Jain Fabrics, CHENNAI V. ITO, CHENNAI

ITA 488/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9383 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 04-03-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH JCITD R
• Assessee Lawyers: N DEVANATHAN
• Keywords: Reopening of assessment; Tangible material; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 133A; 234B; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI , ! ' . #$ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.488/MDS./2016 / ASSESSMENT YEAR : 2007-08 M/S.JAIN FABRICS, 63,HABIBULLAH ROAD, T.NAGAR,CHENNAI 600 017. VS. INCOME TAX OFFICER, BUSINESS WARD I(2), CHENNAI. [PAN AAAFJ 0570 G ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : MR.N.DEVANATHAN,ADVOCATE /RESPONDENT BY : MR.A.V.SREEKANTH, JCIT,D.R / DATE OF HEARING : 1 2 - 05 - 201 6 / DATE OF PRONOUNCEMENT : 20 - 05 - 2016 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-2, CHENNAI DAT ED13.11.2015 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE FIRST GROUND IS WITH REGARD TO ASSUMING JUR ISDICTION U/S.147 OF THE ACT BY ISSUING NOTICE U/S.148 OF THE ACT. ITA NO.488/MDS./2016 :- 2 -: 3.1 THE FACTS OF THE CASE ARE THAT A SURVEY U/S.1 33A WAS CONDUCTED ON 20.03.2007 AT THE PREMISES OF THE ASSE SSEE WHERE DISCREPANCY IN STOCK WAS NOTICED AND THE ASSESSEE F ILED ITS ORIGINAL RETURN OF INCOME ON 02.07.2007 ADMITTING A TAXABLE INCOME OF ` 94,50,755/-. SUBSEQUENTLY, THE CASE WAS SELECTED FO R SCRUTINY AND THE ASSESSMENT U/S.143(3) OF THE ACT WAS COMPLETED ON 09.04.2009 WITH THE ADHOC DISALLOWANCE OF EXPENSES AMOUNTING TO ` 25,800/-. DURING THE COURSE OF SURVEY PROCEEDINGS, THE ASSESSEE HAD ADMITTED TO OFFER ` 50 LAKHS IN ADDITION TO THE NET PROFIT. THE AO, THO UGH MENTIONED ABOUT THE OFFER OF THE ASSESSEE, FAILED TO TAKE COG NIZANCE OF THE SAME WHILE FINALIZING THE ORDER AND OMITTED TO ADD THE S AID SUM TO THE TOTAL INCOME. TO ASSESS THE ASSESSEES ADMISSION OF ` 50 LAKHS DURING THE COURSE OF SURVEY, THE ASSESSMENT WAS RE-OPENED U/S .147 OF THE ACT. IN THE REASSESSMENT ORDER, THE AO HELD THAT THE NET PROFIT OF BOTH THE FIRMS VIZ. M/S.JAIN FABRICS AND M/S.JAIN TEXTILES T OGETHER WAS WORKED OUT AT ` 1,40,58,822/- AND THE ASSESSEE OFFERED AN ADDITION OF RS.50 LAKHS TOWARDS THE DISCREPANCIES DURING THE COURSE O F SURVEY. HENCE, THE TOTAL PROFIT OF BOTH M/S.JAIN TEXTILES AND M/S .JAIN FABRICS, TO BE BROUGHT TO TAX IS ` 1,90,58,822/- IN THE CASE OF M/S.JAIN TEXTILES AND ` 1,11,44,165/- IN THE CASE OF M/S.JAIN FABRICS. HEN CE, THE AO NOTICED A SHORT FALL OF ` 25,13,480/- AND THE SAME WAS ADDED TO THE NET PROFI T. AGAINST THIS, THE ASSESSEE CARRIED THE APPEAL BEFOR E THE LD.CIT(A) ITA NO.488/MDS./2016 :- 3 -: CHALLENGING OF THAT RE-OPENING OF THE ASSESSMENT A ND ALSO ADDITION MADE IN THE REOPENED ASSESSMENT . 