Case Law Details
Madhya Gujarat Vij Company Ltd Vs ACIT (ITAT Ahmedabad)
As held by the Co-ordinate Bench of this Tribunal, the very reopening of assessment itself is bad in law. Based on change of opinion and there is no failure on the part of the assessee in declaring its income. Since the quantum appeal itself is being quashed, the penalty levied as against the reassessment order for furnishing inaccurate particulars has no legs to stand and the same is liable to be quashed.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Assessee as against the Appellate order dated 20.09.2022 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “NFAC”), confirming the levy of penalty under section 271(1) (c) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2008-09.
2. The brief facts of the case is that the assessee filed its Return of Income for the Assessment Year 2008-09 declaring total income at Nil and claiming current year loss of Rs. 12,85,67,801/-. Regular assessment was completed u/s. 143(3) determining the total losses of Rs. 5,06,04,324/- (under normal provision) and book profit u/s. 115JB of the Act was determined at Rs. 2,77,73,370/-. Thereafter assessee’s case was reopened u/s. 147 and determining the total income at Rs. 10,96,93,680/- after making addition of Rs. 16.02 crores on account of prior period expenses. The Assessing Officer also initiated penalty proceedings for furnishing inaccurate particulars of income.
2.1 The assessee filed an appeal against the re-assessment order on the disallowance of prior period expenses, which was ultimately dismissed. It is thereafter the Assessing Officer initiated penalty proceedings and confirmed the levy of penalty u/s. 271(1)(c) of the Act of Rs. 5,44,85,300/- for furnishing inaccurate particulars of income.
3. Aggrieved against the penalty order, the assessee filed an appeal before Ld. CIT(A), who is also dismissed the assessee appeal and confirmed the levy of penalty u/s. 271(1)(c) of the Act.
4. Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal:
1.0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has confirmed the penalty of Rs.5,44,85,300/- levied under section 271(1)(c) of the Act on the additions made on account of disallowance of Prior Period Expenses of under the normal provisions of the Income Tax Act without appreciating the fact that the impugned disallowance was a subject matter of long drawn discussion and debate.
2.0 The appellant craves leave to add to, alter, delete or modify the above ground of appeal either before or at the time of hearing of this appeal.
4.1 Ld. Counsel Mr. M.K. Patel appearing for the Assessee submitted before us that the quantum appeal in assessee’s own case as against the re-assessment order was quashed by the Coordinate Bench of this Tribunal, by a very recent order dated 03.03.2023 in ITA No. 182/Ahd/2017, wherein the re-assessment proceedings u/s. 147 itself was quashed on the ground of jurisdiction itself. Consequently, the penalty levied as against the re-assessment order has no legs to stand and the same is liable to be quashed. Copy of the above judgment reads as follows:
“….7. We have heard the rival contentions and perused the material on record. In the instant case, the original assessment was completed on 30-12-2010 and notice for initiating proceedings u/s. 147 of the Act was issued on 18-03-2015 which is admittedly beyond a period of four years from the end of the assessment year. It would be useful to reproduce the relevant extracts of the 147 notice which reads as under:-
“On perusal of the records for the year under consideration, it is noticed that you have followed mercantile system of accounting and you have claimed prior period expenses in its P&L account of Ra 3196.37 lacs, which is not allowable as per Income tax Act. Further, it is observed that an amount of Rs. 3327.37 lace was debited to P&L as net prior period expenses (though the accountant has mentioned in clause 22(b) of 3CD report of net prior period expenses as Rs. 3195.37 lacs). However, it was seen that the assessee itself added back Rs. 1724.37 lace only in the computation of income instead of Rs. 3397.35 lacs. Therefore, there is under assessment of Rs. 1602.98 lacs (i.e. 3387.35 lacs minus Rs. 1724.37 lacs.
In view of the above, please show cause as to why Rs. 1602.98 lacs should not be added to your total income.”
