DCIT 16(3), MUMBAI V. C MAHENDRA EXPORTS, MUMBAI

ITA 6582/MUM/2011

• Counselvise Citation: 658219914 RSA 2011
• Duration Of Justice: 1 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 12-08-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 30-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C TRIPURA SUNDARI
• Assessee Lawyers: REEP AL G TRALSHWALA
• Keywords: Tangible material; Difference of opinion; Validity of assessment; Reason to believe; Change of opinion
• Section: 147; 148; 12; 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE S/SHRI B.R.MITTAL,(JM) AND RAJENDRA (AM) . . , , ./I.T.A. NO.6582/MUM/2011 ( / ASSESSMENT YEAR:2004-05) ASSISTANT COMMISSIONER OF INCOME TAX,16(3), ROOM NO.206, 2 ND FLOOR, MATRU MANDIR, TARDEO ROAD, MUMBAI-400007 / VS. M/S C.MAHENDRA EXPORTS, 1204, PANCHRATNA , OPERA HOUSE, MUMBAI-400004. ( & / APPELLANT) .. ( ' & / RESPONDENT) CROSS-OBJECTION NO.150/MUM/2012 IN I.T.A. NO.6582/M/2011 M/S C.MAHENDRA EXPORTS, 1204, PANCHRATNA , OPERA HOUSE, MUMBAI-400004. / VS. DY. COMMISSIONER OF INCOME TAX,16(3), ROOM NO.206, 2 ND FLOOR, MATRU MANDIR, TARDEO ROAD, MUMBAI-400007 ./ ./PAN/GIR NO. : AAAFC2878E ( & / CROSS-OBJECTOR) .. ( ' & / RESPONDENT) & / REVENUE BY : MS.C.TRIPURA SUNDARI ' & * /RESPONDENT BY : SHRI REEP AL G.TRALSHWALA * - / DATE OF HEARING : 12.8.2013 * - /DATE OF PRONOUNCEMENT : 21.8.2013 / O R D E R PER B.R.MITTAL, JM: THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMEN T YEAR 2004-05 AGAINST ORDER OF LD. CIT(A), MUMBAI DATED 7.6.2011 ON THE FOLLOWING GROUNDS : I.T.A. NO.6582/M/2011 CO NO.150/MUM/2012 2 1. THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.31,73,329/- TOWARDS LABOUR CHARGES CLAIMED TO BE PAID TO SHRI DHIRU BHAI SAMBHUBHAI DIYORA; 2. THE LD. CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT SHRI DHIRUBHAI SAMBHUBHAI DIYORA NEITHER HAD ANY EXPERIENCE OF JO B WORK NOR DID HE HAVE ANY INFRASTRUCTURE FOR THE SAME; 3. THE LD. CIT(A) ERRED IN OBSERVING THAT SHRI DHI RUBHAI SAMBHUBHAI DIYORA GOT DONE THE JOB WORK THROUGH TWO OTHER PER SONS. SHRI DHIRUBHAI SAMBHUBHAI DIYORA COULD NOT GIVE ANY DETAILS OF TH ESE PERSONS SUCH AS THEIR ADDRESS, DETAILS OF FACTORIES ETC; 4. THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT TH E DIAMONDS ARE VERY HIGH PRICED GOODS AND THEIR PROCESSING REQUIRE HIGHLY T ECHNICAL AND PRECISE WORK AND THEREFORE, IT IS IMPOSSIBLE THAT THE ASSESSEE WOUL D GIVE THESE DIAMONDS FOR PROCESSING TO A PERSON (SHRI DHIRUBHAI SAMBHUBHAI DIYORA) WITH NO EXPERIENCE AND INFRASTRUCTURE AND THAT PERSONS WOULD FURTHER GIVE THIS WORK TO SOME PERSONS WHOSE WHEREABOUTS WERE NOT KNOWS TO HIM 2. ASSESSEE HAS ALSO FILED CROSS-OBJECTIONS DISPUTI NG THE VALIDITY OF INITIATING RE- ASSESSMENT PROCEEDING. 