Reopening Beyond Four Years Invalid Without Failure to Disclose Material Facts in Original Scrutiny Assessment.
Issue: Can a reassessment under Section 148 of the Income-tax Act, 1961, be initiated beyond four years from the end of the relevant assessment year based on information regarding significant bank deposits and cash withdrawals, when the original assessment was completed under Section 143(3) and there was no allegation of non-disclosure of material facts by the assessee during the original proceedings?
Facts:
- For the assessment year 2014-15, the assessee’s case was selected for scrutiny assessment under Section 143(3), which was duly completed, and the assessed income was determined.
- Subsequently, the Assessing Officer (AO) received information from the Investigation Wing indicating substantial Real Time Gross Settlement (RTGS) deposits in the assessee’s bank account, which were largely withdrawn in cash.
- Based on this information, the Assessing Officer reopened the assessee’s case, contending that the source of these deposits was unverifiable and thus constituted unexplained money under Section 69A of the Income-tax Act, 1961.
- It was noted that during the original assessment proceedings under Section 143(3), the Assessing Officer had made observations regarding the assessee’s turnover, disallowed certain amounts due to a low Gross Profit (GP) rate, and made a lump sum addition towards certain expenses.
- There was no allegation or finding in the original assessment order that the assessee had failed to comply with any requirements or had not fully and truly disclosed all material facts necessary for the assessment.
Decision: The court held in favor of the assessee and annulled the reopening proceedings. The court reasoned that since the original assessment was conducted under Section 143(3), involving a scrutiny of the assessee’s books of account and relevant materials, and there was no allegation of non-compliance or failure to disclose material facts during those proceedings, it could not be said that the requisite information was not furnished by the assessee in the original assessment. As the Assessing Officer was unable to substantiate any failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment, the reopening proceedings, initiated beyond the period of four years from the end of the assessment year, fell within the scope of the first proviso to Section 147 of the Income-tax Act, 1961, and were therefore liable to be annulled.
Key Takeaways:
- For a reassessment initiated beyond four years from the end of the relevant assessment year to be valid in cases where the original assessment was completed under Section 143(3), there must be a demonstrable failure on the part of the assessee to have fully and truly disclosed all material facts necessary for the original assessment.
- When an original assessment under Section 143(3) involves scrutiny of accounts and relevant materials without any finding of non-disclosure, a subsequent reopening based on the same information or a different interpretation of that information is generally not permissible beyond the four-year limit.
- The information received from the Investigation Wing, in this case regarding bank deposits and cash withdrawals, was information that the Assessing Officer could have potentially sought and examined during the original scrutiny assessment. Its emergence later does not automatically imply a failure to disclose material facts by the assessee.
- The onus is on the Assessing Officer to establish that the assessee had failed to disclose fully and truly all material facts necessary for the assessment to justify a reopening beyond the four-year period in a case already assessed under Section 143(3).
IN THE ITAT RAIPUR BENCH
Pradeep Kumar Agrawal
v.
Income-tax Officer
Ravish Sood, Judicial member
and ARUN KHODPIA, Accountant member
and ARUN KHODPIA, Accountant member
IT Appeal No: 157 (RPR) of 2024
[Assessment Year 2014-15]
[Assessment Year 2014-15]
OCTOBER 21, 2024
Sunil Kumar Agrawal, CA for the Appellant. Dr. Priyanka Patel, Sr. DR for the Respondent.
ORDER
Arun Khodpia, Accountant Member.- The aforesaid appeal is directed against the order of Commissioner of Income Tax (Appeals), NFAC, Delhi, [in short “CIT(A)”], u/s 250 of the Income Tax Act, 1961 (in short “the Act”), for the Assessment Year 2014-15, dated 19.02.2024, originated from the order u/s 147 read with 144 r.w.s. 144B of the Act, passed by the Assessing Officer, NFAC, Delhi (in short “Ld. AO”) on 26.03.2022.
