TMI Blog2019 (12) TMI 1339X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Pr. CIT vs. S. Chand Co. Ltd. [ 2018 (11) TMI 1067 - SC ORDER ] has held that reassessment proceedings based on the audit objection can not be sustained - Decided in favour of assessee. - ITA No. 2424/MUM/2017 - - - Dated:- 19-12-2019 - SHRI VIKAS AWASTHY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER For the Assessee : Shri B.V. Jhaveri, A.R. For the Revenue : Ms. Kavita P. Kaushik, D.R. ORDER Per Rajesh Kumar, Accountant Member: The present appeal has been preferred by the Revenue against the order dated 09.01.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2009-10. 2. The Revenue has raised the following grounds of appeal: 1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in allowing the appeal filed by the assessee merely on the ground that the re-opening of assessment was invalid without going into the facts of the case. 2. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in ignoring the fact that no interest was charged on debit balance of the partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years as 50% profit from the project which was not offered to tax by the assessee. Accordingly, an income of ₹ 10,34,88,990/- has escaped assessment. The AO finally added to the income of the assessee ₹ 82,01,320/- as discussed in para 6 of the assessment order and ₹ 8,59,99,924/- as per para 7.2 by framing assessment under section 143(3) read with section 147 dated 20.03.2013. 5. In the appellate proceedings, the Ld. CIT(A) quashed the assessment proceedings. It was submitted before the Ld. CIT(A) that the assessee filed the return of income of ₹ 6,69,31,103/- on 29.03.2009 whereas the survey was conducted on 08.09.2009 on the appellant premises. During the course of survey, statement of Shri Apurva Jagdish Nanavati, one of the partners of the assessee was recorded which was subsequently retracted on 18.09.2009 and finally the assessment was framed under section 143(3) on ₹ 6,69,31,103/- accepting the return of income. The Ld. A.R. submitted before the appellate authority that during the course of assessment proceedings all these statements recorded during the course of survey action and other related issues were taken into consideration. Thereafte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port in form 3CD there is no change in partners. As per clause 10 of the deed of partnership (Dtd. 05.12.2005 submitted alongwith return of income for A.Y. 2006-07) if there is a debit balance in the capital or loan account of any partner, simple interest @12% shall be recoverable from the partner. Non-charging of interest @72% on these debit balances 35 per the clause of deed of partnership resulted in under assessment of income of ₹ 8201370/- (₹ 68344750 12%) a previous year relevant to A.Y. 2009-10 leading to short levy of tax of ₹ 2787646/-including surcharge, Education cess. An interest u/s. 234B is also leviable. During audit, it was observed that Nanavati Construction is a partnership firm with two partners. The firm had entered into a Development agreement with the land owner where the plot has been developed at Juhu Tara Road. As per sr. no. 3 of the development agreement the developer shall pay to the land owner for the grant ofdevelopment rights to the said land a sum of ₹ 18,00,00,000/- towards the cost of the said land (Land Cost) and in addition thereto, a sum amounting to 50% of the net profit accruing to the developer. Net profit shall m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.Less: difference in closing stock valued by the assessee as per Architect's certificate and as per detailed computation sheet filed in assessment and the closing stock valued by survey party on estimated basis, (i.e. 5,49,06,489- 3,02,57,208) 2,46,49,281 The closing stock was valued by the Survey party within the time constrain and hence there would be some element of estimation and errors. As against this, the assessee has valued the closing stock on a proper scientific basis considering all the relevant factors and taking into account the Architect's valuation certificate. The detailed valuation statement filed in the course of assessment was duly verified and accepted. In any event the stock valuation would be tax neutral as in the subsequent year the charge for opening stock would be lower. 3.Less: Purchase/cost bills received alter 31'03'2009 but pertaining to the period in reference and to the project accounted for after the survey. 1,21,75,640 The aspects were already known to the Survey Party. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay interest on credit balance of partners nor is there any provision to charge interest on debit balance of partners. The copy of the partnership deed is enclosed herewith for your kind perusal. 5. The assessee has not claimed any interest paid/payable to partners. 