Case Law Details
ITO Vs M/s. Epkon Associates (ITAT Kolkata)
A perusal of the reasons recorded by the A.O. clearly shows that the assessment originally completed u/s 143(3) was reopened by him on the basis of the same set of facts and same material as were available with him at the time of completion of assessment originally u/s 143(3) and there was no new tangible material tht had come to his possession which formed the basis of reopening of assessment. At the time of hearing before us, the Ld. DR has not been able to dispute this position clearly evident from the reasons recorded by the A.O. He, however, has contended that the issue relating to the difference in sales noticed by the A.O. was not examined by him during the course of original assessment proceedings u/s 143(3) and since there was no expression of opinion on this issue in the said assessment, it cannot be said that the reopening was based a mere change of opinion. We are unable to accept this contention of the learned DR. As held in the various judicial pronouncements including the decision of full bench of Hon’ble Delhi High Court in the case of CIT vs Kelvinator of India Ltd. 123 TAXMAN 433, when the assessment is completed u/s 143(3), there is a presumption that all the issues relevant to the assessment have been considered and concluded by the A.O. by applying his mind. It was further held that even if there is any mistake committed by the A.O. while completing this assessment u/s 143(3), the same cannot be allowed to be taken as basis for reopening of the assessment as it would amount of giving premium to an authority exercising qua judicial function to taken benefit of its own wrong.
FULL TEXT OF THE ITAT JUDGMENT
This appeal filed by the revenue is directed against the order of Ld. CIT(Appeals) – 19, Kolkata dated 05.03.2014 and in the solitary ground raised therein, the revenue has challenged the action of the Ld. CIT(A) in cancelling the assessment made by the A.O. under section 143(3) / 147 of the Income Tax Act, 1961 by holding the same to be invalid.
2. The assessee in the present is a partnership firm which is engaged in the business of trading in oil. The return of income for the year under consideration was filed by it on 22.09.2005 declaring a total income of Rs. 59,190/-. In the assessment originally completed under section 143(3) vide an order dated 20.12.2007, the total income of the assessee was determined by the A.O. at Rs. 87,950/-.
There was some mistake in the said determination which was rectified by the A.O. vide an order dated 07.02.2008 passed under section 154 reducing the total income of the assessee to Rs. 82,950/-. Thereafter, the A.O. noticed that there was some difference in the sale figure shown by the assessee as accepted in the assessment completed under section 143(3). He, therefore, reopened the assessment and issued a notice under section 148 after recording the reasons. In response to the said notice, the return of income was filed by the assessee on 02.11.2010 declaring the same income as shown in the return originally filed on 22.05.2005. Thereafter the assessment was completed by the A.O. under section 143(3) read with section 147 vide an order dated 16th June, 2011 determining the total income of the assessee at Rs. 66,15,863/- after making additions of Rs. 58,25,540/- and Rs. 7,07,373/- on account of undisclosed sales and unexplained purchases respectively.
3. Against the order passed by the A.O. u/s 143(3) / 147, an appeal was preferred by the assessee before the Ld. CIT(A) challenging the validity of the said assessment as well as disputing both the additions made therein on merit. During the course of appellate proceedings before the Ld. CIT(A), the following submission was made by the assessee in support of the preliminary issue raised relating to the validity of the assessment made by the A.O. under section 143(3) / 147:
“The brief facts of the case are that the assessee had furnished original return of its income for the assessment year 2005-06 on 22.09.2005 declaring a total income of Rs. 59,190/-. The return was accompanied with the audited balance sheet and profit and loss account and tax audit report with all annexure. The assessment was completed u/s 143(3) of the Act on 20.12.2007 at a total income of Rs. 87,950/-. This assessment was later on rectified u/s 154 on 07.02.2008 and the total income was assessed at Rs. 82,950/-. The successor assessing officer acting on revenue audit objection issued a notice under section 148 on 08.10.2010 and served the same on the appellant assessee on 09.10.2010. The reasons recorded u/s 148(2) of the Act were furnished to the assessee which is reproduced hereunder:
Assessment was made u/s 143(3) of the Income-tax Act 1961 on 20.12.2007 by the then A.O. as rectified u/s 154 on 07.02.2008. After going through the assessment records, I record my reasons to believe that on the following two grounds income chargeable to tax escaped assessment within the meaning of section 147 of the Act.
