Case Law Details
ITAT DELHI BENCH ‘G’
Sohna Forge (P.) Ltd.
versus
Joint Commissioner of Income-tax(OSD)
IT APPEAL NO. 4956 (DELHI) OF 2012
[ASSESSMENT YEAR 2004-05]
DECEMBER 14, 2012
ORDER
A.N. Pahuja, Accountant Member
This appeal filed on 19.09.2012 by the assessee against an order dated 05.06.2012 of the ld. CIT(A)-XII, New Delhi, raises the following grounds:-
1. That the Ld. CIT(A) was not justified in confirming the action of Ld. A.O. in reopening the case u/s 148 on the ground that depreciation has been claimed by the assessee without there being any business, commercial and manufacturing activity whereas as per the assessee the issue of allowance of depreciation has already attained finality in assessee’s own wealth tax cases for the A.Y’s 2001-02 to 2006-07 wherein the Hon’ble Delhi High Court while dismissing the departmental appeal in WT A No. 1 to 6 of 2011 held that in the impugned year the assessee had carried on business utilizing the assets.
2. (a) That the Ld. CIT(A) was not justified in confirming the addition of Rs. 718230.00 made by the Ld. A.O. on the ground that no information with regard to these expenditure have been furnished whereas as per the assessee the matter was reopened under section 148 and reasons recorded were not including the details of expenditure, therefore the roving enquiry made by the Ld. A.O. with regard to the details of the expenditure was un-jurisdictional.
(b) That the Ld. CIT{A) was not justified in confirming the addition of Rs. 718230.00 made by the Ld. A.O. on the ground that no information with regard to these expenditure have been furnished whereas as per the assessee no opportunity was ever granted by the Ld. A.O. and dis allowance of same is ad-hoc and without there being any evidence on record.
(c) That alternatively and without prejudice to the above the assessee also disputes the quantum of the addition confirmed by the Ld. CIT(A).
3. That the assessee prays for any consequential relief and/or legal claim arising out of this appeal before the disposal of the same.
4. That the assessee prays for any addition, deletion, amendment and modification in the grounds of appeal before the disposal of the same in the interest of substantial justice to the assessee.
2. Facts, in brief, as per relevant orders are that return declaring income of Rs. 7,65,495/- filed on 26.10.2004 by the assessee, was processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’). Subsequently, the Assessing Officer [AO in short] recorded the following reasons, in writing, in terms of provisions of sec. 148(2) of the Act:-
“During the year, the assessee has claimed depreciation of Rs. 1,58,494/- as per the Income Tax Act. Since, no business or commercial or manufacturing activity were carried out by the assessee during the year under consideration, the assessee was not eligible to claim any depreciation. Hence, the depreciation claimed by the assessee was not allowable.”
2.1 Accordingly ,the AO issued a notice u/s 148 of the Act on 31.03.2011. In response, the assessee filed a letter dated 18.04.2011 stating that return filed originally may be treated as return in response to notice u/s 148 of the Act. After having a copy of reasons recorded by the AO, the assessee filed objections against the reasons, which were disposed of by the AO on 1.11.2011. To a query by the AO, the assessee submitted vide letter dated 16.11.2011 as under:-
“The information called for by your good self has no relevance with the issue of depreciation dis allowance which is part of the reasons recorded by your good self Since the assessee never claimed that it is carrying out any manufacturing activity so the calling of information in this regard has no relevance. The assessee has only carried out business activity from which commission income was earned. It is nowhere disputed in the order disposing off objections that assesses company was not doing any business. The only dispute created in the order of disposing objections was regarding manufacturing activity for which the assessee company itself admitted that it was not carried out as manufacturing activity. Calling of information regarding computation of Long Term Capital Gain has no relevance to the claiming of depreciation. Moreover, most of the information called by your good self is the part of the computation and balance sheet that filed along with income tax return.
Since the assessee company is claiming depreciation only because the asset used for business activities which fact is not in dispute. so the calling of general information-has no relevance to the fact of the issue involved. In view of above, kindly drop the assessment proceeding initiated U/s 147 of the Income Tax Act.”
