Bansiwala Iron & Steel Rolling Mills Vs DCIT (ITAT Jaipur)
Since the A.O. is a quasi-judicial authority, who has to collect the evidences, material and then to adjudicate the matter after due and complete application of mind. The A.O. expected to record his own satisfaction before reaching to any conclusion. In our view, the A.O. cannot borrow his satisfaction by merely relying upon material or the result of the other reports of other investigation agency unless he himself has examined the issue in hand by due and full application of his own mind. From the facts we noticed that the A.O. solely relied upon the findings which were recorded in the order of the Commissioner Central Excise, Jaipur No.2643 dated 24.07.2015. The AO in the present case was solely guided by the pointwise observation and finding contained in the order of the CCE, Jaipur and he even reproduced the relevant extracts from such order starting from Pg 4 to 10 of the impugned assessment order. Although the A.O. categorically admitted that the assessee had filed a detailed reply on dated 18.03.2016, however, further held that such factual explanation dealing with each and every case was not relevant inasmuch as the CCE has already examined the issue and recorded his findings. This fact clearly shows that the AO has summarily rejected the contention of the assessee without examining the issue in hand, huge additions were made. Merely relied upon the findings of the CCE, however, it is important to mention that the CCE had passed the order under the provision of Central Excise Act, 1944 in that peculiar context of the case. However, such findings cannot be lifted and relied upon by the A.O. in a different factual context of Income Tax Laws.
It is pertinent to mention here that the impugned reasons do not speak of/ refers to any transaction/ income emanating from annexures B to G. However, the allegation of such suppressed sale was withdrawn/quashed by the Assessing Officer being the CCE, Jaipur vide adjudication order dated 30.06.2015
Therefore, the very basis and the supporting point, the reasons to believe does not exist anymore, therefore, the proceedings initiated U/s 147/148 deserves to be quashed at this stage and we quash the proceedings initiated U/s 147/148 of the Act.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
This is the appeal filed by the assessee against the order of the ld. CIT(A), Alwar dated 30/10/2019 for the A.Y. 2008-09. The grounds taken by the assessee are as under:
“1. The very action taken u/s 147 r/w 148 is bad in law, without jurisdiction and being void ab-initio, hence, the same kindly be quashed. Consequently, the impugned assessment framed u/s 143(3)/148 dated 30.03.2016 also kindly be quashed.
1.2 The Id. CIT(A) erred in law as well as on the facts of the case in confirming the reopening of the case u/s 148 despite the fact that the AO has not decided the objections filed by the appellant within a reasonable period of time and started proceeding to make the assessment through notices issued u/s 143(2) & 142 of the Act, even there before, which was in a direct contravention of the binding directions of the Hon’ble Supreme Court given in the case of GKN Driveshafts (India) Ltd. vs. ITO & ORS 259 ITR 0019 (2002) and therefore, the impugned order so passed, deserves to be quested.
2. The impugned addition and disallowances made in the order dated 30.03.2016 u/s 143(3) of the Act are bad in law and on facts of the case, for want of jurisdiction and for various other reasons and hence the same may kindly be deleted.
3.1 Rs.1,12,256/-: The ld. CIT(A) erred in law as well as on the facts of the case in confirming the addition of Rs.1,12,256/-made by the AO by applying estimated GP rate of 9.45% on the alleged suppressed sale of Rs.5,77,150/-, merely based on a search conducted by the Central Excise Department (even though the said Department itself has taken back their allegation) and merely on suspicion, surmises & conjectures, without arriving at an independent opinion/ satisfaction over the impugned addition. The allegation of suppressed sale being completely contrary to the provisions of law and facts and the consequent addition of the suspected gross profit thereon so made, also being completely contrary to the provisions of law and facts and contrary to the submissions and evidences placed on record hence, the impugned addition kindly be deleted in full.
3.2 The above impugned addition otherwise seriously lacks jurisdiction and hence, also the same kindly be deleted in full.
4. Rs.2,32,447/-: The ld. CIT(A) further erred in law as well as on the facts of the case in confirming the estimated addition of Rs.2,32,447/- made by the AO on account of alleged the unexplained investment in the initial unaccounted capital involved @50% of the suppressed sale (less the estimated addition of the gross profit), u/s 69/69C of the Act. The addition so made and confirmed by the ld. CIT(A), being completely contrary to the provisions of law and facts and rather being the result of suspicion, surmises and conjectures, hence, the same kindly be deleted in full.
5. The ld. AO further erred in law as well as on the facts of the case in charging interest u/s 234A, 234B & 234C of the Act. The appellant totally denies its liability of charging of any such interest. The interest so charged, being contrary to the provisions of law and facts, kindly be deleted in full.
6. The appellant prays your honour indulgences to add, amend or alter of or any of the grounds of the appeal on or before the date of hearing.”
