C.Selvaraj, Coimbatore V. ACIT, Coimbatore

ITA 957/CHNY/2017

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 6775 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 18-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Unexplained investment; Charitable institution; Tangible material; Difference of opinion; Agreed addition; Change of opinion; Revenue expenditure; Set aside; Capital Gains
• Section: 148; 271(1)(c); 143(3); 133A

Judgement Text

आयकर अपीलीय अिधकरण, ’डी’ Ɋायपीठ, चेɄई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI ŵी धुʫुŜ आर.एल रेǭी, Ɋाियक सद˟ एवं ŵी जी. मऺजुनाथा, लेखा सद˟ के समƗ Before Shri Duvvuru RL Reddy, Judicial Member & Shri G. Manjunatha, Accountant Member आयकर अपील सं./I.T.A. Nos. 957/Chny/2017 & 955/Chny/2017 िनधाŊरण वषŊ/Assessment Year: 2006-07 Shri C. Selvaraj, 42, Sriram Avenue, Pappanaickenpalayam, Coimbatore 641 037. [PAN:ANBPS6371C] Vs. The Assistant Commissioner of Income Tax (OSD), Corporate Range – 1, Chennai. (अपीलाथŎ/Appellant) (ŮȑथŎ/Respondent) अपीलाथŎ की ओर से / Appellant by : Shri D. Anand, Advocate ŮȑथŎ की ओर से/Respondent by : Ms. R. Anita, Addl. CIT सुनवाई की तारीख/ Date of hearing : 22.09.2021 घोषणा की तारीख /Date of Pronouncement : 08.12.2021 आदेश /O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: Both the appeals filed by the assessee are directed against the order of the ld. Commissioner of Income Tax (Appeals) 2, Coimbatore both dated 30.01.2017 relevant to the assessment year 2006-07 challenging jurisdiction of the Assessing Officer in passing order under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 [“Act” in short] and confirmation of levy of penalty under section 271(1)(c) of the Act. 2. Brief facts of the case are that the assessee is engaged in engineering consultant, property valuer and also runs a consultancy service in the name I.T.A. No.957/Chny/17 & I.T.A. No. 955/Chny/17 2 and style of M/s. Seshe Housing Corporation filed his return of income on 13.07.2006 for the assessment year 2006-07 admitting total income of ₹.65,440/-. After following due process, the scrutiny assessment under section 143(3) of the Act was completed on 26.12.2008 after making addition of ₹.10,00,000/- towards unexplained income. 3. Subsequently, a survey under section 133A of the Act was conducted on 18.03.2010 and it was stated in the sworn statement recorded on 18.03.2010 that the assessee had purchased a property of one acre land at Neelambur for ₹.81 lakhs on 19.05.2005 and sold on 02.01.2007 for Rs.6.40 crores. In the sworn statement recorded on 18.03.2010, the assessee has stated that though the agreement was only for ₹.81 lakhs, the actual expenses including third party commission, etc. works out to ₹. 3 crores. The assessee further stated that the profit from this deal was already admitted in the return filed for the assessment year 2007-08. The remaining part of ₹.40 lakhs is the additional profit from this project. However, the above amount of ₹.40 lakhs was not reflected in his return of income filed for the assessment year 2006-07 and was not considered while completing the assessment. Hence, the Assessing Officer had reason to believe that the income chargeable to tax has escaped assessment within the meaning of section 147 and the case was reopened by issuing notice under section 148 of the Act and served on 31.03.2013. In response to the notice, the assessee filed I.T.A. No.957/Chny/17 & I.T.A. No. 955/Chny/17 3 return of income on 25.10.2013. The assessee has requested vide his letter dated 24.10.2013 to furnish the reasons for reopening. The same was furnished to the assessee on 30.10.2013. After verification of records and explanations of the assessee, the assessment under section 143(3) r.w.s 147 of the Act was completed by assessing total income of the assessee at ₹.67,65,440 by making addition of ₹.57,00,000/- against the income assessed at ₹.10,65,440/- as per order under section 143(3) of the Act. The assessee carried the matter in appeal before the ld. CIT(A). After considering the submissions of the assessee and facts of the case, the ld. CIT(A) dismissed the appeal of the assessee. 4. On being aggrieved, the assessee preferred further appeal before the Tribunal. Before the Tribunal, the assessee agitated that the objections filed against the reasons for reopening of assessment was neither considered nor passed any speaking order by the Assessing Officer, which is in violation of the guidelines and principles laid down by the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO (2003) 259 ITR 19(SC). By relying upon the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. Penta Four Software Employees Welfare Foundation 418 ITR 427, the ld. Counsel for the assessee has prayed for quashing the assessment order passed under section 143(3) r.w.s. 147 of the Act. On the other hand, the ld. DR has submitted that the addition made under section 143(3) r.w.s. I.T.A. No.957/Chny/17 & I.T.A. No. 955/Chny/17 4 147 of the Act was an agreed addition and since the assessee was fully aware that he has no case before the ld. CIT(A) or ITAT, technical ground raised in the appeal is an afterthought for seeking quashment of reassessment order and strongly supported the appellate order. 5. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including case law relied upon by the assessee. In this case, the original assessment under section 143(3) of the Act was completed on 26.12.2008 after making an addition of ₹.10,00,000/- towards certain unexplained investment. Later on, a survey under section 133A of the Act was conducted on 18.03.2010 at his business premises. During the course of survey certain materials relating to Neelambur property transaction was gathered and impounded and thereafter, the Assessing Officer recorded sworn statement on 18.03.2010 of the assessee with regard to purchase of a property, wherein, the assessee has admitted that he has purchased one acre land at Neelambur for ₹.81 lakhs through an agreement on 19.05.2005. It was also stated that though the said property was purchased for ₹.81 lakhs, actual expenses incurred including third party commission etc, worked out to ₹. 3.00 crores. He also stated that the profit earned from this deal was already admitted in the return filed for the assessment year 2007-08 and that he made additional profit of ₹.40 lakhs from this project. The Assessing Officer found that this additional I.T.A. No.957/Chny/17 & I.T.A. No. 955/Chny/17 5 profit was neither declared in the return for the assessment year 2006-07 nor was it assessed in the original assessment. But for survey proceedings, the purchase of Neelambur property would not have come to light and therefore, the Assessing Officer formed a belief that this income had escaped assessment and reopened the assessment by issuing notice under section 148 of the Act after recording the reasons and serving the same on the assessee. In response to the notice, the assessee filed return of income on 25.10.2013. The assessee has requested vide his letter dated 24.10.2013 to furnish the reasons for reopening. The same was furnished to the assessee on 30.10.2013. In reply to notice, vide letter dated 25.11.2013, the assessee has submitted its objection for reopening of assessment. 6. Before us, the short issue raised for consideration is reproduced as under: “Whether the notice under section 148 is liable to be quashed and reopening proceedings under section 147 is liable to be set aside since the AO passed the impugned assessment order without disposing off the specific objection raised by the appellant for reopening the assessment in the light of the decision of the Hon’ble Supreme Court in the case of GKN Drive shaft reported in 259 ITR 19 and the decision divisional bench of the jurisdiction high court in the case of CIT v. Penta Four Software reported in 418 ITR 427 dated Aug 5 th 2019.” 6.1 The assessment was reopened under section 147 of the Act upon the impounded materials during the course of survey proceedings initiated in the premises of the assessee on 18.03.2010. Accordingly, the Assessing Officer issued notice under section 148 of the Act followed by furnishing reasons for I.T.A. No.957/Chny/17 & I.T.A. No. 955/Chny/17 6 notice under section 148 of the Act dated 30.10.2013, the reasons recorded by the Assessing Officer reads as under: “A survey was conducted on 18/3/2010 and it was stated in the sworn statement recorded on 18/3/2010 that the assessee had purchased a property of 1 acre of land at Neelambur for ₹.81 lakhs on 19/6/2005 (as per answer to Q. No. 7) but whereas the same property was sold on 2/1/2007 for ₹.6.40 crores (as per the sale agreement in impounded folder No. 11). In the sworn statement dated 18/3/2010 while answering to Q. No. 7, the assessee stated that “Though the agreement is only for ₹.81 lakhs the actual expenses including third party commission etc. works out to ₹.3 crores. I have already admitted as profit from this deal in the return filed for the Asst. Year 2007-08. The remaining part of ₹.40 lakhs is the additional profit from this project. However, the above amount of ₹.40 lakhs was not reflected in his return of income filed for the Asst. Year 2006-07 and was not considered while completing the assessment.” 