2.2 However, the AO did not accept the submissions of the assessee on the ground that in the preceding AY 2003-04 also, the assessment was reopened and thereafter, completed with the dis allowance of claim for depreciation on the ground that no business or commercial or manufacturing activity was carried out by the assessee in the preceding so many years. Since the land sold by the assessee was part of land on which building was constructed while no commercial activities were taken in the preceding several years, the AO disallowed the claim of depreciation of Rs. 1,58,494/-. Beside an amount of Rs. 7,18,230/- was disallowed on account of repairs and maintenance of building, legal and filing fee, telephone expenses, salaries etc. , the assessee having not submitted copy of bills, vouchers etc. called for in terms of a notice dated 01.11.2011issued u/s 142(1) of the Act.
3. On appeal, the ld. CIT(A) while referring to decision dated 18.7.2011 of Hon’ble jurisdictional High Court in the assessee’s own case for the AY 2001-02 to 2006-07 in WTA nos. 1 to 6of 2011,upheld the validity of reopening of the assessment as under:-
“Ground No.1: I have perused the facts stated in the assessment order as well as the facts stated by the assessee in his submissions and the ITAT and the Honorable High Court in assessee’s own case. In this case the return for assessment year 2004-05, was filed on 26.10.04 declaring taxable income of Rs. 7,65,495/-. The original assessment was made U/S 143(1) of the LT. Act.
A notice under section 148 was issued on 31.3.11 after recording the following reasons:-
“During the year, the assessee has claimed depreciation of Rs. 1,58,494/- as per the Income Tax Act. Since, no business or commercial or manufacturing activity were carried out by the assessee during the year under consideration, the assessee was not eligible to claim any depreciation. Hence, the depreciation claimed by the assessee was not allowable.”
Although the assessee has ITAT “G” Bench and Delhi High Court’s order in his favour, but when the Assessing Officer had reopened the case and issued notice on 31.3.2010, at the time of reopening he could not take’ benefit of Delhi High Court’s order which was passed on 18, July,2011.
In view of the facts stated above, I uphold the reopening proceedings U/S 148 of the LT. Act.
3.1 As regards claim of depreciation, the ld. CIT(A) followed the aforesaid decision of Honorable Delhi High Court and allowed the claim in the year under consideration, holding as under:-
“Ground No. 2
I have perused the facts stated in the submission and as well as in the assessment order passed by the Assessing Officer. The facts are stated in the Honorable Delhi High Court’s order, details are at page 5 & 8 of this order. Following the decision of Delhi High Court, depreciation of Rs. 1,58,494/- has been allowed on merits. The same issue was decided in favour of the assessee’s own case for Asstt. Year 2003-04 vide my order dated 24.8.11. Hence the appeal of the assessee is allowed on this ground.”
3.2 Regarding dis allowance of expenses of Rs. 7,18,230/-, the ld. CIT(A) concluded as under:-
“Ground No. 3(a)&(b)
I have perused the facts stated in the submission and as well as in the assessment order passed by the Assessing Officer. The assessee in his submission has stated that the AO has wrongly made an addition of Rs. 7,18,230 on account of dis allowance of expense. The assessee in his submission has stated as under:
“That during the reassessment proceedings the Ld. Assessing Officer exceeded his the jurisdiction by asking for the details of other expenditures claimed by the assessee, which was declined by the assessee as the same did not fall under his jurisdiction when the matter have been re-opened on specific issue, however without examining the said issue the Ld. A.O. made ad-hoc addition amounting to Rs. 7,18,230/-.”
Whereas, the Assessing Officer in his assessment order has stated as under:-
“The assessee was asked to file ledger account of Telephone Expenses, Salaries etc. along with copy of bills vouchers etc. Vide notice dated. 1.11.2011. The assessee vide its letter dated 16.11.20.1 1 has stated that his has no relevance with the reasons recorded for reopening the assessment. This shows that the assessee has not maintained any bills or vouchers in respect of the expenses claimed and as the assessee has not carried out any business activity the expenses claimed at Rs. 7,18,230/- is disallowed and added to the income of the assessee.”
In view of the facts stated above, I am of the view that once the assessment is reopened, the Assessing Officer can look into the details which are necessary for making the assessment. In this case Assessing Officer had also given an opportunity to the assessee vide notice u/s 142(1) dated 1.11.11 but the assessee chose not file any details hence in absence of these details the addition made by the Assessing Officer at Rs.7,18,2301- for want of proof is being confirmed. Hence keeping in view of the above facts, the addition made by the AO is being upheld.”
4. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). At the outset, the ld. AR on behalf of the assessee while referring to decision dated 18th July, 2011 of the Hon’ble High Court in the assessee’s own case in the Wealth Tax proceedings for the AYs 2001-02 to 2006-07 in WTA nos.1 to 6 of 2011 and the decision dated 9th April, 2010 of the Tribunal in WTA nos.6 to11/Del./2010 as also the decision of the ld. CIT(A) for the AY 2003-04 argued that the assessee having carried on business activity in the year under consideration, as concluded by the Honorable High Court, ld. CIT(A) was not justified in upholding the validity of reopening on the issue of depreciation. As regards dis allowance of expenses, the ld. AR argued that since validity of reopening of assessment is being questioned on the issue of depreciation, the ld. CIT(A) was not justified in travelling beyond the reasons recorded by the AO and thereby, upholding the dis allowance. On the other hand, the ld. DR supported the findings of the ld. CIT(A).
5. We have heard both the parties and gone through the facts of the case. The issue before us relates to validity of reopening of the assessment on the basis of aforesaid reasons [extracted in para 2 above] recorded by the AO, before issuing notice u/s 148 of the Act on 31.3.2011. Indisputably, the assessment in this case was completed u/s 143(1) of the Act in pursuance to return filed on 26.10.2004. In the assessment under section 143(1) of the Act inquiry relating to the income of an assessee is not made. Under section 147 of the Act, as substituted by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1-4-1989, the only requirement for initiating proceeding is that the AO should have reason to believe that any income chargeable to tax, has escaped assessment. However, where an assessment has been made under sub-section (3) of section 143, the action is required to be taken within four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for his assessment for that year. Explanation 1 provides that the production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of the proviso to sec. 147 of the Act. Explanation 2(b) & (c), inter alia, stipulate deemed cases of income chargeable to tax escaping assessment where excessive deduction or relief has been claimed in the return. In the instant case, return was merely accepted u/s 143(1) of the Act. In the assessment made within the framework of the provisions of section 143(1) of the Act itself, the AO neither calls upon the assessee to appear personally nor seeks production of any document. The assessment is made on the basis of return only and without making any adjustments. There is no scrutiny at all. In these circumstances, if the conditions mentioned in section 147 of the Act are fulfilled, the jurisdiction can be validly exercised in such a case. In the instant case, the AO recorded in the reasons [pg.11of the PB & extracted in para 2 above] that since no business or commercial or manufacturing activity was carried out by the assessee during the year under consideration, the assessee was not eligible to claim depreciation of Rs. 1,58,494/-. Accordingly assessment was reopened. The basis for the aforesaid reasons appears to be order dated 29.9.2009 of the ld. CWT(A) for the AY 2004-05,wherein the ld. CWT(A), inter alia, observed that
“(ii) The AO may look in to the issue of reopening of Income-tax Proceedings to disallow depreciation since obviously no commercial activity is admittedly being carried out by the assessee.
(iii) It is on record and not contested by the assessee/AR that the commercial activity was not taking place on the said premises.”
6. The fate of aforesaid findings of the ld. CWT(A) in her dated 29.9.2009 in further appeal is not known nor the ld. AR or DR threw any light on that aspect. However, we find that the ITAT vide their order dated 9.4.2010 in WTA nos. 6 to 11/Del./2010 in the assessee’s own case for the AYs 2001-02 to 2006-07 in appeals against a common order dated 23.11.2009 of the ld. CWT(A) concluded that that the land [plot no. 14/6,site IV, Sahibabad Industrial area, Ghaziabad] or building constructed thereon was undoubtedly used by the assessee for its business. The said of the Tribunal has subsequently been upheld by the Honorable jurisdictional High Court vide their order dated 18.7.2011 in WTA nos. 1 to 6 of 2010 in the following terms:
“3. The CIT(A) took note of the details of job work furnished by the respondent. However, he was of the view that this claim of the assessee that the assessee had done job work did not repose any confidence in absence of requisite details and there was no proof submitted by the assessee that it had done some job work. The CIT(A) even called upon the Assessing Officer to look into the issue of reopening of the income tax proceedings to disallow depreciation, as according to him, no commercial activities were carried out by the assessee.
4. The Tribunal has, as noticed above, accepted the appeal of the assessee holding that the assessee had doing the business in the form of aforesaid job work and therefore, the property in question would be exempt from the Wealth Tax, as per section 2(ea) of the Wealth Tax Act, which defines “asset” and specifically excludes the asset occupied by the assessee for the purpose of any business or profession carried on by him.