2. The hearing of the appeal was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic.
3. The brief facts of the case are that the assessee is engaged in the business of manufacturing of Iron & Steel. The return of income was filed on 29.08.2008 declaring total income at Rs.50,27,790/-. The assessment was completed u/s 143(1) of the Income Tax Act, 1961 (in short, the Act). Thereafter, on the basis of (some alleged) additional information available with the department in respect of search / verification conducted at the factory premises of the assessee by the Department of Customs & Central Excise, Jaipur and alleged evidences pertaining to clandestine removal of finished goods during the year under consideration [as stated in the reasons, notice u/s 148 of the Act was issued on 19.03.2015. In response, the assessee vide letter dated 06.04.2015 submitted that the original ROI filed u/s 139(1) dated 29.08.2008, declaring total income at Rs.50,27,790/-may be treated as ROI filed in response to notice u/s 148. Finally, the assessment order was passed determining total income of the assessee at Rs. 53,72,500/-.
4. Being aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A), who after considering the submissions of both the parties and material placed on record, upheld the action of the A.O.
5. Against the order passed by the ld. CIT(A), the assessee has preferred the present appeal before the ITAT on the grounds mentioned above.
6. Ground Nos. 1 and 2 of the appeal raised by the assessee relates to challenging the order of the ld. CIT(A) in confirming the reopening of the assessee U/s 147 of the Act. In this regard, the ld. AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also relied on the written submissions filed before the Bench and the contents of the same are reproduced below:
“1.1 Reassessment invalid-without deciding the objections within stipulated time: A t the outset it is submitted that the AO failed to dispose off the objections raised by the assessee against the reassessment u/s 148 within a reasonable period. The assesse filed objection vide letter dated 04.06.2015 (PB 58-60) and again vide letter dated 05.08.2015 (PB 61-63) however the same were disposed off by the AO only on 22.03.2016 (PB 65-66) i.e. jus t before the completion of the assessment (i.e. on 30.03.2016) and thereafter served on the assessee on the fag end.
1.2 In this regard the Hon`ble Apex Court in the case of GKN Driveshafts (India) Ltd. vs. ITO & Ors. (2003) 259 ITR 19 (SC) has laid down the binding procedure, as under:
“When a notice under s. 148 of the Income-tax Act is issued, the roper course of action for the noticee is to file a return and if he so desires, to seek reasons for issuing notices. The AO is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the AO is bound to dispose of the same by passing a speaking order. ”
The said decision thereafter, has been explained by the different High Courts however, the revenue is not adhering to such binding guidance provided by the Apex court and often instances of the violation of the law of land is being seen, as evident from the above facts of this case itself. This has been taken a serious note by the High Courts.
1.3 The Hon’ble Mumbai High Court recently in the case of Capgemini India Pvt. Ltd. vs. ACIT (2015) 120 DTR 1(Mum), has expressed their unhappiness and writ filed by the assessee was held maintainable despite the AO already having passed the assessment order. The observation of Hon’ble court are one noting and reproduced as under:
“Notice under section 148 of the IT Act was dated 27th March, 2014. That was served on the Petitioner, but the reasons which were said to be recorded, annexed to this notice, came to be furnished to the Petitioner on 29th October, 2014. Thereafter, the Petitioner raised the objections on 12th December, 2014. The order passed by the Respondents, rejecting these objections, was dated 12th February, 2015. The Respondents were obliged to abide by the above directions and not passed an order of assessment for a period of 4 weeks from the date of service o f this order rejecting the objections. In the instant case, if that order itself was served on 10th March, 2015, then, this haste in passing an assessment order within four weeks cannot be justified. If the notice is dated 27th March, 2014, then, the period till 27th March, 2015 was enough to conclude the steps and in accordance with law. The Respondents having delayed the proceedings at their own end, it would not be open for them to justify their conduct and have complete disregard to the orders and directions which were binding on them. In such circumstances, Court was not in agreement with the contention that the assessment order having now been passed, the Writ Petition should not be entertained and the Petitioner must be relegated to the statutory remedies. Having regard to the factual statements in para 12 of the Writ Petition and there being absolutely no reply thereto in the affidavit in reply, this contention of the Respondents cannot be accepted. ”
1.4 In Bharat Jayantilal Patel vs. Union of India (2015] 378 ITR 596 (Bom.) it was held that:
“Where Assessing Officer passed assessment order within period of four weeks from date of rejection of assessee’s objections to reopening of assessment, order so passed being invalid, deserved to be set aside ”
1.5 In some other cases i.e. Jayanti Natarajan (Ms.) vs. ACIT (2018) 401 ITR 215 (Mad.) & Mayer Material Science Pvt. Ltd. vs. DCIT (2016) 382 ITR 333 (Bom.) the Hon`ble Courts observed that the law laid down by the Supreme Court is of binding nature and is a source of law unto itself is binding on all authorities. In view of this legal position, the AO could not have violated the directions given by the Supreme Court.