2. The grounds of appeal along with additional grounds raised by the assessee are culled out as under:
| 1. | On the facts and circumstances of the case and in law, reopening u/s 148/147 is invalid as it is earlier assessed u/s 143(3) dt. 29-11-16; reopening is beyond 4 years; there is no allegation in the reasons recorded which indicate any failure on the part of the assessee to disclose fully & truly all material facts necessary for the assessment completed u/s 143(3) dt. 29-11-16; as per first proviso to sec 147, reopening u/s 147/ 148 would be invalid, is liable to be quashed; relied on Ananta Landmark (P) Ltd (2021) (Bom); Anil Raj Tuli (2022) (Ori HC); DSC Ltd (2023) (Del HC). |
| 2. | On the facts and circumstances of the case and in law, reopening of concluded assessment u/s 143(3) dt. 29-11-16 wherein 3% GP estimation made on sales of Rs. 10,02,02,884 which ultimately includes alleged ‘deposits/ RTGS credits into bank’ of Rs. 9,01,18,102; in absence of any fresh/ new material, be treated merely ‘change of opinion’ on the same material facts, is not permissible in the eyes of law, is liable to be quashed. |
| 3. | On the facts and circumstances of the case and in law, reassessment made u/s 147 is invalid as there is addition made of Rs. 45,05,905 on count of undisclosed business income (i.e., u/s 28) which is not the issue of the ‘reasons recorded’; the ‘very basis’ of reopening was ‘unverifiable/ unexplained deposits/ credits into bank’ (i.e., u/s 69A/68) and no addition made on the ‘very issue’; addition made on an ‘independent issue’ of ‘business income’, which is not the part of the ‘reasons recorded’ earlier, is not permissible in the eyes of law; reassessment made u/s 147 would be invalid & is liable to be quashed; relied on Shri Ram Singh (2008) (Raj); Prosperous Buildcon (P) Ltd (2023) (Del HC). |
| 4. | On the facts and circumstances of the case and in law, reopening u/s 148/147 is invalid as based on borrowed satisfaction of escaped income of Rs. 9,01,18,102 on the count of ‘deposits/ RTGS credits into bank’, which is related to receipts from debtors against accounted sales; it is only ‘reason to suspect’ merely for verifying the ‘deposits/ RTGS credits into bank’; there is no live link/ nexus between the ‘information of deposits into bank’ & ‘formation of believe’ for alleged escaped income of Rs. 9,01,18,102/- in absence of pre-requisite condition for assuming jurisdiction u/s 147, reopening u/s 148/147 would be invalid; liable to be quashed; relied on Lakhmani Mewaldas (1976) (SC); Shodiman Investments (P) Ltd (2018) (Bom); Meenakshi Overseas (P) Ltd (2017) (Del HC); Smt Sudesh Rani (2023) (Chd-Trib); Jai Prakash Gupta (2021) (Kol-Trib) |
| 5. | On the facts and circumstances of the case and in law, approval granted u/s 151(1) by PCIT is invalid as it is without application of mind in mechanical manner without verifying the facts; when it is earlier assessed u/s 143(3) & beyond 4 years; PCIT has not cared that there is no mention in the reasons recorded about any failure on the part of the assessee to disclose all material facts frilly & fully which was necessary for completing assessment u/s 143(3) dt. 29-11-16 and thus, PCIT has not cared the first proviso to sec 147; approval granted without application of mind is invalid; in absence of a valid approval granted u/s151(1) by PCIT as mandated by law u/s151; impugned reopening u/s148/147 would be invalid; is liable to be quashed; |
| 6. | On the facts and circumstances of the case and in law, Id CIT(A) has erred in sustain addition of Rs. 45,05,905 which is on adhoc basis of 5% of ‘deposits/ RTGS credits into bank’ of Rs. 9,01,18,012 which is related,.to receipts from debtors against accounted/disclosed sales in the books of. account u/s44AB, more so; it’ had ‘earlier assessed u/s 143(3) dt. 29-11-16 and 3% GP estimation earlier made on total Sales Rs. 10,02,02,884, which is not disputed by the assessee; further addition Rs. 45,05,905 on the same count is not permissible in the eyes of law; addition mal merely on presumption & surmises, is not justified and liable to pe deleted. |
| 7. | On the facts and circumstances of the case and in law, Id CIT(A) has erred in sustaining addition of Rs. 45,05,905, is unjustified and is liable to be deleted. |
| 8. | The appellant craves leave, to add, urge, alter, modify or withdraw any grounds before at the time of hearing. |
Additional Gr. No. 1 (dated : 13.05.2024 submitted on 16.05.2024)
“1. On the facts and circumstances of the case and in law, assessment made u/s 147 rws 144B dt. 26-3-22 is invalid as Id AO has not issued notice u/s 143(2) after filing letter dt. 8-3-22 enclosing original ROI filed on 30-3-15 showing income of Rs. 3,76,830 by mentioning that in response to notice issued u/s 148; in absence of a notice u/s 143(2), assessment made u/s 147 r.w.s. 144B would be invalid and is liable to be quashed.”
3. Briefly stated, the assessee is an individual, who had filed his returned of Income for the AY 2014-15 on 30.03.2015 admitting total income at Rs. 3,76,830/-. The assessee is engaged in trading business of paddy, rice, other bi-product and transport work. The case of assessee was selected for scrutiny assessment u/s 143(3), which was completed on 29.11.2016 determining the assessed income at Rs. 7,86,280/-.
3.1 Later on, in the case of assessee, certain credible information was shared by the Income Tax Officer (Inv.), Raipur, that the assessee’s bank account was mainly credited through RTGS transactions inter alia included in the total credits made aggregating to Rs. 9,01,18,102/-, which were subsequently followed by the cash withdrawals to the tune of Rs. 4,32,20,840/-. In this context, notice issued by the Investigation Wing of Raipur, but the assessee has not complied.