3. THE RELEVANT FACTS GIVING RISE TO THIS APPEAL AR E THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 1.11.2004 DECLARING TOTAL INCOME OF RS.15,64,94,120/-. AO MADE ASSESSMENT ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) AT A TOTAL INCOME OF RS.15,83,70,100/- VIDE ASSESSMENT ORDER DATED 2 8.12.2006. THEREAFTER, AO INITIATED RE-ASSESSMENT PROCEEDINGS AND THE REASONS RECORDED FOR RE-OPENING OF THE ASSESSMENT DATED 20.9.2007 ARE PLACED AT PAGE 33 OF THE PAPER BOOK WHICH READS AS UNDER : RE-OPENING OF ASSESSMENT FOR AY 2004-05 RECEIVED AN INTIMATION IN THE CASE OF M/S C.MAHEND RA EXPORTS ARISING OUT OF PROTECTIVE ASSESSMENT MADE IN THE CASE OF S HRI DHIRUBHAI SAMBHUBHAI DIYORA FOR ASSESSMENT YEAR 2004-05, FR OM ITO, WARD 9(1), SURAT, REPORT/INTIMATION SENT BY THE ITO IS SUFFICIENT ENO UGH TO INVOKE THE PROVISIONS OF SECTION 147(B). ISSUE NOTICE U/S 148 OF THE IT ACT 4. ASSESSEE DISPUTED INITIATION OF RE-ASSESSMENT PR OCEEDINGS VIDE LETTER DATED 18.11.2008, COPY PLACED AT PAGES 34 TO 42 OF THE P APER BOOK. AO DISPOSED OF ALL THE OBJECTIONS OF THE ASSESSEE AND COMPLETED ASSESSMENT U/S 143(3) R.W.S.147, DATED 2.12.2008 BY DISALLOWING LABOUR CHARGES OF RS.31,7 3,329/-. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 5. L.D CIT(A) CONFIRMED THE ACTION OF AO OF RE-OPEN ING OF THE ASSESSMENT ORDER U/S 147 OF THE ACT. HOWEVER, LD. CIT(A) DELETED TH E ADDITION MADE BY AO ON ACCOUNT OF I.T.A. NO.6582/M/2011 CO NO.150/MUM/2012 3 CLAIM OF LABOUR CHARGES. HENCE, DEPARTMENT IS IN APPEAL DISPUTING THE DELETION OF THE ADDITION MADE BY AO ON ACCOUNT OF CLAIM OF LABOUR CHARGES AND WHEREAS ASSESSEE HAS DISPUTED BY WAY OF CROSS-OBJECTION THE VALIDITY OF INITIATION OF RE-ASSESSMENT PROCEEDINGS. 6. SINCE THE CROSS-OBJECTIONS FILED BY ASSESSEE GO TO ROOT OF VALIDITY OF ASSESSMENT ORDER PASSED BY AO, WE HAVE HEARD LD. REPRESENTATIV E OF THE PARTIES ON THE REASONS RECORDED BY AO TO INITIATE RE-ASSESSMENT PROCEEDIN G. LD. AR SUBMITTED THAT AT THE TIME OF MAKING THE ORIGINAL ASSESSMENT U/S 143(3) DATED 28.12.2006, THE AO EXAMINED CLAIM OF LABOUR CHARGES. HE SUBMITTED THAT ASSESSE E IS MAINTAINING BOOKS OF ACCOUNTS REGULARLY WHICH ARE AUDITED AND THE AUDIT REPORT WA S FILED ALONG WITH RETURN OF INCOME. ASSESSEE ALSO DEDUCTED TDS ON THE JOB WORK CHARGES CARRIED OUT BY SHRI DHIRUBHAI SAMBHUBHAI DIYORA AND THE ASSESSEE ALSO FILED TDS RETURNS ETC. DISCLOSING THE RELEVANT INFORMATION AT THE TIME OF ORIGINAL ASSESSMENT PROC EEDINGS. HE REFERRED THE CONTENTS OF LETTER DATED 18.11.2008 PLACED AT PAGES 34 TO 42 OF PAPER BOOK. HE SUBMITTED THAT RE- ASSESSMENT PROCEEDINGS HAS BEEN INITIATED MERELY FO R MAKING ROVING INQUIRY AND THERE IS NO MENTION IN THE REASONS RECORDED THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT BECAUSE OF FAILURE OF THE ASSESSEE AND/ OR NOT DISCLOSING THE RELEVANT DETAILS. NOR ANY TANGIBLE MATERIAL WHICH HAS COME TO THE NO TICE OF AO TO REOPEN THE ASSESSMENT AS PER REASONS RECORDED. 