Case Law Details
Lahari Laminates Pvt. Ltd. Vs DCIT (ITAT Raipur)
With reference to the first issue i.e. incorrect allowance of depreciation of Rs.59,45,940/- on bogus purchase of Plant & Machinery, the learned counsel for the assessee fairy submitted that where the A.O. has made disallowance on Plant & Machinery, it was permissible for the A.O. to disallow the consequential depreciation within the scope of section 147 of the Act. The issue being connected to the subject matter of reassessment, the action of the PCIT cannot be faulted per se without prejudice to the contentions on bonafides of purchases in the regular appellate proceedings.
In the wake of averments made on behalf of the assessee and having regard to the fact of additions carried out towards bogus Plant & Machinery in the assessment order, the A.O. has definitely committed error in not giving consequential effect to such action and thus failed to disallow depreciation as well. We thus see no reason to interfere with the directions given by the PCIT to the A.O. in this regard.
FULL TEXT OF THE ORDER OF ITAT RAIPUR
The captioned appeal has been filed at the instance of the assessee against the revisional order of the Principal Commissioner of Income Tax (PCIT in short), Raipur communicated to assessee on 28.03.2021 passed under section 263 of the Income Tax Act, 1961 (the Act in short) whereby the assessment order passed by the Assessing Officer (A.O.) dated 29.12.2018 under section 143(3) of the Act concerning Assessment Year (A.Y.) 2011-12 was sought to be set aside for reframing the assessment in terms of supervisory jurisdiction.
2. As per its grounds of appeal, the assessee has challenged the revisional action of the PCIT whereby the A.O. was directed to pass the assessment order denovo after making enquiries on the points set out in the notice which has already been examined and considered during the original assessment proceedings concerning A.Y. 2011-12. The assessee has challenged the assumption of jurisdiction by the PCIT under section 263 of the Act essentially on the ground that the Assessment Order under revision is neither erroneous nor prejudicial to the interest of the revenue.
3. Briefly stated, the case of the assessee was assessed under section 143(3) of the Act vide order dated 27.04.2014 relevant to A.Y. 2011-12. Thereafter, the case was re-opened by issuance of notice under section 148 of the Act and after recording of reasons for escapement of income as reproduced in the reassessment order. The reassessment order was subsequently passed under section 143(3) read with section 147 of the Act dated 29.12.2018. On examination of the reassessment records, the PCIT opined that the reassessment order dated 29.12.2018 is erroneous in so far as it is prejudicial to the interest of the revenue and consequently issued a show cause notice dated 19.03.2021 citing broadly two reasons for such allegation:-
i) The assessee has claimed depreciation on bogus purchase of Plant & Machinery from Equipment Spares and Repairs Pvt. Ltd. The A.O. while making additions towards bogus purchase of Plant & Machinery has omitted to disallow depreciation claimed thereon resulting in an error quantified at Rs.59,45,940/- which is prejudicial to the interest of the revenue.
ii) The assessee has issued share capital of Rs.30,70,050/- and received share application money of Rs.1,05,00,000/- and share premium of Rs.1,22,80,200/-The A.O. has not verified or made enquiries in the course of assessment proceedings and hence the assessment order passed by the A.O. for the relevant A.Y. is prejudicial to the interest of the revenue which resulted in under- assessment.
4. The show cause notice dated 19.03.2021 issued in this regard by the PCIT is reproduced hereunder for your ready reference.
“NOTICE FOR THE HEARING
M/s/Mr/Ms
Subject: Notice for Hearing in respect of Revision proceedings u/s 263 of the THE INCOME TAX ACT, 1961 – Assessment Year 2011-12.
