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2016 (10) TMI 351 - ITAT KOLKATA

2016 (10) TMI 351 - ITAT KOLKATA - TMI - Reopening of assessment - reasons to believe - Held that:- We are of the view that initiation of reassessment proceedings will have to be held as invalid for the reason that reasons recorded by the AO do not spell out that escapement of income was due to the assessee not fully and truly disclosing all material facts necessary for completion of assessment for the relevant assessment year. Admittedly the proviso to Sec.147 of the Act was applicable in the p .....

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e into his possession based on which he entertained belief that income of assessee chargeable to tax has escaped assessment. The facts with regard to the freight charges and quantum of purchases for the previous year and the earlier previous year were available with the AO when the concluded the first assessment proceedings. - There is no other conclusion possible except the conclusion that the reopening of assessment is not based on tangible material which came into possession of the AO aft .....

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the CIT(Appeals) on the issue of validity of initiation of reassessment proceedings. - Decided in favour of assessee. - ITA No. 909/Kol/2013 - Dated:- 8-7-2016 - Shri N.V.Vasudevan, JM And Shri M.Balaganesh, AM For the Appellant: Shri B.C.Jain, AR For the Respondent: Shri Niraj Kumar, CIT(DR) ORDER Per N. V. Vasudevan, JM This is an appeal by the assessee against the order dated 25.02.2013 of CIT(A) VIII, Kolkata, relating to AY 2005-06. 2. Grounds No.1 to 4 raised by the Assessee reads as follo .....

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erred in holding that the ground no 3 taken before him related to assumption of jurisdiction under sec 148 , whereas the appellant has challenged the completion of reassessment by the Id A.O without furnishing the reasons recorded for reopening the assessment. 4. That in the facts and circumstances of the case, the Id CIT[A] erred in holding that the ground no 4 taken before him related to assumption of jurisdiction under sec 148 , whereas the appellant has challenged the completion of reassessm .....

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se to the same the Assessee filed return of income on 1.2.2008 declaring total income of ₹ 41,78,301/-. An order of Assessment u/s.143(3) read with Sec.147 of the Act was passed on 23.12.2008 determining the total income of the Assessee under the normal provisions of the Act at nil. The total income was determined on the basis of book profit as per Section 115JB of the Act of ₹ 47,35,090/-. 5. On 23.3.2011 the AO issued another notice u/s.148 of the Act dated 23.3.2011 informing the .....

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ntial Commodities Supply Corporation Ltd. (PAN: AAACW2986M) filed its return of income for the above assessment year on 01-02-2008 declaring a total income of ₹ 41,78,301/-. The assessment was completed vide order u/s.143(3)/147 dated 2312- 2008 on a total income of Rs. Nil but calculation of tax was made on a Book Profit of ₹ 47,35,090/- u/s.115JB of I. T. Act, 1961 and refund of ₹ 73,99,016/- was issued vide cheque No.980315 dated 11-05-2009. On scrutiny of assessment records .....

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erassessment of income of ₹ 108,44,80,442/- with consequential tax effect of ₹ 39,68,38,505/-. Thus, I have reason to believe that income chargeable to tax has escaped assessment. 6. The Assessee in response to the notice u/s.148 of the Act, the Assessee requested the AO to treat the return already filed in response to the first notice u/s.148 of the Act dated 29.1.2008, as a return filed in response to the second notice u/s.148 of the Act, dated 23.3.2011. The AO passed an order u/s .....

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on 01.09.2011, 02.11.2011 and' 16.12.2011 but only submitted incomplete details. Hearing was adjourned to 28.12.2011 where the assessee was asked to furnish certain specific details regarding its iron ore and cement clinker export business and the corresponding disproportionate freight charges claimed by it, but there was no compliance by the assessee on the said date. Till the date of passing this order, the assessee did not comply and submit remaining requisite details. Hence, it is seen .....

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he AO has made a reference to the audit report (commercial) for the year ended 31st March, 2006 of the Principal Accountant General (Audit), West Bengal and countersigned by the CAG of India that the exports of non-essential commodities were made based on a suo moto proposal by the Managing Director of the Assessee without approval of the Board of Directors of the Assessee in a non transparent manner and in violation of the basic principles of financial propriety and regularity. The AO has also .....

