Unified Solutions Private Limited, Rajasthan V. ITO ward-27(1), New Delhi

ITA 8941/DEL/2019

AI Insights

The case involves Unified Solutions Pvt. Ltd., which appealed against the order of the CIT(A)-9, New Delhi, concerning the assessment year 2011-12. The primary issues in the appeal were the validity of the assessment order passed under sections 147/143(3) and the disallowance of Rs. 31,97,924/- under section 37 of the Income-tax Act. The AO had reopened the assessment due to non-filing of the return and identified a time deposit of Rs. 1 crore, which led to the assessment of interest income. The CIT(A) upheld the AO's decision, leading to the appeal before the ITAT. The ITAT dismissed the first ground regarding the reopening of the assessment but set aside the disallowance of the expenditure, directing a fresh inquiry.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 131129 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Next Hearing Date: 04-12-2022
• Assessment Year: misc
• Appeal Filed On: 17-05-2022
• Other Referred Cases: CIT Vs. Jet Airways (1) Ltd, DCIT Vs. Takshila Education Society, Ratnagiri District Central Co-Operative Bank Ltd. v. DCIT, Ranbaxy Laboratories Ltd v. CIT, CIT v. Software Consultants, CIT v. Cheil Communications India (P.) Ltd
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Reason to believe; Revenue expenditure; Reassessment proceedings; TDS; Set aside
• Section: 147; 148; 37; 80IC; 80IC

