In this case Assessee had filed complete details as required during assessment proceedings and after complete verification of the details assessment was framed by AO under section 153/143(3) of Income Tax Act, 1961. AO had not produced any tangible material that there was failure on the part of the assessee to disclose fully and truly all material facts relevant to Assessment. AO initiated reassessment proceedings merely on the basis of audit objections raised by the department, which were not only illegal but also whimsical. Hence, initiation of reassessment under section 148 was bad in law.
FULL TEXT OF THE ITAT JUDGMENT
This appeal is filed by the assessee against the order dated 28/11/2013 passed by CIT(A)-I, New Delhi.
2. The grounds of appeal are as under:-
1. “That on the fact and circumstances of the case, the CIT (A) has grossly erred in confirming the reassessment done u/s 148 of the Act initiated on the basis of audit objections raised by the department which is not only illegal but also whimsical and hence the action of the Ld.CIT(A) is liable to be quashed.
2. Because the Ld.CIT(A) has grossly erred in confirming the whimsical disallowances made u/s 24(a) of the Act by disallowing a sum of- Rs.10,08,000/- . in the view of following:-
a) Rent agreement entered into by the assessee company and by the tenant company mentions the renting of land and Building and no where does it mentions the renting of plant and Machinery.
b) The presumption of Ld.CIT(A) that the assessee company has also rented out Plant and Machinery is out of his fictions only and not as per the facts as adduced in the assessment and in the course of hearing of «the appeal before the Ld.CIT(A).
c) That the presumptions of Ld.CIT(A) that charging of depreciation on Plant and Machinery without using them leads to the conclusion that it has been used by the tenant is also whimsical in the view of the fact it is mandatory to charge depreciation on Plant and Machinery as per Companies Act to meet out wear and tear and afflux due to the time and which cannot be denied even in the course of shut down of the business.
3. Because the Ld. CIT(A) has grossly erred in confirming disallowance of depreciation on plant and machinery to the tune of Rs.9,989/- in view of principal ‘No Business No Expenses’ is erroneous because of the following factors:-
a) Charge of depreciation is not an expense but is an allowance once the Plant and Machinery is put to use and kept ready for the production, the allowance of depreciation is mandatory as per provisions of section 32 of the Act.
b) Depreciation is not an expense but is an allowance which the Ld CIT (A) has erred in comparing the two as an expense.
4. The appellant craves leave for addition, modification, alteration, amendment of any of the grounds of appeal.
3. There is a delay of 4 days in filing. The assessee has filed affidavit explain the delay. The DR objected for condonation of delay. We have heard both the parties and perused the material available on record. After going through the affidavit of the assessee, the delay in filing appeal appears to be genuine. Therefore, the delay of four days is condoned.
4. The assessee filed its return of income on 01.11.2004 declaring income of Rs.22,27,194/- and the same was processed u/s 143(1). On 20.03.2007 there was a search action on the assessee u/s 132 of the Income Tax Act, 1961. While passing the order u/s 153C of the Act dated 24/12/2009, the Assessing Officer completed the assessment at income of Rs. 84,35,280/- and made the following additions:
*Addition u/s 68 of the I.T Act of Rs.55,00,000/- on account of Share Application Money Received;
*Disallowance of Rs.5,55,415/- on account of disallowance u/s 14A of the Income Tax Act and
*Disallowance u/s 35D of Rs.43,700/-.
5. Aggrieved by the additions and disallowances, Assessee preferred an appeal before the CIT(A). The CIT(A) deleted the addition made u/s 68 of Rs.55,00,000 in respect of Share Application Money received and deleted the disallowance of Rs.5,05,415/- out of the total disallowance of Rs.555,415/-u/s 14A of the Income Tax Act. The CIT(A) also confirmed the disallowance of Rs.50,000/- and further confirmed the disallowance u/s 35D to the tune of Rs.43,700. Subsequently the income was revised at Rs.24,29,870/- after appeal effect as per order u/s 250 dt. 17.06.2011. Against the additions deleted by the CIT(A), the Revenue filed an appeal before the Tribunal. The Tribunal vide order dated 7/12/2017 upheld the order of CIT(A. The case was re-opened u/s 148 after recording reasons and notice u/s 148 dated 30/03/2011 was issued and served on the assessee. In response to notice the assessee company filed its return declaring total income of Rs.23,31,952/- on 18/11/2011. Notice u/s 143(2), 142(1) along with questionnaire were issued and served. The Assessee’s Representative attended the proceedings and filed requisite details. The Assessing Officer added rental income amounting to Rs.33,60,000/- and charged it to tax under income from other sources and deduction @ 30% u/s 24 was disallowed. The Assessing Officer further disallowed Rs.9,989/- as depreciation claimed by the assessee. The assessment order was passed on 29/12/2011.