In this regard, a hearing in the matter is fixed on 23/03/2021 at 11:30 AM. You are requested to attend in person or through an authorized representative to submit your representation, if any alongwith supporting documents/information in support of the issues involved (as mentioned below). If you wish that the Revision proceeding be concluded on the basis of your written submissions/representations filed in this office, on or before the said due date, then your personal attendance is not required. You also have the option to file your submission from the e-filing portal using the link: incometaxindiaefiling.gov.in
On examination of your Income Tax records for the above assessment year, I find that the order passed u/s 143(3) r.w.s 147 on 29.12.2018 of the Income tax Act, 1961 is erroneous in so far as it is prejudicial to the interest of revenue in the following manner: –
The order in the aforesaid case is erroneous so far as prejudicial to the interest of revenue on the following grounds:
In this case return of income was electronically filed by the assessee company for the year under consideration on 23.09.2011 declaring total income of Rs. Nil/- for AY 11-12. Thereafter the case was reopened by issuing notice u/s 148 on 28.03.2018. In response to the notice the assessee has e-filed its return of income for relevant AY on 19.04.2018 declaring total income at Rs. Nil/-. In this case Assessment u/s 143(3) r.w.s. 147 of IT Act was passed on 29.12.2018 by making addition of Rs. 16988406/- and assessed income at Nil/-The assessee is a Pvt. Ltd. company and engaged in the business of manufacturing of designer laminates.
In this case, on examination of case file it is observed that the assessing officer had made disallowance of Rs. 287606/- during regular assessment made on 27.03.2014 which was not consider during reassessment and assessed loss of Rs. 18194400/-. The omission resulted in over assessment of loss of Rs. 287606/-.
Further, the assessee has claimed depreciation for Rs. 44218159/-including additional depreciation in the computation of income. Further, it was observed that during reassessment the assessing officer made addition for Rs. 16988406/- on account of bogus purchase of Plant and Machinery from M/s Equipment Spares and Repairs Pvt. Ltd.
Since, the assessing officer had established and made addition on account of purchase of Plant and Machinery at Rs. 16988406/- was made through bogus purchase bill, the depreciation related to said machinery also required to be disallowed which remain to be done.
In view of provision of section 32 and above discussion the assessee was not entitled for claiming depreciation on bogus purchase of Plant and Machinery for Rs. 5945940/- (being 20% on 16988400/- including additional depreciation) and required to be added back in the assessed income, the omission resulted in over assessment of loss to the extent of Rs. 5945940/-.
Further, on perusal of Return of income alongwith Balance sheet and Audit Report it is seen that the assessee has issued share capital of Rs. 3070050/- and received share application money at Rs. 10500000/- and share premium of Rs. 12280200/-. The above issue was not verified and enquire during the course of assessment proceeding and hence the assessment order passed by the AO for the relevant assessment year is prejudicial to the interest of the revenue which resulted in under assessment.
In view of these facts, there is no documentary evidence to satisfactorily explain the nature and source of cash transaction/contract receipts.
Consequently, there is no proper verification made by the AO in this case.
Considering all the facts there is need to examine/verify the nature of business and source and nature of cash transactions in this case. The inadequate enquiry conducted by the A.O. regarding this issue, which makes the order erroneous and prejudicial to the interests of the Revenue. Hence therefore the issue required more enquiries.
4. Hence, there is no application of mind on the part of the AO to correctly tax the income of the assessee in the return of income and therefore, the assessment order passed u/s 144 of the Act is erroneous in so far as it is prejudicial to the interest of revenue.
Therefore, in exercise of the powers conferred on me by section 263 of the I.T. Act, 1961, I propose to suitable revise the order u/s 263, which may include setting aside the order as such. Accordingly, an opportunity is being extended to explain your case along with details, documents and necessary evidences. An absence of any submission or reply shall lead to the conclusion that you have no objection for the proposed action and the proceedings shall be finalized accordingly.
Your submission/reply may kindly be sent through the e-mail on or before 23/03/2021.
If you wish to appear personally or through your authorized representative, personal hearing may kindly be availed on 23/03/2021 at 11:30 am in the office of PCIT-1, Central Revenue Building, Civil Lines, Raipur.”
5. The PCIT vide its revisionary order under section 263 of the Act dated 28.03.2021 eventually set aside the order passed by the A.O. under section 143(3) read with section 147 of the Act on both the points. As per the revisional order, it was alleged that the A.O. has not conducted proper enquiry on the facts in issue.