3.2 The case of assessee, therefore, was reopened u/s 147 with issuance of notice u/s 148 dated 30.03.2021. After recording the reasons with approval of the Competent Authority, the reopening assessment proceedings u/s 147 r.w.s. 148 are initiated. Initially, the notices issued by the Ld. AO on 16.12.2021, 05.01.2022, 18.01.2022 were not complied by the assessee, therefore, a final opportunity later dated 31.01.2022 was issued requesting the assessee to furnish the requisite information failing which the assessment would be completed u/s 144 of the Act. Assessee again remain non-responsive. Consequently, a show cause notice u/s 144 of the Act was issued 07.03.2022, in response to which certain primary information such as financial statements, statement of computation and Form 26AS have been furnished by the assessee on 08.03.2022. The assessee have further requested time of 07 days to prepare and respond on remaining points queried by the Ld. AO. Time was granted up to 15.03.2022 but the assessee again choses not to furnish the requisite information. Under such facts and circumstances considering the non-compliant behaviour of the assessee, the Ld. AO was left with no option but to complete the assessment on the basis of material available on record, in the manner prescribed under the provisions of section 144 of the Act. The assessment thereafter has been completed on 26.03.2021 with the enhancement of income of assessee by Rs. 45,05,905/- and the total assessed income has been computed at Rs. 52,92,181/-.
4. Aggrieved with the aforesaid re-opening assessment by the Ld. AO u/s 147 of the Act dated 26.03.2021, the assessee preferred an appeal before the Ld. CIT(A), wherein the contentions raised by the assessee could not convince the Ld. CIT(A), therefore, the appeal of the assessee has been dismissed with the following findings and decisions:
Findings and Decisions:
Revised Ground No. 1, 2, 3 & 4 The appellant in his revised ground of appeal, has challenged the reopening of the assessment, stating that the reason was recorded without having tangible material for escaped assessment of Rs. 9,01,18,102/- merely on presumption and surmise only based on information received from ITO (lnv), Raipur. The appellant further claimed that granting of approval on the same day (i.e. 30/03/2021) in most mechanical and routine manner without application of mind, without recording any subjective satisfaction.
The above said claim of the appellant is not acceptable as the credible information in respect of mainly RTGS credits in the appellant’s bank account and subsequently followed by cash withdrawals, was received from ITO(lnv), Raipur which was duly verified by the AO from the information available on record. The total credits was reported at Rs. 9,01,18,102 during the financial year under concerned in the bank account of the appellant’s, out of which total cash withdrawal were Rs. 4,32,20,840/-. The information with regard to credits and cash withdrawals in the appellant’s bank account was reported in every rupee, which probably could have not been possible, if the information was unverified merely on the basis of presumption. There were the tangible materials in the form of information, was available with the AO, which was verified from the accessibility with the AO in due course, on the basis of which reason was recorded for reopening of assessment. The case was reopened only after approval of the competent/approving authority after being satisfied on the reason so recorded by the AO.
The process of reopening of the assessment was done as per provision laid down for reopening of the case under I T Act. In the ‘appellant’s case reason was recorded on basis of information and on the basis of inquiry made by AO. After being satisfied by the reason so recorded by the AO, granting of approval by the competent/approving authority for issuance of notice u/s 148 of the I T Act is done after following the procedure as laid down u/s 151 of the I T Act.
The above said process is as per under Income Tax Act, 1961, therefore, it cannot be claimed that recording of reason and approving the same for issuance of notice u/s 148 of the I T Act was as a most mechanical & routine work.
The appellant has alleged that the AO recorded the reason without application of mind only to verify the credits/deposits into bank account on a fallacious assumption and the credit which was found in the appellant’s bank account need not necessarily be income of the appellant.
It is pertinent to mention that the case was taken up for verification by reopening the case on the basis of information received and outcome of enquiry conducted by the AO. It is appellant’s duty to prove himself free from allegation for which the case was taken up for scrutiny by reopening of the case, by furnishing substantial details/documents, which the appellant failed to do during the course of assessment proceedings as well as during the course of appellate proceedings. Simply saying that the reason recorded was without application of mind on fallacious assumption, could not prove the genuineness of the trade/business of the appellant. The genuineness of the trade made by the appellant could only be proved by furnishing substantial valid documents. As the appellant had huge credit and subsequent cash withdrawals in the bank account during the year under concerned, notices u/s 142(1) of the I T Act were issued, calling „for details during the course of assessment proceedings. However, the appellant instead of submitting the same was nonresponsive. And when a final call was made by the AO by issue of a show cause notice, the appellant became responsive with insufficient details. Further, the appellant was given opportunity to furnish remaining details, which was called for vide notices u/s 142(1) of the I T Act in respect of huge credits in the bank account and subsequent cash withdrawals, in the form of a show cause notice, but unfortunately, the appellant failed to furnish the same. In fact, the appellant did not have any details & document in his possession which could be furnished as a substantial proof for consideration either before the AO or before the appellate authority. The appellant being aggrieved by the order o/ the AO, filed the present appeal with only written submissions with respect to revised grounds of appeal with various case law, as submission, followed by original grounds of appeal claimed under Form -35.
