VISHAL VIDEO AND APPLIANCES PVT. LTD.,GORAKHPUR V. NATIONAL FACELESS ASSESSMENT CENTRE, DELHI

ITA 110/VNS/2023

AI Insights

Vishal Video and Appliances Pvt. Ltd. appealed against the orders of the National Faceless Assessment Centre (NFAC), which had reopened their assessments for the years 2015-16 to 2017-18 under section 147 read with section 144 of the Income Tax Act, 1961, and made additions estimating profits from import transactions. The Tribunal examined whether the reopening of the assessment and the subsequent additions were justified, considering that the PAN used for these transactions belonged to a non-existent partnership firm, and the transactions had been duly recorded and assessed under the correct PAN of the company. The Tribunal concluded that the actions taken by the NFAC were not in accordance with the law, leading to the allowance of the appeals.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 40705 (ITAT-VARANASI)
• Duration Of Justice: 1 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Next Hearing Date: 13-09-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 14-11-2023
• Other Referred Cases: Ayyappan Pillai Kumaresan v. Income-tax Officer [2023] 146 taxmann.com 12 (Madras), CIT Vs. Kelvinator of India Ltd. (2002) 256 ITR 1, CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMALENDU NATH MISHRA
• Assessee Lawyers: ASHISH BANSAL
• Keywords: Difference of opinion; Change of opinion; Salary income
• Section: 147; 148; 143(3); 271(1)(c); 139; 44AB

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, CIRCUIT BENCH, VARANASI BEFORE: SHRI B.R. BASKARAN, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA No.109/VNS/2023 to 111/VNS/2023 (Assessment Year :2015-16 to 2017-18 ) Vishal Video and Appliances Pvt. Ltd., Krishna Kunj, Gandhi Nagar Gorakhpur Uttar Pradesh Vs. National Faceless Assessment Centre (NFAC) Delhi PAN/GIR No.AAEFV0042M (Appellant) .. (Respondent) Assessee by Shri Ashish Bansal, Adv. & Shri Pankaj Shukla, Adv. & Shri.Subham Singh,CA on behalf of S.K. Garg & Company, Advocates Revenue by Shri Amalendu Nath Mishra Date of Hearing 13/09/2024 Date of Pronouncement 29/11/2024 आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeals have been filed by the assessee against separate impugned order dated 06/09/2023, passed by NFAC Delhi for the quantum of the assessment passed u/s 147 r.w.s. 144 for the Assessment Years; 2015-16, 2016-17 and 2017-18. ITA No.109-110/VNS/2023 Vishal Video and Applicances Pvt.Ltd. 2 2. Since issues involved in all the appeals are common arising out of identical set of facts and similar finding of the ld. AO and ld. CIT (A) order, therefore, same were heard together and are being disposed of by way of this consolidated order. For the sake of ready reference, we are taking the appeal for A.Y.2015-16 and our finding given therein will apply mutatis mutandis in the appeals for the A.Yrs. 2016-17 and 2017-18 also. 3. In various grounds of appeal assessee has challenged the validity of reopening u/s.147 and issuance of notice u/s.148 on various grounds and also challenged the following additions on account of estimation of profit at @ 20% in relation to trading of import items. ASSESSMENT YEAR AMOUNT (IN RS.) 2015-16 17,24,69,799 2016-17 14,30,21,083 2017-18 2,32,86,896 46,57,300 4. The brief facts and the background of the case including the reopening of the assessment u/s.147 are that, assessee is a company incorporated in the name of ‘Vishal Video and Applicances Pvt. Ltd.’ having its registered office at ‘Krishna Kunj’, Gandhi Nagar, Gorakhpur. Prior to A.Y.2010-11 the business of import and trading of items like mobile phones and electronic appliances was carried out by the Partnership Firm. Later the Parnership Firm was converted into Private Limited Company and business was since then carried out by the ITA No.109-110/VNS/2023 Vishal Video and Applicances Pvt.Ltd. 3 Company. Even after the incorporation under the Companies Act the assessee who had applied for the PAN was wrongly allotted PAN of the partnership firm by the Income Tax department. Since PAN was issued in a wrong status, assessee again applied for cancellation of its PAN vides intimation dated April 2010 to the Income Tax Department. Same was duly acknowledged by the department on 30/04/2010 and accepted the assessee’s intimation and new PAN-AADCV0236F was allotted. However, in the intervening period, it had made imports in view of license received from department of Commerce and Ministry of Commerce and Industry, Government of India under the PAN of the firm, i.e. its predecessor which was PAN-AAEFV0042M. However, the assessee company in its books of account had taken