In view of the above facts and judicial guideline, the impugned reassessment order deserves to be quashed at this stage itself.
2. Reason to believe and not reason to suspect:
2.1 It is submitted that even under the amended law the bedrock condition or words, which continue right since inception till date, are “reason to believe” and not “reason to suspect”. The word “believe” has to be understood in contradistinction of suspicion or opinion. Belief indicates something concrete or reliable. Kindly refer Gangasharan & Sons Pvt. Ltd. v/s ITO & Anr. (1981) 130 ITR 1 (SC). The Hon’ble Supreme Court in the case of ITO v/s Lakhmani Mewal Das (1976) 103 ITR 437 (SC) has held that
“12. The powers of the ITO to reopen assessment, though wide, are not plenary. The words of the statute are “reason to believe” and not “reason to suspect”. The reopening to the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment…………. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, finality about orders made in judicial and quasi-judicial proceedings. It is, therefore, essential that before such action is taken the requirements of the law should be satisfied.
2.2 The belief of the officer should be as to escapement of income and the belief should not be a product of imagination or speculation as further discussed in the ensuing paras.
2.3 Further, the belief must be of an honest and reasonable person based upon reasonable grounds. The officer may act on direct or circumstantial evidence, but his/her belief must not be based on mere suspicion, gossip or rumor. The AO would be acting without jurisdiction if the reason for his/her belief that the conditions are satisfied does not exist or is not material or relevant to the belie f required by the provision of law. The Court can always examine this aspec t though the declaration or sufficiency of the reasons for the belief cannot be investigated by the Court Sheo Nath Singh v/s AAC (1971) 82 ITR 147 (SC).
2.4 On the facts it is proved that above judicial guideline has not been followed by the AO in this case, if the following facts, which were undisputedly available on record, on the date of recording of the reasons, are considered.
3. Complete non application of mind- Borrowed Satisfaction:
3.1 Because to assume a valid jurisdiction u/s 147 of the Act, the AO must form a reason to believe on his own and such a satisfaction or belie f should not / cannot be borrowed from someone else.
3.2 A bare perusal of the impugned reasons (PB 54-57) clearly shows that the information relied upon being the SCN is based on a search conducted by the Central Excise Authorities and not by the Income Tax Department and that too at the premises of the Transporters and/or Dealers but not at the place of the assessee (which is a wrong fact stated in the reasons). Thus, the impugned reasons are based upon wrong facts and a third-party information that too unreliable and misinterpreted.
3.3 No material was found (and/ or referred in the reasons) showing that the assessee was indulged in a clandestine clearance/ suppressed sale from its factory without paying excise duty and notices issued by the Excise Department is only on the basis of statement of third party or some information gathered from third party because no direct material or evidence was found or seized from the premises of the assessee. Neither any stock was seized nor was it found that i t was the case of lesser stock or excess stock of finished goods or of raw materials found. No evidence was recovered nor has been placed on record to prove ilicit transaction of money, involved in the alleged transactions. The Excise Department though alleges huge clandestine clearance of goods yet no t an iota of evidence to prove procurement of huge quantities of raw materials has been placed on record, though the list of raw material suppliers was with the investigation. Without showing receipt of the raw material clandestinely, manufacture of such huge quantities of excisable goods and clandestine clearance thereof is impossible. Therefore, consequent suppressed sale and again undeclared income there from, is too remote even to be suspected.
In other words, the AO has merely borrowed satisfaction (as to escapement) from someone else, which is not sufficient to confer valid power upon the AO to initiate reassessment proceedings.
He relied on the following case laws:
(i) CIT Vs. SFIL Stock Broking Ltd. (2010) 325 ITR 285 (Del.)
(ii) Surbhi Minchem P. Ltd vs. ITO in ITA No. 102 & 103/Jodh/2014 vide order dated 16.05.2014.
(iii) Maple Hotels and Resorts Pvt. Ltd., Jaipur vs. ITO 58 Tax world 273 Part V-VI (JP) and Nirmala Agarwal, Jaipur vs. ACIT 58 Tax world 280 Part V-VI (JP)
(iv) Decision in case of Pr. CIT v/s Meenakshi Overseas (P.) Ltd. (2017) 154 ITR 100 (Del) followed in Pr. CIT v/s RMG Ply (2017) 156 DTR 79 (Del).
3.4 At the outset, it is submitted that in the present case, the AO has completely violated the principal of audi alteram partem. He completed assessmen t hastily and evidently without application of mind. He blindly relied upon the findings taken from order of some other authority merely to complete the assessment. The following details are relevant:
