the field which is covered by the main provision. It carves out an exception to the main provision to which it has been enacted as a proviso and to no other." Lord Macmillan in Madras & Southern Mahratta Railway Co. vs. Bezuwada Municipality (1944) LR 71 IA 113 laid down the sphere of a proviso as follows The proper function of a proviso is to except and deal with a case which would otherwise fall within the general language of the main enactment, and its effect is confined to that case. Where, as in the present case, the language of the main enactment is clear and unambiguous, a proviso can have no repercussion on the interpretation of the main enactment, so as to exclude from it by implication what clearly falls within its express terms." The territory of a proviso therefore is to carve out an exception to the main enactment and exclude something which otherwise would been within section. It has to operate in the same field and if the language of the main enactment is clear it cannot be used for the purpose of interpreting the main enactment or to exclude by implication what the enactment or to exclude by implication what the enactment clearly says unless the words of the proviso are such that that is its necessary effect. [Vide also Corporation of the City of Toronto vs. Attorney-General for Canada (1946) AC 32, 37. 8.1.2 In AIi M. K Vs State of Kerala (2003) AIR SC 4006/11 SCC 632, SC made similar observations: “10. The normal function of a proviso is to exempt something out of the enactment or to qualify something" enacted therein which but for the proviso would be within the purview of the enactment. As was stated in Mullins Vs Treasurer of Survey (1880) 5 QBD 170: 42 LT 128 (referred to in Shah Bhojraj Kuverji Oil Mills and Ginning Factory Vs. Subhash Chandra Yograj Sinha AIR 1961 SC 1596 and Calcutta Tramways Co. Ltd Vs. Corporation of Calcutta AIR 1965 SC 1728), when one finds a proviso to a section the natural presumption is that, but for the proviso, the enacting part of the section would have included the subject matter of the proviso. The proper function of a proviso is to except and to deal with a case which would otherwise fall within the general language of the main enactment and its effect is confined to that case. It is a qualification of the preceding enactment which is expressed in terms too general to be quite accurate. As a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment and ordinarily, a proviso is not interpreted as stating a general rule .... " 8.1.3 Viewed in this light, the proviso to sec.147 of the said act, carves out an exception from the main provisions of sec.14 7. If a case were to fall ITA No.465/Hyd/2020 5 within the proviso, whether or not it was covered under the main provisions of sec. 147 of the said act would not be material. Once the exception carved out by proviso came into play, the case would fall outside the ambit of sec. 147. Examining the proviso (set out above), we find that no action can be taken under section. 147 after the expiry of four years from the end of the relevant assessment year if the following conditions are satisfied: a. an assessment under sub-sec. (3) of sec. 143 or this section has been made for the relevant assessment year, and b. Unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee. i) to make a return under sec. 1390r in response to a notice issued under sub-section (1) of sec. 142 or sec.148 ; or ii) to disclose fully and truly all material facts necessary for his assessment for that assessment year. Condition (a) is admittedly satisfied in as much as the original assessment was completed under sec.143(3) of the said act. Condition (b) deals with a special kind of escapement of income chargeable to tax. The escapement must arise out of the failure on the part of the assessee to make a return under sec.139 or in response to a notice issued under sub- section (1) of sec. 142 or sec. 148. This is clearly not the case here because the petitioner did file the return. Since there was no failure to make the return, the escapement of income cannot be attributed to such failure. This leaves us with the escapement of income ch.argeab1e to tax which arises out of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. If it is also found that the petitioner had disclosed fully and truly all material facts necessary for its assessment, then no action under sec.147 could have been taken after the four year period indicated above. So, the key question is whether or not the petitioner had made a full and true disclosure of all material facts. 8.1.4 In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period indicated above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. This is a necessary condition for overcoming the bar set up by the proviso to sec. 147. If this condition is not satisfied, the bar would operate and no action under sec.l47 could be taken. We have already mentioned above that the reasons supplied to the petitioner does not contain any such allegation. Consequently, one of the conditions precedent for removing the bar ITA No.465/Hyd/2020 6 against taking action after the said four year period remains unfulfilled. 8.1.5 In the case of Wel Intertrade P Ltd, Hon'b1e Delhi High Court agreed with the view taken by the Punjab and Haryana High Court in the case of Duli Chand Singhania that, in the absence of an allegation in the reasons recorded that the escapement of income had occurred by reason of 'failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, any action taken by the AD under sec.147 beyond the four year period would be wholly without jurisdiction. 8.1.6 The above issue was also discussed in the case of CIT Vs Samcor Glass Ltd in ITA NO.768/2015,dt.12.10.2015, wherein it was held as under: “5. Apart from the fact that the impugned order of the ITAT suffers from no legal infirmity, the Court is of the view that on the face of it, the reasons for reopening of the assessment in both the cases did not satisfy the basic requirement of the law, in at least in two aspects. One was that the reopening was of assessment beyond four years after the AY for which the original assessment was framed and yet the reasons for reopening did not categorically state that there was a failure by the Assessees to disclose any material particulars on the basis of which there were reasons to believe that the income has escaped assessment. This Court has recently, in a decision dated 22nd September 2015 in ITA No. 356 of 2013 (CIT v. Multiplex Trading & Industrial Co. Ltd.), clearly stated in cases where reopening of assessment is beyond four years from the end of the relevant assessment year “the condition that there has been a failure on the part of the Assessee to truly and fully disclose all material facts must be concluded with certain level of certainty.” 8.1.7 The legal position emanating from discussion above is that the AO has to conclude that there is failure on part of the assessee to disclose fully and truly all the material relevant for the computation of income. The same has to be specifically recorded. It is found that in the present case no such recording has been done by the AO. In view of the above it is held that the proceedings have not been validly initiated. The appellant succeeds on the ground raised in this regard.” 3. We have given our thoughtful consideration to rival pleadings against and in support of the learned CIT(A)’s foregoing detailed conclusion quashing the re-opening in issue. There is hardly any dispute between the parties that it is an instance of section 143(3) regular assessment having been completed on 27.12.2010 for A.Y. 2008-09 whereas the assessing authority had issued section 148 notice on 27.03.2015 i.e. beyond a period of four years from the end of the relevant assessment year. Learned ITA No.465/Hyd/2020 7 departmental representative could hardly rebut the clinching fact that the Assessing Officer’s re-opening reasons recorded nowhere indicated as to whether the assessee’s taxable income had escaped assessment on account of its failure in disclosing “fully” and “truly” the relevant particulars in the computation in light of section 147 1 st proviso of the Act. We thus quote case law Hindustan Liver Limited Vs. R.B. Wadkar 268 ITR 332 (Bombay) that re-opening reasons recorded by an Assessing Officer have to be read as it is without any scope for addition, deletion or substitution or improvement, as the case may be at a later stage and conclude in the light of the foregoing factual backdrop that the CIT(A) has rightly quashed the impugned re-opening. The Revenue fails in its sole substantive grievance therefore. 4. This Revenue’s appeal is dismissed in above terms. Order pronounced in the Open Court on 22 nd November, 2021. Sd/- Sd/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER Hyderabad, dated 22 nd November, 2021. TYNM/sps Copy to: S.No Addresses 1 M/s. Venkateswara Flexo-Pack Pvt. Ltd., 7-4-150/3, Sy.No.252, Gagan Pahad Village, Rajendranagar Mandal, R.R. Dist., Hyderabad – 501232. 2 The Asst. Commissioner of Income Tax, Central Circle – 3(2), Hyderabad. 3 CIT (A) – 11, Hyderabad. 4 Pr. CIT (Central), Hyderabad. 5 DR, ITAT Hyderabad Benches 6 Guard File By Order