As per the P & L A/c for the year ending on 31.03.2005, the turnover of the firm is Rs. 10,86,38,377/- (ten crore eighty six lakhs thirty eight thousand three hundred and seventy seven). This figure is also quoted against the item 32 [GP/Turnover, NP/Turnover etc.] in the audit report in form 3CD. In course of assessment proceedings, the assessee filed a list giving the names of customers with sales worth Rs. 50,000/- or more and a consolidated figure of sales less than Rs. 50,000/-. The figure of sales match and it also clarifies that this figure is not of tax. The firm also filed on extract of sales register giving monthly sales figure for all the months of the relevant previous year and they total to Rs. 11,66,34,952/- (eleven crore sixty six lakhs thirty four thousand nine hundred and fifty two) only for the whole year. It appears that the sales register figure had not been properly accommodated in the P & L A/c. Otherwise, net profit figure would have arisen by the difference of Rs. 79,96,575/-. Besides, I have also checked the monthly figures [with cumulative ones under ‘the closing balance’ in the sales register] in the computerized sales register. There is no arithmetical mistake. Thus, I have reason to believe the difference of Rs. 79,96,575/- (seventy nine lakhs ninety six thousand five hundred and seventy five) [chargeable to tax] escaped assessment u/s 143(3) within the meaning of section 147.
We have also noted the purchase amount debited in the P& L A/c. It is Rs. 10,64,58,865/-. The assessee has given a party-wise break up [for parties Rs. 50,000/- or more] and it gives a total of Rs. 10,64,58,865/-. Obviously, the suppliers, the assessee means to say, are all of Rs. 50,000/- or more. In course of assessment proceedings, an extract of computerized purchase register was given, wherein monthly purchase amount was furnished. They give a total purchase amount of the year at Rs. 10,57,65,988/- (rounded off). The figure has been recalculated and no arithmetical error found in its cumulative figure. So, according to me, if suggests that the difference in figure that is Rs. 6,92,877/- chargeable to tax had escaped assessment within the meaning of section 147 because of inflated debit entries in the P & L A/c.
Admittedly the assessment has been reopened after the expiry of four years from the end of the relevant assessment year. The appellant assessee submits that the issue of notice as well as the impugned assessment order passed under section 143(3) read with section 147 on 16.06.2011 is without jurisdiction, illegal and void ab initio inter alia for the following reasons.
(a) The notice under section 148 has been issued on mere charge of opinion and without any fresh tangible materials. On perusal of the reasons recorded under section 148(2) of the Act it would be found that there is no reference to any fresh tangible material coming to the possession of the Assessing Officer to arrive at a reasonable belief of escapement of income. It would be noted from the recorded reasons that the details of purchases furnished by the assessee during the course of the original assessment proceedings and which was duly considered by the Assessing Officer before passing the assessment under section 143(3) of the Act, has been reviewed by the successor Assessing Officer and he suspected that the debit entries in the Profit & Loss Account have been inflated. Thus the appellant assessee submits that the neither there is any fresh tangible material which has come to his possession after making the original assessment nor there could be a reasonable belief of escapement of income This is a case of change of opinion, suspicion and review of the same set of papers and documents on existing records of assessee ” Thereafter, the appellant has cited a number of case laws in support of its stand.”
4. The Ld. CIT(A) found merit in the submission made by the assessee on this issue and annulled assessment made by the A.O. under section 143(3) / 147 by holding the same to be invalid for the following reasons given in paragraph no 4.2 and 4.3 of impugned order:
“4.2 The assessment order and the submission of the appellant have been carefully considered in deciding the issue at hand. The issue of reopening of an assessment completed u/s 143(3) of the Act on the basis of available information at the time of the original scrutiny proceeding was a subject matter of numerous litigations. There are rulings of High Courts as well as the Apex Court which have held that primary information which was available with the A.O. during the course of a scrutiny assessment proceeding cannot be used to reopen the assessment relevant case laws are as follows:
- The matter is covered by the decision of the Apex Court in the case of CIT vs Tarajan Tea Co. (P) Ltd. reported in 236 ITR 447 (SC) wherein it was held that – ‘Information which was with the A.O. at the time of original assessment cannot be used for reopening the assessment u/s 147.
