Assessment cannot be reopened u/s 147 Based on Material Assessed by AO in Original Assessment

Shri Dinesh Kumar Gupta Vs ITO (ITAT Agra)

The issue under consideration is whether reopen assessment u/s 147 based on the same material which is examined by AO in original assessment is justified in law?

ITAT states that, the reasoning for reopening as mentioned in the assessment order clearly shows that the same material which was considered by the Assessing Officer in the original assessment order was again considered by the Assessing Officer in the re-assessment order and based on that, the reassessment proceedings were finalized and income of the assessee was computed. In our considered opinion, once the material/basis was considered and examined by the Assessing Officer in the original assessment proceedings, which is apparent from the finding recorded by the Assessing Officer. In our view, it is not permissible for the Assessing Officer for exercising powers u/s. 148 to reopen the assessment u/s. 147 of the Act. Even in the original assessment, the Assessing Officer has also mentioned that the purchase vouchers were from unregistered concerns and self made and further mentioned that the payments for purchase of material and labour & wages were made in cash. Once, the same material was available, then it was not open for the Assessing Officer to reopen the assessment. ITAT may fruitfully rely upon the decision of Kelvinator of India (supra) relied upon by the assessee and respectfully following the decision of Hon’ble Supreme Court and also other decisions in respect of reopening u/s. 147, the appeal of the assessee is allowed.

FULL TEXT OF THE ITAT JUDGEMENT

This appeal is filed by the assessee feeling aggrieved from the order of ld. CIT(A)-2, Agra dated 30.11.2017 on the following grounds :

1. Because the pre-condition for invoking the provisions of sec. 147 that the escapement of the income had been occasioned by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment had not been satisfied, the reopening of assessment u/s 147, the issuance of notice u/s 148 and subsequent order are all without jurisdiction.

2. That reopening of closed assessment u/s 143(3) beyond four years from the end of relevant assessment year by invoking provisions of sec. 147 on the same set of facts considered under scrutiny assessment made is illegal.

3. That the A.O. cannot take advantage of his own wrong and reopening of assessment after a lapse of four years on mere change of opinion by taking recourse to the provision of sec. 147 twice and Ld. C.I.T. (A) decision in sustaining the reopening of assessment by the A.O. is illegal.

4. That the legislature has not conferred the powers to the A.O. to review his own order in the garb of reopening and reopening of assessment u/s 147 is illegal.

5. That belief formed to reopen the assessment on mere opinion and at the behest of the audit party u/s 147 after a lapse of four years is invalid and illegal.

6. That in the case of estimate of income provision of sec. 40A(3) had no application and the addition of Rs. 1821313 sustained u/s 40A(3) is illegal.

7. That the expenditure in cash on purchase of gitti, sand etc. was incurred at the spot where banking facilities were not available and payment was made under compelling circumstances and inexpediency of business and addition sustained at Rs. 1821313/- is illegal and arbitrary.

2. The ld. AR had submitted that in the present case, the assessment u/s. 143(3) was completed by the Assessing Officer on 01.12.2010, assessing the income of the assessee at Rs.5,39,690/-. However, subsequently, the Assessing Officer had reopened the assessment for the following reasons :

“In this case the assessee has filed original return on 30.09.2008 declaring total income of Rs.5,81,790/-. The return was later revised on 5.11.2009 showing total income of Rs. 4,81,790/-. The case was processed u/s 143(1). The case was further selected for scrutiny under CASS and assessment was completed u/s 143(3) on total income of Rs. 5,39,690/- vide order dated 01.12.2010.

From perusal of assessment records it is found that the assessee has debited Rs. 27,47,003/- against material cost in the profit Loss account. The ledger account of material expenses shows various payments incurred in cash on different dates in excess of Rs. 20,000/-each, totaling to Rs. 18,21,313/- which are to be disallowed under the provision of section 40A(3) of the IT Act 1961 but the expenses have been allowed by the AO. Hence the amount of Rs. 18,21,313/- is liable to be disallowed and added back to the income of the assessee.