6.2 In reply to notice, vide letter dated 25.11.2013, the assessee has submitted as under: “A survey was conducted on 18.03.2010. I have purchased a property of 1 acre of land at Neelambur on 01.07.2005 vide Doc. No. 3942 of 2005 from Smt. R. Devika, Coimbatore. Subsequently, the same was sold to M/s. Savera Hotel Ltd., Chennai in the financial year 2006-07 relevant for the Asst. Year 2007-08. The return of income for the Asst. Year 2007-08 was filed returning Short Term Capital Gains of ₹.3,13,02,332/- from the above property. The Assessment was also completed u/s 143(3) r.w.s. 147. It could be found that only the investment was made in the Asst. Year 2006-07 and the sale was made in the Asst. Year 2007-08. The entire profit from the project was admitted in the Asst. Year 2007- 08 i.e., at the time of sale. In the sworn statement the assessee has stated, “The remaining part of ₹.40 lacs is the additional profit from this project. He did not say investment and but only said profit. There was only investment in the Asst. Year 2006-07. Hence there is no question of any additional profit of ₹.40 lacs to be considered in Asst. Year 2006-07 in the above project. I.T.A. No.957/Chny/17 & I.T.A. No. 955/Chny/17 7 If even any additional amount of ₹.40 lacs is considered in the Asst. Year 2006-07 towards investment then set-off in the CGST has to be given for the same amount in the Asst. Year 2007-08 at the time of sale. Hence it is requested that either notice u/s 148 shall be dropped or proposal for addition of ₹.40 lacs in the Asst. Year 2006-07 shall be dropped.” 6.3 After receipt of the above reply, the Assessing Officer was required to consider and give his findings upon the submissions of the assessee. However, on perusal of the assessment order, we find that after furnishing the reasons for reopening of assessment to the assessee, the Assessing Officer proceeded to complete the assessment under section 143(3) r.w.s. 147 of the Act after considering the materials available on record. It is an admitted fact that the Assessing Officer has not considered the reply of the assessee nor given any findings in the assessment order. Thus, the Assessing Officer has not adhered to the guidelines and principles laid down by the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO (supra). By following the decision of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO (supra) and various other decisions, in the case of CIT v. Penta Four Software Employees Welfare Foundation (supra), the Hon’ble Jurisdictional High Court has observed and held as under: “36. In our considered view, the decision arrived at in the case of Jayanthi Narayanan (supra) reflexes the correct position of law because. the procedure carved out by the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. (supra) not only binds the assessee, but also the Revenue. Filing of objections to the reasons for reopening is not an empty formality. If this is I.T.A. No.957/Chny/17 & I.T.A. No. 955/Chny/17 8 so, passing a speaking order on the objections cannot be treated as an empty formality and to be brushed aside as a procedural error. The purpose for passing a speaking order on the objections is to afford an opportunity to the assessee to question the same, in the event the assessee is aggrieved by such an order. Therefore, to state that it would be sufficient for the Assessing Officer to deal with the objections in the assessment order and thereafter, if the assessee is aggrieved, he can file a statutory appeal, is a proposition which would be against the principles of natural justice. Therefore, if an order violates the law laid down by the Hon'ble Supreme Court, then it has to be necessarily held to be an order without jurisdiction. The law declared by the Hon'ble Apex Court is a binding character and is a source of law and to itself which will bind all authorities. 37. We are to bear in mind that the procedure carved out in GKN Driveshafts (India) Ltd. (supra) is with a view to provide the assessee an opportunity to put forth his submission. This is in the light of the fact that reopening of a concluded assessment after a period of assessment is a very serious matter. This would be evident from the observations of the Hon'ble Apex Court in Kelvinator of India Ltd. (supra) wherein, it was held that post 1 st April. 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, Section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis or "mere change of opinion", which cannot be per se reason to reopen. 