6. Aggrieved, the assessee preferred appeal before the Tribunal.
7. When the matter was called for hearing, with reference to the first issue i.e. incorrect allowance of depreciation of Rs.59,45,940/- on bogus purchase of Plant & Machinery, the learned counsel for the assessee fairy submitted that where the A.O. has made disallowance on Plant & Machinery, it was permissible for the A.O. to disallow the consequential depreciation within the scope of section 147 of the Act. The issue being connected to the subject matter of reassessment, the action of the PCIT cannot be faulted per se without prejudice to the contentions on bonafides of purchases in the regular appellate proceedings.
8. In the wake of averments made on behalf of the assessee and having regard to the fact of additions carried out towards bogus Plant & Machinery in the assessment order, the .A.O has definitely committed error in not giving consequential effect to such action and thus failed to disallow depreciation as well. We thus see no reason to interfere with the directions given by the PCIT to the A.O. in this regard.
9. With reference to second issue of verification and enquiry on share capital and share premium, the learned counsel for the assessee submitted that the aforesaid issue does not arise from the reasons recorded for reopening of the case under section 148(2) of the Act. The reason for reassessment was purchase from bogus entity as can be seen from the perusal of the reasons recorded, reproduced in the reassessment order. It was thus contended that the second issue of verification on share capital which is not subject matter of reassessment could not have been revised to make enquiries on issues unconnected to the reasons recorded. The revisional directions passed by the A.O. is plausible only with reference to the original assessment order, revision of which is barred by limitation provided under section 263 (2) of the Act. A reference was made to the decision of Hon’ble Supreme Court in the case of CIT vs. Alagendran Finance Limited, 213 ITR 1 (2007) (SC). It was further submitted in the alternative, the assessment order was earlier passed under section 143(3) on 27.03.2014 wherein specific query was raised with regard to the increase in share capital. A reference was made to page no.11 & page no.14 of the Paper Book in this regard. The A.O., after verification, passed the assessment order without disturbing the position of the assessee. The learned counsel thus submitted that the action of the PCIT clearly defies the bar of limitation with reference to original assessment and thus liable to be quashed and set aside.
10. The learned Departmental Representative, on the other hand, relied upon the revisional order of the PCIT in question and submitted that in the absence of requisite enquiry on pertinent issue, as pointed out in the order of PCIT, the action of PCIT under section 263 of the Act was in accordance with law and thus cannot be assailed.
11. We have carefully considered the rival submissions and perused the orders of the authorities below and the material placed on record with reference to the second issue. The pertinent question involved for adjudication in the impugned case is whether the designated authority is entitled in law to revise under section 263 of the Act where the reassessment order passed under section 147 lacks enquiry on the issues totally unconnected to the reasons recorded for carrying out reassessment under section 147 of the Act. In other words, a pertinent question comes to the forefront on the of revisional powers of the designated authority under section 263 of the Act to reassess order passed with reference to section 147 read with section 148 of the Act.
12. We observe that identical issue has come for adjudication in another case before the Co-ordinate Bench in the case of Shri Bhiva Shankar Rane vs. ACIT in ITA Nos.813 &814/PN/2014 where the legal issue was examined in detail and it was inter alia held that where the A.O. failed to make detailed probe or enquiries on escapement of other possible income unconnected to reasons recorded, the revisional authority cannot compel the A.O. to indulge in making fishing or roving enquiries in exercise of powers conferred under s.263 of the Act. The relevant operative paras of the order of the Coordinate Bench explaining the position of law in this regard are reproduced hereunder for ready reference:
“11. We have carefully considered the rival submissions. Section 263 of the Income-tax Act, 1961 (the “Act”) confers the power upon the Commissioner to call for and examine the records of a proceeding under the Act and revise any order if he considers the same to be erroneous and prejudicial to the interests of the revenue. The Commissioner can take recourse to revision under Section 263 where the assessment order is erroneous as well as prejudicial to the interest of revenue. The twin conditions are required to be satisfied simultaneously. The Commissioner in the present case has purported to act in exercise of power under section 263 and thereby has sought to set aside the reassessment order of the assessing officer passed under S. 147. The CIT observed that the once the profits in the nature of extra ordinary income are excluded, the trading results declared by the Assessee is, in essence, a huge loss. The ground for impugned action under S. 263 is that the assessing officer has failed to make requisite enquiry into the bonafides of loss declared in the trading results sans the amount written back as income towards remission of liability on account of outstanding creditors in terms of section 41(1) which is an extraordinary item. It is the case of Commissioner that Assessing Officer ought to have conducted enquiry on the aspects giving rise to loss in trading results while accepting the book results. Another stand taken by the Commissioner for invoking revisionary jurisdiction under section 263 is that certain amount written back towards unpaid credits as noted above do not tally vis-à-vis the amount pointed out in the course of assessment proceedings of assessment year 2007-08. Hence, in the absence of proper enquiry on the issues involved, the order of the Assessing Officer is erroneous in so far as prejudicial to the interests of the Revenue.