due cognizance of all the imports and transactions and duly recorded the profits it in its books of account and financial statements and on that basis has also even filed its return of income in the status of the company under the PAN- AADCV0236F of the company duly reflecting the impugned transactions. Not only that in the case of the company regular assessment was made in all the three assessment years u/s. 143(3) as per the details given hereunder:- i. A.Y.2015-16 – Assessment Order u/s.143(3) dated 13/11/2017 ii. A.Y.2016-17 – Assessment Order u/s.143(2) dated 19/12/2018 iii. A.Y.2017-18- Assessment Order u/s.143(3) dated 07/12/2019 ITA No.109-110/VNS/2023 Vishal Video and Applicances Pvt.Ltd. 4 5. In all these assessments, the transactions relating to all imports recorded in the books of accounts were duly examined and accepted by the ld. AO including the profits shown by the assessee company. 6. Later on, as per the information available of AIMS module of ITBA under the head ‘Multiyear NMS’ that assessee had entered into significant financial transaction and has not filed the return of income for A.Ys. 2015-16, 2016-17 and 2017-18 and further it was noted from the information in ITBA portal that assessee was having bill of entry for imports for assessable value exceeding Rs.5,00,000/-. Accordingly, assessee was asked to explain the reason for not filing of return despite having substantial bill of entry for imports for assessable value exceeding Rs.5,00,000/-. 7. In response, assessee filed reply online which was as under:- “1. That the applicant is a Private Limited Company and was allotted PAN-AAEFV0042M previously from the Income Tax Department. We were filing our return of income on aforesaid PAN A.Y. 2009-10 Later w became aware that the PAN allotted to us was of \"Firm\" status and not appropriate to use for company therefore we applied for fresh PAN. We were allotted PAN- AADCV0236F on which we had been filling our return of income regularly since A.Y. 2010-11 and wrong pan was thus surrendered vide acknowledgement no 050880201353015 on dt.30.04.2010. (proof enclosed). That the information asked Bill of entry of imports for assessable valve exceeding Rs.5 lakh (custom- export) and \"Shipping bill for exports for value exceeding Rs. 5 lakh (Custom export)\" for F.Y. 2014-15 had been taken in account in our audited financial statements and return of income was Filed, Copy of ITR, Tax Audit Report, Balance Sheet and Profit & ITA No.109-110/VNS/2023 Vishal Video and Applicances Pvt.Ltd. 5 Loss account are enclosed applicant's case was selected for scrutiny assessment and the order was passed u/s 143(3) of the Income Tax Act, 1961 for the A.Y. 2015-16 on dt.13.11.2017 which is enclosed for your ready reference.\" 8. Despite noting this fact that assessee has filed the return of income for all the assessment years and the bill of entry of imports have been taken into account in the audited accounts still, he did not accept the contentions of the assessee on the ground that information under possession was under PAN AAEFV0042M which has been surrendered on 30/04/2010, whereas the aforesaid bill amount has been accounted in the audited account filed with PAN AADCV0236F. The contention of the ld. AO was that once assessee has filed the return since AY 2010-11 on PAN AADCV0236F, then how the transaction of import was made in F.Y. 2014-15 on surrendered PAN AAEFV0042M. The bill of entry of imports as per the information was Rs.86,23,48,994/- for A.Y.2015-16, accordingly, notice u/s.148 was issued on 28/03/2021. In response to the notice, assessee filed detailed objections highlighting all these details which have been incorporated from pages 3-7 of the assessment order. Despite these objections, ld. AO still continued to make the addition in the hands of the assessee company under old PAN which was already surrendered by the assessee after observing and holding as under:- “4. Regarding issue of bill of entry for imports for assessable value worth Rs.86 23,48,994/- is concerned, the assessee has not given any explanation as to which goods have been imported. However, the total import could not be the total income earned by the ITA No.109-110/VNS/2023 Vishal Video and Applicances Pvt.Ltd. 6 assessee. Therefore, the profit element involved in these transactions needs to be brought to tax. Since assessee has failed to provide any relevant details through which profit element can be ascertained. Further assessee has not filed ROI as per provisions of Sec. 139 of the IT Act and ROI filed in response to Notice u/s 148 is at Nil income. Considering the abovementioned facts its business of income could not be ascertained. Therefore, in order to protect the interest of the Revenue, 20% of such transactions, i.e., Rs. 17,24,69,799/- (20% of Rs. 86,23,48,994/-) is added to the total income of the assessee Penalty proceedings u/s 271(1)(c) of the Act is initiated for concealment of income.” 