7. ON THE OTHER HAND, LD. DR SUPPORTED THE ACTION OF AO AND SUBMITTED THAT AO HAS MENTIONED IN THE ASSESSMENT ORDER THE REASONS T O SATISFY THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT ON ACCOUN T OF CLAIM OF BOGUS LABOUR CHARGES. LD. DR SUBMITTED THAT IT IS A FACT THAT THE REASONS ARE NOT PROPERLY RECORDED BUT IF THE SAID REASONS ARE CONSIDERED IN THE LIGHT OF THE ASSESSMENT ORDER, THE SATISFACTION OF THE AO THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT IS FULFILLED. 8. WE HAVE CAREFULLY CONSIDERED SUBMISSIONS OF LD. REPRESENTATIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW AS WELL AS THE REASONS RECORDED BY THE AO (SUPRA). 9. WE OBSERVE THAT FROM THE CONTENTS OF LETTER FIL ED BY THE ASSESSEE DISPUTING THE INITIATION OF RE-ASSESSMENT PROCEEDINGS THAT THE AS SESSEE, AT THE TIME OF MAKING ORIGINAL ASSESSMENT, FILED REQUISITE DETAILS OF LABOUR CHA RGES CLAIMED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT. ASSESSEE ALSO FILED CON FIRMATION LETTERS TO WHOM LABOUR CHARGES WERE PAID DURING THE FINANCIAL YEAR RELEVA NT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THUS, ASSESSEE MADE FULL DISCLOSURE OF THE LABOUR CHARGES PAID AT THE I.T.A. NO.6582/M/2011 CO NO.150/MUM/2012 4 TIME OF ORIGINAL ASSESSMENT MADE BY AO. THE LD. DR HAS ALSO NOT DISPUTED THE FACT THAT THE ASSESSEE FILED TAX AUDIT REPORT ALONG WITH THE RETURN OF INCOME. FURTHER, ASSESSEE ALSO DEDUCTED TDS ON THE JOB-WORK CHARGES CARRIED OUT BY SHRI DHIRUBHAI SAMBHUBHAI DIYORA AND ASSESSEE FILED TDS RETURN WITH THE DEPARTMENT THEREBY DISCLOSING RELEVANT INFORMATION. THEREAFTER AO COM PLETED ASSESSMENT. AT THE TIME OF HEARING, LD. DR CONCEDED THAT REASONS RECORDED BY A O TO INITIATE RE-ASSESSMENT PROCEEDINGS ARE NOT SELF-CONTAINED AS NO SATISFACT ION OF ESCAPING OF INCOME HAS BEEN RECORDED BY AO IN THE REASONS RECORDED TO INITIATE THE RE-ASSESSMENT PROCEEDINGS. THE HONBLE APEX COURT HAS HELD IN THE CASE OF CI T VS. KELVINATOR OF INDIA LTD., 320 ITR 561(SC) THAT WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO RE-ASSESS. THE ASSESSING OFFICER HAS NO POWER TO REVIEW; HE HAS THE POWER TO REASSESS. B UT REASSESSMENT HAS TO BE BASED ON FULFILMENT OF CERTAIN PRE-CONDITIONS A ND IF THE CONCEPT OF 'CHANGE OF OPINION' IS REMOVED, AS CONTENDED ON BEHALF OF T HE DEPARTMENT, THEN, IN THE GARB OF RE-OPENING THE ASSESSMENT, REVIEW WOULD TAKE PLACE. IT WAS HELD THAT AFTER 1-4-1989, ASSESSING OFFICER HAS POWER T O REOPEN, PROVIDED THERE IS 'TANGIBLE MATERIAL' TO COME TO THE CONCLUSION TH AT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LIVE LI NK WITH THE FORMATION OF THE BELIEF. 