Case Law Details
Amrabathi Investra (P) Ltd. Vs ITO (ITAT Kolkata)
In the assessee`s case in the reasons supplied to the assesseee, as noted in above para, there is no whisper, what to speak of any allegation, that the assessee had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period, as explained above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. This is a necessary condition for overcoming the bar set up by the proviso to section 147 of the Act. If this condition is not satisfied, the bar would operate and no action under section 147 could be taken. We have already mentioned above that the reasons supplied to the assessee does not contain any such allegation. Consequently, one of the conditions precedent for removing the bar against taking action after the said four year period remains unfulfilled, therefore, we quash the reopening assessment u/s 147 of the Act. The appeal of the assessee is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
The captioned cross appeals filed by the Assessee and Revenue, pertaining to assessment year 2009-10, are directed against the order passed by the Commissioner of Income Tax (Appeals)-4, Kolkata, in appeal no. 354/CIT(A)- 4/W-12(3)/16-17, which in turn arise out of assessment order passed by the Assessing Officer u/s 143(3) / 147 of the Income Tax Act, 1961 (in short the “Act”) dated 16/12/2016.
2. Since, the issues involved in these cross appeals are common and identical; therefore, these appeals have been heard together and are being disposed of by this consolidated order for the sake of convenience and brevity.
3. First, we shall take assessee’s appeal in ITA No. 231/Kol/2018 for A.Y. 2009- 10, wherein the grievances raised by the assessee are as follows:
1. For that the ld. CIT(A) ought to have held that the re-opening proceedings u/s 147 were bad in law and, as such, ought to have quashed the same.
2. For that the ld. CIT(A) ought to have held that as per proviso to section 147, the issue of notice u/s 148 was barred by limitation and, as such, the assessment framed u/ s143(3) was a nullity in the eyes of law.
3. For that the ld. CIT(A) ought to have quashed the assessment order passed u/s 147 r.w. section 143(3) on the ground of change of opinion.
4. For that on the facts and in the circumstances of the case, the ld. CIT(A) grossly erred in confirming the addition of Rs. 14,85,00,000/- made by the Assessing Officer u/s 68, on account of sale proceeds of investments made in shares in the relevant year by wrongly treating the same as undisclosed income.
5. The appellant craves leave to add further grounds of appeal or alter the grounds at the time of hearing.
3. Although, in this appeal the assessee has raised multiple ground of appeals, but at the time of hearing the solitary grievance of the assessee has been confined to the issue of re-opening of the assessment u/s 147 / 148 of the Act. The assessee has challenged the reopening stating that four years have elapsed and assessee has disclosed fully and truly all material facts at the time of original assessment hence reopening is only on account of change of opinion therefore it should be quashed.
4. The appeal arises this way. The assessee filed its Return of income for A.Y. 2009-10 originally on 25.09.2009 showing loss of (-) Rs. 17,64,85,826/-. The said Return of Income was processed u/s 143(1) of the Act on 07.10.2010. Later on, the assessee`s case was selected for scrutiny under section 143(2) of the Act. The scrutiny assessment was completed and an order u/s 143(3) of the Act dated 28.12.2011 was passed on assessed total income at Rs. 2,53,11,440/- after disallowing derivative loss of Rs. 20,17,97,265/-.
Afterward, the assessee`s case was reopened u/s 147 of the Act on the basis of a report / information made available by Income Tax Investigation Wing, Kolkata. The said report stated that a search & seizure operation and post search investigation/ enquiry were carried out in the case of M/s Mandapam Commercial Ltd., the Investigation Wing found that during the relevant previous year the assessee company brought its unaccounted money of Rs. 14,85,00,000/- in its books of account through accommodation entries which were provided by M/s Mandapam Commercial Ltd. In course of enquiry, after analyzing all the related bank account of web of companies engaged in providing accommodation entries, transaction contained therein, following the cash trail and statement of director of M/s Mandapam Commercial Ltd. which was recorded on oath u/s 131 of the Act, it was finally held that the assessee company had taken accommodation entries from M/s Mandapam Commercial Ltd, in the guise of share transaction.