12. On the point of lack of enquiry on issues pointed out by the CIT, the Ld. Counsel, in response to query from bench, submitted that the re-opening action under section 147/148 was taken as follow up action on the basis of assessment carried out for the assessment year 2007-08 on the issue of income arising from write back of unpaid credits under section 41(1) of the Act as appearing in the books.
12.1 A pertinent question of law that arises in the subject matter of appeal is the scope of revisionary powers of the CIT under S. 263 to a re-assessment order passed in pursuance of section 147 / 148 of the Act.
12.2 As the assessment sought to be revised was made under section 143(3) r.w.s. 147 of the Act, it is ostensible that the Assessing Officer was required to frame re-assessment of the income chargeable to tax which is found to have escaped assessment in the light of reasons recorded under S. 148(2) before issuance of notice. Indeed, the jurisdiction of the Assessing Officer under S. 147 also extends to ‘other income’ which may come to his notice subsequently in the course of re-assessment proceedings. However, precise question that emerges is whether the Assessing officer in exercise of powers conferred under S. 147 is under statutory duty to peddle roving enquiries to explore the possibility of escapement on every other item that may possibly give rise to some chargeable income in the hands of an assessee in the garb of assessment of ‘other income’ without there being any relevant material in the possession of the AO in this regard.
12.3 Section 147 provides that the AO may also assess or reassess ‘other income’ which comes to his notice subsequently in the course of proceedings in addition to the escaped income for which the assessment was reopened. Thus the text of S. 147 i.e. ‘comes to his notice’ unmistakably suggests passive nature of authority available with the AO to assess ‘other income’ too along with escaped income for which the case was reopened. Ostensibly, unlike a regular assessment, S. 147 does not comprehend a pro-active probe of generic nature and random enquiries into all aspects of the assessment per se. In ordinary parlance, witch hunting is not intended. Thus the exercise of jurisdiction to include ‘other income’ can not be stretched to hold fishing and roving enquiries without some probable cause that assessee has omitted or failed to disclose such ‘other income’. To reiterate, no fishing enquiry is permissible to merely explore if some “other income” has also escaped or not. In this context, reference may also be gainfully made to the observations of the Hon’ble Supreme Court in this regard. The Hon’ble Apex Court in the case of CIT vs. Alagendram Finance Ltd. (2007)) 293 ITR 1 relevant to AY 1994-95 clearly observed that there may not be any doubt or dispute that once an order of the reassessment is reopened, the previous under assessment will be held to be set aside and the whole proceedings would start afresh, but that would not mean that even when the subject matter of reassessment is distinct and different, the entire proceedings would be deemed to have been reopened. Keeping in mind the dictum as set out by the Hon’ble Apex Court, it is manifest that not conducting roving enquiries on unconnected issues cannot be viewed as failure to discharge statutory duty cast upon assessing officer in a reassessment proceedings. Consequently, such alleged failure to conduct enquiry on unconnected issues can not, in our view, come within the sweep of expression ‘erroneous’ for the purposes of section 263 of the Act.