The appellant’s intention is only to hide the findings for which the case was reopened, by simply questioning/challenging the reopening of the assessment. There is a provision u/s 147 incorporated in the Income Tax Act, that if any income chargeable to tax, in the case of an assessee, has escaped assessment for any assessment year, the Assessing Officer may, subject to the provisions of sections 148 to 153, assess or reassess such income or re-compute the loss or the depreciation allowance or any other allowance or deduction for such assessment year.
In the appellant case there was information that the appellant’s bank accounts were mainly credited through RTGS and subsequently followed by cash withdrawals, and thus, made high value transaction and accordingly, as per provision of the Income Tax Act, the case was reopened for verification after following the due procedure.
After reopening of the case, a notice u/s 148 of the I T Act, dated: 30/03/2021 was issued and served upon the appellant, requiring the appellant to file a return of income within 30 days, for which the appellant was non- complaint during the course of the assessment proceedings. Subsequently, notice u/s 142(1) of the I T Act was also issued in various dates by the AO under principle of natural justice, requesting the appellant to furnish the ITR filed in response to the notice u/s 148 of the I T Act and to explain the sources of the credits in the bank account, but the appellant denied for the submission just by being non-complaint to the notices issued. The appellant become responsive only when show cause notice was issued by the AO, with insufficient submission. The appellant was further given time to submit remaining information which were called for, vide notices u/s 142(1) of the I T Act including show cause notice by the AO during the course of the assessment proceedings. However, the appellant failed to submit the same.
The AO, decided the case by keeping in mind the nature of business of the appellant. As the appellant was engaged in the business of trading of paddy, rice, other biproduct and transport, having credits of Rs. 9,01,18,102 in the bank account, 5% of total credits, which arrived at Rs. 45,05,905 was considered as reasonable income earned during the year by the appellant in absence of sufficient submission of the appellant and added back to income of the appellant by the AO.
The AO, had no option but to pass the order u/s 147 r.w.s 144 r.w.s 144B of the I T Act on the basis of insufficient submission of the appellant and other material available on record.
The appellant has not submitted any substantial details/documents with respect to the subject matters on huge credits and subsequent followed by cash withdrawals, except written submission with regard to reopening of assessment which was raised under revised grounds of appeal, during the course of appellate proceedings. Therefore, the undersigned sees no reason to interfere with the orders of the Assessing Officer. Hence the appeal of the appellant is dismissed.
In the result, the appeal is dismissed.
5. The aforesaid findings and decision of Ld. CIT(A) was not found justified by the assessee; therefore, the matter is carried by way of present appeal before us.
6. At the outset, the Authorized Representative representing the assessee, Shri Sunil Agrawal, CA (in short “Ld. AR”), assailed the first ground of the appeal averring the legal contention that the case of the assessee was selected for reopening assessment after the expiry of 4 years from the end of the relevant assessment year, therefore, as per the first proviso to section 147, it was incumbent upon the Ld. AO to establish that there was escapement of income caused on account of failure on the part of assessee to disclose fully & truly all material facts necessary for his assessment completed u/s 143(3). It was the allegation that in present case, the Ld. AO was failed to do so, therefore, the order passed u/s 147 was without valid assumption of jurisdiction by the Ld. AO. Ld. AR further argued that there is no allegation in the reasons recorded which indicate any failure on the part of assessee qua the discloser as mandated under the provisions of Act, therefore, on this ground itself, the assessment framed u/s 147 r.w.s. 144 r.w.s. 144B is invalid and liable to be quashed.
7. In order to substantiate, the aforesaid contention, Ld. AR drew our attention to page no. 4 and 5 of the assessee’s paper book, containing reasons to believe recorded by the Ld. AO, the same are culled out hereunder for better appreciation of the facts.
ANNEXURE
1. Brief details of the assessee: Assessee had filed return of income for the A. Y. 201415 in ITR-4 on 30/3/205 declaring total income of Rs. 3,76,830/- and income of the assessee was assessed at Rs. 7,86,276/- vide assessment order u/s. 1431(3) dated 29/11/2016.
2. Brief details and analysis of information collected/received by the AO:-
The information collected/received by the A.O. falls under clause I(iii)(a) CBDT’s Instruction dated 4/3/2021.
