DRVK Traders Pvt. Ltd., Kolkata V. I.T.O., Ward - 1(1), Kolkata, Kolkata

ITA 57/KOL/2023

AI Insights

The case involves DRVK Traders Pvt. Ltd., the appellant, contesting the orders of the National Faceless Appeal Centre (CIT(A)) and the subsequent assessment orders issued by the Income Tax Officer (ITO), Ward-1(1), Kolkata. The primary contention was the validity of the reopening of the assessment for the years 2016-17 and 2017-18 under sections 147 and 148 of the Income Tax Act, which the appellant argued was not conducted in accordance with the law. Additionally, the appellant challenged the ad hoc disallowance of expenses made by the ITO. The Tribunal, referencing the decision in 'CIT vs. Jet Airways', held that the reopening was bad in law and the subsequent additions were not sustainable.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 128126 (ITAT-KOLKATA)
• Duration Of Justice: 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 16-04-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 22-01-2023
• Other Referred Cases: CIT vs. Jet Airways reported in [2011] 331 ITR 236 (Bom.)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Set aside
• Section: 147; 148; 250

Judgement Text

आयकर अपीलȣय अͬधकरण, कोलकाता पीठ ‘एसएमसी’, कोलकाता IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH KOLKATA Įी संजय गग[, ÛयाǓयक सदèय एवं Įी ͬगरȣश अĒवाल, लेखा सदèय के सम¢ Before Shri Sanjay Garg, Judicial Member and Shri Girish Agrawal, Accountant Member I.T.A. Nos.57&58/Kol/2023 Assessment Years: 2016-17 & 2017-18 DRVK Traders Pvt. Ltd......................................................... Appellant 114/A, 3 rd Floor, Madan Mohan Burman Street, Kolkata-700007. [PAN: AADCD0219J] vs. ITO, Ward-1(1), Kolkata........................................................ Respondent Appearances by: Shri Siddharth Agarwal, Adv., appeared on behalf of the appellant. Smt. Ranu Biswas, Addl. CIT-DR, appeared on behalf of the Respondent. Date of concluding the hearing : April 17, 2023 Date of pronouncing the order : April 17, 2023 आदेश / ORDER संजय गग[, ÛयाǓयक सदèय ɮवारा / Per Sanjay Garg, Judicial Member: Both the appeals have been preferred by the assessee against the separate orders dated 15.12.2022 of the National Faceless Appeal Centre [hereinafter referred to as the ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’). Since, common issues are involved in all the appeals, hence these have heard together and are being disposed of by this common order. 2. The appeal in ITA No.57/Kol/2023 for assessment year 2016-17 is taken as lead case for the purpose of narration of facts. The assessee in this appeal has taken the following grounds of appeal: “1. BECAUSE the compliance to the notices issued by the CIT(A) could not be made by the appellant as it was completely unaware of the notices having been issued for the hearing of the appeal and in the absence of I.T.A. Nos.57&58/Kol/2023 Assessment Years: 2016-17 & 2017-18 DRVK Traders Pvt. Ltd. 2 such information, it could not instruct it's counsel to represent the case on its behalf before the first appellate authority, ignorance being bona fide and not intentionally, an ex-parte order dated 15.12.2022 passed by the first appellate authority deserves to be set aside for re-adjudication of the matter, and principles of natural justice be applied so that justice be done to the appellant. WITHOUT PREJUDICE TO THE AFORESAID 2. BECAUSE the proceedings under section 147 of the Act, by the issuance of notice dated 30.03.2021 under section 148 of the Act, has neither been validly initiated nor concluded in accordance with the law, assessment order dated 14.03.2022 passed under section 147 read with section 144B of the Act is wholly erroneous and the addition made in consequence of the said order is liable to be deleted and the income disclosed by the appellant deserves to be accepted. 3. BECAUSE no addition towards the alleged. 'reasons recorded' for initiation of proceedings under section 147 of the Act by the issuance of notice dated 30.03.2021, having been made in the Assessing Officer in the assessment order dated 14.03.2022, the entire variation made by him in the said assessment order in the form of addition of Rs.14,24,073/- is invalid, being beyond his jurisdiction. 4. BECAUSE, without prejudice to the aforesaid, the Assessing Officer after having observed in the assessment order dated 14.03.2022 that "Although the expenditure incurred under the head Rake Handling Charges cannot be gainsaid, but it cannot be ruled out that the assessee has not overstated the expenses”, the adhoc disallowance @10% of the overall expenditure of Rs.1,20,09,865/- towards rake handling charges is without any basis. 