Income Tax Appellate Tribunal - Delhi
Anil Gupta vs Assessing Officer on 4 June, 2004
Equivalent citations: (2005)96TTJ(DELHI)798
ORDER
I.S. Verma, J.M. In this appeal, the assessee has objected to the order of the CIT(A), dated 26-9-2003, by way of following grounds :
"1. The order of the learned CIT(A) is bad in law and on facts.
2. The learned CIT(A) has erred in law and on facts by summarily dismissing the appellant's contention that the proceedings were pending on the date of issuance of notice under section 148 of the Act and, therefore, the entire assessment proceedings were illegal and liable to be quashed.
3. The entire procedure followed for reopening the assessment was without jurisdiction and invalid.
4. The learned CIT(A) has erred in law and on facts in dismissing the aforesaid contention of the appellant without appreciating or even considering the detailed facts and various judicial pronouncements in spite of heavy reliance having been placed on the same by the appellant.
5. The learned CIT(A) has erred in failing to consider and appreciate the fact that, the reassessment proceedings were initiated through a mere change of opinion by the Assistant Commissioner.
6. The learned CIT(A) has erred in law and on facts in confirming the addition of Rs. 1,27,000 to the income of the appellant.
7. The learned CIT(A) has erred in confirming an addition of Rs. 27,000 being deemed interest @ 18 per cent on interest-free loan of Rs. 1,50,000 given by the appellant.
8. The learned CIT(A) has passed a brief and cryptic order without considering the detailed submissions made and various case law relied upon by the appellant during the assessment as well as the appellate proceedings.
9. The appellant may kindly be permitted to raise any further ground(s) of appeal at the time of hearing before Your Honour."
I have heard the learned counsel for the assessee as well as the learned Departmental Representative.
2. The facts relating to the issue involved in this appeal and as have been revealed from the records are that the assessee, who was carrying on the business of contractor had furnished his return of income for assessment year 1996-97 declaring an income of Rs. 73,860 on 18-2-1997, which was processed under section 143(1)(a) of the Act on 21-3-1997, Later on, the assessing officer, probably on the basis of some audit objections, came to know that in Form No. 16A filed by the assessee along with the return of income, which was issued by M/s Madhusudhan Industries Ltd., Ceramic Division, Kadi on 10-10-1995, which was enclosed by the assessee along with the return, the tax deducted at source was Rs. 2,830 (@ 2 per cent). The assessing officer, therefore, calculated the total receipts on which tax of Rs. 2,830 could be deducted and arrived at the conclusion that the total payment made to the assessee by M/s Madhusudhan Industries Ltd. was Rs. 1,41,496 which, according to the assessing officer, had resulted in escapement of an income of Rs. 1,27,000 from assessment, because the assessee had shown the income on this account only at Rs. 14,496.
The assessing officer first proceeded to assess the alleged escaped income of Rs. 1,27,000 in exercise of his powers under section 154 of the Income Tax Act and, therefore, issued a notice under section 154 on 1-5-1999, wherein the nature of mistake proposed to be rectified was mentioned as under :
"Income is to be increased by Rs. 1,27,004 as gross payments on the TDS of Rs. 2,830 works out to Rs. 1,41,500 as against shown at Rs. 14,486, thus resulting in short computation of income by Rs. 2,37, 000. "
When the proceedings under section 154 were pending, the assessing officer initiated proceedings under section 147 of the Act by recording the following reasons and issued notice under section 148 of the Act :
"Reasons for issue of notice under section 148.
Brief facts of the case are that the return of income in this case was filed on 18-2-1997 declaring an income of Rs. 73,850 which was processed under section 143(1)(a) of the Income Tax Act, 1961, on 25-3-1997, and refund of Rs. 47,500 was allowed to the assessee. Later on, it came to the notice that TDS of Rs. 2,830 included in the amount of Rs. 5,093 and further included in the amount of Rs. 53,482 deduced on 9-9-1995, @ 2 per cent by M/s Madhusudhan Industries Ltd. (Cement Division), has been allowed to the assessee. Gross payments on the TDS of Rs. 2,830 works out to Rs. 1,41,500 (2,850 x 100/2) whereas the assessee has shown at Rs. 14,496 only resulting thereby short computation of income at Rs. 1,27,000 (1,41,500 - 14,496) which requires to be taxed.
I have, therefore, reasons to believe that income of Rs. 1,27,000 chargeable to tax has escaped assessment by reasons of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment year 1996-97."
The assessee objected to the validity of proceedings under section 147 of the Act as per his letters dated 11-2-2003 and 7-3-2003.
3. In these replies, the assessee had objected to the validity of proceedings under section 147 of the Act and had also submitted that on merits also there is no escapement of any income, as alleged by the assessing officer, because the assessee had got the work done from a sub-contractor as per written agreement dated 25-7-1995, a copy of which was also filed. The assessee further submitted that since it had paid an amount of Rs. 1,27,000 to the sub-contractor, the net payments shown by the assessee at Rs. 14,496 were correct payments.
The assessing officer, however, rejected assessee's all objections and completed the assessment after making an addition of Rs. 1,27,000. The assessing officer made another addition of Rs. 27,000 on account of notional interest. income on loans and advances amounting to Rs. 1,50,000; interest under section 234B/C was also. charged.
The assessee went in appeal before the CIT(A) and objected to the assessment, both on legal grounds as well as on merit, and reiterated the submissions made before the assessing officer. The CIT(A) confirmed the validity of initiation of proceedings under section 147 of the Act as well as additions of Rs. 1,27,000 and Rs. 27,000.