7. 1 A perusal of the show cause notice shows that evidently nothing on record has been placed on record by the Department to establish that there was any failure on the part of the assessee to disclose fully and truly all materials facts necessary for assessment for the assessment year under consideration. The Department has initiated proceedings only on the basis of material available on record i.e. the profit and loss account of the company and clause 22(b) of form 3CD (tax audit report) and the computation of income filed with the original return of income. The entire basis of initiating reassessment proceedings is that the assessee has claimed prior period expenses in the return of income which are not allowable under the Act. However, we observe that the assessee already added back a sum of Rs. 7.24 crores as prior period expenses in the computation of income filed with the return of income. Further, Schedule 29 of the Profit and Loss Account for the year ended 31st March, 2008 explicitly shows that the assessee has claimed “net prior period expenses of Rs. 3327.35 lakhs during the year under consideration. Notably, in the immediately preceding year, the assessee had claimed similar prior period expenses to the tune of Rs. 156.37 lakhs as well. Therefore, we observe in the instant facts that the only reason for reopening the assessment of the assessee was view a view to disallow prior period expenses claimed during the year under consideration. The Department, in our considered view has not brought forth any material on record to show that there was any failure on the part of the assessee to disclose fully and truly all materials facts necessary for his assessment, which is a pre-requisite for initiating proceedings beyond the period of four years from the end of the relevant assessment year. This is evident from the SCN issued by the Ld. Assessing Officer for making additions u/s 147 of the Act. Further, as pointed out by the counsel for the ass essee relevant queries were made on this aspect during the course of assessment proceedings and the ass essee had also replied thereto by way of a letter dated 03-02-2010. Therefore, in our considered view, the instant proceedings have been reopened by way of a “change in opinion” since no fresh material or information has been brought on record by the Ld. Assessing Officer to show that there has been escapement of income due to failure on part of the assessee to truly and fully disclose all material facts. The reassessment proceedings in our view have been initiated only on re-appreciation of same documents which were available with the Ld. Assessing Officer at the time of original assessment. Further, there is no allegation in either the “reasons recorded” or the SCN issued initiating 147 proceedings that there has been failure on part of the assessee to make full and true disclosures during the course of original assessment proceedings. In the case of U.P. State Bridge Corporation Ltd [2019] 110 taxmann.com 377 (Allahabad), the High Court held that where AO initiated reassessment proceedings on ground that assessee had claimed excessive depreciation on shuttering and mining equipments, in view of fact that ass essee had disclosed full and correct facts relating to claim of depreciation merely on basis of change of opinion, deserved to be quashed. In the case of Santech Solutions (P.) Ltd [2018] 97 taxmann.com 179 (Madras), the Assessing Officer completed original assessment of assessee under section 143(3) of the Act. Later Assessing Officer having noticed that an advance of Rs. 1.05 crores received by assessee had not been credited to profit and loss account but to software development account and income on software development had not been offered on accrual basis, reopened assessment of assessee. The Tribunal held that Assessing Officer while framing original assessment was aware of recovery of said amount and when there was no fresh material available with Assessing Officer for harbouring a doubt that income had escaped assessment, reopening of assessment was purely based on change of opinion. In the case of Revolution Forver Marketing (P.) Ltd. [2019] 104 taxmann.com 61 (Delhi), the High Court held that where assessee was engaged in multi-level marketing business model and Assessing Officer framed assessment of assessee under section 143(3) and subsequently he reopened said assessment for reason that substantial cash transactions were carried out with banks, which were not verified, since duty of assessee was to disclose bank statements for relevant year, which it did, reason for assessment was vague and unjustified. In the case of Foramer France [2003] 129 Taxman 72 (SC), the petitioner-foreign company was engaged in business of oil exploration and providing expertise and assistance in said field. Proceeds from manning and management contracts received by petitioner were originally assessed in February, 1991 under section 143(3) treating same as business income in terms of section 44BB. However, following