5. The Tribunal took note of a very crucial fact, viz., for the assessment years 2001-02 to 2006-07, the assessee had filed income tax returns in which the assessee had shown business income. It had also claimed depreciation on the aforesaid building constructed by the assessee on the leasehold land in question and this depreciation was allowed by the Assessing Officer in all these years. The Tribunal further found that though no regular assessment u/s 143(3) of the Act for the assessment years 2001-02 to 2004-05 had been made by the Assessing Officer and in those assessment years, the assessment was completed u/s 143(1) of the Act, insofar as the assessment years 2005-06 to 2006-07 are concerned, the case of the assessee for these years was selected for scrutiny and regular assessment u/s 143(3) of the Act had been made wherein the assessee’s claim of depreciation on the building @10% on written down value had been allowed. As mentioned above, in these assessment years, the assessee had shown income under the head “profits and gains of business or profession”, which was also accepted by the Assessing Officer. Even when the CIT(A) while discussing the case of the assessee under the Wealth Tax Act had opined that the case of the assessee under Income Tax Act be reopened, no such steps were taken by the Assessing Officer under the provisions of the Act had become final. This fact was specially taken note of by the Tribunal.
6. From the aforesaid narration, it is clear that not only in the Assessment Years in question, the assessee had carried on its business utilizing the aforesaid asset for this purpose, but this decision was even accepted by the Department as well.
7. In these circumstances, we are of the opinion that the order of the Tribunal is without blemish. We are, thus, of the view that no substantial question of law arises. These appeals are accordingly dismissed.”
6.1 Thus, as on the date of recording reasons and issuance of notice u/s 148 of the Act on 31.3.2011, the AO had before him aforesaid findings of facts recorded by the ITAT in their order dated 9.4.2010 that the land or building constructed thereon was undoubtedly used by the assessee for its business. The ld. DR did not place before us any material for the basis recorded by the AO in his aforesaid reasons that no business or commercial or manufacturing activity was carried out by the assessee during the year under consideration. The power of assessment or reassessment of any income chargeable to tax that have escaped assessment has been provided under section 147 r w s 148 of Income Tax Act of 1961. If the AO has the reason to believe that any income chargeable to tax has escaped assessment then the assessing officer may subject to the provisions of section 147 to 153 assess or reassess such income. It is settled position of law that the AO must have tangible material on the basis of which he can have a reason to believe that income has escaped assessment. In the present case, it is submitted that there was a total absence of any tangible material to form a belief. Rather the findings of the ITAT in wealth tax proceedings for the AYs 2001-02 to 2006-07 contradict the reasons recorded by the AO before issuing notice u/s 148 of the Act on 31.3.2011.The 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 link with the formation of the belief. Honorable jurisdictional High Court in CIT v. Jagson International Ltd. [2012] 345 ITR 414 held that the “reasons to believe” have to be tested on the facts/material when the reasons are recorded. In the instant case, as on the date of recording of reasons and issuance of notice u/s 148 of the Act, the findings of the ITAT in their order dated 9.4.2011 stare in the face of the AO and therefore, we are of the view that reasons recorded by him are totally baseless. It may worth be mentioning that the ld. CIT(A) quashed the reassessment proceedings for the AY 2003-04 on similar facts vide her order dated 24.8.2011. In view of the foregoing, in our opinion, there was no tangible material before the AO, as explained in the judgment of the Honorable Supreme Court in CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 to form a conclusion that income has escaped assessment. In this view of the matter, we are of the opinion that the very initiation of proceedings under section 147 of the Act stands vitiated and as such cannot be sustained, the ingredients of section 147 having not been fulfilled. It is well-settled that if a notice under section 148 of the Act has been issued without the jurisdictional foundation u/s 147 of the Act being available to the AO, the notice and the subsequent proceedings will be without jurisdiction and thus, liable to be struck down . In view thereof, we have no hesitation in reversing the findings of the ld. CIT(A) on the issue of validity of reopening of the assessment and accordingly, quash the reassessment order. Consequently, ground no. 1 in the appeal is allowed. As a corollary, ground no. 2 in the appeal does not survive for our adjudication and is, therefore, treated as infructuous.
7. Ground no.3 in the appeal, being general in nature, does not require any separate adjudication while no additional ground having been raised before us in terms of residuary ground no. 4 in the appeal, accordingly, these grounds are dismissed.
8. No other plea or argument was made before us.
9. In the result, appeal is allowed.