3.2 THE CIT(A) OBSERVED THAT AS PER ORIGINAL ASSES SMENT ORDER, THE ASSESSEE HAD NOT COMPLIED WITH THE OFFER MADE DURIN G THE COURSE OF SURVEY U/S.133A OF THE ACT AND THERE WAS A SHORTFAL L OF ` 25,12,480/-, SINCE THE ASSESSEE HAD OFFERED ONLY A SUM OF ` 24,86,520/- AS AGAINST THE ASSESSEE HAD ACCEPTED TO OFFER OF ` 50 LAKHS DURING THE SURVEY. ACCORDINGLY, CIT(A) CONFIRMED THE ADDITION MADE BY THE AO IN THE REOPENED ASSESSMENT. HOWEVER, CIT(A) HAD NOT ADJUDI CATED THE GROUND RELATING TO THE REOPENING OF ASSESSMENT IN ITS ORDER. AGGRIEVED WITH THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. NOW, THE CONTENTION OF THE LD.A.R IS THAT THE R E-OPENING OF THE ASSESSMENT GOES TO THE ROOT OF THE MATTER AND IT IS INCUMBENT ON THE CIT(A) TO ADJUDICATE THE ISSUE REGARDING LEGALITY O F THE REOPENING OF ASSESSMENT, THEREAFTER, CIT(A) HAS TO ADJUDICATE TH E ISSUE RELATING TO THE ADDITIONS IN THE RE-ASSESSMENT. SINCE THE CIT(A ) FAILED TO ADJUDICATE THE ISSUE RELATING TO THE REOPENING OF A SSESSMENT , HE THRUST UPON THE BENCH THAT THE BENCH HAS TO DECIDE THE ISSUE RELATING TO THE REOPENING OF ASSESSMENT AND IT SHALL NOT BE REMITTED BACK TO THE FILE OF CIT(A) FOR HIS ADJUDICATION. ACCORDING TO LD.A.R, THERE IS NO FRESH TANGIBLE MATERIAL TO RE-OPEN THE ASSESSMENT SO AS TO HELD THAT ITA NO.488/MDS./2016 :- 4 -: THERE IS ESCAPEMENT OF INCOME. LD.A.R PLACED RELIA NCE IN THE JUDGEMENT OF DELHI HIGH COURT IN THE CASE OF CIT VS . USHA INTERNATIONAL LTD. ( 348 ITR 485)(DEL.). FURTHER, LD.A.R SUBMITTED THAT THE ASSESSMENT IS RE-OPENED ON CHANGE OF OPINION AN D THERE IS NO REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMEN T IN THE ABSENCE OF ANY MATERIAL TO SUGGEST TO SO. FOR THIS PURPOSE , LD.A.R RELIED ON THE JUDGMENT OF CIT VS. KELVINATOR OF INDIA REPORTED IN (2002) 256 ITR 01(S.C). ACCORDING TO HIM, IF THERE IS NO TANGIBLE MATERIAL AVAILABLE WITH THE AO TO FORM THE REQUISITE BELIEF OF ESCAPEM ENT OF INCOME, REOPENING OF COMPLETED ASSESSMENT IS UNSUSTAINABLE IN THE EYE OF LAW. FOR THIS PROPOSITION, HE RELIED ON THE JUDGMENT OF DELHI HIGH COURT IN THE CASE OF CIT VS. ORIENT CRAFT LTD. REPORTED IN ( 2013) 354 ITR 536 (DEL.) AND ALSO PLACED RELIANCE IN THE DECISIONS OF THE TRIBUNAL IN THE CASE OF GOPAL GLASS WORKS LTD., IN ITA NO.2143/AHD. /2011 VIDE ORDER DATED 04.05.2016 AND IN THE CASE OF AJOY BAKLI, IN ITA NO.312/KOL/2013 VIDE ORDER DATED 06.05.2015. 