- In the case of ITO vs Nawab Mir Barkat Ali Khan Bahadur (1974) reported in 97 ITR 239 (SC), it was held that – ‘second thoughts on the same material and omission to draw the correct legal presumption during original assessment do not warrant the initiation of a proceeding u/s 147.
- In the case of Sirpur Paper Mills Ltd. vs ITO (1978) reported in 114 ITR 404 (AP), it was held that – ‘income tax department cannot be permitted to bring fresh litigations because of new views to entertain the facts or new version which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstances.
- It was held in the case of CIT vs George Williamson (Assam) Ltd. (2002) reported in 258 ITR 126 (Gau) that – ‘the duty of the assessee does not extend beyond making a full and true disclosure of primary facts. Once he has done so, his duty ends. It is not the responsibility of the assessee to advise the assessing authority. If the assessing authority draws an interference which appears to him subsequently to be erroneous, then in such a case, mere change of opinion with regard to that inference would not justify initiation of action for reopening the assessment. When at the time of the original assessment primary facts were already before the ITO and after some routine enquiry the ITO could have assessed the income on the basis of such information, it is not open to him to invoke the provisions of section 147 and reopen the assessment even though he may have omitted to notice the facts mentioned in the return by oversight – Lokendra Singh vs ITO (1981) 128 ITR 450 (MP). It is a settled law that an assessing officer has no power to review his order and he could not do so in the purpoted exercise of the authority u/s 147 of the Act.
4.3 Based on the various court rulings as narrated above, the action of the A.O. in reopening the assessment does not fall within the legal framework of the scheme of reassessment proceedings. Since there is a lapse on the part of the A.O. in reopening the assessment which was completed u/s 143(3) as discussed (supra), the order passed by him now cannot be sustained and is thus held to be ‘an ultra vires order’. As a result, the assessment order u/s 147/143(3) passed by the A.O. vide order dated 16.06.2011 for the A.Y. 2005-06 is hereby annulled on the ground of legal infirmity.”
5. Keeping in view, the decision rendered by him on the preliminary issue cancelling the assessment made by the A.O. u/s 143(3)/147, the Ld. CIT(A) did not adjudicate upon the other issues raised by the assessee challenging the additions made by the A.O. in the said assessment on merit. Aggrieved by the order of the Ld. CIT(A), the revenue has preferred this appeal before the Tribunal:
“That on the fact and in the circumstances of the case, Ld. CIT(A) erred both in law as well as in facts in holding the order as on ultra vires order and thereby annulling the order on the ground of legal infirmity.”
6. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that the assessment completed by the A.O. under section 143(3) / 147 of the Act has been annulled by the Ld. CIT(A) vide his impugned order by holding the same to be invalid on the ground that the reopening of assessment by the A.O. itself was bad in law. While arriving at this conclusion, the Ld. CIT(A) has taken note of the fact that the assessment originally completed u/s 143(3) was reopened by the A.O. on the basis of the same information which was available on record at the time of completion of original assessment u/s 143(3) and in the absence of any new material or information coming to the possession of the A.O., the reopening was based on a mere change of opinion which is not permissible. In support of this conclusion, he has relied on the very judicial pronouncements as discussed in his impugned order. While supporting this conclusion drawn by the Ld. CIT(A), the learned counsel for the assessee has invited our attention to the reasons recorded by the A.O. (copy placed at page no 4 of the Paper Book) which read as under:
Assessment was made u/s 143(3) of the Income-tax Act 1961 on 20.12.2007 by the then A.O. as rectified u/s 154 on 07.02.2008. After going through the assessment records, I record my reasons to believe that on the following two grounds income chargeable to tax escaped assessment within the meaning of section 147 of the Act.