12.4 To conclude, a combined reading of Section 263 and Section 147 would clearly suggest that revisionary powers under S. 263 cannot be read in a manner to expand the scope of section 147 of the Act. S. 263 read in the context of reassessment proceedings cannot be exercised unless there is a cause available on objective facts to demonstrate that detailed probe or enquiries were warranted to encompass escapement of other possible income in a given set of facts. Consequently, the alleged inaction of the AO on the issue of correctness of trading results in reassessment proceedings is not fatal or erroneous for the purposes of section 263 of the Act. Hence, the reassessment order passed within the four corner of its authority cannot be dubbed as erroneous per se and is thus is not susceptible to review contemplated under S. 263 of the Act.
12.5 We now proceed to examine the issue of lack of enquiry on unconnected issues in a reassessment proceeding from a different perspective. It is well settled that exercise of statutory powers under S. 263 is dependent upon the existence of certain objective facts. In our view, proposed action as suggested by the CIT runs contrary to the well accepted policy of law that there must be a point of finality on all legal proceedings. Needless to say, the discretion given to the Commissioner is required to be exercised in a judicious manner. On facts, We notice that the Commissioner has merely entertained strong suspicion on the bona-fide of trading results owing to huge losses and observed that in the absence of income reported on account of credit towards write back of certain amounts under section 41(1), the assessee has declared trading losses on a substantial turnover which ought not to have been accepted without embarking upon a detailed enquiry. The show-cause action of the Commissioner under section 263 seeking to upset the reassessment order is thus clearly actuated in the realm of such suspicion. In other words, as per the Commissioner, the Assessing Officer while framing the assessment in a proceeding under S. 147 ought to unleash fishing and roving enquiry to ascertain the correctness of reported loss which were already stood concluded earlier and was not under reference in the recorded reasons. As noted earlier, indulging in roving enquiry under S. 147 on unconnected issues is a case of overreaching of powers which is not permissible in law. The Assessing Officer in his quasi judicial capacity has accepted the trading results. A mere different perception of Commissioner founded upon suspicion on the issue is not sufficient to legitimize jurisdiction under section 263 of the Act. It would be farfetched to presume that the purported substantial turnover per se would necessarily give rise to presumption of profits thereon. The allegation of reassessment order being erroneous by the Commissioner is purely founded upon suspicion and surmises on losses declared. The exercise of revisionary power based on such suspicion is in our view not permissible in law.”
13. In the present case, the revisional authority has sought to exercise its powers under section 263 of the Act on the ground that the A.O. has failed to make enquiry on receipts of share application money and share premium. It is an admitted position that the aforesaid point did not form the basis for reopening the assessment. Therefore, in view of the decision of the Co-ordinate Bench, the A.O. was not under any legal obligation to examine this aspect mandatorily which is wholly unconnected to the issue for which the case was reopened. It may be a different matter that the A.O. was possibly having liberty to do so in appropriate facts. The original assessment order remains intact in respect of all issue unconnected to the reasons for reopening the completed assessment. As held in Bhiva Shankar Rane vs. ACIT (supra), the revisional powers under section 263 of the Act cannot be read in a manner to expand the scope of section 147 of the Act. Therefore, revisional powers under section 263 cannot be invoked to set aside the reassessment order where the A.O. himself is not competent to embark upon roving enquiries on unconnected issues. Therefore, the subject reassessment order cannot be labelled as erroneous per se on the second issue and thus not susceptible to review contemplated under section 263 of the Act.
14. The remedy available to the PCIT is only with reference to original assessment order passed under section 143(3) of the Act where the issue was subject matter of examination. However, in the light of decision of the Hon’ble Supreme Court in CIT vs. Alagendran Finance Limited (supra), the limitation prescribed under section 263(2) would run from original assessment in respect of issue alien to reasons recorded. Thus, when seen qua the original assessment, the revisional order on the second issue is clearly barred by limitation. The action of the PCIT on the second issue thus cannot be countenanced. The directions given by the PCIT thus requires to be quashed and set aside in so far as second issue is concerned.
15. In the result, appeal of the assessee is partly allowed.
PRONOUNCED ON 29.09.2021 as per Rule 34(4) of the Income Tax Appellate Tribunal Rules,1963.