I therefore, have reason to believe that the income chargeable to tax of Rs, 18,21,313/-has escaped assessment within the meaning of section 147 of the IT Act 1961 in the case of Shri Dinesh Chand Gupta, B-69 Trans Yamuna Colony, Agra in the assessment year 2008-09 and the escapement occurred due to failure on the part of the assessee to disclose fully and truly all material facts relating to payments exceeding Rs. 20,000/- and even the tax audit is silent on this statutory requirement.”

3. On the basis of above, it was submitted that there was no fresh material available with the Assessing Officer which could have triggered the reassessment proceedings by issuing notice u/s. 148. It was submitted that the Assessing Officer in the reassessment proceedings, has not been able to establish or bring on record any evidence substantiating the failure on the part of the assessee in disclosing fully and truly all material facts necessary for assessment. It was submitted that the Assessing Officer in paragraph No. 3 of the original assessment order had given the comparative net profit and NP rate for the assessment year 2006-07, 2007-08 and 2008-09. On the basis of this comparison, it is clear that the NP rate of the assessee was progressive and it was noted to be 11.48%. Further, in paragraph 3 of the original assessment order, it was mentioned by the Assessing Officer that “during the verification of purchase vouchers, it was found that bills of purchase were either from unregistered concerns or were of self made vouchers. Further payments towards purchase of material and labour & wages have been made in cash”. Therefore, to cover up any possible leakages by way of inflating these expenses, disallowance of Rs.50,000/- was made. It was the submission of the ld. AR that in the reassessment proceedings, same material was used by the AI which was duly mentioned in the original assessment order as well as in the audit report. It was submitted that once the issue has been examined by the Assessing Officer in the original assessment proceedings, then it is not open for the Assessing Officer to change his view. For this proposition, the ld. AR has relied on the decision of Hon’ble Supreme Court in the matter of CIT vs. Kelvinator of India, 320 ITR 561 (SC) , ICICI Bank Ltd. vs. DCIT, 268 ITR 203, CIT vs. George Williamson (Assam) Ltd., 258 ITR 126 (Gau), Sirpur Paper Mills Ltd. vs. ITO, 114 ITR 404 (AP), CIT vs. Simon Carves Ltd., 105 ITR 212 (SC) and several other legal pronouncements.

4. On the other hand, the ld. DR had submitted that the present case is not of change of opinion and was not based only on audit report and there was independent application of mind by the Assessing Officer. For this purpose he relied upon various decisions as mentioned in the paper book, more particularly, the decision in the matter of Larson & Tubro Ltd. in Civil appeal No. 5390 of 2007.

5. We have heard the rival contentions of the parties and perused the record. The  original assessment order was finalized on 01.12.2010 and in paragraph No. 3, it was noted by the Assessing Officer as under :

As is apparent from above, the turnover, net profit as well as NP rate are progressive in comparison to last year and is above 8% as prescribed under presumptive rate of profit u/s. 44AD of the IT Act, 1961. Therefore, no adverse inference is drawn. However, during the verification of purchase vouchers, it was found that bills of purchase were either from unregistered concerns or were of self made vouchers. Further payments towards purchase of material and labour & wages have been made in cash. Therefore, to cover up any possible leakages by way of inflating these expenses, an adh-hoc addition of Rs.50,000/- is made to the total income to which the assessee has agreed upon.

6. As mentioned herein above, the reasoning for reopening as mentioned in the assessment order clearly shows that the same material which was considered by the Assessing Officer in the original assessment order was again considered by the Assessing Officer in the re-assessment order and based on that, the reassessment proceedings were finalized and income of the assessee was computed at Rs.23,61,000/-. In our considered opinion, once the material/basis was considered and examined by the Assessing Officer in the original assessment proceedings, which is apparent from the finding recorded by the Assessing Officer in paragraph No.3, in our view, it is not permissible for the Assessing Officer for exercising powers u/s. 148 to reopen the assessment u/s. 147 of the Act. Even in the original assessment, the Assessing Officer has also mentioned that the purchase vouchers were from unregistered concerns and self made and further mentioned that the payments for purchase of material and labour & wages were made in cash. Once, the same material was available, then it was not open for the Assessing Officer to reopen the assessment. We may fruitfully rely upon the decision of Kelvinator of India (supra) relied upon by the assessee and respectfully following the decision of Hon’ble Supreme Court and also other decisions in respect of reopening u/s. 147, the appeal of the assessee is allowed.

7. In the result, the appeal is allowed.