9. Exactly, similar reason has been given by the ld. AO in his assessment order for the A.YS. 2016-17 and 2017-18, wherein ld. AO has estimated 20% of profit on entire import transactions and assessed the income in the hands of non existing Partnership Firm with PAN AAEFV0042M. 10. The ld. CIT (A) too has confirmed the addition after observing and holding as under:- 19 Regarding the issue of transactions, the appellant has never denied the fact that he had made the transactions i.e. Bill of entry of imports by using its old PAN. During the assessment proceedings, the appellant was given an opportunity of hearing by issuing a show-cause notice, requesting the appellant to submit necessary evidence in support of his claim alongwith Draft Assessment Order proposing the addition of Rs. 17,24,69,799/- and asked the appellant to show cause as to why assessment should not be completed as per Draft Assessment Order. However, no reply, in this regard, was filed by the appellant within stipulated time. It was further stated that if the appellant fails to submit his explanation, the assessing officer will be constrained to proceed with the proceedings on the basis of the documents available. It is to be noted here that the said show cause notice was issued in respect of existing company. ITA No.109-110/VNS/2023 Vishal Video and Applicances Pvt.Ltd. 7 20 The order was passed against the PAN which was used by the appellant for the transactions during the assessment year and also in the name of existing company. The said order also reveals about the appellant not submitting any reply to the show cause notice issued. 21 In so far as the appellant contended that the notice against a dissolved firm could not have been issued for the assessment year 2015-16, I am not in agreement with the same for the reason that the old PAN AAEFV0042M was used by the appellant for the said transactions. The appellant, during the assessment as well as appellate proceedings, was asked to produce documentary evidences that the aforesaid bill amount has been accounted for in its audited a/c filed on PAN-AADCV0236F, However, the same remained unexplained in assessment as well as in appellate proceedings as the appellant has failed to prove by any material that the transaction incurred of Rs. 86,23,48,994/- has been offered to tax in the return of the company. It is clear that there had been escapement of income to tax as income admittedly received by the appellant, had not been offered to tax by him. Also, the utilisation of PAN even after he had applied to CPC for deduplication of PAN for the transactions itself shows the malafide intention to avoid taxability of such transactions. This would not have come to light had notice under section 148 not been issued. This modus operandi has been adopted in A.Ys 2015-16, 2016-17 & 2017-18 under appeal. In the case of Ayyappan Pillai Kumaresan v. Income-tax Officer [2023] 146 taxmann.com 12 (Madras), it was held that since assessee failed to file his return when taxable income had been received and not paid tax on salary income earned and further utilised his PAN for sale transaction involving substantial consideration which had not been reported by him, there was no lacuna in assumption of jurisdiction by Assessing Officer under section 147 read with section 148 and there was no infirmity in issuing reopening notice. The appellant failed to prove with cogent documentary evidence that all such transactions carried out using a separate PAN were duly incorporated & reflected in the ITR filed using the regular PAN. By not providing complete details including party wise purchases and sale etc, the AO has been denied of opportunity of verification and hence, in the given situation estimation of income ITA No.109-110/VNS/2023 Vishal Video and Applicances Pvt.Ltd. 8 is best course of action for arriving at the profit element. Therefore, I consider that the AO had taken a reasonable view of taxing the profit element in the unreported income by applying 20% of such transactions, i.e., Rs. 17,24,69,799/- (20% of Rs. 86,23,48,994/-) and added to the total income of the appellant. Therefore, in view of above discussion, these Grounds of the appellant are dismissed. 