38. Further. it was pointed out that the conceptual difference between the power to review and power to reopen is to be kept in mind: the Assessing Officer has no power to review: he has the power to re-assess, but the re- assessment has to be based on fulfilment of certain pre-condition and if the concept of change of opinion is removed in the garb of reopening the assessment, review would take place. It was further held that one must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer and therefore, after 01.04.1989. the Assessing Officer has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment and reasons must have live link with the formation of the belief. 39. The Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. (supra) had clarified that when a notice under Section 148 of the Act is issued, the proper course of action for the noticee is to file a return and if he so desires, to seek for reasons for issuing such notice. Further, it was held that the Assessing Officer is bound to furnish reasons within a reasonable time, on receipt of the reasons, the noticee is entitled to file objections and the Assessing Officer is bound to dispose of the same by passing a speaking order. I.T.A. No.957/Chny/17 & I.T.A. No. 955/Chny/17 9 40. We do not agree with the interpretation canvassed before us that assuming objections were not disposed of by a speaking order, it would be only a procedural error. 41. We have referred to Kelvinator of India Ltd. (supra), which has pointed out as to how serious is reopening or a concluded assessment, that too, after four years. The Hon'ble Supreme Court has laid down the law and it has been made mandatory for the Assessing Officer to pass a speaking order. The use of the word "bound" cannot be rendered meaningless. Therefore, we are of the clear view that if there has been a procedural error. it goes to the root of the matter thereby affecting the jurisdiction of the Assessing Officer to proceed further to give a fresh innings to the Assessing Officer on the ground that it is a procedural error, will not only dilute the decision of the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. (supra), but would lead to abuse of power conferred under Section 147 of the Act, which had been pointed out in Kelvinator of India Ltd. (supra) Therefore, this would be the one more reason to hold that the reopening of assessments are bad. 42. It would be beneficial to refer to the decision in the case of S.R.M.T. Staff Association (supra). The facts of the said case were more or less identical to the assessee's case except the fact that the assessee was registered as a society whereas, the assessee before us is a company registered under Section 25 of the Companies Act, 1956. The said society collected certain amounts from various businessmen for bringing out a souvenir requesting them to send advertisements for publication in the said souvenir. The Income-tax Officer assessed to tax the difference of the amount received and the expenses, treating as "revenue receipts" in the hands of the assessee society negativing the claim of the society that it is a charitable institution and entitled to exemption and the amounts paid to the society by the businessmen were voluntary contributions. 43. The assessee tiled appeal before the Commissioner of Income-tax (Appeals), who held that the amounts paid by the businessmen towards advertisements could not be considered as “donations". On appeal to the Tribunal, the Tribunal following the judgment of the Bombay High Court in CIT vs. Trustees of Visha Nima Charity Trust reported in (1982) 138 ITR 564 (Bom), held that the amounts received by the society could not be treated as "trading receipts" and they were mere voluntary contributions. Further, the Tribunal confirmed the finding recorded by the authorities that the society was not a charitable institution. When the matter was carried on appeal to the Bombay High Court, the question referred was whether the Tribunal was correct in holding that the amount received by way of advertising charges are voluntary contributions or donations and are not trading receipts. After taking note of Section 2(24) of the Act, it was held that the assessee society has been held as not a charitable institution and it is not also one of the I.T.A. No.957/Chny/17 & I.T.A. No. 955/Chny/17 10 institutions which are satisfied under Section 2(24) of the Act which arc treated as "income" within the meaning of Section 2(24) of the Act and therefore, voluntary contributions received by the assessee society cannot be treated as "income" or "trading receipts". This decision applies with full force in support of the assessee herein and the Revenue is not able to put forth any submission to dislodge such conclusion. 