There is a credible information shared by the ITO (Inv.), Raipur that the assessee’s bank accounts were mainly credited through RTGS and subsequently followed by cash withdrawals, and thus made high value transaction of Rs. 4,32,20,840/- i.e. total cash withdrawals for which no submission has been filed by the assessee and therefore the amount may be treated as unexplained investment/expenditure. The total deposits made in the bank accounts maintained in the name of the assessee during the 2014-15 is for Rs. 9,01,18,102/
3. Enquiries made by the AO as sequel to formation collected/received: Necessary verification was made from the entire details available on records and database of ITBA, E-filing portal and ITD, and therefore, I have sufficient form of ‘Reason to Believe’ to frame my opinion. The information available with this office has been analyzed and I have framed my opinion after due application of all the facts in mind.
4. Findings of the AO:- Total deposits made in the bank accounts of the assessee for the A.Y. 2014-15 were of Rs. 9,01,18,102/-, out of which total cash withdrawals were for Rs. 4,32,20,840/-. The assessee has not made any compliance to the notices issued by the Investigation Wing of Raipur and thus the sources of deposit made in the bank accounts of Rs. 9,01,18,102 /- are unverifiable and thus unexplained. Therefore, the deposits made in the bank accounts maintained in the name of the assessee for Rs, 9,01,18,102/- has escaped assessment.
5. Basis of forming reason to believe and details of escapement of income:- On the basis of information available on record and the above facts and findings as discussed in para-2, 3 & 4, I have reason to believe that income of the assessee to the tune of Rs. 9,01, 18,102 /- has escaped assessment.
6. Applicability of the provisions of section 147/151 to the facts of the case:- ln this case the return of income was filed for the year under consideration & assessment for the relevant year has been made. The above income chargeable to tax has escaped assessment for the A.Y. 2014-15 by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment so far as each deposit in the bank accounts are concerned. In view of the above, provisions of clause (c) of explanation 2 to section 147 of the Act are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment.
In this case more than four years have lapsed from the end of assessment year under consideration. Hence necessary sanction to issue notice u/s 148 of the Act is required from the Principal Commissioner of Income Tax:1, Raipur as per the provisions of section 151(1) of the Act.
8. Based on aforesaid submissions, it was the prayer by Ld. AR that since the Assessing Officer, though have mentioned that ” The above income chargeable to tax has escaped assessment for the A.Y. 2014-15 by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment so far as each deposit in the bank accounts are concerned”, but was unable to point out specific error on the part of assessee in disclosing fully & truly all material facts necessary for assessment in the original assessment proceedings for the relevant year, therefore, the reopening initiated beyond 4 years after the end of relevant assessment year was invalid.
9. Before us, Ld. AR, further submitted that, during the assessment proceedings u/s 143(3) of the Act, which was completed on 29.11.2016, the assessee was required to furnished necessary details and documents including books of accounts, which were duly submitted by the assessee from time to time including bank statement of the assessee. He further submitted that the assessee has shown turnover of Rs. 10,02,02,884/- in his audited final accounts, also the impugned bank account of the assessee, transaction in which are the basis for reopening was duly reflected on the liability side of the assessee’s balance sheet under the head “loan fund”, sub head “secured loan” showing a credited balance of Rs. 1,36,01,828.90. All such facts were available before the Ld. AO, thus, the primary information requested was duly furnished by the assessee, therefore, there was no failure on the part of the assessee to disclose fully & truly all material facts at the time of original assessment u/s 143(3). On this aspect, Ld. AO placed his reliance on various judgments, out of which following relevant judgment along with findings therein are extracted for better appreciation and interpretation on the issue under consideration:
Shourya Infrastructure (P) Ltd v. ITO (Delhi) [04.12.2023]
19. It was contended by SIPL that since reopening was triggered after four (4) years from the end of relevant AY, as per the first proviso appended to section 147 of the Act, a case had to be made out that there was a failure on the part of SIPL to disclose fully and truly all material facts which were relevant for assessment.
20. This assertion was sought to be supported by referring to the following judgements:
| (i) | Haryana Acrylic Manufacturing co. v. CIT . |
| (ii) | Wei Intertrade Ltd. v. ITO |
| (iii) | CIT v. Suren International (P.) Ltd.,Delhi) |
21. Since the issue that triggered reassessment was an aspect that was inquired into by the AO while framing the assessment order dated 28-2-2014 under section 143(3) of the Act, SIPL averred that this was a case of change of opinion, both concerning the nature of the transaction, and the applicability of provisions under section 50 of the Act. Furthermore, because a query was raised and answered, the AO had no jurisdiction to reopen the assessment.
21.1 In this context, reliance was placed on the Full Bench decision rendered by this Court in CIT v. Usha International Ltd. ITR 69 (Bombay)and CIT v. Kelvinator of India Ltd. ITR 1 (Delhi)(Delhi) [2002] (Delhi) (FB), which was upheld by the Supreme Court in CIT v. Kelvinator of India Ltd.
22. It is also submitted on behalf of SIPL that the Principal Commissioner of Income-tax [in short, “PCIT”] did not apply its mind while granting his approval under section 151 of the Act. It was emphasized that he had appended the word “approved” without examining whether notice under section 148 of the Act was required to be issued in the instant matter.