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ere not selected through competitive tender bidding and therefore the freight rates quoted by them were excessive. The Assessee had claimed expenditure on sea freight charges of ₹ 257,61,59,728 for export of iron ore and ₹ 32,24,67,459 for export of cement clinker. The AO computed the excess freight charge paid of ₹ 14,04,36,698 on export of iron ore and ₹ 6,44,93,491/- on export of Cement Clinkers. The said excess sums of freight charges totalling ₹ 20,49,30,189 wa .....

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t of income for AY 05-06. b) Initiation of reassessment proceedings are merely on a change of opinion and therefore bad in law. 10. These objections were dealt with by the CIT(A) as follows: 5.2 Ground Nos. 2,3,& 4 : In these grounds of appeal, the appellant has challenged the validity of the re-opening of the assessment and completing the assessment u/s 147/143(3)1144 of the Act. After carefully considering the submission of the appellant along with the case laws relied upon, perusing the f .....

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rlier assessment orders. Hence the re- opening of the assessment is nothing but change in opinion and in view of settled legal position the A/R submitted that for change of opinion re-assessment proceeding cannot be initiated. I have gone through the submission of the appellant and the report of AO and other material available in record. I have found that during the course of earlier assessment the AO has not enquired about. the carriage inward expense of ₹ 110, 94,58,668/- and the quantit .....

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rom para 10(page 90) of the report is reproduced:- "We have perused the assessment order passed under section 143(3) of the Income Tax Act, 1961, on January 9, 1998. The Assistant Commissioner of Income Tax, Circle 2(1), Dhule, while passing the assessment order observed in paragraph 3 that the assessee has sold his right to purchase and deed in respect to right to purchase executed by the builders were f led on record. After saying so the Assistant Commissioner observed that subject to the .....

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so not addressed by the Revenue: In the light of the same, in the facts of the case, we find that the Assessing officer was justified in issuing the notice under section 148 of the Act on May 17,2000." In view of the above discussed legal and factual position, I am of the view that in the case of the appellant the re-assessment proceeding has not been initiated on change of opinion. ii) The second submission of the Ld AR that the rectification proceeding under section 154 was initiated henc .....

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eeding is initiated then re-assessment proceeding cannot be initiated. In view of above, I am of the considered view that the AO was fully justified in initiating the re-assessment proceeding though the rectification proceeding was also initiated. iii) The third submission of AIR that the re-assessment proceeding is initiated on the basis of audit note. From the perusal of reason recorded and communicated to the CIT for obtaining the approval it is evident that the reason for re-opening are reco .....

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ng of the assessment. This view of mine is supported by the case G.T.N. Textiles v CIT (1990) 184 ITR 366 and CIT v Kumararani Smt. Meenakshi Achi (2003) 185 CTR 199. iv) In view of above and considering the entre facts of the case, I am of the view that the re-opening of the assessment in the case of the appellant has been initiated in conformity to the provision of law and accordingly the action of the AO is upheld and the grounds of appeal of the appellant are dismissed. 11. On the merits of .....

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r. The A/R has submitted that the AO has not informed about the information collected during the course of assessment proceeding. The AO has informed that the information used by him is available in public record. It is further submitted that the Ld AR has not disputed with any material evidence the correctness of the rate adopted by the AO. On the contrary the AR in his submission has admitted that excess payment has been made. The relevant portion from the submission of the AIR is reproduced h .....

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t went out of coffers of the company - it was not an expenditure of capital or personal nature. It may be equivalent to embezzlement or fraud committed on the appellant and therefore, even on facts and merits of the case, there should be no addition or disallowance of such amounts - that too for the entire amounts ( emphasis supplied). " v) As per the A/R excess freight paid by the company has gone out of coffer of the appellant company and even if the amount is embezzled or fraud has been .....

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reight of ₹ 20,49,30, 189/- paid by the appellant is not an allowable expense. Accordingly this disallowance of ₹ 20,49,30, 189/- made by the AO is confirmed and these grounds of appeal of the appellant are dismissed. 12. Aggrieved by the order of the CIT(A), the Assessee has preferred the present appeal before the Tribunal. We shall first deal with Gr.No.1 to 4 raised before the Tribunal in which the validity of assumption of jurisdiction u/s.147 of the Act by the AO is challenged. .....

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s notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry .....

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t, where an assessment u/s. 143(3) of the Act has been made in any assessment year and if after expiry of four years from the end of the relevant assessment year, action is sought to be taken u/s. 147 of the Act, such action can be only in cases where income chargeable to tax has escaped assessment for such assessment year, by reason of failure on the part of the assessee to disclose truly and fully all material facts necessary for his assessment for that assessment year. He drew our attention t .....

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as the AO in the present case has not recorded specifically that escapement of income was due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the A.Y. 2005-06. 15. On the reopening of assessment being merely on a change of opinion, the learned counsel for the Assessee submitted that in the reasons recorded the AO has not made any reference to the fact that there was audit objection and therefore the assessment was reopen .....

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ssee which was available before the AO when the original assessment u/s.147 of the Act was completed on 23.12.2008. No new material came into possession of the AO after completing of the original assessment proceedings on 23.12.2008 as per the reasons recorded and therefore the reopening is purely on the basis of change of opinion. It was submitted that there being no material which has come to the possession of the AO since the conclusion of the original assessment proceedings, it was not possi .....

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should be reason to believe that income chargeable to tax has escaped assessment. Such reason to believe cannot be on a mere change of opinion. According to him this position is well settled by the decision of the Hon ble Supreme Court in the case of CIT v. Kelvinator of India Ltd., 320 ITR 561 (SC). 16. The learned DR relied on the order of the AO and submitted that the present proceedings u/s.147 of the Act were initiated on the basis of audit query dated 20.7.2010 pointing out the abnormal i .....

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eted there was no discussion whatsoever on the freight charges claimed by the Assessee. 17. The learned counsel for the Assessee while reiterated his earlier submission brought to our notice that the reasons recorded does not anywhere mention about the audit objection. It is not open to the Revenue to improve the reasons recorded by relying on extraneous material. The validity of the initiation of reassessment proceedings have to be judged only on the basis of reasons recorded and nothing can be .....

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o to Sec.147 of the Act was applicable in the present case. The AO in the reasons recorded has not spelt out as to how there was a failure on the part of the assessee to fully and truly disclose all material facts. In fact there is no such allegation at all in the reasons recorded by the AO. When the original proceedings were concluded all facts with regard to increase in freight charges vis-à-vis purchases were much available before the AO. 19. Our conclusion as above is supported by the .....

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ere was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is for the Assessing Officer to disclose and open his mind through reasons. He has to speak through his reasons. It is for the Assessing Officer to reach the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the-concerned assessment year. It is for th .....

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y the Assessing Authority did not state anywhere that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that year. All that has been stated in the order is that the assessee has appended the note and at no point of time, the assessee has disclosed as to the nexus between the amount of ₹ 10,06,617/- and the 10A unit. The disclosure has to be full and true. Both the criteria have to be met. In the assessee s case, b .....

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is earned from STP unit, is eligible for exemption under Section 10A, even that nexus is manifest. The Assessing Authority has not properly applied his mind towards the statutory provisions and has not taken into consideration that the original assessment passed under Section 143(3) which was also reopened once and adjustment was made. It is for the second time, he was raising all these objections. When admittedly the second reopening of the assessment is beyond four years, under law, it is barr .....

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had been issued on 27/4/2011 in relation to the Assessment Year 2005-06. Hence, admittedly the same had been issued after expiry of a period of four years from the end of the relevant assessment year. Under the circumstances, in light of the proviso to section 147 of the Act, in case, where assessment has been framed under section 143(3) of the Act, no action can be taken under section 147, unless income chargeable to tax has escaped assessment by reason of the failure on the part of the assess .....

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here was no allegation of any such failure on the part of the assessee. The AO was not in a position to satisfy the Court with respect to compliance / satisfaction of the requirement of the proviso to section 147 of the Act. Under the circumstances, it was apparent that the requirement of the proviso to section 147 was not satisfied. Secondly, in absence of any satisfaction having been recorded by the Assessing Officer that the income has escaped by reason of the failure on the part of the asses .....

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he Division Bench of this Court has quashed and set aside the notice of reassessment u/s 148. In view of the above and for the reasons stated above notice of reassessment u/s 148 quashed and set aside. (emphasis supplied) 21. With regard to the contention that the reopening of assessment is invalid because reopening was made purely on a change of opinion, the following observations of the Hon ble Supreme Court in the case of Kelvinator of India Ltd (supra), are relevant. - On going through the c .....

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sment. Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, s. 147 would give arbitrary powers to the AO to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The AO has no power to review; he has the p .....

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conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. 22. In the present case, the reasons recorded by the AO does not refer to any new material that came into his possession based on which he entertained belief that income of assessee chargeable to tax has escaped assessment. The facts with regard to the freight charges and quantum of purchases for the previous year and the earlier previous year were available with the AO .....

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o additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing O .....

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nce. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Offic .....

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