5. ON THE OTHER HAND, LD.D.R SUBMITTED THAT THE AS SESSMENT IS VALIDLY REOPENED BY RECORDING THE REASONS THAT THO UGH THE ASSESSEE AGREED FOR OFFERING OF ` 50 LAKHS IN ADDITION TO THE NET PROFIT SHOWN BY HIM IN THE P&L A/C VIDE STATEMENT RECORDED DURING T HE COURSE OF SURVEY U/S.133A OF THE ACT ON 20.03.2007. HOWEVER, THE ASSESSEE HAD NOT OFFERED THE ENTIRE AMOUNT OF ` 50 LAKHS, BUT OFFERED ONLY A SUM OF ITA NO.488/MDS./2016 :- 5 -: ` 24,86,520/-. HENCE, TO BRING TO TAX A AMOUNT OF ` 25,13,480/-, THE ASSESSMENT WAS RE-OPENED. 6.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, ORIGINAL ASSESSMENT U/S.143(3 ) OF THE ACT WAS COMPLETED ON 18.08.2008. IN THE ASSESSMENT ORDER, A O MENTIONED THE CASE WAS TAKEN UP FOR SCRUTINY IN VIEW OF THE SURVE Y CONDUCTED AT THE PREMISES OF THE ASSESSEE ON 20.03.2007. HOWEVER, TH E ASSESSMENT WAS RE-OPENED BY RECORDING REASONS ON 16.03.2012 AS FOLLOWS:- THE ASSESSMENT FOR THE ASST. YEAR 2007-08 WAS COMPL ETED U/S 143(3) ON 09.04.2009 WITH ASSESSED INCOME OF RS. 94 ,76,560/-. SURVEY U/S 133A WAS CONDUCTED IN THE BUSINESS PREMI SES OF THE ASSESSEE (M/S. JAM FABRICS AND M/S. JAIN TEXTILES) ON 20.3.2007. THE ABOVE MENTIONED FIRMS ARE DEALING WI TH COTTON FABRICS ON WHOLE SALE TRADE. THEY ARE BUYING FABRIC S AS A LOT FROM WHOLE SALE PARTIES AT ERODE, SALEM, COIMBATORE , NAGRI, BHIWANDI AND CHENNAI AND SELL THE SAME TO THEIR CLI ENTS AT MUMBAI, DELHI, BANGALORE AND CHENNAI. DURING THE CO URSE OF SURVEY, IT WAS NOTED THAT THE ASSESSEE WAS MAINTAIN ING COMBINED BOOKS OF ACCOUNTS IN RESPECT OF BOTH THE C ONCERNS. THE PHYSICAL INVENTORY OF STOCK AVAILABLE IN THE PR EMISES LOCATED AT MO.63,HABIBULLAH ROAD, T.NAGAR, CHERINAI-600017 AND GODOWN LOCATED AT NO.38/I, THYAGARAYA GRANUINI STRE ET, T.NAGAR AND NO.5/1, THYAGARAYA CRAMANI STREET, T.NA GAR, CHENNAI. SINCE THE ASSESSEE COULD NOT IDENTIFY THE STOCK SEPARATELY FOR BOTH THE FIRMS PHYSICAL INVENTORY OF THE STOCK ITA NO.488/MDS./2016 :- 6 -: AVAILABLE WAS TAKEN AND A TRADING ACCOUNT AND P & L ACCOUNT WERE WORKED OUT AS ON 21-3-2007, WHERE THE NET PROF IT OF BOTH THE FIRMS WORKED OUT TO BE RS.1,40,58,822/-. HOWEVE R IT IS SEEN FROM THE SURVEY REPORT THAT THE ASSESSEE HAD AGREED TO OFFER AN AMOUNT OF RS.50 LAKHS IN ADDITION TO