Judgement Text

Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “SMC” BENCH: NEW DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER ITA No.8941/Del/2019 [Assessment Year : 2011-12] Unified Solutions Pvt.Ltd., Ashish Sharma, Advocate, 303, Shayam Anukampa, O 11 Ashok Marg, C-sheme, Jaipur, Rajasthan-302006. PAN-AAACU9520C vs ITO, Ward -27(1), New Delhi. APPELLANT RESPONDENT Appellant by None (Written Submission) Respondent by Shri Sumesh Swani, Sr.DR Date of Hearing 05.12.2022 Date of Pronouncement 05.12.2022 ORDER PER KUL BHARAT, JM : The present appeal filed by the assessee for the assessment year 2011- 12 is directed against the order of Ld. CIT(A)-9, New Delhi dated 07.10.2019. The assessee has raised following grounds of appeal:- 1. “The CIT(A) -9, New Delhi erred in upholding the validity of the assessment order passed under section 147/143(3) dated 15.12.2018 even when no addition was made on account of income considered having escaped assessment in the reasons recorded by the Assessing Officer under section 147 of the Income-tax Act, 1961. 2. The CIT(A)-9 erred in confirming the disallowance of RS. 3197924/- made by Assessing Officer under section 37 of the Act, though it was in fact a loss to be adjusted and was not debited to the Profit and Loss account of the assessment year 2011-12.2. 3. The appellant seeks indulgence of the Hon’ble Tribunal to add to, amend, alter and/or modify all or any of the grounds of appeal before or during the hearing of appeal.” Page | 2 2. At the time of hearing, no one attended the proceedings on behalf of the assessee. However, a letter received by the Ld. Authorized Representative of the assessee (AR) that written submission has been filed and it is requested that the matter may be decided on the basis of written submissions. Therefore, the appeal is taken up for hearing in the absence of the assessee and is being disposed off on the basis of written submissions and material available on record. FACTS OF THE CASE 3. Facts giving rise to the present appeal are that in this case, assessment was reopened u/s 147 of the Income Tax Act, 1961 (“the Act”) vide order dated 15.12.2018. The Assessing Officer (“AO”) while framing the assessment, noticed that the assessee had made time deposit of Rs.1 crore in Bank of India. However, in the return of income filed by the assessee was claimed revenue expenditure of Rs.30,46,169/- and also declared interest of Rs.1,51,125/- under the head of income from other sources. The AO disallowed the claim of expenditure of Rs.31,97,294/- hence, assessed net taxable income of Rs.1,51,125/- i.e. interest income. 4. Aggrieved against this, the assessee preferred appeal before Ld.CIT(A), who after considering the submissions, dismissed the appeal of the assessee. 5. Aggrieved against the order of Ld.CIT(A), the assessee preferred appeal before this Tribunal. Page | 3 6. Apropos to grounds of appeal, written submission has been filed. For the sake of clarity, the relevant contents of the written submission are reproduced as under:- 1. “The Appellant-company intended to set-up an Agro based industry for horticulture produce, in Himachal Pradesh under the scheme of the Ministry of Agriculture/Ministry of Food Processing, Govt, of India. The project of the assessee was approved for funding through the Small Farmers Agri-Business Consortium (SFAC), New Delhi. As the plant was still to be set-up, there was no production and no income. 2. Notice u/s 147 /148 for the A.Y. 2011-12 was served at the registered address of the assessee, followed by questionnaires and notices u/s 142(1), details of which are mentioned in the assessment order. A copy of the reasons recorded u/s 147/148 was provided to the assessee. A copy thereof is enclosed as per Annexure-1. The assessment was reopened since return of A.Y. 2011-12 had not been filed. Further, that, the information from ITD /ITBA systems had revealed that the appellant had made a time deposit of Rs. 1,00,00,000/- with Bank of India @ 6%, on which it had earned interest of Rs. 1,49,458/-. Therefore, income of 1,01,49,458/- has escaped assessment. 3. Subsequently in the assessment proceedings it was explained by the assessee that the amount of Rs. 2 Crores was received as a grant under the M.M.-IV Scheme of the Ministry of Agriculture/Food Processing, Govt, of India, through the SAFC. The interest on it was already subjected to TDS. It was also pointed out that commercial production or sales had not commenced and no income had been earned. Further, that the profits of the assessee if any were totally eligible for deduction u/s 80IC of the Act read with CBDT Circular No. 37/2016 dated 02.11.2016. (Particularly by letter dated Page | 4 11.12.2018, enclosed as Annexure-2). As mentioned by the AO in para 10 of his order, the A.O. verified the fact of this grant received from SFAC, by obtaining confirmation from them vide notice u/s 133(6) dated 12.12.2018. After considering the replies of the assessee and information and verification of SFAC, the A.O. did not make any addition for the investment in the term deposit and the interest earned thereon, which he had quantified at the Rs. 1,01,49,458/- in his recorded reasons. 4. However on perusal of ITR, the AO felt that assessee had claimed revenue expenditure of Rs. 31,97,294/- under head "Business" even though as per the balance sheet for the F.Y 2010-11 and the reply of the assessee dated 24.11.2018, the expenses were pre-operative, as no commercial production had started upto 31.03.2011. Therefore, the AO disallowed it u/s 37 of the Act. 5. The written submission were filed before the CIT(A) (copy enclosed as Annexure-3). The CIT (A)-9, New Delhi in appeal no. 9/10554/18- 19 vide order dated 23.09.2019, up held the order of the AO. The CIT(A) held that the AO had followed proper procedure for re-opening u/s 147. The CIT(A) also felt that the appellant had not submitted conclusive evidence regarding his claim that Rs. 31,97,294/- was not debited in the P&L account and was "shown as loss to be adjusted" in schedule of the return of income. The CIT (A) also did not considered the contention of the appellant that it was entitled to 100% deduction U/S 80IC in view of CBDT Circular 16/37 of Nov. 2016 and so had no reasons to suppress profit by inflating expenses. The CIT (A), therefore, dismissed the appeal of the appellant. 