10. THE HONBLE GUJARAT HIGH COURT HAS ALSO HELD IN THE CASE OF GUJARAT POWER CORPN. LTD. V/S ACIT (2013) 350 ITR 266 (GUJ) THAT ONCE THE ASSESSING OFFICER EXAMINES A CERTAIN CLAIM OF THE ASSESSEE IN THE ORIGINAL ASSESSMENT PROCEEDINGS, RAISES QUERIES, RECEIVES REPLIES, BUT THEREAFTER MAKES NO ADDITIONS OR DISALLOWANCES, WITHOUT GIVING REASONS, IT WOULD NOT BE PERMISSIBLE TO REOPEN THE ASSESSMENT EVEN WITHIN FO UR YEARS ON VERY SAME GROUNDS. IT WAS ALSO HELD THAT IF THE ASSESSING OFFICER, AFTER SCRUTINIZING THE CLAIM DURING THE ASSESSMENT PROCEEDINGS, DOES NOT R EJECT SUCH A CLAIM, BUT CHOOSES NOT TO GIVE ANY REASONS FOR SUCH A COURSE O F ACTION THAT HE ADOPTS, IT CAN HARDLY BE STATED THAT HE DID NOT FORM AN OPINIO N ON SUCH A CLAIM. IT WAS ALSO HELD THAT IN THE ASSESSMENTS OF LARGER CORPOR ATIONS IN THE MODERN DAY, INVOLVE LARGE NUMBER OF COMPLEX CLAIMS, VOLUMINOUS MATERIAL, NUMEROUS EXEMPTIONS AND DEDUCTIONS. THAT IF THE ASSESSING O FFICER IS BURDENED WITH THE RESPONSIBILITY OF GIVING REASONS FOR SEVERAL CL AIMS SO MADE AND ACCEPTED BY HIM, IT WOULD EVEN OTHERWISE CAST AN UNREASONABL E EXPECTATION WHICH WITHIN THE SHORT FRAME OF TIME AVAILABLE UNDER LAW WOULD BE TOO MUCH TO EXPECT HIM TO CARRY. I.T.A. NO.6582/M/2011 CO NO.150/MUM/2012 5 THEREFORE, THE HONBLE GUJARAT HIGH COURT OBSERV ED INTERALIA AT PAGE 295 OF THE REPORT AS UNDER : WE ARE, THEREFORE, OF THE OPINION THAT IN A SITU ATION WHERE THE ASSESSING OFFICER DURING SCRUTINY ASSESSMENT, NOTIC ES A CLAIM OF EXEMPTION, DEDUCTION OR SUCH LIKE MADE BY THE ASSES SEE, HAVING SOME PRIMA FACIE DOUBT RAISES QUERIES, ASKING THE ASSESS EE TO SATISFY HIM WITH RESPECT TO SUCH A CLAIM AND THEREAFTER, DOES N OT MAKE ANY ADDITION IN THE FINAL ORDER OF ASSESSMENT, HE CAN B E STATED TO HAVE FORMED AN OPINION, WHETHER OR NOT IN THE FINAL ORDE R HE GIVES HIS REASONS FOR NOT MAKING THE ADDITION. WE ARE OF THE CONSIDERED VIEW THAT THE ABOVE DECIS ION OF THE HONBLE GUJARAT HIGH COURT SQUARELY APPLY TO THE FACTS OF THE CASE BEFO RE US AND THEREFORE, INITIATION OF RE- ASSESSMENT PROCEEDINGS CANNOT BE SAID TO BE VALID. 11. HOWEVER, IN RESPECT OF THE CONTENTION OF LD. D R THAT THE AO HAS GIVEN ADEQUATE REASONS IN THE ASSESSMENT ORDER AND IF TH E REASONS RECORDED ARE CONSIDERED IN THE CONTEXT OF THE REASONS GIVEN BY AO IN THE ASSESSMENT ORDER, THE REASONS RECORDED CAN BE SAID TO BE SELF CONTAINED. WE DO N OT FIND MERIT IN THE SAID CONTENTION. IN THIS REGARD, WE REFER THE CASE OF HONBLE PATN A HIGH COURT OF CIT V/S AGARWALLA BROS. [1991] 189 ITR 786 (PAT.) WHICH DIRECTLY APPLY TO THE ABOVE CONTENTION OF LD. DR. IN THE SAID CASE IT WAS HELD BY THEIR LORDSHIPS THAT THE RECORDING OF THE REASONS IS A PRE-REQUISITE TO THE ASSUMPTION OF JURISDICTION BY THE INCOME-TAX OFFICER FOR INITIATING THE PROCEEDINGS. IT IS ONLY THE RECORDED REASONS WHICH CAN INDICATE AS TO WHY THE INCOME-TAX OFFICER WAS MADE TO BELIEV E THAT