23. In this regard, reliance was placed on the judgment rendered in United Electrical Co. (P.) Ltd. v. CIT (Delhi)(Delhi), Pr. CIT v. NC. cables Ltd.ITR 11 (Delhi) passed in [IT Appeal No. 335 of 2015, dated 11-1-2017] and CIT v. S. Goyanka Lime Chemicals Ltd.). It was highlighted that in S. Goyanka Lime, the approving authority had merely used the expression “Yes, I am satisfied”.
24. As noticed right at the outset, the objections filed by SIPL did not find favour with the AO, which led to the issuance of the impugned order, whereby SIPL’s objections were dismissed.
Submissions of Counsel
25. Given this backdrop, arguments for SIPL were advanced by Mr Ruchesh Sinha, Advocate, while Mr Vipul Agrawal, Senior Standing Counsel, advanced submissions on behalf of the respondents/revenue.
26. Mr Sinha re-emphasized the assertions made in the objections filed on behalf of SIPL, which we have broadly captured hereinabove. Therefore, for the sake of brevity, we do not intend to put them down once again.
27. As far as Mr Agrawal is concerned, according to him, the initiation of the reassessment proceeding against SIPL was in order, and in support of this stand, he made the following submissions:
| (i) | The arrangement between SIPL and STPL constituted a sham transaction. SIPL had sold the land and remitted almost the entire consideration to its flagship company, i.e., STPL. STPL, because of the loss incurred in the period in issue, showed the nominal amount received from SIPL as profit, which was set off against its losses, resulting in a large part of the revenue being lost. |
| (ii) | The AO had not examined the subject arrangement while framing the original assessment order, from the perspective of it being a sham transaction. This aspect has been brought to the fore in the reasons recorded by the AO, once he received the report of the OCM Cell. In support of this plea, Mr Agrawal placed reliance on the judgment rendered by the Supreme Court in Phool Chand Bajrang lal v. ITO . |
| (iii) | Both the Additional Commissioner of Income-tax [in short, “ACIT”] and PCIT had applied their mind before approving the initiation of the reassessment proceeding against SIPL. The fact that PCIT clearly stated that the action was approved was sufficient for the purposes of Section 151 of the Act. [See Pr. CIT v. Meenakshi Overseas Ltd. passed on dated 11-1-2016] in [IT Appeal No. 651 of 2015] |
| (iv) |
Analysis and Reasons
28. We have heard learned counsel for the parties. The essential facts which have been set forth hereinabove are not in dispute. Thus, what requires our consideration is whether this case necessitated the initiation of a reassessment proceeding. To reiterate, what is not in dispute are the following facts:
| (i) | Both SIPL and STPL are in the real estate business. The subject land was sold during the FY in issue for Rs. 1.51 crores. |
| (ii) | Under the MoU/agreement, which was executed between SIPL and STPL, SIPL retained Rs. 1,73,002/-, calculated at the rate of Rs. 1,00,000/- Per, qua the parcel of land which ad-measured 1.7230 acres. |
| (iii) | Accordingly, the profit that SIPL offered for the imposition of the tax was Rs. 1,73,002/-. The remaining profit, i.e., Rs. 46,93,536/- was transferred by SIPL to STPL after adjusting the cost of land, i.e., Rs. 1,02,33,462/against the sale consideration amounting to Rs. 1,51,00,000/-. STPL had included the income earned in its profit and loss account, which was set off against losses incurred by it. |
29. There is nothing on record to suggest or, at least, no information was furnished to us, about when the reassessment proceeding qua this transaction was triggered against STPL.
30. Undoubtedly, it is this very transaction that triggered reassessment vis-a-vis the petitioner/assessee. This is evident on a perusal of the reasons recorded by the AO on 303-2018.
31. The AO, however, among other things, took a view that this was a capital account transaction and, therefore, the provisions of Section 50C of the Act were applicable. Thus, keeping this in the backdrop, the AO concluded that the Difference between the consideration received by SIPL against the sale of the subject parcel of land and its value calculated based on the then prevailing circle rate was the income that had escaped assessment.
32. As indicated above, the AO pegged the escaped income at Rs. 57,30,000/-.
33. Although Mr Agrawal vehemently argued that the provisions of section 50C of the Act were not the foundation of the reasons that were recorded, the plain text reads otherwise.
34. Quite obviously, Mr Agrawal wanted to move away from this aspect of the matter, as section 50C of the Act has no application in the facts of this case. Section 50C applies only when there is a transfer of a capital asset. However, it is clear that the subject land was a stock-in-trade, since SIPL was involved in the real estate business. This fact emerges from a perusal of the assessment order dated 28-2-2014 as well, wherein the AO has observed the following:
“The assessee company is engaged in the business of real estate and land development.”