11. We have heard both the parties at length and also perused the relevant material placed on record. Here in this case as noted above, prior to A.Y. 2010-11, the assessee was a partnership firm and later on it was converted into a private limited and was duly incorporated under the Companies Act. After the incorporation under the Companies Act, assessee applied for PAN and was allotted PAN of the partnership firm. Thereafter, assessee had applied for cancellation / renewal of PAN as a company vide intimation dated 30/04/2010. Since then, as acknowledged by the ld. AO in his assessment order that assessee has been filing its return of income of PAN AADCV0236F in the status of Company. Not only that, all the transactions relating to import of material and trading of imported materials had also been duly incorporated in the audited accounts and the books of the company in year to year, including the import transaction of Rs.86,23,48,994/-for A.Y.2015-16; Rs.71,51,05,419/- for the A.Y.2016-17 and Rs.2,32,86,496/- for the A.Y.2017-18. These imports pertain to import of mobile phones and other gadgets etc. which were sold/ traded in India. Assessee Company had valid license to import which has been received from department of commerce and industry, Ministry of commerce GOI. From the audited financial statement and Auditor’s Report under the ITA No.109-110/VNS/2023 Vishal Video and Applicances Pvt.Ltd. 9 Companies Act, it is seen that all these transactions have been duly reported in the financial statements and notes to the accounts wherein the entire nature of purchase of finished goods, sale of finished goods etc., were duly disclosed. The copies of these details have been placed in the paper book from pages 139-145. From the perusal of the certificate of Importer and Exporter Code (IEC) it is seen that the same was issued on 12/08/2005 and the same continued and renewed thereafter. At page 145 of the paper book assessee has placed certificate of importer and exporter certificate dated 27/04/2015 wherein the date of issue of license has been mentioned 12/08/2005. 12. Since these transactions were reported under old PAN i.e. PAN of the firm, the AIMS module of ITBA informed that there was a significant transaction and there was no return of income filed reflecting these transactions in the PAN data base. Ostensibly if the PAN of the firm was already surrendered and purchase transaction have been duly recorded in the books of the company with the correct PAN, then there was no occasion by the assessee to file the return of the Firm under the old non- existing PAN. Even if there was an information received by the AO, but once it was brought to the notice of the AO prior to the issuance of notice u/s 148 in response to notice issued by the AO and also in the objection after issuance of notice u/s 148, that earlier PAN was surrendered and assessee was allotted new PAN in the status of the company and assessee company has been regularly filing the return of income and was duly assessed u/s. 143(3), then Ld. AO should not have issued the notice u/s ITA No.109-110/VNS/2023 Vishal Video and Applicances Pvt.Ltd. 10 148 or should have dropped the proceedings u/s.148. Because, issuing a notice u/s.148 and thereby passing assessment order under the old PAN in the status of ‘Firm’ which was non-existing at that time, itself is void ab initio. How the ld. AO can pass the order and create a demand on a surrendered PAN of a non- existing entity as on date. Even though the information may have been received under the Module that PAN AAEFV0042M had undertaking any transaction, however when this fact was duly brought on record prior to the notice issued u/s.148 and later on during the course of the objection then how can ld. AO change the status of the assessee company to a partnership firm. Thus, the entire initiation of transaction u/s.148 itself gets vitiated. 13. Another important fact is that all these transactions which have been sought to be re-assessed by the ld. AO in the case of the non-existing PAN, have been duly offered and disclosed in the audited accounts to the Assessee company and also recorded in the books for which already assessment u/s. 143(3) has been made for the same transaction. When income from same transaction of imports already stands assessed, how assessment and addition can be made again on estimated basis on a different PAN and status. It is very surprising to see that assessment order had been made in the status of the ‘Firm’ under PAN AAEFV0042M. Once there is no such entity existing on the date of issuance of notice u/s.148, then how the assessment can be made. The entire assessment order itself is an invalid and unenforceable in the eyes of law. It is further astonishing that not only the ld. AO but also higher approving authority at the ITA No.109-110/VNS/2023 Vishal Video and Applicances Pvt.Ltd. 11 level of CIT have approved such notice when send for approval u/s 151 when this fact was brought to the knowledge and on record. This shows non application of mind and mechanical way of approving the notice u/s 148. Here the Ld. First Appellate Authority also despite noting this fact in his order has not only confirmed the proceedings u/s 148 but also the additions. There has to be an existing assessee and live PAN to make an assessment. It is a different matter that these facts have not been brought on record before the department and the ld. AO and the approving authority and the ld. CIT(A) were unaware, but once these facts have been brought on record and assessee had duly stated that earlier PAN has been cancelled and new PAN has been allotted under which it has been filing its regular return of income and had disclosed all the import transactions in the books, then we do not find any reason as to why the proceedings were not dropped and still the additions were made. 14. Now here is the situation, where similar transactions for imports have been duly offered and assessed to tax in the hands of the company u/s 143(3) and again same transaction and estimated profit has been made in the hands of non-existing entity, i.e., the firm under the old surrendered PAN. The assessee might have made a mistake of not intimating the new PAN in import and export license while renewing the license which was issued in the year 2005 when a partnership firm was carrying out the business of import and trading of items and might have imported the goods; but once in 2010 the firm cease to exist and the new company came into existence with new PAN, then what ITA No.109-110/VNS/2023 Vishal Video and Applicances Pvt.Ltd. 12 was relevant for the purpose of the Income Tax Act and for assessing the income is whether the transaction of the import and trading of items have been disclosed by the company in its books of accounts or not? 15. This fact has been duly stated by the assessee before the ld. AO and ld. CIT (A) and also before us in the following manner. “16. Issue No. II: As mentioned in grounds of appeal, as reproduced above, the additions of Rs.17,24,69,800/-, are challenged on merits also. As regards ground no.13 as reproduced in the opening paragraph, it would be seen that notice under section 148 was passed on assumption that Bill of Entry of imports for assessable value amounting to Rs.86,23,48,994/-, had not been entered in the books of account of the appellant company, whereas the fact remains that such Bill of Entry pertains to the erstwhile partnership firm, the predecessor of the appellant company, and the appellant company had owned the said transaction, by faithfully recording the same in its books of account, as per the accounting standard laid down by Institute of Chartered Accountants of India/ Government of India. This aspect of the matter had duly been brought to the kind notice of Id. Income Tax Officer-2, Gorakhpur, as well before National Faceless Appeals Center/ld. Commissioner of Income Tax (Appeals). 20. From a bare perusal of the said letter/objection, it may kindly be seen that the appellant had duly objected to issuance of notice under section 148, inter-alia, on the ground that the same had not been addressed correctly. Besides, in paras 9 and 10 of the said objection/letter, the appellant had referred to the fact that the transactions related to import of sets of mobile phones and accessories thereto, had duly been entered in the books of account of the appellant company and it was merely a case of change of opinion. In support of this contention (to the effect that it was a case of change of opinion) the appellant had even referred to the decision of Full Bench of Hon'ble Delhi High Court in the case of CIT Vs. Kelvinator of India Ltd. reported in (2002) 256 ITR 1, wherein it had been held to the effect that as per clause (e) of ITA No.109-110/VNS/2023 Vishal Video and Applicances Pvt.Ltd. 13 section 114 of Indian Evidence Act, the Assessing Officers are have regularly performed their duties. It has been further held in the said decision of Hon'ble Delhi High Court that no premium can be given to an authority exercising quasi judicial function, to take benefit of its own wrong. It has also been pointed out in the said letter/objection that the said decision of Full Bench of Hon'ble Delhi High Court had since been affirmed by Hon'ble Supreme Court in its later decision in the case of CIT vs. Kelvinator of India Ltd. in (2010) 320 ITR 561. A copy of the same, marked as Annexure-VI, are attached herewith. 