5.Based on the above facts, the assessing officer reopened the assessee`s case under section 147/148 of the Act and issued notice u/s 148 of the I.T Act for AY 2009-10.In response to the notice u/s.148, the authorized representative of the assessee, filed a written submission on 27.04.2016. In the written submission, it was stated that the assessee company was not falling under any of the failures as mentioned in the first proviso to section 147 of the Act, therefore, the proceeding u/s. 147 against the assessee should be dropped. It was further required by the assessee to provide the reason for re-opening the case which was duly provided by the assessing officer. The assessee further filed written submission dated 25.07.2016 in which assessee objected the reason for re-opening the assessment for the assessment year in question. The objection was apparently raised by the assessee on two grounds. The first ground was that the director of M/s, Mandapam Commercial Ltd., Shri Manoj Sharma had retracted from his statement given on oath u/s. 131 of the Act before the Income tax investigation authorities and second was that the assessee had received the amount of Rs. 14,85,00,000/- on account of sale proceeds of shares of two companies , i.e. M/s. Prudential Sugar corporation Ltd. and (ii) M/s. Bag Infotainment Pvt. Ltd. According to the assessee, the shares of the said companies were sold to M/s. Mandapam Commercial Ltd. during the relevant previous year.
These objections of the assessee were rejected by the AO by passing a speaking order dated 12.08.2016 as per the extant guidelines of the Apex Court in the case of GKN Driveshafts (India) Ltd. Vs Income Tax Officer. The assessee was issued a show cause notice dated 24.10.2016 alongwith the notice u/s. 142(1) of the Act which were served in person on 26.10.2016. The information/details as required in the said show cause letter are as under:
“….However, on perusal of records and relevant information revealed that the amount of Rs.14,85,00,000/- has been brought in by you in your books of account through accommodation entry. As per your submission, the said amount constitutes sale proceeds of shares of M/s. Prudential Sugar Corporation Ltd. for Rs. 12,35,00,000/- and Rs. 2,50,00,000/- out of sale of shares of M/s. Bag Infotainment Pvt. Ltd. during the year. It is further made in your submission that the shares of M/s. Prudential Sugar Corporation was sold to M/s. Mandapam commercial Ltd.
In this connection it is worth to mention that during the course of enquiry in respect of various accommodation provider companies, the department examined all the related bank account of web of companies engaged in providing accommodation entries, transaction contained therein, cash trail was prepared and statement of director of the said entry provider companies were recorded on oath u/s 131 of the Income Tax Act, 1961. The statement of Shri Maioi Sharma, the director of M/s. Mandapam Commercial Ltd., delivered by him on oath on 10.03.2015 before the department, is on record. In the said statement, in Answer to Q.No.9 he has stated that the company namely, M/s. Mandapam Commercial Ltd. was controlled and managed by Mr. Banwari Lal Mittal and Mr. Pradeep Kr. Choudhary and the said company did not have any real business activities and the said company was engaged in providing accommodation entry.”
6. Therefore, the AO was of the view that the party to whom the assessee claimed to have made sale of the alleged shares, has denied of having been undertaken not only the share transaction with the assessee, but any transaction in real. There is nothing on record which suggest that the Mr. Sharma has denied his statement at any instance. Hence, the assessee was asked to explain by adducing proper documentary evidences to prove that as to how it had brought the amount of Rs. 14,85,00,000/- in its books of account during the year under consideration specifically when the purchaser of its alleged shares has declared the transaction as bogus and was solely for the purpose of providing bogus gain to the assessee.
In response, the assessee filed a written submission dated 03.11.2016 stating that its transaction as discussed above was genuine. It was pleaded by the assessee that the transaction was recorded in its books of account for the relevant previous year. The assessee produced copy of delivery instruction by clients containing specific remark “This is a delayed submission could lead to failed trades and will be entirely at client’s risk”, copy of transaction statement, evidence of banking transaction.
From the details filed by the assessee it was noted by AO that 5,00,000 number of shares of M/s Bag Infotainment Pvt. Ltd. was purchased for Rs. 50 lakhs on 18. 12.2008 which was sold for Rs. 2.50 crore and 13,00,000 number of shares of M/s prudential Sugar Corporation was purchased on 26.12.2008 for Rs. 1.30 crore which was sold on 19.03.2009 & 27.03.2009 at Rs. 12.35 crore.
Therefore, AO noted that the assessee brought Rs. 14.85 lakhs (Rs. 2.50 crore+Rs. 12.35 crore) in its books in just within 3 months in trading in shares in the companies of Prudential Sugar and Bag Infotainment for which it had to spend Rs. 1.80 crore( 1.30 + 0.50) only. Therefore, AO held that the assessee company had adopted merely a colourable device, therefore AO made addition of Rs. 14,85,00,000/- u/s 68 as unexplained cash credit.