INCOME HAS ESCAPED ASSESSMENT FOR THE RELEVANT ASSESSMENT YEAR. THE INCOME-TAX OFFICER IS NOT AUTHORISED TO REFER TO ANY OTHER REASON EVEN IF IT CAN BE OTHE RWISE INFERRED AND/OR GATHERED FROM THE RECORDS. THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF BERGER PAINTS INDIA LTD. V/S ACIT (2004) 266 ITR 462) (CAL) HELD THAT NOT ONLY EXIST REASONS FOR FORMATION OF THE BELIEF THAT INCOME HAS ESCAPED THE ASSESSMEN T BUT THERE MUST ALSO BE A RATIONAL CONNECTION OR RELEVANT BEARING WITH THE M ATERIALS FOR FORMATION OF THE BELIEF. THE AMRITSAR BENCH OF THE TRIBUNAL IN THE CASE OF PYRAMID SOFTWARE & TECHNOLOGIES V/S DCIT, CIRCLE, JAMMU [2007] 105 ITD 305 (ASR.) HAS HELD THAT THE MATERIAL, WHICH COMES TO THE NOTICE OF AO MUST BE SPECIFICAL LY EVIDENT, DIRECT AND NOT UNSPECIFIC OR VAGUE. IT IS HELD THAT BASIS FOR INITIATING R E-ASSESSMENT PROCEEDINGS IS TO BE JUDGED SOLELY ON THE BASIS OF REASONS RECORDED BY AO. A O CANNOT SUPPORT RE-OPENING OF ASSESSMENT BY COLLECTING THE MATERIAL OR BY MAKING THE INQUIRY SUBSEQUENTLY AFTER THE DATE OF INITIATION OF PROCEEDINGS. THE HONBLE A LLAHABAD HIGH COURT HAS HELD IN THE I.T.A. NO.6582/M/2011 CO NO.150/MUM/2012 6 CASE OF DASS FRIENDS BUILDERS (P.) LTD V/S DCIT (2006) 280 ITR 77 (ALL) THAT UNDER SECTION 147 OF THE ACT WORDS HAS REASON TO BELIEVE AND NOT 'REASON TO SUSPECT'. THEREFORE, REASONS TO BELIEVE FOR THE PU RPOSE OF SECTION 147 DOES NOT MEAN REASONS TO SUSPECT. ITAT, DELHI BENCH (THIRD ME MBER) IN THE CASE OF ACIT V/S STAR FERRO ALLOYS (P.) LTD. [2004] 90 ITD 63 (DE LHI)(TM) HAS HELD THAT PROCEEDINGS U/S 147 OF THE ACT COULD NOT BE RESORTE D FOR MAKING ROVING INQUIRIES. 12. CONSIDERING THE REASONS RECORDED BY AO IN THE P RESENT CASE, WE ARE OF THE CONSIDERED VIEW THAT INITIATION OF RE-ASSESSMENT P ROCEEDINGS BY THE AO IS NOT IN ACCORDANCE WITH LAW. THEREFORE, THE ASSESSMENT MAD E BY AO CANNOT BE SAID TO BE VALID. HENCE, ASSESSMENT ORDER IS QUASHED. ACCORD INGLY, CROSS-OBJECTIONS FILED BY THE ASSESSEE ARE ALLOWED. 13. SINCE, WE HAVE HELD THAT THE ASSESSMENT ORDER I S NOT VALID, THE GROUNDS OF APPEAL TAKEN BY THE DEPARTMENT DISPUTING DELETION OF THE ADDITION MADE BY THE AO DO NOT REQUIRE ADJUDICATION AS THE ADDITION DO NOT S URVIVE. HENCE GROUNDS OF APPEAL TAKEN BY THE DEPARTMENT ARE DISMISSED. 14. IN THE RESULT, THE CROSS-OBJECTIONS FILED BY TH E ASSESSEE ARE ALLOWED AND WHEREAS APPEAL OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST AUG, 2013 * 1 2 21ST AUG, 2013 * SD/- SD/- ( /RAJENDRA ) ( . . /B.R.MITTAL) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 2 DATED 21/ 08/2013 . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. & / THE APPELLANT 2. ' & / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 7 '9 , - 9 , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) - 9 , /ITAT, MUMBAI