34.1 This conclusion is buttressed by the fact that the subject land was treated as stock-intrade in the hands of SIPL as well as STPL. Thus, the AO, according to us, committed an error in taking recourse to Section 50C ofthe Act.
34.2 Because the AO took recourse to section 50C of the Act, he proceeded to arrive at the escaped income by calculating the value of the land based on the then prevailing circle rate, after adjusting it against the sale consideration.
34.3 This, according to us, was a fatal error.
34.4 Apart from the above, what has emerged is that although reassessment had been triggered, concededly, after the end of four (4) years from the date of the end of relevant AY and at the end of the cusp of the sixth (6) year, i.e., on 31-3-2018, the AO did not allege that SIPL had failed to disclose fully and truly all material facts which were necessary for carrying out the assessment. This, according to us, was a grave folly. The reason, perhaps, why the AO did not allude to this aspect was because queries were raised during the original assessment, which included questions concerning the sale of the subject land. More particularly, answers were furnished by SIPL, along with the relevant documents and material sought by the AO.
Income Tax Officer v. Parmanand Gupta Trib.) [04.08.2022] in ITA No. 82/2017
(B) Reopening of the assessment in absence of any failure on the part of the assessee in filly and truly disclosing all material facts necessary for assessment:-
13. Admittedly, it is a matter of fact borne from record that the original assessment in the case of the assessee was framed by the A.O u/s. 143(3) of the Act, dated 18-6-2010. Notice u/s.148 of the Act was thereafter issued by the A.O on 23-32015. Accordingly, as the case of the assessee was reopened beyond a period of 4 years from the end of the relevant assessment year, therefore, as claimed by the Ld. AR, and rightly so, as per the “first proviso” to section 147 of the Act the case could have been validly reopened only where the income chargeable to tax had escaped assessment for the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. However, a perusal of the aforesaid “reasons to believe” reveals that the case of the assessee was reopened for the reason that there were substantial cash deposits in his bank account which could not be substantiated by the assessee. As the case of the assessee had not been reopened for the reason that certain income chargeable to tax had escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts that were necessary for his assessment, therefore, there is substance in the claim of the Ld. AR that as per the mandate of the “first proviso” to section 147 the concluded assessment of the assessee could not have been validly reopened beyond a period of four years from the end of the relevant assessment year. Our aforesaid view is supported by the judgments of the Hon’ble High Court of Delhi in the case of Pn CIT v. Superior Films (P.) Ltd. [IT Appeal No. 153 of2020, dated 19-7-2021] and in the case of CIT v. Viniyas Finance & Investment (P.) Ltd. [IT Appeal No. 271 of 2012, dated 11-2-2013]. Also, a similar view had been taken by the Hon’ble High Court of Bombay in the case of Ananta Landmark (P.) Ltd. v. Dy. CIT [2Q21] 131 t@xmann.com 52ITR 168 (Bombay)/432ITR 168/[WPNo. 2814 of 2019, dated 14-92021].
14. At this stage, we may herein observe that the Hon’ble High Court ofDelhi in the case of Haryana Acrylic Manufacturing Co. v. CIT(Delhi), had observed, that in any case where the reasons did not even contain an allegation that the escapement of income had occasioned due to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, then, the A.O would be barred from reopening the assessment already framed. Apart from that, we find that the Hon’ble Supreme Court in the case of New Delhi Television Ltd. v. Dy. CIT ITR 607 (SC) had, inter alia, held that though the assessee is obligated to disclose the “primary facts”, but it is neither required to disclose the “secondary facts” nor required to give any assistance to the A.O. by disclosure of the other facts and it is for the A.O. to decide what inferences are to be drawn from the facts before him. It was categorically observed by the Hon’ble Apex Court that the extended period of limitation for initiating proceedings under the “first proviso” to Section 147 of the Act would only get triggered where the assessee hadfailed to disclose fully and truly all materialfacts necessary for its assessment.
15. As the assessee in the case before us had disclosed all material facts necessary for its assessment, therefore, we are of the considered view that the A.O. as per the limitation provided in the “first proviso” to sec. 147 was divested of his jurisdiction for reopening the concluded assessment of the assessee beyond a period offour years from the end of the relevant assessment year i.e, AY 2008-09. As in the case before us the original assessment had been framed by the A.O. vide his order passed u/s. 143(3), dated 18-6-2010 therefore, in absence of any allegation on the part of the department that the income of the assessee chargeable to tax had escaped assessment for reason offailure on his part to disclose fully and truly all material facts necessary for assessment, the A.O. as per the mandate of the ‘first proviso’ to sec. 147 of the Act could not have assumed jurisdiction for reopening the concluded assessment of the assessee beyond a period offour years from the end of the assessment year i.e, beyond 31-32013. We, thus, concur with the claim of the Ld. AR that as the A.O. had acted in defiance of the “first proviso” to sec. 147 of the Act and had wrongly assumed jurisdiction and reopened the case of the assessee beyond a period of 4 years from the end of the relevant assessment year, therefore, the assessment order so passed by him on the said count too cannot be sustained and is liable to be struck down.