As per the P & L A/c for the year ending on 31.03.2005, the turnover of the firm is Rs. 10,86,38,377/- (ten crore eighty six lakhs thirty eight thousand three hundred and seventy seven). This figure is also quoted against the item 32 [GP/Turnover, NP/Turnover etc.] in the audit report in form 3CD. In course of assessment proceedings, the assessee filed a list giving the names of customers with sales worth Rs. 50,000/- or more and a consolidated figure of sales less than Rs. 50,000/-. The figure of sales match and it also clarifies that this figure is not of tax. The firm also filed on extract of sales register giving monthly sales figure for all the months of the relevant previous year and they total to Rs. 11,66,34,952/- (eleven crore sixty six lakhs thirty four thousand nine hundred and fifty two) only for the whole year. It appears that the sales register figure had not been properly accommodated in the P & L A/c. Otherwise, net profit figure would have arisen by the difference of Rs. 79,96,575/-. Besides, I have also checked the monthly figures [with cumulative ones under ‘the closing balance’ in the sales register] in the computerized sales register. There is no arithmetical mistake. Thus, I have reason to believe the difference of Rs. 79,96,575/- (seventy nine lakhs ninety six thousand five hundred and seventy five) [chargeable to tax] escaped assessment u/s 143(3) within the meaning of section 147.
We have also noted the purchase amount debited in the P& L A/c. It is Rs. 10,64,58,865/-. The assessee has given a party-wise break up [for parties Rs. 50,000/- or more] and it gives a total of Rs. 10,64,58,865/-. Obviously, the suppliers, the assessee means to say, are all of Rs. 50,000/- or more. In course of assessment proceedings, an extract of computerized purchase register was given, wherein monthly purchase amount was furnished. They give a total purchase amount of the year at Rs. 10,57,65,988/-(rounded off). The figure has been recalculated and no arithmetical error found in its cumulative figure. So, according to me, if suggests that the difference in figure that is Rs. 6,92,877/- chargeable to tax had escaped assessment within the meaning of section 147 because of inflated debit entries in the P & L A/c.
7. A perusal of the reasons recorded by the A.O. clearly shows that the assessment originally completed u/s 143(3) was reopened by him on the basis of the same set of facts and same material as were available with him at the time of completion of assessment originally u/s 143(3) and there was no new tangible material tht had come to his possession which formed the basis of reopening of assessment. At the time of hearing before us, the Ld. DR has not been able to dispute this position clearly evident from the reasons recorded by the A.O. He, however, has contended that the issue relating to the difference in sales noticed by the A.O. was not examined by him during the course of original assessment proceedings u/s 143(3) and since there was no expression of opinion on this issue in the said assessment, it cannot be said that the reopening was based a mere change of opinion. We are unable to accept this contention of the learned DR. As held in the various judicial pronouncements including the decision of full bench of Hon’ble Delhi High Court in the case of CIT vs Kelvinator of India Ltd. 123 TAXMAN 433, when the assessment is completed u/s 143(3), there is a presumption that all the issues relevant to the assessment have been considered and concluded by the A.O. by applying his mind. It was further held that even if there is any mistake committed by the A.O. while completing this assessment u/s 143(3), the same cannot be allowed to be taken as basis for reopening of the assessment as it would amount of giving premium to an authority exercising qua judicial function to taken benefit of its own wrong. Keeping in view the decision of the full bench of Hon’ble Delhi High Court in the case of Kelvinator India Ltd. (supra) as well as the other judicial pronouncements relied upon by the Ld. CIT(A) in his impugned order, we are of the view that the reopening of assessment by the A.O. in the assessee’s case was bad in law as the same was based on a mere change of opinion without there being any new tangible material coming to his possession. In that view of the matter, we uphold the impugned order of the Ld. CIT(A) cancelling the assessment made by the A.O. u/s 143(3) / 147 of the Act and dismiss this appeal of the revenue.
8. In the result, the appeal of the revenue is dismissed.
Order Pronounced in the Open Court on 30th May, 2018.
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