6. In the year in reference the assessee has paid interest of ₹ 5,05,3327- only on loans. Besides interest of ₹ 47,920/- paid on car loan. 7. The assessee had more than ample interest free loans, net creditors (i.e. net of debtors) and credit balance in other partner's capital account to take care of the debit balance in one partner's capital account. IN VIEW OF THE ABOVE THE OBJECTIONS MAY KINDLY BE TREATED AS SETTLED UNDER THE INTIMATION TO THIS OFFICE. It is clear that AO has asked the Audit Officer that objections are not cceptable meaning thereby that objections be treated as settled. Again, a reminder was forwarded by the same AO who has passed the re-assessment order on 23.03.2015 vide letter dated 19.01.2015 and asked the Sr. Audit Officer to treat the objections settled by repeating the above reply in toto meaning thereby he has not accepted the audit objections. All these fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regular assessment proceedings had not formed an opinion in regard to the issue on which the reopening notice is issued; and that there has been a failure on the part of the Appellant to truly and fully disclose all necessary facts for the assessment. It is found that all the above conditions are to be satisfied before reopening any assessment by assessing officer. In the present case, none of the conditions are satisfied and hence reopening of assessment u/s 147 is itself invalid ab-intio. Appellant has rightly relied on various case laws as detailed at para 5,6 supra to support this point of view. The jurisdictional ITAT G Bench in the case of Sunil Gavaskar vs. ITO Ward (3), Mumbai in ITA no.3970/Mum./2010, (Assessment Year : 2001-02) ITA no.3971/Mum./2010, (Assessment Year : 2002-03) dated 16.03.2016 has held as under: 10. The second issue raised by the learned Counsel for the assessee is that there was some audit objection raised by the audit team in its draft review report on eligibility of the assessee to claim deduction under section 80RR. With the assistance of both the parties, it is noted that there is a letter dated 29th September 2006, returned by the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recently followed again by Hon'ble Bombay High Court to reiterate this point in the case of M/s Reliance Industries Ltd. (Dt. 1st FEBRUARY, 2016 in ITA 2000 of 2013). Some of the useful observations of Hon'ble Jurisdictional High court are reproduced below: The Jurisdictional requirements to reopen an assessment are: (i) the AO must have reason to believe that the income chargeable to tax escaped assessment: (ii) the AO in the regular assessment proceedings had not formed an opinion in regard to the issue on which the reopening notice is issued; and (iii) there has been a failure on the part of the Assessee to truly and fully disclose all necessary facts for the assessment. 5. in this case, the CIT (A) as well as the Tribunal have, on consideration of the facts arising before them, have concluded that none of the three conditions precedent have been satisfied. The reason to believe that income chargeable to fax has escaped assessment on the part of the AO is a sine qua non for issue of a reopening assessment under section 148 of the Act as non satisfaction of reason to believe would by itself make the notice fatal. In such a case, the satisfaction of other c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on this issue. In case of Indian and Eastern Newspaper Society (supra), the Supreme observed that the opinion of the audit party on a point of law could not be regarded as information enabling the Assessing Officer to initiate reassessment proceedings. This aspect was elaborated by Division Bench judgement of this Court in case of Adani Exports (supra) observing that it is the satisfaction of the Assessing Officer for the purpose of reopening which is subjective in nature but when the reasons recorded show a nexus between the formation of belief and the escapement of income, a further enquiry about the adequacy or sufficient of the material to such a belief is not open to be scrutinised. However, the decision of the Supreme Court would indicate that though audit objection may serve as an information, the basis on which the ITO can act, ultimate action must depend directly and solely on the formation of belief by ITO on his own, where such information passed on to him by the audit party that income has escaped assessment. In the said case, it was held that Assessing Officer had acted at the behest of audit party and that notice for reopening was therefore, bad in law. This clearly e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 37 (Mumbai-Trib.)] 6. Raajratna Metal Industries Ltd. v. ACIT [(2014) 49 taxmann.com 15 (Gujarat)] 7. ACIT vs. Suma Shilp Limited in ITA No.2065/PN/2013 for A.Y. 2007-08 dated 12th August, 2015. In the case of Cholamandalam Investment Finance Co. Ltd. (supra) the Hon ble Madras High Court has held that since the reopening is verbatim repetition of audit objection filed by the audit party and therefore the AO did not have any independent material to reopen the assessment but merely proceeded to reopen the assessment on the ground that there was an audit objection. In the case of ICICI Home Finance Co. Ltd. vs. ACIT (supra) the Hon ble Bombay High Court has held that there was no application of mind by the AO as the reasons recorded by the AO were identical to objections of the audit party and existing material was already on record and accordingly notice under section 148 was held to be without jurisdiction. The Hon ble Supreme Court in the case of Pr. CIT vs. S. Chand Co. Ltd. (supra) has held that reassessment proceedings based on the audit objection can not be sustained and the Hon ble Supreme Court has dismissed the SLP filed against the order of High Court. Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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