29 It is reiterated that after the Id. Assessing Officer, as well as ld. CIT(A) had been informed that the transactions related to import of goods valued at Rs.86,23,46,994/- had been recorded in the books of account of the appellant company, the very basis for initiation of proceedings under section 147, had become non- existent. Accordingly, the reassessment order dated 27.03.2022 captioned as under section 147 read with section 144B of the Income Tax Act for the assessment year 2015-16 is liable to be held as null and void. 30. Apart from these facts, it is also submitted that Id. CIT(A) erred in law and on facts in upholding the addition of Rs.17,24,69,799/- , as had been made in the assessment by NFAC/Id.AO by applying a net profit rate of 20% of the aggregate value of imports aggregating Rs.86,23,48,994/-. As had been stated by the appellant, such transactions had been negotiated by its predecessor, which was a partnership firm. After coming into existence of the appellant company as successor of the partnership firm (erstwhile) the company it had owned the commitments made by erstwhile partnership firm, and accordingly it had entered entire transaction related to import of mobile phone and accessories, in its books of account as had been maintained as per the provisions of the Companies Act 2013 and/or the accounting standard laid down by the Institute of Chartered Accountants of India. 31. Such an information had duly been brought to the notice of the ld. Assessing Officer (by the appellant company) in its objection/letter filed on 01.01.2022, which was also produced before Id. CIT(A). The Id. Assessing Officer, while completing ITA No.109-110/VNS/2023 Vishal Video and Applicances Pvt.Ltd. 14 reassessment (in pursuance of notice under section 148 dated 28.03.2021), was bound to examine this aspect of the matter as per decision of Full Bench of Hon'ble Delhi High Court in the case of Kelvinator of India, (supra) which had been affirmed by Hon'ble Supreme Court also as stated above, the Id. Assessing Officer should have examined the fact. 32 It is again stated that transactions related to import of sets mobile phones and accessories of the aggregate value of Rs.86,23,48,994/- had duly been entered by the appellant company in its books of account. Such books of account had been subjected to twin audits, one under the Companies Act 2013 and another under section 44AB of the Income Tax Act by the independent Auditors, who are the members of the Institute of Chartered Accountants of India, New Delhi, the highest accounting body in the country. Such Audited statements of account, together with twin audit reports, had even formed the basis of filing the \"return\", in response to notice under section 148. A copy of the said audit reports for assessment year 2015-16, 2016-17 and 2017-18, alongwith respective ITRs, cumulatively marked as Annexure-VII, are attached herewith. 33. Similarly, for the reason that the Id. Assessing Officer did not examine the entries appearing in the books of account of the appellant company, the appellate company should not be punished, by making a huge addition of Rs.17,24,69,799/-, which had resulted into creating a huge demand, which the appellant company is unable to pay. In fact, in case such an arbitrary and illegal demand, if enforced for payment, shall cause irreparable jeopardy. even for the existence of the appellant company. Therefore, it is prayed that the appeal filed by the appellant company under section 250(6), be allowed, both in law as well as on facts, for which sufficient submissions have been made hereinfore.” 16. In view of the aforesaid submissions made before us and also before the ld. AO and ld. CIT (A) which has also been incorporated in the impugned order of CIT (A), we do not find any justification on these facts either for initiation of proceedings ITA No.109-110/VNS/2023 Vishal Video and Applicances Pvt.Ltd. 15 u/s.147 or even on merits making any addition by way of estimated profit of 20% on assessable value of imports which has already been disclosed and offered to tax and assessed u/s. 143(3) by the department in the case of the assessee company. Thus, on both the counts, i.e., not only the proceedings u/s.147 / 148 is quashed but also the addition made by the ld. AO and confirmed by the ld. CIT(A) is deleted in all the three years. 17. In the result, all the appeals of the assessee are allowed. Order pronounced on 29/11/2024. Sd/- (B.R. BASKARAN) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Varanasi; Dated 29/11/2024 KARUNA, sr.ps Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Varanasi 1. The Appellant 2. The Respondent. 3. The CIT(A), Varanasi. 4. CIT 5. DR, ITAT, Varanasi 6. Guard file. //True Copy// "