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DCIT, Circle 9 (1) , New Delhi Versus M/s. State Farms Corporation of India Ltd.

2015 (11) TMI 643 - ITAT DELHI

Validity of reopening of assessment - CIT(A) quashed reopening orders - Held that:- CIT (A) has rightly held that the AO was not correct to assume jurisdiction over the assessee for the year under consideration and no new facts were brought on record which gave reasons to believe that the income of the assessee had escaped assessment and, therefore, the reopening of assessment in the present case had been merely on the basis of change of opinion. Further, it is evident that all the material info .....

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ginal assessment. In the aforesaid circumstances, we uphold the view of the ld. CIT (A) that the reopening is based on change of opinion which is not permissible as held by Hon’ble Supreme Court in CIT vs. Kelvinator of India Ltd. (2010 (1) TMI 11 - SUPREME COURT OF INDIA).- Decided in favour of assessee. - ITA No.4277/Del./2013 - Dated:- 21-10-2015 - SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER For The Assessee : Shri P.N. Mehta, AR For The Revenue : Shri Bibhu Dutt .....

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ernment undertaking engaged primarily in agricultural activities. The income which is liable to tax is income from trading in seeds, income from property and other sources like interest etc. 3.1 The return of income for the year under consideration was filed on 26.10.2007 declaring an income of ₹ 6,25,63,250/-. The assessment was made u/s 143(3) of the Act dated 19.10.2009 at an income of ₹ 11,30,51,720/-. After recording the reasons for re-opening, a notice u/s 148 of the Act was is .....

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ice u/s 143 (2) was issued and, the AO made an addition of ₹ 2,07,22,855/- and completed the reassessment on total income of ₹ 8,33,70,290/-. 3.2 Aggrieved, the assessee filed an appeal before the first appellate authority challenging the jurisdiction of the AO to reopen u/s 147/148 of the Act. The CIT (A) allowed the appeal and quashed the assessment u/s 147/148 of the Act by holding as under :- I have perused the facts stated in the assessment order as well as the facts stated by t .....

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and Development Expenses", ₹ 4,79,210/- (Rs.20,83,886/- ₹ 16,04,676/-) as "Provision for Bonus", ₹ 82,07,035/- (Rs.9,55,53,144/- ₹ 8,73,46,109/-) as "Provision for Leave Encashment" and ₹ 91,02,718 (Rs.2,65,36,138/- ₹ 1,74,33,420) as "Provisions for Gratuity" in profit & loss account. There provisions of ₹ 1,89,48,604/- were not ascertained liabilities, therefore the same should be disallowed and added back to the i .....

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and the same has again been deducted under "any other amount allowed as deduction" (Sch. BP Pt. 30). As this amount has been deducted twice, therefore the excess deduction of ₹ 4,49,645/- should be disallowed and added back to the income of the assessee. 5. In view of this, I have reason to believe that an amount of ₹ 2,07,22,855/- (1,89,48,604 + ₹ 13,24,606/- + 4,49,645/-) has escaped assessment within the meaning of section 147 of the IT Act 1961." From the rea .....

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e Assessing Officer in reopening the assessment is not correct. The opinion by audit could not constitute tangible material for reassessment under section 147/148 of the Income Tax Act. In this respect the decision of the Delhi high Court in the case of Xerox Modicorp Ltd. vs Deputy Commissioner of Income-tax 350 ITR page 308. The Delhi High Court held that- "The audit objection was an inference that the royalty payment resulted in a capital benefit; such an opinion expressed by the audit c .....

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related to the agricultural activities were not claimed. The expenses on trading were claimed and in this respect the assessee has filed the detailed statement of accounts showing the expenses claimed and income assessed. These expenses relates to non agricultural activities and duly Audit Report under section 44AB was also filed. The assessment was completed on the basis of these statements. The assessee has not claimed any of the expenses on the basis of which the assessment has been reopened .....

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rs of income which resulted into an escaped assessment. In case of the non-observation of the same, the entire proceedings in pursuant of the same are void and bad in law. Hon'ble Supreme Court judgement in case of M/s Kelvinator of India Limited [2010- TIOL-06-SC-IT -LB] where it was held after considering the various amendments u/s 147 of the LT. Act, held that: "the Assessing Officer cannot re-open assessments on the basis of mere change of opinion and if the same is done it would gi .....