5. BECAUSE the appellant after having submitted the entire details before the Assessing Officer during the course of assessment proceedings, the Assessing Officer has erred in observing in the assessment order dated 14.03.2022 that the appellant has failed to establish the expenses claimed by it with the intent of suppressing the facts. 6. BECAUSE entire expenditure incurred by the appellant towards Rake Handling Charges and Service Charges (Labour) were fully verifiable from the books of account maintained by the appellant, disbelieving the same and disallowing 10% of the overall expenses of Rs.1,42,40,733/- (Rake Handling Charges - Rs.1,20,09,865/- and Service Charges Rs.22,30,868/-) on adhoc basis is farfetched and without any cogent reason. I.T.A. Nos.57&58/Kol/2023 Assessment Years: 2016-17 & 2017-18 DRVK Traders Pvt. Ltd. 3 7. BECAUSE after taking into consideration the adhoc disallowance of Rs.14,24,073/- (which is disputed in the present appeal) in the Profit & Loss Account, the percentage of the profit of the appellant shall steeply rise to 19.75% (i.e. an increase in profit percentage by almost 7.50%) which is highly excessive in the trade carried out by the appellant, on this score too the disallowance made by the Assessing Officer on adhoc basis deserves to be deleted by this hon'ble court. 8. BECAUSE in any case the disallowance made by the Assessing Officer is much too high and excessive. 9. BECAUSE the order appealed against is contrary to the facts, law and principles of natural justice.” 3. At the outset, the ld. counsel for the assessee invited our attention to the impugned assessment order to submit that in this case, the reopening of the assessment u/s 147 r.w.s 148 was made by the Assessing Officer on the following ground: “As per information on AIMS module of ITBA under the head “Multiyear NMS” it was ascertained that the assessee entered into significant financial transactions to the tune of Rs.1,82,10,335/- during the year under consideration.” 4. The ld. counsel, inviting our attention to the above reasons recorded by the Assessing Officer, submits that the above observation did not, in any manner, suggest of formation of any belief by the Assessing Officer of escapement of any income of the assessee. He, therefore, has submitted that the reopening was bad in law. Even, on merits, the ld. counsel has submitted that, in the reopened assessment proceedings, the Assessing Officer had examined all the transactions and did not make any addition in respect of allegations on the basis of which reopening was made. However, the Assessing Officer proceeded to make certain ad hoc disallowance @10% on rake handling charges. The ld. counsel, in this respect, has submitted that as per the law laid down by the Hon’ble Bombay High Court in the case of ‘CIT vs. Jet Airways reported in [2011] 331 ITR 236 (Bom.)’, wherein, the Hon’ble I.T.A. Nos.57&58/Kol/2023 Assessment Years: 2016-17 & 2017-18 DRVK Traders Pvt. Ltd. 4 High Court has held that where income originally believed by the Assessing Officer to have escaped assessment, but ultimately found to not to have escaped assessment, then it is not open to the Assessing Officer to independently assess other incomes. He, therefore, has submitted that the addition on ad hoc basis on an issue which was not subject matter of reopening of the assessment was not sustainable. 5. The ld. DR, on the other hand, has submitted that transactions relating to rake handling charges were part of the transactions which were under investigation before the Assessing Officer. 6. We are not convinced with the above argument of the ld. DR. Mere entering into a financial transaction itself, does not suppose the escapement of income. The reopening of assessment, in this case, therefore, was bad in law. Moreover, the facts of the case are squarely covered by the decision of the Hon’ble Bombay High Court in the case of ‘CIT vs. Jet Airways’ (supra). We, therefore, do not find justification on the part of lower authorities in making/confirming the impugned additions and the same are accordingly ordered to be deleted. 7. Since the facts and issues involved are identical and our findings given above, will mutatis mutandis apply to ITA No.58/Kol/2023. 8. In the result, both the appeals of the assessee stand allowed. Kolkata, the 17 th April, 2023. Sd/- Sd/- [ͬगरȣश अĒवाल /Girish Agrawal] [संजय गग[ /Sanjay Garg] लेखा सदèय/Accountant Member ÛयाǓयक सदèय/Judicial Member Dated: 17.04.2023. RS I.T.A. Nos.57&58/Kol/2023 Assessment Years: 2016-17 & 2017-18 DRVK Traders Pvt. Ltd. 5 Copy of the order forwarded to: 1. DRVK Traders Pvt. Ltd 2. ITO, Ward-1(1), Kolkata 3. CIT (A)- 4. CIT- , 5. CIT(DR), //True copy// By order Assistant Registrar, Kolkata Benches