7. Aggrieved by the order of the Assessing Officer the assessee carried the matter in appeal before the ld. CIT(A) who has treated the reopening of assessment u/s 147 /148 of the Act as valid observing the following:
“I have perused the submission of the assessee and facts of the case. In this case there was definite information that the assessee has received Rs. 14.85 crores from M!s Mandapam Commercial Ltd. Mr. Manoj Sharma & Shri Mantosh Kumar Yadav, the Directors of Mandapam Commercial Limited have on oath admitted that they are receiving cash from various beneficiaries and after routing the cash through the web of paper companies they are transferring the money to the beneficiaries in form of share capital! share premium! unsecured loan. The fact that assessee has received Rs. 14.85 crore from these dubious parties on sell of shares of little known companies gives enough reason to the AO to believe that income has escaped assessment. Receiving money on sale of penny stock from entry operators instead of in the form of share capital does not vitiate the reason to believe, as full facts can be gathered only during the proceedings of 148. Following case laws support the case of the department:
i) Paes Industrial Engineers(p) Ltd.-73 Taxmann.com 185 – Information from investigation wing on Jama Kharchi company- reopening beyond 4 years justified.
ii) At the stage of reopening what is required is reason to believe and not the established fact of escapement of income. 191ITR662 Delhi
iii) 147 (b): information- ITO justified in reopening assessment on basis of DDI (Inv) letter containing facts and information PURSHOTTAM D. SANGUR : 139 CTR 32(SC) ,224 ITR 362 (SC)
iv) Merely “during assessment, material was on record does not mean that AO has deliberated on it: PRAFUL C. PATEL VS M. J. MAX WAN A ACTT: 148 CTR 62 (Guj)
v) 236ITR 34 (SC) Raymond woolen Mills- It is only to be seen whether there was a prima facie case for reopening or not. Sufficiency of reasons not to be seen.
vi) 254 ITR 370 (cal) Hindustan Aluminium corpn Ltd. Court has to see whether there was prima facie material justifying notice. Sufficiency or correctness of material not to be considered at this stage.
vii) Reasonable grounds for ITO to the believe, sufficient to give jurisdiction, whether grounds are adequate or nor is not for H. C. RAYMOND WODLLENS : 207 ITR 929 (BOM) LAKHMANI MEVAL DAS : 103 ITR 437, 445, 446(SC)
viii) Subsequent information of concealment definite, specific, sufficient reasons not for court to decide, Reassessment notice valid.
PHOOLDCHAND BAJRANGLAL : 203 ITR 456 (SC)
MIDLAND FRUIT &VEG : 208 ITR 266 (DELHI)
ix) New Amendment merges the provision of 147(a), 147(b). Only condition now is that the Assessing Officer should have reason to believe that income has escaped assessment, this reason to believe can be reached in any manner- it is not pre qualified by the precondition of full and true disclosure of material by an assesse.
RAKESH AGL 225 ITR 496 (DEL)
RANCHI HANDLOOM EMPORIUM : 235 ITR 604
x) 246 ITR 173 (Delhi)- Assessing Officer should have reasonable belief that income has escaped assessment conclusive proof of escapement at this stage is not necessary.
xi) 271 ITR 56 (Hyderabad) (AT)-Amended provision of 147 provides ample power to the Assessing Officer to start reassessment proceedings when he is of the opinion that income chargeable to tax has escaped assessment.
In view of the above discussion ground no. 1 of original ground and ground no. 1 of additional ground is hereby dismissed.”
8. Aggrieved by the order of ld. CIT(A) the assessee is in appeal before us.
9. The ld. Counsel for the assessee, Shri Subash Agarwal, begins by pointing out that if an assessment for any year has been completed u/s 143(3), then no action shall be taken u/s 147 after the expiry of 4 years from the end of relevant assessment year unless income chargeable tax has escaped assessment by reason of the failure on the part of the assessee on account of the following reasons –
(a) to file a return u/s 139 or in response to notice u/s 142(1) or u/s 148; or
(b) to disclose fully and truly all material facts necessary for that assessment year.
In the assessee`s case the original assessment was completed under section 143(3) of the Act on 28.12.2011 and at the time of original assessment, assessee had disclosed fully and truly all material facts necessary for that assessment. The reopening, in the assessee`s case is being done by AO after expiry of 4 years, therefore, the reassessment proceedings are not valid and the same should be quashed.
