TMI Blog2023 (10) TMI 1317X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of a change of opinion on the basis of the same set of facts as were available on record in the course of the original assessment proceedings. As per the mandate of law, even where a concluded assessment is sought to be reopened by the A.O within a period of 4 years from the end of the relevant assessment year, it is a must that the A.O has fresh material or information with him, that had led to the formation of belief on his part that the income of the assessee chargeable to tax has escaped assessment. Our aforesaid view is fortified by the judgments of NYK Lime (India) Ltd [ 2012 (2) TMI 283 - BOMBAY HIGH COURT] and Purity Tech Textile Pvt. Ltd.[ 2010 (2) TMI 26 - BOMBAY HIGH COURT] As the case of the assessee had been reopened by the A.O merely on the basis of change of opinion and not on the basis of any fresh tangible material coming to his notice after the conclusion of the original assessment proceedings which would reveal any income of the assessee chargeable to tax had escaped assessment, therefore, in light of the aforesaid settled position of law, quash the assessment framed by the A.O u/s. 143(3)/147 of the Act dated Nil for want of valid assumption of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of performance guarantee and deposits and had not accounted for the same at all. The A.O holding a conviction that the aforesaid deductions, i.e., performance guarantee/deposits, were met out by the assessee out of his undisclosed sources of income, thus, held the same as the assessee s unexplained investment u/s. 69 of the Act, as under: Sr. No. Name of deductor Deduction amount performance guarantee Mise/Deposit/other deposit Total 1. O/o. The EE, PWD, Div. Champa 97209/- 97,209/- 2. O/o. the EE, Div. Pathangaon 244654/- 244654/- 3. O/o. The EE, PWD, Bridge Cons. Div. Bilaspur 569747/- 1029194/- 1598941 4. O/c. The EE, PWD, Bridge Cons. Div. Raigarh 238128/- 238128/- 5. O/o. The EE, PWD, Raigarh 8659 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same was, thereafter, being accounted for as an expenditure in his books of accounts Observing, that performance guarantees/deposits were security deposits which were refundable after some time as agreed upon amongst the parties concerned, the A.O held a firm conviction that the same were statutorily required to be accounted for on the asset side of the balance sheet under the head deposits. Also, the A.O. was of the view that as the amount of performance guarantees/deposits/investments were neither in the nature of direct or indirect expenses, there was no justification for the assessee to have debited the same in his Profit loss account. Backed by his aforesaid observations, the A.O not being satisfied with the claim of the assessee that the amount of performance guarantees/deposits were allowable as expenditure, thus, made an addition of the same by treating it as the assessee s undisclosed investment u/s. 69 of the Act. Accordingly, the A.O. vide his order passed u/s. 143(3) r.w.s. 147 of the Act dated Nil reassessed the income of the assessee at Rs. 40,44,752/-. 6. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals). The CIT(Appeals), finding favor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them during A.Y. 2012- 13 and 2013-14 as relevant to F.Y. 2011-12 and 2012-13. At best the AO could have rejected the books of accounts on the basis of following hybrid system of accounting which has been done away with by section 145 of Income Tax Act. Since the assessee, had been regularly following the method of accounting in the above manner and amounts are usually smaller one, the ground for addition by the AO that he did not disclose the above amount in the Balance Sheet is not correct on the appreciation of the fact. The amount which had been claimed in the P L A/c by the assessee for the performance guarantee as well as miscellaneous deposit/other deposits, the assessee cannot show them as receivable as he had already claimed them 100% in the P L A/c and reduced the net profit during the year. In the year of receipt of the released performance guarantee, the assessee properly discloses such withheld/seized performance guarantee and other receipts on the credit side of P L A/c. The AO had even invoke section 69 as these deposits/performance guarantees had been held by the assessee as undisclosed investment with the Government Department which is not correct on ire facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition made by the A.O u/s. 69 of the Act. 10. Per contra, the Ld. Departmental Representative (for short DR ) relied on the assessment order. Apropos the preliminary objection raised by the assessee s counsel, the Ld. D.R. submitted that as the same did not emanate from the orders of the lower authorities, therefore, it was not maintainable. 11. As the Ld. AR, i.e., the assessee respondent had assailed the validity of the jurisdiction assumed by the A.O for reopening the concluded assessment u/s. 147 of the Act, therefore, on being specifically queried by the Bench that on what basis the said objection/contention was being raised when the assessee had neither filed any cross-appeal nor any cross-objection, the Ld. AR submitted that the same was being raised as a preliminary objection under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963. The Ld. AR submitted that as he had assailed the validity of jurisdiction that the A.O had assumed for reopening the concluded assessment, i.e., a purely legal issue that did go to the roots of the case and the sustainability of the impugned order passed u/ss.143(3)/147 of the Act dated Nil; therefore, the same could be safely r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a pedantic view on the interpretation of Rule 27 by holding that for availing the remedy under the said provision, an application in writing is necessary. In our opinion, this surmise is fallacious and we cannot countenance the same. We agree with Mr. Krishnan that Rule 27, as it stands today, does not mandate for the application to be made in writing. Revenue has not brought to our notice any particular Form notified for filing such an application. Revenue also does not controvert the contention of the Appellant that the draft Appellate Tribunal Rules 2017 proposing to insert a proviso to Rule 27, providing for an application to be made in writing, have not been notified, as yet. Therefore, the reasoning of the Tribunal for rejecting Appellant's contentions is palpably wrong. If the provision does not specify any defined structure for making an application in a particular manner, the Tribunal ought not to have deprived the Appellant of an opportunity to raise a fundamental question of jurisdiction, taking a hyper technical viewpoint. The Tribunal has plainly refused to consider the additional grounds on an erroneous premise which is contrary to the statutory scheme