Tribunal’s decision rendered in case of petitioner’s expatriate employee, Assessing Officer issued a notice under section 148 in November, 1998 seeking to reassess same income as fees for technical services. The Hon ‘ble Supreme Court held that since admittedly there was no failure on part of petitioner to make return or to disclose fully and truly all material facts necessary for assessment, proviso to new section, which bars issue of notice under section 148 after expiry of four years from end of relevant assessment year, squarely applied to facts of instant case and, therefore, impugned notice was barred by limitation. Therefore, since notice under section 148 was without jurisdiction, there was no merit in plea that petitioner was to be relegated to alternative remedy. In the case of New Delhi Television Ltd. [2020] 116 taxmann.com 151 (SC), the Hon ‘ble Supreme Court held that where Assessing Officer issued notice to reopen assessment in case of assessee taking a view that funds raised by its subsidiary company by issue of Step UP Coupon Bonds represented its own unaccounted money, however, failed to show non-disclosure of material facts by assessee, notice issued to assessee after a period of 4 years was to be quashed and set aside. In the case of ICICI Securities Primary Dealership Ltd. [2012] 24 taxmann.com 310 (SC), the Assessing Officer completed assessment of assessee under section 143(3) after taking into consideration account furnished by assessee. After lapse of four years from relevant assessment year Assessing Officer reopened assessment of assessee on ground that during relevant year assessee company had incurred a loss in trading in share, which was a speculative one and therefore chargeable to tax. Accordingly, the Ld. Assessing Officer passed order under section 147 of the Act. The Hon’ble Supreme Court held that since after a mere re-look of accounts which were earlier furnished by assessee, Assessing Officer had come to conclusion that income had escaped assessment, same was not permissible under section 147 as it was clearly a change of opinion. Therefore, order re-opining assessment was not permissible. In the case of Azim Premji Trustee Company (P.) Ltd. [2022] 141 taxmann.com 451 (Karnataka), the High Court held that where impugned notice under section 148 was issued to assessee alleging escapement of income on ground that shares received by assessee as a gift were disclosed, but neither book value nor market value of shares was disclosed in Balance Sheet, however, fact that all material facts necessary for assessment were disclosed and market value of share was clearly discernible from returns and documents, mere non-mentioning of market value of shares was neither relevant nor germane for purpose of invoking proviso to section 147 and consequently, impugned notice and reasons deserved to be quashed. In the case of Godrej & Boyce Mfg. Co. Ltd. [2022] 140 taxmann.com 345 (Bombay), the High Court held that where Assessing Officer completed original assessment under section 143(3) and subsequently he issued notice seeking to reopen such assessment for reason that interest bearing funds had been used for making addition of capital work-in-progress and hence interest paid in respect of capital borrowed for addition to capital work-in-progress should have been added back and capitalized as per provisions of section 36(1) (iii), as reasons did not indicate that there was failure to disclose truly and fully all material facts, impugned notice deserved to be quashed. Accordingly, in view of our observations in the preceding paragraphs and in light of the above judicial precedents highlighted above, we are hereby directing that the present reassessment proceedings are liable to be set aside. Since, we are quashing the notice issued u/s 147 of the Act on grounds of jurisdiction itself, we are not separately adjudicating on other Grounds of Appeal filed by the assessee.
8. In the result, appeal of the assessee is allowed.”
5. Per contra, the Ld. D.R. appearing for the Revenue could not contravent the present decision of the Tribunal on the quantum appeal and the Ld. D.R. submitted that the Revenue may take it up the quantum appeal to the Hon’ble High Court of Gujarat, since the amount involved is more than one crore. Therefore requested to uphold the levy of penalty u/s. 271(1)(c) of the Act.
6. We have given our thoughtful consideration and perused the materials available on record. As held by the Co-ordinate Bench of this Tribunal, the very reopening of assessment itself is bad in law. Based on change of opinion and there is no failure on the part of the assessee in declaring its income. Since the quantum appeal itself is being quashed, the penalty levied as against the reassessment order for furnishing inaccurate particulars has no legs to stand and the same is liable to be quashed. Thus the grounds raised by the Assessee is hereby allowed.
7. In the result, the appeal filed by the Assessee is allowed.
Order pronounced in the open court on 29 -03-2023