6. The submission in respect of the grounds of appeal file before the Hon'ble ITAT are as under:- Grounds of appeal Submission The CIT(A)-9, New Delhi erred in upholding the validity of the Sir, the action u/s 147/148 is ab initio void. Non filing of Return, by itself Page | 5 assessment order passed u/s 147/143(3) dated 15.12.2018 even when no addition was made on account of Income considered having escaped assessment in the reasons recorded by the AO u/s 147 of the I.T.Act, 1961. cannot be the basis for formation of belief in escapement of income. Further, in the assessment order the AO has verified the nature and source of the time deposit, being capital grant from M/s SFAC (Small Farmers Agribusiness Consortium), Govt, of India. Therefore no addition was made on account of income which he had considered to have escaped assessment in reasons recorded by him u/s 147 of the Act. Thereafter any further proceeding would be without. Jurisdiction and it was not open to him to independently assessee some other income, (without a fresh notice u/s 148 of the Act.). Your kind attention is drawn to the decisions in the following cases. (a) CIT Vs. Jet Airways (1) Ltd (Mumbai) reported in 331 ITR 236 the Head note of which reads as under:- Section 147 of the Income-tax Act, 1961 - Income escaping assessment - Non- disclosure of primary facts - Assessment years 1994-95 and 1995- 96 - Whether an Explanation to a statutory provision is intended to explain its content and cannot be construed to override it or to render substance and core nugatory - Held, yes - Whether after insertion of Explanation 3 to section 147 by Finance (No. 2) Act, 2009, with effect from 1-4- 1989, section 147 has an effect that Assessing Officer has to assess or reassess income ('such income') which escaped assessment and which was basis of formation of belief and if he does so, he can also asses or reassess any other income which has escaped assessment and which comes to his notice during course of proceedings - Held, yes - Whether, however, if after issuing a notice under section 148, he accepts contention of assessee and holds that income, for which he had initially formed a reason Page | 6 to believe that it had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him to independently assess some other income; if he intends to do so, a fresh notice under section 148 would be necessary, legality of which would be tested in event of a challenge by assessee - Held, yes (b) DCIT Vs.Takshila Education Society (Patna) reported in 378 ITR 520 the Head note of which reads as under:- Section 147 of the Income-tax Act; 1961 - Reassessment - Scope Of - Where no addition was made by Assessing Officer on account of income which he had considered to have escaped assessment in reasons recorded by him while initiating proceedings under section 147, addition on other issues was without jurisdiction [In favour of assessee]. Once it is found that none of the reasons recorded by the Assessing Officer for initiating proceedings under section 147 were germane to initiation of such proceedings, then it had to be held that he had no reason to believe that any income had escaped assessment and, therefore, any further proceeding would be without jurisdiction. It essential that the items in respect of which the reasons had been recorded are assessed. If the Assessing Officer accepts that the items for which reasons are recorded have not escaped assessment, it means he had no "reasons to believe that income has escaped assessment" and the issue of the notice becomes invalid. If so, he has no jurisdiction to assess any other income. (c) Ratnagiri District Central Co- Operative Bank Ltd. v. DCIT (2019) 197 TTJ /175 DTR 327 (Pune) (Trib.) - When no addition was made on basis Page | 7 of reasons recorded, no other addition could be made in course of reassessment proceedings. (d) Ranbaxy Laboratories Ltd v. CIT (2011) 336 ITR 136 (Delhi)(HC) which held:- "21. In view of our above discussions, the Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings are initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive." (e) CIT v. Software Consultants [2012] 341 ITR 240 (Delhi)(HC) which held:- "However; the Legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of the escaped income, he would keep on making issue a fresh notice under section 148." (f) CIT v. Cheil Communications India (P.) Ltd. [2013] 354 ITR 549 (Delhi) (HC), it was held similarly; Sir, in view of the facts of the appellant and ratio of the aforementioned decisions, this legal ground of appeal may be allowed and the assessment be quashed. The CIT(A)-9, New Delhi erred in confirming the disallowance of Rs. 31,97,924/- made by AO u/s 37 of the Act, though it was in fact a loss to be adjusted and was not debited to the Profit and loss account of the A.Y. 2011-12. 3. The appellant seeks indulgence of the Hon'be Tribunal to add to, amend, alter and / or modify all or any of the grounds of appeal before or during the hearing of appeal. a) Sir, the AO has discussed this issue in para no. 11 of his order, but has not detailed the manner in which the quantum of disallowance u/s 37 has been worked out. In fact, the AO simply picked up this figure of Rs. 3197924/-, from the schedule in the return of Income, where it appears against the column "Loss to be adjusted". (The copy of relevant portion of the ITR was submitted to the CIT(A) and has been reproduced by him on page 5 & 6 of his order). b) No such expenses were debited in the P&L a/c Page | 8 c) The assessee was entitled to 100% deduction u/s 80IC of the Act and so had no incentive to suppress profits by inflating/ of expenses. The disallowance would only inflate the exempted profits, u/s 80IC of the Act, on which the CBDT Circular No. 16/37 of November 2016 is applicable. Hence, it is requested that this Ground of Appeal may be allowed. Thus, the disallowance made by the AO and upheld by CIT(A), was unjust both on legal and factual grounds. The assessee deserves relief by acceptance of all the ground of appeal and seeks the quashing of the assessment, being invalid in law and on facts.” 7. On the other hand, Ld. Sr. DR opposed these submissions and supported the orders of the authorities below. 8. I have heard Ld. Sr. DR and perused the written submissions and material available on record. 9. Ground No.1 raised by the assessee is against the objection related to the validity of re-opening of assessment. Having considered the material on record, I do not find any merit into the submission of the assessee undisputedly, the assessee failed to furnish it return of income despite having earned taxable income in the form of tax. Hence, reliance placed on various case laws would not help the assessee as the facts are clearly distinguishable. Hence, Ground No.1 raised by the assessee is dismissed. 10. Ground No.2 raised by the assessee is against confirmation of disallowance of Rs. 31,97,924/- . It is stated that no such expenditure was debited in P&L Account. This fact needs verification at the end of the AO. I Page | 9 therefore, set aside the order of lower authorities on this issue and restore to the file of AO to decide it afresh after making necessary inquiry whether the assessee has debited this expenditure in P&L Account. Thus, Ground No.2 raised by the assessee is allowed for statistical purposes. 11. Ground No.3 raised by the assessee is general in nature, needs no separate adjudication. 12. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 05 th December, 2022. Sd/- (KUL BHARAT) JUDICIAL MEMBER * Amit Kumar * Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI