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TMI Blog2018 (1) TMI 778X X X X Extracts X X X X X X X X Extracts X X X X ..... The CIT(A) erred in law in holding the proceedings initiated by AO u/s 147 as null and void without appreciating the settled position of law that if the Assessing Officer has reason to believe that income has escaped assessment, jurisdiction to re-open the assessment is conferred as held by the Hon'ble Apex Court in the case of the Asstt. Commissioner of Income Tax vs. Rakesh Jhaveri Stock Broker (P) Ltd. 291 ITR 500. 4. The CIT(A) erred in reaching to the conclusion that the nature of contract against which the payment for 'machinery rent' is shown is that of hiring of machinery. 2. The ld. Sr.DR inviting attention to the impugned order submitted that the decision of the CIT(A) in quashing the re-opening as well as the deletion of the addition on merit has been assailed by the Revenue in the present proceedings. For the assumption of jurisdiction, it was submitted, that the department is placing reliance upon the fact that re-opening has been done on the basis of audit objection pointed out in the scrutiny assessment order passed u/s 143(3) dated 10.12.2009. It was her submission that the reasons have been recorded and objections to the same have been placed on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, it was argued that the decisions relied upon to the contrary by the assessee and the CIT(A) have no relevance. 2.4 In view of these arguments and submissions, it was her prayer that re-opening was maintainable under law and the findings of the CIT(A) on the jurisdictional issue as well as on merit were not maintainable. 3. The ld. AR heavily relying upon the impugned order submitted that the present case was a fit case wherein change of opinion was demonstrated on the face of the record itself. Reliance was placed upon the synopsis filed. The factual history of the issue stated to have been addressed in page 2 of the same, it was submitted brings out the fact that each and every aspect of the issue has been examined and verified by the AO in the scrutiny proceedings. In order to demonstrate this fact, attention was invited to Paper Book page 18 wherein detailed reply on query by the AO was addressed to the AO on the issues para 9 and 10 would demonstrate this fact. Attention was invited to another reply placed at page 21 of the Paper Book where in paras 3 and 4 are again detailed reply on the aforesaid issue which was made available on query to the AO by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... struction Company for construction of road. For the purpose the assessee had to engage JCB/tractor for digging of Miti and lifting and bringing of Miti and Material. Details of machinery rent payable are submitted herewith. It may be submitted here that the entire payment was made in subsequent months after receipt of the payment from Gaward Construction Company." Form the submissions made, it is clear that the payments, in question were made on account of rent of JCB machine/tractors and also for purchases of material i.e. Mitti/Water etc. required for construction of Road. Provisions of Sec. 194C relating to tax deduction form payment of contractors/sub-contractors arc applicable only where contract is either a work contract or a contract for supply of labour for contract. These provisions are, therefore, not applicable for payments made under contract for sale of goods. In view of this, the provisions of Sec 194C are not applicable in the case of the assessee as either the payment has been made for purchase of material i.e. Mitti/Water etc or on account of rent of JCB Machines and Tractors. Wef. 13/07/2006 such payments are covered U/s 1941 of the Income Tax Act, 1961 i.e. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited to Paper Book page No. 141 to 147. Attention was invited to the fact that this specific information was conveyed to the AO by the Audit Party. The AO has addressed this information in very categoric terms. Copy of the said reply is placed at pages 146 to 147. The said document was referred to so as to emphasize the fact that the Audit Memo was dated 01.05.2012, Audit Objection was dated 30.04.2012 and reply as per the signature thereon was dated 24.09.2012. Referring to the reasons mentioned by the AO wherein it is already mentioned that it is the audit objection which position has not been disputed by the ld. Sr.DR also brings out the fact that the entire basis for re-opening is the very same issue. Despite this, in the notice u/s 148, it was submitted, the AO is stating incorrect facts. Attention was invited to page 138 of the Paper Book. On the basis of these facts, it was his submission that it is a case of change of opinion, as such the issue had been correctly decided by the CIT(A). 3.7 For the legal proposition relied upon in support of the said assertion, attention was invited to the Paper Book numbering 130 pages which contained the judgements relied upon. Inviting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... An audit is principally intended for the purpose of satisfying the auditor with regard to sufficiency of rules and procedures prescribed for the purpose of securing an effective check on the assessment, collection and proper allocation of revenue. As per para (3) of the circular issued by the Board on July 28, 1960, also an audit department should not in any way substitute itself for the revenue authorities in the performance of their statutory duties." 3.9. Reliance was also placed upon the case of Symbolics Ltd. V ACIT 370 ITR 119 (Guj) for the proposition that independent application of mind should be evident from the reasons recorded. Referring to the head-note of the said decision, it was submitted, that the order deserves to be upheld. The relevant extract heavily relied upon reads as under "it is not necessary to enter into arena of judging whether AO had issued notice on strength of his own belief that income chargeable to tax had escaped assessment upon issue being pointed out by revenue audit party or that in plain terms, it was opinion of revenue audit party upon which AO had acted without independent application of mind-impugned notice quashed-Petition allowed." 3.10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed upon CIT Vs Kelvinator of India Ltd. 320 ITR 561 (S.C) and ACIT Vs ICICI Securities Primary Dealership Ltd. 348 ITR 299 (S.C). Inviting attention to DCIT Vs Vikas Sharma 34 ITR (Trib) 617 (Chd-Trib), it was submitted that where on facts, information was always available at the time of completion of original assessment, which had been completed after due enquiry by an order u/s 143(3) as in the facts of the present case and the reasons recorded accordingly referring to the same facts, reassessment proceedings, it was submitted, have been held to be wrongly initiated. 3.12 Similarly, it was submitted that by various other decisions namely; Commissioner of Income Tax V/s Kelvinator of India Ltd. 320 ITR 561 (SC); ACIT V/s ICICI Securities Primary Dealership Ltd 348 ITR 299 (SC); Deputy Commissioner of Income Tax V/s Vikas Sharma 34 ITR (Trib) 617(Chd-Trib); Raajratna Metal Industries V/s Assistant Commissioner of Income Tax 371 ITR 222 GUJ-HC; Purity Tech textile (P) Ltd. V/s Assistant Commissioner of Income Tax 325 ITR459 MUM-HC Sunil Gavaskar V/s Income Tax Officer (International Taxation) 47 ITR (Trib) MUM-TRIB, Income Tax Officer V/s Everlon Synthetics Pvt. Ltd. 47 CCH 113 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peculiar circumstances that the re-opening was upheld which is not a fact in the present proceedings. It was his submission that the factual error pointed out by the Audit Party had been overlooked does not recognize the principle that all audit objections necessitate a re-opening. Accordingly, it was submitted that the submissions of the ld. Sr.DR that the decisions relied upon to the contrary have no relevance, was a mistaken appreciation of law and these decisions are fully applicable. 4. The ld. Sr.DR sought permission to clarify the fact that the reliance placed by the ld. AR on the reply to the audit objection is actually a reply of the ITO and not by the AO. It was her submission that at best, it can be said to be an opinion of the ITO and not the reason of the AO. In the facts of the present case, it was her submission that the reasons have been recorded by the AO and it is not a case of change of opinion. 5. We have heard the rival submissions and perused the material available on record. The assessee in the facts of the present case derives income from civil contractor business. The return filed on 31.10.2007 having been processed u/s 143(1) was subjected to a scrutiny ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under that section either as payment to individual payee did not exceed the limit of Rs. 1,20,000/- warranting deduction of tax at source. 5.3 Perusal of the impugned order shows that considering these submissions, the CIT(A) proceeded to consider the facts in the following manner : "The abovesaid reply was submitted on 25.10.2010 and the assessee was under bonafide belief that the then AO was satisfied with the submissions made before him because no order u/s 154 of the Income Tax Act,1961 was passed by the Deptt. Served upon the assessee. Thereafter, no order seems to have been passed in pursuance of notice u/s 154. 5.2 That , af ter lapse of 17 months from the submission of reply in response to notice u/s 154, the AO initiated re-assessment proceedings U/s 147 of the Income Tax Act, 1961 on 05.03.2012 on the following grounds:- (i) "The assessee firm has filed its return of income declaring an income of Rs . 448260/ - on 31.10.2007. The same was processed U/s 143(1) on 03.03.2009. As sessment in this case has been completed U/s 143(3) on 10.12.2009 at a total income of Rs. 1108260/-. Later on it was noticed that the assessee has debi ted an amount of Rs. 10496430/- in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, the assessee received a notice U/s 154 dated 21.09.2010, perhaps on the basis of objection of the Audit party, referred to above. (ii) The notice U/s 154 of Income Tax Act, 1961 was duly replied vide reply dated 25.10.2010 as explained above. Thereafter, no communication was received by the assessee till the date proceedings initiated U/s 154, supra. From these facts, it is clear that the department wanted to rectify the mistakes, mentioned in the notice U/s 154, though there was no mistake of facts or law; and in the pendency of proceedings U/s 154, initiation of re-assessment proceedings U/s 147 of the Income Tax Act, 1961 is not in order in the eyes of law. Rectification of mistake apparent from the record cannot be equated with the power of reopening under section 147 and 148 which is conferred on the Assessing Officer to reopen the cases under assessments when the conditions mentioned in the said sections are satisfied. The object and purpose of the two provisions is separate and the preconditions and requirements are different. The words "reasons to believe" when income chargeable to tax has escaped assessment has a different connotation and requirements and can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(a) (ia) of The Income Tax Act, 1961. It is just a change of opinion and therefore, initiation of proceedings u/.s 147 of The Income Tax Act, 1961 is not in accordance with the provision of law. In support of the above submissions, the appellant submitted various judgments of the Hon'ble Courts and ITAT's. 6. The A.O. rejected al l the object ions raised by the assessee against initiation of re-assessment proceedings on the ground that the Assessing Officer has not examined the above expenses with regard to provision of tax deduction at source i.e. disallowance U/s 40(a)(ia) of the Income Tax Act, 1961. Hence, there is no change of opinion. Change of opinion comes to the rescue of the assessee only when Assessing Officer has taken one of the permissible views at the time of original proceeding. A wrong application of law can not be held as a permissible view and that can always be changed for appreciating law and in support of his finding The A.O. cited various judgments of the Hon'ble Courts and ITAT's." 5.4 It is seen tat the Sr.DR has not made any arguments to assail that the factual consideration of the issue, the CIT(A) has either ignored a fact or ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons recorded". 8.1. On these facts, it cannot be held that the A.O. entertained any "reason to believe" to acquire jurisdiction in this case for reopening the assessment u/sl47. The words "reason to believe" are stronger than the words "is satisfied". The belief entertained by the Assessing Officer must not be an arbitrary or irrational. It must be based on the reasons which are relevant and material. The "reasons to believe" does not mean purely subjective satisfaction on the part of the Assessing Officer. The belief must be held in a good faith and it cannot be merely pretence for reopening the case u/s 147 in a casual manner or on extraneous factor. Not only this, the reason to believe should have a rational connection and relevant bearing on the formation of the belief having live link or nexus with the income chargeable to tax escaping the assessment. It should neither be extraneous nor irrelevant. Nowhere from the "reasons recorded" by the Assessing Officer can a reasonable belief be entertained in this case that the income chargeable to tax has escaped assessment primarily on the ground that firstly, the issue regarding machinery rent has already been considered vide para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by those persons on FOR basis. The leveling of mitti etc was got done through the assessee's own labour which was deployed on daily wages basis for which expenses of Rs. 16871507/- have been claimed in the profit and loss account. It is a common knowledge "and practice that mitti is purchased from the persons who are residing nearby site of work/ contract. The tractor owners supply mitti to the contractors at the site and the suppliers of mitti do not involve themselves in leveling of the site or mitti. The expenditure of Rs. 3311565/- shown under the head is only on account of purchase of material i.e. mitti etc which has been supplied by the selling parties on FOR basis. Even the contractors sometime purchase such material from the persons who bring such material at the site without order from the contractors. Since the assessee has paid amount for purchase of material only, there was no requirement of the assessee to deduct tax at source." 5.6 Noting the fact that the remaining expenditure of Rs. 7184865/- (10496430-3311565) related to payment on account of hiring of machinery and equipment required for execution of contract work where the assessee took subcontract from M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see and payments were not made w.r.t. the quantum of work." 5.8 No infirmity in the aforesaid conclusion or for that matter on facts has been pointed out by the Revenue. The ld. AR in the facts of the present case, on the contrary drew specific attention to these submissions before the CIT(A) where the assessee had argued and it was submitted that it has been considered as the assessee had successfully demonstrated that the running cost of these equipments were borne by the assessee. The said findings, it was submitted, have not been assailed by the Revenue. In view of these facts, even otherwise the case of the assessee does not fall under the provisions of sec. 194C. It can fall under the provision of section 194-1 of the Income Tax Act, 1961. Relying on the order, it has been argued that in assessee's case the contract under reference was not for carrying out any specified work-tangible or intangible- with or without the help of machinery. Rather the machinery/equipment were taken on hire after taking their possession/control for use in the assessee's business at assessee's discretion and the command, control and possession of the machinery remained with the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6/9 Taxman.com 239 (Mad) considering which the CIT(A) has concluded the issue on merit also in favour of the assessee holding as under : "9.1 I have carefully considered the facts of the case and have gone through the AO's order and the submissions of the appellant. The undisputed facts are that the Ld. A.O. vide para No.2 of the original assessment order made u/s 143(3) has observed that assessee firm itself is having machinery of the type that is HYWA, Denfer etc. which has been shown as taken on rent. Further, during the course of proceedings u/s 154, the appellant submitted the copy of accounts of the parties/persons from whom material was purchased and machinery rent was paid/payable. All the machinery i.e. tractor, JCB and road roller etc. running expenses like salary and diesel etc. as claimed by the appellant were allowed as such while framing the assessment u/s 147. In view of the above facts the contract under reference was purely a contract for the hiring of machinery & equipment and the obligation of the lender under the contract was limited to supplying specific machines, his contractual obligation stood discharged with the handing over of temporary possession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery hire contract and not a contract for carrying out any work, therefore, the provisions of Section 194C of the Act were not applicable to the facts of the present case." 5.9 We find that these material findings on facts stand unrebutted on record. 6. Accordingly, in the peculiar facts and circumstances, which we had elaborated at length in the earlier part of this order, we find that there is no merit in the appeal of the Revenue. The detailed finding on the jurisdiction issue by itself is sufficient to address the departmental grievance, however, since the parties have argued in detail on merits also which issue has also been dealt by the CIT(A), we find that even on merits, the Revenue has no case as not only the issue has been considered by the AO in the first round and then in the 154 proceedings, even on merits, the Revenue has failed to make out any case in its favour. Being satisfied with the reasoning and conclusion arrived at by the CIT(A) on the facts as they stand, the departmental appeal is dismissed. 6.1 Before parting, we deem it appropriate to observe that the matter being purely factual has been decided on the basis of facts on record. The decisions rel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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