44. It would be beneficial to refer to the decision of the Hon'ble Supreme Court in Income Tax Officer vs. TechSpan India (P.) Ltd. reported in (2018) 404 ITR 0010 (SC). The Hon'ble Supreme Court was considering the validity of a reopening proceedings under Section 148 of the Act on the ground that deduction under Section 10A of the Act had been allowed in excess and the income had escaped assessment. While dismissing the appeal filed by the Revenue, it was pointed out that the very basis of issuing show cause notice for reopening was that the assessee was not maintaining any separate books of account for the two categories of expenses and held that the conclusion of the Assessing Officer that the deduction under Section 10A of the Act was allowed in excess was based on nothing, but a change of opinion on the same facts and circumstances, which were already in the knowledge of the Assessing Officer even during the original assessment proceedings. 45. In the preceding paragraphs, we have noted the factual position in the assessee's case as well as the reasons for reopening mentioned in the notice dated 29.03.2005 and we find that there is absolutely no other material available with the assessee except the records which formed part of the assessment file. Therefore, the reopening was a clear case of change of opinion. 46. In the result, the appeals filed by the Revenue are dismissed and the substantial questions of law are answered against the Revenue and in favour of the assessee. 47. So far as T.C.A.No.584 of 2009 is concerned, this is pertaining to the proportionate expenditure against the corpus receipt of Rs.9.25 lakhs treated as revenue expenditure. 48. In T.C.A.Nos.582 and 583 of 2009, we have held that the reopening is bad. Consequently, the original assessments for the assessment years 1998- 99 and 1999-2000 have been sustained. In the said assessments, the Assessing Officer has treated the corpus as not taxable. Consequently, the Tribunal has allowed the proportionate expenditure incidentally as revenue expenditure. We find no reason to interfere with the said finding. 49. Accordingly, the tax case appeal is dismissed and the substantial questions of law are answered against the Revenue and in favour of the assessee. I.T.A. No.957/Chny/17 & I.T.A. No. 955/Chny/17 11 50. In the result, these tax case appeals are dismissed and the substantial questions or law arc answered against the Revenue and in favour of the assessee. No costs.” 7. From the above decision of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra), which was referred by the Hon’ble Jurisdictional High Court, it is amply clear that the filing of objections to the reasons for reopening is not an empty formality. The Hon’ble Jurisdictional High Court has observed that the procedure carved out by the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. (supra) not only binds the assessee, but also the Revenue. Further, it was observed that the purpose for passing a speaking order on the objections is to afford an opportunity to the assessee to question the same, in the event the assessee is aggrieved by such an order. Therefore, to state that it would be sufficient for the Assessing Officer to deal with the objections in the assessment order and thereafter, if the assessee is aggrieved, he can file a statutory appeal, is a proposition which would be against the principles of natural justice. Therefore, if an order violates the law laid down by the Hon'ble Supreme Court, then it has to be necessarily held to be an order without jurisdiction. In the present case, the Assessing Officer has not passed a speaking order on the objections, and therefore, we are of the considered opinion that the assessment order passed under section 143(3) r.w.s. 147 of the Act is without jurisdiction and the assessment order is liable to be quashed. Accordingly, respectfully following the decision of the Hon’ble Supreme I.T.A. No.957/Chny/17 & I.T.A. No. 955/Chny/17 12 Court in the case of GKN Driveshafts (India) Ltd. v. ITO as well as the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. Penta Four Software Employees Welfare Foundation (supra), the assessment order passed under section 143(3) r.w.s. 147 of the Act stands quashed. 8. Once the assessment order passed under section 143(3) r.w.s. 147 of the Act was quashed, the penalty proceedings initiated under section 271(1)(c) of the Act has not legs to stand and accordingly, the penalty levied in lieu of the assessment stands deleted. 9. In the result, both the appeals filed by the assessee are allowed. Order pronounced on the 08 th December, 2021 in Chennai. Sd/- Sd/- [जी. मऺजुनाथा, लेखा सद˟] [धुʫुŜ आर.एल रेǭी, Ɋाियक सद˟] (G. MANJUNATHA) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER Chennai, Dated, 08.12.2021 Vm/- आदेश की Ůितिलिप अŤेिषत/Copy to: 1. अपीलाथŎ/Appellant, 2.ŮȑथŎ/ Respondent, 3. आयकर आयुƅ (अपील)/CIT(A), 4. आयकर आयुƅ/CIT, 5. िवभागीय Ůितिनिध/DR & 6. गाडŊ फाईल/GF.