M/s Hothur Traders 100% EOU, Bellari V. The Assistant Commissioner of Income Tax Circle-1 , Bellary

MA 87/BANG/2021

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 5347 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 20 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 18-01-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 29-08-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHIVA PRASAD
• Keywords: Reason to believe
• Section: 147; 148; 143(3); 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER MP No.87/Bang/2021 [in ITA No.541/Bang/2019] Assessment year: 2011-12 M/s. Hothur Traders (100% EOU), Plot Nos. 5, 6, 7 & 8, “Hothur House”, Infantry Road, Cantonment, Bellary – 583 104. PAN: AAEFH 7705H Vs. The Assistant Commissioner of Income Tax, Circle 1, Fort Road, Bellary – 583 102. APPLICANT RESPONDENT Appellant by : Shri Shiva Prasad, ITP Respondent by : Shri Sankarganesh K, Jt.CIT(DR)(ITAT), Bengaluru. Date of hearing : 07.01.2022 Date of Pronouncement : 19.01.2022 O R D E R Per Chandra Poojari, Accountant Member By this miscellaneous petition, the assessee seeks to recall the order dated 25.3.2021 in its appeal in ITA No.549/Bang/2019 for rectification of the order dated 25.3.2021 for AY 2011-12. 2. The ld. AR submitted that the assessee had raised the additional ground in the appeal vide letter 9.12.2020 as follows:- MP No.87/Bang/2021 Page 2 of 6 “Additional Ground No.1: The credit balance of Rs.4,17,71,395/- was not charged to the profits either in the subject assessment year or in the earlier years and therefore, the provisions of section 41(1) did not apply, even if it was written off by the creditor. Additional Ground No.2: As the material in possession of the AO did not indicate any income escaping assessment, but for his misreading of the accounting entries vis-a-vis the provisions of section 41(1), the AO could not have arrived at "reason to believe", which is a condition precedent for the issue of Notice u/s 148. Additional Ground No.3: Without prejudice to the Grounds taken, the learned AO as well as the learned CIT(A) erred in failing to appreciate that the assessee is entitled to the exemption u/s 108 on the enhanced profits consequent to the disallowance of Rs.4,17,71,395/- made applying section 41(1) of the Act.” 3. The ld. AR submitted that additional ground No.3 was not pressed before the Tribunal and only additional grounds No.1 & 2 were pressed in the appeal proceedings and submitted that these grounds were not adjudicated by the Tribunal, which is a mistake apparent on the record and therefore these additional grounds may be adjudicated as canvassed in the petition. 4. The ld. DR submitted that the assessee raised the above additional grounds which were not considered by the Tribunal, the error may be rectified. 5. We have heard both the parties and perused the material on record. Admittedly, the assessee raised the above 3 additional grounds which were inadvertently not considered by the Tribunal while deciding the appeal. MP No.87/Bang/2021 Page 3 of 6 Accordingly these additional grounds are required to be adjudicated and for this reason the miscellaneous petition filed by the assessee is allowed. 6. After allowing the miscellaneous petition, now we proceed to consider the admission of additional grounds. We find that these additional grounds were filed before the Tribunal on earlier occasion and were argued praying for admission of the same stating that these additional grounds emanate from the orders of the lower authorities where were inadvertently not raised in the original grounds and there is no necessity of any fresh investigation into facts, otherwise on record. Accordingly, we admit the additional grounds No.1 & 2 in the interest of justice. Additional ground No.3 is dismissed as not pressed. 7. With regard to additional ground No.1, this ground is extension of main ground of appeal with regarding to sustaining addition of Rs.417,71,395 u/s. 41(1) of the Act on which the Tribunal has given a categorical finding that the lower authorities were justified in invoking the provisions of section 41(1). Hence there is no necessity of going into this additional ground which would amount to review of its order and the Tribunal has no power to do so. Accordingly, this ground is dismissed. 8. Regarding additional ground No.2, the ld. AR submitted that there was no escapement of income chargeable to tax, but for the misreading of the ledger account entries in the books of account of the creditor, ILC vis-à- vis the provisions of section 41(1) of the Act and there was no satisfaction that there was ‘reason to believe’ for issue of notice u/s. 148. 9. On the other hand, the ld. DR submitted that the assessee wants to reargue the issue before this Tribunal once again by way of miscellaneous petition which cannot be allowed. He relied on the order of the Tribunal. MP No.87/Bang/2021 Page 4 of 6 10. We have heard both the parties and perused the material on record. Section 147 of the Act was substituted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1.4.1989. Sub-classification of clause (a) & (b) have been dispensed with in the newly inserted sub-section. The initial portion of the amended section reads as follows:- “ If the Assessing Officer, for reasons to be recorded by him in writing, is of the opinion ..................” According to the representations received from the taxpayers, the words “for reasons to be recorded in writing, is of the opinion...” was substituted for the words “reason to believe” w.e.f. 1.4.1989 itself. 11. By the Direct Tax Laws (Amendment) Act, 1989, the amending Act also introduced sub-section (2) in section 148 which enjoins that before issue of notice u/s. 148, the AO shall record his reasons for doing so. After this amendment, the conditions precedent are as under:- (a) Where the AO has reason to believe that income chargeable to tax has escaped assessment; (b) Where the assessment has been made u/s. 143(3) or 147, where the reopening is made after four years from the end of assessment year, the escapement of income should have been on account of :- (i) failure on the part of assessee to make return u/s. 139, or in response to notice u/s. 142 or 148; (ii) to disclose fully and truly all material facts necessary for his assessment for that year. 12. Absence of such ‘reason to believe’ affects the very jurisdiction to initiate reassessment proceedings. The AO should have the material to come to the conclusion that there is a reason to believe that any income chargeable to tax has escaped assessment or that the same was due to the fact that the assessee failed to disclose fully and truly all material facts to the department. In other words, it is not imperative that the AO should actually discover the escapement of income. MP No.87/Bang/2021 Page 5 of 6 13. At this stage, it is appropriate to refer to the judgment of the Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers (P) Ltd., 291 ITR 500 (SC) wherein it was held as under:- “17. The scope and effect of section 147 as substituted with effect from 1-4-1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso. 18. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued.” 14. Being so, under section 147 as substituted w.e.f. 1.4.1989, if the AO for whatever reasons, has reason to believe that income has escaped assessment, it confers jurisdiction to reopen the assessment. MP No.87/Bang/2021 Page 6 of 6 15. In the present case, the AO while going through the details of transaction pertaining to the assessee firm in the books of ILC, noticed that ILC has written off an amount of Rs.417,71,395 due to the assessee as bad debt during the FY 2010-11 relevant to AY 2011-12, whereas the assessee firm is showing the said amount as outstanding in the name of the company, ILC, even as on 31.3.2013. Being so, at the time of issue of notice u/s. 148 for reopening the assessment u/s. 147, the AO had reason to believe that the above amount has escaped assessment and he has rightly issued the notice for reopening the assessment. We do not find any infirmity in this action of the AO. The same is confirmed. Hence, additional ground No.2 is dismissed. 16. Thus, there is no change in the result of the appeal in ITA No.541/Bang/2019. 17. In the result, the miscellaneous petition is allowed. Pronounced in the open court on this 19 th day of January, 2022. Sd/- Sd/- ( GEORGE GEORGE K. ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore, Dated, the 19 th January, 2022. /Desai S Murthy / Copy to: 1. Applicant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.