THE NET PROFIT . HENCE, I HAVE REASONS TO BELIEVE THAT INCOME HAS ESCAPED ASS ESSMENT TO THE TUNE OF RS.50 LAKHS. IT IS, THEREFORE, REQUESTE D THAT NECESAARY APPROVAL MAY KINDLY BE ACCORDED BY THE AD DITIONAL COMMISSIONER OF INCOME TAX, BUSINESS RANGEI, (I/C) , CHENNAI FOR ISSUE OF NOTICE U/S 148 OF THE IT ACT, 1961, FO R REOPENING OF THE ASSESSMENT FOR THE ASST. YEAR 2007-08. SUBMIT TED FOR KIND APPROVAL. DT.16.3.2012 (K.MARIMUTHU)ITO,BUSINESS WARD I(2) ,CHENNAI 6.2 THE ASSESSEE CHALLENGED THE REOPENING OF ASSES SMENT BEFORE THE LD.CIT(A) AS FOLLOWS:- THE CASE WAS SELECTED FOR SCRUTINY & NOTICE U/S.14 3(2) WAS SERVED. AFTER DUE VERIFICATION THE ASSESSMENT WAS COMPLETED U/S.143(3) ACCEPTING R.O.I WITH A MINOR ADDITION OF RS.25,800/ -. THE ASSESSMENT WAS DONE BY THE SAME OFFICERS I.E. DCIT RANGE I & I TO WARD I(2), WHO INITIATED & PRESENT DURING THE SURVEY. BEING A SUR VEY CASE THE ABOVE CASE WAS ALSO MONITORED BY THE JCIT RANGE I. HENCE , THE REOPENING OF CASE U/S.147 TOWARDS INCOME ESCAPING ASSESSMENT IS TOTALLY WRONG, UNETHICAL, UNLAWFUL AND MIS-UTILIZATION OF THE ABOV E PROVISION OF THE IT ACT 1961. YOUR APPELLANT VIDE THEIR LETTER DT.30.05.2011 PRO TESTED AGAINST REOPENING OF CASE U/S.147 WHEREAS THE LEARNED OFFIC ER DOES NOT FELL NECESSITY TO REPLY AND SENT FURTHER BY CALLING FOR DETAILS, WHICH IS AGAINST THE MORAL RIGHT OF EACH AND EVERY CITIZEN. THOUGH THE ABOVE GROUND WAS BEFORE THE CIT(A), HE F AILED TO ADJUDICATE THE ABOVE GROUND AND HE LIMITED HIS FIND INGS WITH REFERENCE ITA NO.488/MDS./2016 :- 7 -: TO GROUND RELATING TO THE ADDITIONS MADE IN THE RE -OPENING OF ASSESSMENT . WHEN THE ASSESSEE HAS RAISED SPECIFIC GROUND RELATING TO REOPENING OF ASSESSMENT, IT IS INCUMBENT ON THE CIT (A) TO GIVE FINDINGS ON IT. IN THE PRESENT CASE, SINCE THE CIT (A) FAILED TO ADJUDICATE THE ABOVE LEGAL ISSUE, THE ACTION OF THE CIT(A) IS IMPROPER. HENCE, IN THE INTEREST OF JUSTICE, WE ARE INCLINED TO REMIT THE ISSUE TO THE FILE OF CIT(A) TO ADJUDICATE THE ISSUE RELATING TO REOPENING OF THE ASSESSMENT FIRST, THEREAFTER CIT(A) SHALL ADJUDICAT E OTHER ISSUES RELATING TO MERITS OF THE ADDITIONS AND ALSO ADJUD ICATE THE LEVY OF INTEREST U/S.220(2), 234B & 234C OF THE ACT, IF NEC ESSARY. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH MAY, 2016, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 20 TH MAY, 2016 K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 3. - 1-!' / CIT(A) 5. /23- 4 / DR 2. / RESPONDENT 4. - 1 / CIT 6. 3&-5 / GF