10.On the other hand, the ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity.
11. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. First of all, let us examine the reason recorded by the Assessing Officer u/s 147 of the Act which is reproduced below:
original return of income for A.Y. 2009-10 on of income was processed by the Department u/s assessee`s case was selected for scrutiny under section 143(2) of the Act and assessment was completed under section 143 (3) of the Act on 28. 12.2011.
Subsequently, the assessee`s case was re-opened u/s 147 of the Act on the basis of a report/ information from the Investigation Wing and notice under section 148 of the Act was issued to assessee on 31.12.2016. In the assessee`s case the relevant assessment year is 2009-10, therefore the assessee`s case was reopened after the expiry of 4 Years from the end of the relevant assessment year. The settled position of law is that if an assessment for any year has been completed u/s 143(3) or u/s 147, then no action shall be taken u/s 147 after the expiry of 4 years from the end of relevant assessment year unless income chargeable tax has escaped assessment by reason of the failure on the part of the assessee.
That is, there is no allegation that the assessee has failed to disclose fully and truly, all material facts necessary for assessment. As we noted that the re-opening is beyond a period of four years and the original assessment was completed u/s 143(3) of the Act and in the light of the decision of the Hon’ble Calcutta High Court in the case of Amiya Sales and Industries vs. ACIT reported in 274 ITR 25 (Cal.), the reopening of assessment is bad in law. We note that there is change in opinion as the assessee has disclosed all the material facts in its return of income, wherein, balance sheet along with annexures, bills vouchers, invoices were filed and the Assessing Officer had considered the same while completing the original assessment u/s 143(3) of the Act dated 28.12.2011.
12. We note that on identical facts, the Coordinate Bench in the case of M/s Beekay Steel Industries Ltd. vs. DCIT in ITA NO. 105/Kol/2015, for A.Y. 2005- 06, order dated 3 1.05.2017 has held that since the re-opening was beyond a period of four years and the original assessment was completed u/s 143(3) of the Act, and there was no any failure by the assessee to disclose fully and truly all material facts necessary for the assessments hence the reopening of assessment is bad in law. The findings of the Coordinate Bench are given below:
“4. After hearing the rival contentions, considering the materials on record and perusal of the orders of the authorities below we hold as follows:
4.1. The reasons recorded by the Assessing Officer for re-opening of the assessment are extracted hereinbelow for ready reference:-
“Reasons for issue of notice u/s 148:-
a. Record reveals that depreciation on ‘Rolls’ under the block ‘Plant and Machinery’ was claimed and was allowed in the assessment to the tune of Rs. 57.99 lakhs. Scrutiny of details of assets reveal that ‘Rolls’ of Rs. 54.01 lakhs were used for less than 180 days and worth Rs. 34.89 lakhs were put to use for more than 180 days. Accordingly, allowable depreciation on ‘Rolls’ was Rs. 49.52 lakhs against Rs, 57.99 lakhs allowed. This led to excess depreciation worth Rs. 10.99 lakhs.
b. Depreciation on electrical fittings was allowable @ 15% only, whereas the same was claimed and allowed @ 25%.
c. As per accounting policy followed by the assessee, long term investments were stated to be at cost less provision for diminution in value of such investment (clause 9,’ schedule 22 forming parts of the ‘accounts). Accordingly, long term investments in quoted shares were stated at Rs.30.42 lakhs (cost price Rs. 213.31 lakhs) after reducing provision for diminution in value of Rs, 182.90 lakhs and such provision for diminution in the value of investment (Rs. 182.90 lakhs) was debited to the profit/loss a/c. as the investment in shares was to be treated as capital investment and any expenditure/loss thereon was to be treated as capital expenditure/loss and was not allowable as deduction.
d. Records reveal that turnover of the Co. was Rs, 12,26,32,884/- which included sales of 38,693.832 MT valued at Rs. 118,89,78,581/-. End cutting/scraps of 1344.982 MT value Rs. 1,98,51,278/- totaling 40,038.812 MT valued at Rs. 1,20,88,29,859/- apart from conversion charges and other items of sales. Scrutiny of T.AR (Annexure IX) and 13G of notes on accounts revealed that consumption of raw materials was 43,651.894 MT valued at Rs. 844053010 which included inter process transfer (incoming) of 2958.637 MT of raw materials. Further sale value of finished goods did not’ include value of inter process transfer (outgoing) of 2958.637 MT of raw materials. Further sale value of finished goods did not include value of inter process transfer (outgoing) of 2958.637 MT of finished goods. As the consumption to raw materials was debited to P&L A/c, at least, cost value of inter-process transfer (outgoing) of finished goods was required to be credited to be credited to P& L A/c, which was not done.