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to be reopened beyond four years, the power is nonetheless not unbridled. After the amendment which was brought in by the Direct Tax Laws (Amendment) Act, 1987 w.e.f 1st April 1989, the AO must have reason to believe that income has escaped the assessment. At the same time, the AO is not conferred with the power to review an assessment and he cannot reopen as assessment only because of a mere change in the opinion. The AO must, in other words, have tangible material to come to the conclusion tha .....

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placed before the AO by its letter dt. 4th Sept., 2009, copies of the agreement dt. 16th June, 2005between the assessee and its directors in pursuance of which remuneration was paid to them for the relevant year which included the payment of commission. The attention of the AO was clearly and specifically drawn to the quantum of the fixed monthly remuneration and in addition to the payment of commission which is computed at a stipulated proportion of the net profits. The assessee explained the b .....

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yment, the basis of the computation and the rationale for computing the remuneration to the two directors with reference to a fixed remuneration in part and a proportion of the net profits in balance was brought in focus before the AO. Hence, all the primary facts for the purpose of a deduction under s. 36(l)(ii) were placed before the AO. That the order of assessment under s. 143(3) accepted the claim on this issue is what matters. It is not in dispute that the two directors have been assessed .....

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rmissible in law. For these reasons, the conclusion is that the reopening of the assessments under s. 147 for assessment years 2007-08 and 2008-09 is contrary to law. The notices issued under s. 148 for the aforesaid years are quashed and set aside - CIT Vs Kelvinator of India Ltd. (2010) 228 CTR (SC) 488: (2010) 34DTR (SC) 49: (2010) 320 ITR 561 (SC) The Assessing Officer was not correct in his action to assume jurisdiction over the appellant for the year under consideration. Additionally reaso .....

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s 147/148 has been quashed. Hence there is no need to go in to the merit in the case Rahul Kumar Bajaj (Pune Bench) ITA T. In the result appeal is partly allowed. 4. The revenue, being aggrieved, has filed this appeal before us. 5. Ld. DR relied on the order of the AO and submitted that the reopening of the assessment was valid in the eyes of law and so the order of the ld. CIT (A) be reversed and the matter may be remanded back to the ld. CIT (A) to be decided on merits. 6. On the other hand, l .....

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ssee is considered carefully and it is seen that the provisions are in the nature of unascertained liability whereas the provisions of IT Act 1961 deals with ascertained liability. Relying on the judgment of Hon ble Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. ITO - 259 ITR 19, he submitted that without disposing the objections of the assessee by a speaking order, the assessment framed by the AO is bad in law. He further submitted that when the assessee had not claimed the liabi .....

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ssing Officer at the time of completion of the original assessment under section 143(3), the action of the Assessing Officer in reopening the assessment was not permissible. He further submitted that the objection raised by audit could not constitute tangible material for reassessment under section 147 / 148 of the Act and in this regard, he relied on the decision of the Hon ble Delhi High Court in the case of Xerox Modicorp Ltd. vs. DCIT - 350 ITR 308. wherein the Hon ble High Court held as und .....

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not claimed the expenses in its return of income. He further submitted that complete information was furnished before the Assessing Officer at the time of completion of the original assessment under section 143(3) and the information on all the items were available on record at the time of the original assessment. In view of the aforesaid submissions, ld. AR submitted that the reassessment is made only on the basis of a mere change of opinion which could not be a ground for reopening assessment .....

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could have been attributed to the assessee. We take note that the reopening was done u/s 147 of the Act subsequent to the four-year period stipulated in the proviso to Section 147 and, consequently, the same could only be initiated, if any income chargeable to tax had escaped assessment by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice under Section 142(1) or Section 148 or "to disclose fully and truly all material facts neces .....

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order of the Xerox Modicorp Ltd. vs. DCIT (supra) for forming such an opinion. We find that the assessee has truly and completely disclosed all material facts relating to all the expenses at the time of scrutiny original assessment proceedings itself. We further uphold the view of the ld. CIT (A) that there has been no failure which could be attributed to the assessee of not disclosing fully and truly all relevant primary material facts necessary for completion of assessment. We further find tha .....

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expenses on the basis of which the assessment had been reopened. Therefore, we are of the view that the CIT (A) is right in holding that none of these expenses had been claimed by the assessee on the basis of which the reassessment proceedings were initiated and in this regard, ld. CIT (A) rightly relied upon the following judgments :- (i) CIT vs. USHA International Ltd. in ITA No.2026/2010 dated 21.09.2012; (ii) Hon ble Supreme Court s judgment in the case of M/s. Kelvinator of India Limited [ .....

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