of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on the contentions of the assessee, the Hon ble High Court found favor with the same. Adverting to the issue as to whether the assessee could have assailed the validity of the jurisdiction u/s. 153C of the Act before the Tribunal without filing any cross-objection, the Hon ble High Court observed that as the assessee wished to raise an issue that was at least prima facie going to the root of jurisdiction to initiate proceedings under Section 153C of the Act, therefore, having regard to the provisions of Rule 27, the Tribunal should have permitted the assessee-respondent to have supported the order of CIT (Appeals) on this ground, even without the necessity of filing any cross-objections. Relying on the judgment of the Hon ble High Court of Gujarat in the case of Dahod Sahakari Kharid Vechan Sangh Ltd. Vs. CIT (2006) 200 CTR 265 (Guj), the Hon ble High Court observed that the right that accrued to the assessee respondent under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 could not have been taken away by the Tribunal by referring to the provisions of Section 253(4) of the Act. The Hon ble High Court had observed that though the issue as regards the validity of the juri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e traced in the judgment of the Hon ble High Court of Punjab Haryana in the case of CIT Vs. Dehati Co-operative Marketing cum Processing Society (1981) 130 ITR 504 (P H). Referring to Rule 11 of the Income Tax Appellate Tribunal Rules, 1963, the Hon ble High Court had observed that now, when the appellant can be allowed a concession, therefore, there is no justification for denying the respondent in an appeal a similar concession. It was, thus, observed by the Hon ble High Court that the Tribunal can, therefore, allow an assessee to raise a ground that had not been taken before or adjudicated upon by the ITO so long that does not require further investigation of the facts. 18. Based on our aforesaid observations r.w. the interpretation of the scope of Rule 27 of the Income Tax Appellate Tribunal Rules, 1963, as had been looked into by the Hon ble High Courts (supra), we are of the considered view that the objection raised by the assessee respondent under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 as regards the validity of the jurisdiction assumed by the A.O for reopening of his concluded assessment u/s. 147 of the Act merits admission. 19. As the assessee res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1895121/- 3044859/- I have, therefore, a reason to believe that section 69 of the Income Tax Act has been violated, so income of the assessee has escaped assessment for the A.Y. 2010-11, therefore .. 20. Admittedly, it is a matter of fact borne from the record that the A.O had framed the original assessment in the case of the assessee for A.Y. 2010-11 vide order passed u/s. 143(3) of the Act dated 07.03.2013, Page 2-7 of APB. On a perusal of the assessment order u/s. 143(3) dated 07.03.2013, it transpires that the A.O in the course of the original assessment proceedings, had looked into the assessee s claim for deduction of Contract payment (expenses) of Rs. 36315053/- which was comprised of, viz. (i). Earthwork expenses: Rs. 2,46,54,236/-; (ii) purchase of building material: Rs. 1,16,60,817/-, and had formed a view as regards the allowability of the same. For the sake of clarity, the observations of the A.O in the original assessment with respect to the allowability of the assessee s claim for deduction of the aforesaid expenses aggregating to Rs. 3,63,15,053/- is culled out as under: 21. Considering the fact that n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oved, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of change of opinion as an in-built test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to s. 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words reason to believe but also inserted the word opinion in s. 147 of the Act. However, on receipt of representations from the companies against omission of the words reason to believe , Parliament re-introduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the AO. We quote hereinbelow the relevant portion of Circular No. 549, dt. 31st Oct., 1989 [(1990) 82 CTR (St) 1], which reads as follows : 7.2 Amendment made by the Amending Act, 1989, to re-introduce the expression reason to believe in s. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the Full Bench of the Delhi High Court in the case of Kelvinator of India Ltd. (supra) referred to above, that under s. 147 assessment cannot be reopened on a mere change of opinion. We further find that the Hon'ble High Court of Bombay, in the case of Asian Paints Ltd. Vs. DCIT (2008) 308 ITR 195 (Bom), had observed that as the A.O received no new information/material, therefore, the fresh application of mind by the A.O to the same set of facts and material which were available on record at the time of framing of the assessment but had inadvertently remained omitted to be considered would tantamount to review of the order, which is not permissible as per law, and held as under: 10. It is further to be seen that the legislature has not conferred power on the AO to review its own order. Therefore, the power under s. 147 cannot be used to review the order. In the present case, though the AO has used the phrase reason to believe , admittedly between the date of the order of assessment sought to be reopened and the date of formation of opinion by the AO, nothing new has happened, therefore, no new material has come on record, no new information has been received; i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange of opinion. This, in view of the settled position of law is impermissible. No tangible material is shown on the basis of which the assessment is sought to be reopened. In the absence of tangible material, what the AO has done while reopening the assessment is only to change the opinion which was formed earlier on the allowability of the deduction. The power to reopen an assessment is conditional on the formation of a reason to believe that income chargeable to tax has escaped assessment. The power is not akin to a review. The existence of tangible material is necessary to ensure against an arbitrary exercise of power. There is no tangible material in the present case. 22. At this stage, we may herein observe that as per the mandate of law, even where a concluded assessment is sought to be reopened by the A.O within a period of 4 years from the end of the relevant assessment year, it is a must that the A.O has fresh material or information with him, that had led to the formation of belief on his part that the income of the assessee chargeable to tax has escaped assessment. Our aforesaid view is fortified by the judgments of the Hon'ble High Court of Bombay in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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