e. The assessee company has paid a sum of Rs. 19,17,876/- towards ‘Rent and maintenance charges’ in the previous year to M/s Manvik Estates; Annexure VIII of the tax audit report shows details of TDS on various items. It appears that no tax has been deducted at source on such payout. As such it should have been disallowed u/s 40(a)(ia) of the IT Act 1961, which was not done.
f. The assessee has not paid sum of Rs. 24,52,623/- on a/c of Central Excise (1994- 96) and Rs. 2,54,96,800/- on a/c of Entry tax (AY 2002-03 to 2004-05). It has not been disallowed u/s 43B in the assessment.
g. Prior period expenses of Rs. 94,683/-, debited to the profit/loss a/c has not been disallowed.
h. Hon’ble Apex Court in the ease of M/s Saraswati Industrial Syndicate Ltd.186 ITR 278 has held that “The High Court was in error in holding that even after amalgamation of the two companies; the transferor company did not become non – existent. Instead it continued its entity in blended form with the appellant company. The High Court’s’ view that on amalgamation there is no complete destruction of corporate personality of one with another corporate body and it continues as such with the other is not suitable in law. The true effect and character of the amalgamation largely depends upon the terms of the scheme of the merger. But there can be any doubt that when two companies amalgamate and merge into one, the transferor company loses its identity as it ceases to have its business. However, their respective rights and liabilities are determined under the scheme of amalgamation but the corporate entity of Transferor Company ceases to exist with effect from the date the amalgamation is made effective”.
i. Further in the case of M/s IK Agencies Private Ltd. V. Commissioner of Wealth tax-Kolkata-III, AWT No 1,2 &3 of 2003, Hon’ble Calcutta High Court in its order dated 11/3/2011 has observed that-” We therefore find that in this case before us, the authorities below totally overlooked the fact that the initiation of the proceedings for reassessment was vitiated for not giving notice u/s 17 to the Appellant and the notice issued to M/s Abhudey Properties Pvt. Ltd. which was not in existence at that time was insufficient to initiate proceedings against the appellant who had taken over the liability of M/s Abhudey Properties Pvt. Ltd. prior to issue of such notice and such fact was also made known to the Revenue.
Under such circumstance, it is required to re-issue a notice u/s 148 to M/s BEEKAY STEEL INDUSTRIES LTD. (AABCB3205A), who have taken over M/s Radice Ispat Ltd, w.e.f. 114/2005. The earlier proceedings against M/s Radice Ispat Ltd, shall be dropped as it has merged with M/s BEEKAY STEELINDUSTRIES LTD. (AABCB3205A) w.e.f. 1/4/2005”.
4.1.1 A perusal of these reasons clearly demonstrate that the Assessing Officer has not made any allegation that there is failure on part of the assessee to disclose fully and truly all material facts necessary for assessment for this assessment year under consideration. The reopening is done after the lapse of four years and the original assessment is completed u/s 143(3) of the Act.
4.2. The Hon’ble Calcutta High Court in the case of Amiya Sales and Industries vs. ACIT (supra) has held as follows:
“8. In the case in hand, it has nowhere been recorded that there was failure or improper disclosure on the part of the assessee. However, the Assessing Officer, as already noted, sought to reopen the assessments as there was “incorrect interpretation of accounts by the Assessing Officer.” The recorded reasons do not speak of any omission or failure on the part of the assessee. Thus, admittedly there was no failure on the part of the assessee to disclose fully and truly all material facts in the assessments. In my view, incorrect interpretation of accounts by the Assessing Officer cannot confer jurisdiction on the Assessing Officer to issue notices under Section 148 for reopening the assessments as sought to be made in the instant case.
9. Moreover, I accept the submission of Mr. Datta that incorrect interpretation of accounts by the Assessing Officer cannot be a ground for issuing a notice under Section 148 since the Supreme Court in Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR. 1, while dealing with the action of the Assessing Officer to rectify a mistake and seeking to recompute and reassess the depreciation which was allowed in excess of the permissible limit, held as follows (page 9) :
“When an Income-tax Officer relies upon his own records for determining the amount of depreciation and makes a mistake in doing so, we fail to understand as to how responsibility for that mistake can be ascribed to an omission or failure on the part of the assessee …. It seems that the Income-tax Officer in working the figures of depreciation for certain items of capital assets lost sight of the fact that the aggregate of the depreciation, including the initial depreciation, allowed under different heads could not exceed the original cost to the assessee of those items of capital assets. The appellant cannot be held liable because of this remissness on the part of the Income-tax Officer in not applying the law contained in Clause (c) of the proviso to Section 10(2)(vi) of the Act of 1922. As observed by Shah J. in CIT v. Bhanji Lavji , Section 34(1)(a) of the Act of 1922 (corresponding to Section 147(a) of the Act of 1961) does not cast a duty upon the assessee to instruct the Income-tax Officer on questions of law.”
10. Therefore, the Supreme Court held that where the Assessing Officer relies on his own records and commits mistakes, the same cannot be attributed to be the omission or failure on the part of the assessee.
11. The judgment in the case of Parashuram Pottery also considered the judgment of the five-judge Bench of the apex court in the case of Calcutta Discount Co. Ltd. [1961] 41 ITR 191. Thus, wrong interpretation of accounts by the Assessing Officer and grant of excess benefit cannot be a ground for reopening. The ratio of the judgment in Parashuram Pottery equally applies in the case in hand. The reasons recorded, as noted, do not warrant assumption of jurisdiction by the Assessing Officer to issue notices under Section 148.”
4.3. The Hon ’ble Bombay High Court in the case of Voltas Ltd. v. ACIT (2012) 349 ITR 656 / 70 DTR 433 (Bom.)(HC)has held as follows:
“even otherwise even the above reasons given subsequently do not satisfy the jurisdictional requirements of Section 147(1) of the Act inasmuch as they do not undertake that there was a failure by the assessee to disclose fully and truly all material facts necessary for the assessments.”
4.4. The Hon ’ble Bombay High Court in the case of Tao Publishing (P) Ltd. v. Dy. CIT reported in (2015) 370 ITR 135 (Bom.), has held as follows:-
“10. As stated above, the reasons supplied to the Petitioner do not disclose that there was any failure on the part of the Petitioner to provide all the material facts. That being the position, this ground could not have been taken up against the Petitioner at the time of disposing of the objections. Once this was not the basis for issuance of notice for Reassessment, it cannot be held against the Petitioner that the Petitioner had failed to make a true and full disclosure. It will have to be held that the Petitioner did not fail to make full and true disclosure of all material facts. The jurisdictional requirement for carrying out the reassessment, after the expiry of period of four years, is not fulfilled in the present case.”
4.5. The Hon ’ble Bombay High Court in the case of Sound Casting (P) Ltd. v. Dy. CIT reported in 250 CTR 119 (Bom.) (HC), has held that there is no allegation in the reasons which have been disclosed to the assessee that there was any failure on his part to fully and truly disclose material facts necessary for assessment and therefore reopening beyond four years was not vaild. (A. Y. 2005-06).
4.6. The Hon’ble Delhi High Court in the case of CIT vs. Orient Craft Ltd. reported in [2013] 354 ITR 356 (Del.)(HC) has held as follows:
“The reasons recorded by the Assessing Officer in the present case do confirm our apprehension about the harm that a less strict interpretation of the words “reason to believe” vis-а-vis an intimation issued under section 143(1) can cause to the tax regime. There is no whisper in the reasons recorded, of any tangible material which came to the possession of the assessing officer subsequent to the issue of the intimation. It reflects an arbitrary exercise of the power conferred under section 147.”
4.7. The Hon’ble Delhi High Court in the case of Haryana Acrylic Manufacturing Co. v. Commissioner of Income-Tax and Anor. reported in [2009] 308 ITR 38 (Delhi) has held as follows:
“26 Viewed in this light, the proviso to section 147 of the said Act, carves out an exception from the main provisions of section 147. If a case were to fall within the proviso, whether or not it was covered under the main provisions of section 147 of the said Act would not be material. Once the exception carved out by the proviso came into play, the case would fall outside the ambit of section 147.