6. Being aggrieved by the assessment order the assessee filed appeal before the CIT (A). The CIT (A) dismissed the appeal before the assessee.
7. The Ld. AR submits that in the instant case, the Assessing Officer initiated the reassessment proceedings u/s 147 of the Act by issuing a notice u/s 148 of the Act 30.03.2011 on the basis of the alleged reasons to believe recorded on 30.03.2011. The Ld. AR submitted that for the instant assessment year, assessment was already framed u/s 153C/143(3) of the Act on 24.12.2009 and appeal filed by the assessee against aforesaid order was allowed by the CIT(A) on 25.11.2011, which order of the CIT(A) was upheld by the Tribunal vide its order dated 07.12.2017. The Ld. AR further submitted that during the course of the assessment proceedings u/s 153C of the Act, assessee filed complete details as required in the assessment proceedings, and after complete verification of the details assessment was framed u/s 153/143(3) of the Act. The Ld. AR submitted that in the order of assessment, the Assessing Officer specifically noted that major source of income earned during the year is rental of the property, and as such, after due verification, depreciation claimed on the building and rental income offered as income from house property was accepted. In view of this observation of the Assessing Officer, the Ld. AR submitted that once the assessment is framed u/s 153C/143(3) of the Act, unless there is failure on the part of the assessee to disclose fully and truly all material facts, reopening of the assessment beyond a period of four years from the relevant assessment year, without any fresh tangible material and merely on the basis of the review of the assessment record is unsustainable in law. The Ld. AR further submitted that from the perusal of the reasons to believe, it would be seen that apart from the review of the assessment record, no material much less any tangible material referred for the formation of the alleged belief that depreciation claimed on the fixed assets to the tune of Rs. 1,14,747/- has escaped assessment. The Ld. AR while citing the case laws submitted that in fact in the identical circumstances in the case of Ranjit Hosiery Mills vs. ACIT reported in 215 ITR 867, Hon’ble High Court of Gujarat has quashed the reopening of the assessment wherein also notice u/s 148 was issued to disallow the claim of deprecation on Building given on rent.
8. The Ld. DR relied upon the order of the Assessing Officer and CIT(A). The Ld. DR also relied upon the decisions of the Hon’ble Supreme Court and Hon’ble High Court.
9. We have heard both the parties and perused the material available on record. The re-assessment done u/s 148 initiated on the basis of audit objections raised by the Department. The audit objections thereafter, was settled by the ACIT. After going through the reasons recorded u/s 148, there was no new material taken by the Assessing Officer. The assessment u/s 143 was completed on the same lines to the assessment passed u/s 153C. The reasons for issuance of notice u/s 148 of the Income Tax Act was specifically mentioned that the assessee was asked to submit the details of depreciation during the assessment proceedings under 153C/143(3) of the Income Tax Act, but the assessee fail to submit the same. The Ld. AR relied upon the order of the Hon’ble High Court of Gujarat in case of Ranjit Hosiery Mills Vs. ACIT (Investigation) held that the proceedings having been initiated by the authority without their being any existing condition precedent for invoking such jurisdiction are void and deserve to be quashed. It is pertinent to note that 153C proceedings were concluded by passing assessment order dated 24/12/2009. The said order was thereafter challenged before the CIT(A) and order of the CIT(A) allowing the appeal of the assessee was upheld by the Tribunal vide order dated 07/12/2017. The Ld. DR relied upon the decision of the Hon’ble Supreme Court in case of R. K. Malhotra Vs. Kasturba Bhai Lal Bhai 109 ITR 537 wherein it is held that the expression information in the counters with me instruction or knowledge derived from an external source concerning facts or particulars or as to law relating to a matter being on the assessment. The Audit Department is the proper machinery to scrutinize the assessment of the Income Tax Officer and point out the errors if any in law and thus hold that the Income Tax Officer in the circumstances is entitled to reopen the assessment u/s 147B of the Income Tax Act but the decision of the Hon’ble Apex Court will not be applicable in the present case as it is not just audit report but the entire investigation relating to proceedings u/s 153C was concluded by the Revenue on the same line before reopening the case u/s 148/147. Thus, there was nothing concrete before the Revenue Authorities to reopen the case afresh the matter was contested till the level of Tribunal wherein the CIT(A) allowing assessee’s appeal was upheld by the Tribunal. Thus, the initiation of reassessment under 148 is bad in law. The appeal of the assessee is allowed.
10. In result, appeal of the assessee is allowed.
Order pronounced in the Open Court on 23rd March, 2018.