10. Backed by aforesaid submissions, it was the request by Ld. AR that as in the present case, nothing to be brought on record by the ld. AO that there was a failure on the part of assessee during the original assessment u/s 143(3) for the relevant year as all the primary facts and information sought from the assessee were submitted to the Ld. AO, therefore, the mandate of first proviso to section 147 that the reopening is not permissible unless any income chargeable to tax has escaped assessment by reason of the failure on the part of assessee to disclose fully and truly all material facts necessary for his assessment. Dehors establishing such facts in the present case the reopening exercised by the Ld. AO u/s 147/ 148 is without the mandate of law, invalid, void ab initio and therefore, is liable to be quashed.
11. Contradicting the aforesaid contentions of the assessee, Ld. Sr. DR, Dr. Priyanka Patel representing the revenue, strongly supported the orders of the revenue authorities stating that, as certain information from the Investigation Wing was come to the knowledge of the Ld. AO after the completion of assessment u/s 143(3), therefore, there was sufficient cause with him to reopen assessment. It is further argued that the Ld. AO had made the allegation in reasons recorded that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment so far as each deposit in the bank accounts are concerned, accordingly, the reopening was justified and in accordance with law. It was the prayer therefore, that the order of Ld. AO and Ld. CIT(A) are justifiable, reasoned and in accordance with the provisions of law, thus, deserves to be uphold.
12. We have considered the rival submissions, perused the material available on record and case laws relied upon by the Ld. AR.
13. On perusal of the reasons recorded dated 30.03.2021, it is transpired that an allegation regarding the failure on the part of assessee was noted by the Ld. AO qua the deposits in bank accounts of the assessee. The bank account in which such deposits were made are duly reflecting in the audited financials of the assessee which were furnished before the Ld. AO in the original assessment u/s 143(3). It is an admitted fact in the present case that the notice u/s 148 for reopening assessment was issued to the assessee on 30.03.2021 for the AY 2014-15, therefore, the reopening proceedings are initiated after the expiry of 4 years from the end of the relevant AY. Under such a situation the reopening was permitted only in a case where there was a failure on the part of assessee to disclose fully & truly all material facts necessary for his assessment. The controversy in the present case arises when certain information was received by the Ld. AO for investigation wind that there were huge RTGS deposits in the assessee’s bank account which were withdrawn substantially in cash, which prompted the Ld. AO for reopening of the assessee’s case. At this juncture, it is to be appreciate that the present case was earlier assessed u/s 143(3) and during the original proceedings, there was no allegation of non-compliance on the assessee. There were observations by the Ld. AO in the original assessment proceedings regarding turnover of the assessee of Rs. 10,02,02,884/-, certain disallowance on account of low GP rate and lump sum addition towards certain expenses have been carried out, therefore, it is evident that the books of accounts and relevant material was undergone the scrutiny by the Ld. AO. In such a situation, it cannot be said that the requisite information was not furnished by the assessee in the original assessment and there was any failure on this count on the part of assessee. Herein, we may take support from the order of Hon’ble Apex Court in the case of New Delhi Television Ltd. v. DCIT (supra), wherein it is held that the assessee is obligated to dislodge the primary facts, it is neither required to disclose the secondary facts nor required to give any assistance to the Ld. AO by discloser of other facts, it is for the Ld. AO to decide what inference are to be drawn from the facts before him.
14. After a thoughtful consideration of the aforesaid facts, circumstances, observations and respectfully following the settled principles of law, we are of the considered opinion that in present case the revenue, though have alleged so in the reasons to believe, but unable to substantiate any failure on the part of assessee to disclose fully & truly all material facts necessary for his assessment. We, thus, find force in the contentions raised by the Ld. AR through the first ground of the present appeal, that the reopening proceedings have been initiated against the assessee beyond a period of 4 years, wherein an assessment u/s 143(3) was already completed on 19.11.2016, therefore, the instant case is squarely falls withing the scope of the provisions of first proviso to section 147, but the action of Ld. AO was not in harmony with the said provision, accordingly, the jurisdiction assumed by the Ld. AO was not tenable in the eyes of law, therefore, the assessment order passed u/s 147 r.w.s. 144 r.w.s. 144B dated 26.03.2022 on the foundation of such invalid jurisdiction has not sanctity, thus, unsustainable and is liable to be annulled.
15. Since we have quashed the assessment u/s 147 r.w.s. 144 r.w.s. 144B dated 26.03.2022, framed by the Ld. AO in terms of our aforesaid observations in consideration to the ground no. 1 of the present appeal, therefore, the other contentions raised by the assessee on merits and legality under various grounds and additional grounds are not alluded upon, thus, are left open.
16. Resultantly, the present appeal of the assessee in ITA No. 157/RPR/2024 has been rendered as allowed.