27 Examining the proviso [set out above], we find that no action can be taken under section 147 after the expiry of four years from the end of the relevant assessment year if the following conditions are satisfied: (a) an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year; and
(b) unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee:
(i) to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148; or
(ii) to disclose fully and truly all material facts necessary for his assessment for that assessment year.
Condition (a) is admittedly satisfied inasmuch as the original assessment was completed under section 143(3) of the said Act. Condition (b) deals with a special kind of escapement of income chargeable to tax. The escapement must arise out of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148. This is clearly not the case here because the petitioner did file the return. Since there was no failure to make the return, the escapement of income cannot be attributed to such failure. This leaves us with the escapement of income chargeable to tax which arises out of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. If it is also found that the petitioner had disclosed fully and truly all material facts necessary for its assessment, then no action under section 147 could have been taken after the four year period indicated above. So, the key question is whether or not the petitioner had made a full and true disclosure of all material facts ?
29 In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period indicated above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. This is a necessary condition for overcoming the bar set up by the proviso to section 147. If this condition is not satisfied, the bar would operate and no action under section 147 could be taken. We have already mentioned above that the reasons supplied to the petitioner does not contain any such allegation. Consequently, one of the conditions precedent for removing the bar against taking action after the said four year period remains unfulfilled. In our recent decision in Wel Intertrade Private Ltd (supra) we had agreed with the view taken by the Punjab and Haryana High Court in the case of Duli Chand Sin ghania (supra) that, in the absence of an allegation in the reasons recorded that the escapement of income had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, any action taken by the Assessing officer under section 147 beyond the four year period would be wholly without jurisdiction. Reiterating our view-point, we hold that the notice dated 29.03.2004 under section 148 based on the recorded reasons as supplied to the petitioner as well as the consequent order dated 02.03.2005 are without jurisdiction as no action under section 147 could be taken beyond the four year period in the circumstances narrated above.
4.8. Applying the propositions laid down in the above case law to the facts to this case, we have to necessarily hold that the re-opening of the assessment proceedings is not valid that there is not even a whisper in the reasons recorded for the reopening of the assessment that there is a failure on the part of the assessee to disclose fully and truly all the necessary material facts required for assessment in view of the 1st proviso to Section 147 of the Act. In this case no tangible materials have come to the possession of the Assessing Officer subsequent to the Assessment Order u/s 143(3). Re-opening is done based on the same material and record and hence it is bad in law. As far as the contention, that there is a change in opinion is concerned, we are unable to agree with the ld. Counsel for the assessee as there was neither a query on this issue by the Assessing Officer during the original assessment proceedings, nor there was a reply by the assessee. Hence there was no opinion formed. Thus, the question of change of opinion does not arise.
4.9. In any event, as we have held that the re-opening is bad in law as it does not fulfill the requirement of the Proviso to Section 147 of the Act, and as no tangible material has come to the possession of the Assessing Officer, we quash the assessment and allow the appeal of the assessee.”
13. After perusing the above referred order of Coordinate Bench, we note that in the assessee`s case in the reasons supplied to the assesseee, as noted in above para, there is no whisper, what to speak of any allegation, that the assessee had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period, as explained above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. This is a necessary condition for overcoming the bar set up by the proviso to section 147 of the Act. If this condition is not satisfied, the bar would operate and no action under section 147 could be taken. We have already mentioned above that the reasons supplied to the assessee does not contain any such allegation. Consequently, one of the conditions precedent for removing the bar against taking action after the said four year period remains unfulfilled, therefore, we quash the reopening assessment u/s 147 of the Act. The appeal of the assessee is allowed.
14. Since we have allowed the appeal of the assessee on technical grounds therefore, we do not adjudicate assessee’s grounds raised on merits.
15. Now we shall take revenue’s appeal in ITA No. 365/Kol/2018 for A.Y. 2009- 10 wherein the revenue has raised the following grounds of appeal:
1. On the facts and circumstances of the case and in law, ld. CIT(A) erred in directing the Assessing Officer to allow set off of derivative loss amounting to Rs. 20,17,97,265/- against the addition of Rs. 14,85,00,000/- made on account of unexplained cash credit.
2. On the facts and circumstances of the case and in law, ld. CIT(A) erred in directing the Assessing Officer to allow set off of derivative loss against the addition on account of cash credit made u/s 68 of the Act in Chapter VI of IT Act as deemed income which does not fall under any of the five heads of the income.
3. On the facts and circumstances of the case and in law, ld. CIT(A) erred in directing the Assessing Officer to allow set off of derivative loss against the addition on account of cash credit against the spirit of the law as amended subsequently.
4. That the appellant craves leave to add, amend, modify, rescind, supplement, or alter ground stated hereinabove, either before or at the time of hearing of this appeal.
16. Brief facts qua the issue are that the assessing officer while making assessment stated that unexplained cash credit u/s 68 of the Act to the tune of Rs. 14,85,00,000/- cannot be treated as business income because it is not an income classifiable under any heads of income as per section 14 of the Act. Therefore, such income is not eligible to be set off with brought forward business losses and unabsorbed depreciation.
17. Aggrieved by the stand so taken by the Assessing Officer the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Assessing Officer observing the following:
“ 5.3. I have perused the assessment order, submissions of the assessee, report of the A. O. and assessee ’s rejoinder on this issue. Following facts are observed.
i) The assessee is engaged in the business of trading in shares, investments and financing of loan.
ii) The assessee did share trading in future and option segment of N.S.E. and incurred derivative loss of Rs. 20.17 crores. The said loss was claimed as a business loss in the return of income and it was disallowed by the A. O. in the original order dated 28.12.2011. The assessee preferred an appeal against the order. The Ld. C.I.T(A) deleted the addition and the deletion of addition was confirmed by the Tribunal.
iii) It is a fact that the assessee had claimed derivative loss as a business loss in the original return and there is no adverse finding on this issue in the original assessment order by the A. O. There is no finding on this issue in the order of the C.I.T(A) and in the order of Tribunal as well. Therefore, in the 1st ground there is no challenge to the treatment of the derivative loss as business loss by the department. U/s.43(5) sub-clause(d) derivative transactions are not treated as speculative transactions. Therefore, the claim of the assessee of derivative loss on shares is in the nature of business loss. These facts remain undisputed.
iv) The A. O. in the remand report has pleaded that addition of Rs. 14.85 crores u/s. 68 will not fall in under any of the 5 heads and, therefore, this income cannot be set of against loss under other heads. It is seen that the entire amount has been credited in the books of the assessee. Therefore, it can be implied that these receipts are in the nature of business receipts. This view is supported by the decision of Hon ’ble Supreme Court in the case of Lakhmichand Baijnath vs. CIT 35 ITR 415 where sums found credited in the books of the assessee were treated as business profits. Similarly, view has also been taken by Hon ’ble Calcutta High Court in the case of CIT vs. Margaret’s Hope Tea Co. Ltd. 201 ITR 747 and Mansfield and Sons vs. CIT 48 ITR 254. Further, the Act has also been amended to deny set of loss for such kind of income but the amendment is effective from 01.04.2017.
In view of the above, the ground raised by the assessee is allowed and the Assessing Officer is directed to allow set off of derivative loss as business loss (amounting to Rs. 20,17,97,265/-) against the addition made of unexplained cash credit.”
18. Aggrieved by the order of ld. CIT(A), the revenue is in appeal before us. The ld. DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity and on the other hand the ld. Counsel for the assessee has relied on the order of the ld CIT(A). We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. We note that the entire amount has been credited in the books of the assessee. Therefore, it can be implied that these receipts are in the nature of business receipts. This view is supported by the decision of Hon’ble Supreme Court in the case of Lakhmichand Baijnath vs. CIT 35 ITR 415 where sums found credited in the books of the assessee were treated as business profits.
We do not find any infirmity in the order passed by the CIT(A).That being so, we decline to interfere with the order of Id. C.I T.(A) in directing the AO to allow set -off of derivative loss of Rs.20,17,97,265/- against the addition of Rs. 14,85,00,000/- made u/s 68.The ld CIT(A)`s order on this issue is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.
19. Before parting, it is noted that the order is being pronounced after 90 days of hearing. However, taking note of the extraordinary situation in the light of the Covid-19 pandemic and lockdown, the period of lockdown days need to be excluded. For coming to such a conclusion, we rely upon the decision of the Co-ordinate Bench of the Mumbai Tribunal in the case of DCIT vs. JCB Limited in ITA No. 6264/Mum/2018 and ITA No. 6103/Mum/2018 for A.Y. 2013-14 order dated 14.05.2020.
20. In the result, the appeal of the assessee is allowed and the appeal of the revenue is dismissed.
Order pronounced in the Court on 12.06.2020