4. It was in view of the above facts and circumstances that the counsel for the assessee vehemently pleaded that the initiation of proceedings under section 147 and consequential issue of notice under section 148 of the Act during the course of pendency of proceedings under section 154 of the Act were illegal and bad in law, because, according to him, the proceedings under section 154 are nothing but continuation of assessment proceedings, which means that during the course of proceedings under section 154, the assessment proceedings remain open. In support of these submissions, the learned counsel has relied on the following cases :
(i) S. Sankappa v. ITO (1968) 68 TTR 760 (SC)
(ii) P.M. Bharucha & Co. v. G.S. Venkatesan, ITO (1969) 74 ITR 513 (Guj)
(iii) CIT v. J.K Commercial (1976) 105 ITR 219 (SC)
(iv) CIT v. Srikishan Dass (1980) 125 ITR 730 (Del)
(v) Bihar State Road Transport Corpn. v. CIT (1986) 162 ITR 114 (Pat) In support of his claim that proceedings under section 147 could not be initiated during the pendency of proceedings under section 154 of the Act, the learned counsel relied on the following decisions
(i) Ghanshyam Das v. ASC (1964) 51 ITR 557 (SC)
(ii) S.P. Kochhar v. ITO (1983) 145 ITR 255 (All)
(iii) Hargovind Singh Narain Singh v. CIT (1973) 90 ITR 435 (Bom)
(iv) ASSP & Co. v. CIT (1988) 172 ITR 274 (Mad)
(v) Trustees of HEH The Nizam's Supplemental Family Trust v. CIT (2000) 242 ITR 381 (SC)).
The learned counsel further submitted that reopening of assessment is not permissible unless notice under section 154 issued by the assessing officer is disposed of with reasons and for this purpose reliance was placed on the case of Damodhar H. Shah v. Asstt. CTT (2000) 245 ITR 774 (Guj).
The learned counsel further submitted that the reopening was also not valid unless tangible, direct material or information is in possession of the assessing officer, meaning thereby that reopening of the assessment simply on the basis of change in opinion is not justified. According to the learned counsel, so far as the present case is concerned, the assessing officer first having initiated proceedings under section 154 of the Act could initiate proceedings under section 147 only due to change in opinion, which was not permissible in law. Reliance was placed on the following decisions
(i) United Electrical Co. (P) Ltd. v. CIT (2002) 258 ITR 317 (SC)
(ii) CIT v. Kelvinator India (2002) 256 ITR 1 (Del)(FB).
The learned counsel further submitted that even otherwise, the information in possession must be specific and the reopening of the assessment is not permissible simply on the basis of suspicion. According to him, so far as the assessee's case is concerned, by the time the assessing officer initiated proceedings under section 147 of the Act, the assessing officer had no specific material that income had escaped assessment. According to the learned counsel, it was only assessing officer's suspicion and since it is settled law that reopening cannot be justified on the basis of suspicion or for making of rowing enquiries, the same may be declared bad in law. The learned counsel further submitted that it has been held by the Honble Supreme court in the case reported in (2000) 242 ITR 381 (SC)) at p. 391 (supra), that assessee cannot be subjected to two types of proceedings and, therefore, reassessment proceedings were bad in law. On the merits of the addition of Rs. 1,27,000, the learned counsel submitted that in view of the assessee having entrusted the work to a sub-contractor, to. Whom the payment of Rs. 1,27,000 was made, there was no escapement of income from tax and in support of this had relied on the copy of the agreement arrived at by the assessee with Shri Mahender Vaghela, s/o Sh. S.L. Vaghela, copy of which has been placed on record. With regard to the addition of Rs. 27,000, on the basis of alleged notional interest on interest-free loan and advances given by the assessee, the learned counsel for the assessee after referring to assessee's balance sheet as on 31-3-1996 (copy placed at p. 8 of assessee's paper book), submitted that the assessee had not procured any loan either on interest or free of interest and whatever loans or advances were given free of interest, were out of assessee's own capital. According to the learned Counsel, under these circumstances there was no reason for the assessee to be have utilised any interest bearing loans for purposes other than business and so far as giving of interest-free loans and advances out of assessee's own capital is concerned, the law does not prescribe for charging of interest, i.e., it is assessee's option to charge or not to charge interest and revenue cannot compel the assessee to charge the interest. He, therefore, submitted that the addition was absolutely illegal and bad in law.
The learned Departmental Representative, on the other hand, supported the order of the CIT(A).
5. I have considered the rival submissions, facts and circumstances of the case and various decisions relied upon by the parties.
6. After careful consideration of the totality of the facts and circumstances of the case, I am inclined to agree with the submission of the learned counsel for the assessee that the assessing officer had no jurisdiction to initiate proceedings under section 147 and consequently, initiation of notice under section 148 of the Act for taxing the same income, which the assessing officer had made the subject-matter of proceedings under section 154, because, as held by the Honble Supreme Court in the case of Trustees of HEH The Nizam's Supplemental Family Trust v. CIT (supra), an assessee cannot be subjected to two types of proceedings at one time.
I am also in agreement with the submission of the learned counsel that during the course of pendency of proceedings under section 154, the assessment remains pending and support is sought from the decision relied on by the learned Counsel for the assessee and recorded in the foregoing part of this order.
7. Even otherwise, I am of the opinion that the assessing officer having proceeded to tax the alleged income of Rs. 1,27,000 by exercising his powers under section 154 of the Act, had no jurisdiction to tax the same income by initiating Proceedings under section 147 of the Act, irrespective of the fact as to whether proceedings under section 264 had been pending or had been concluded. It is so because if the proceedings under section 147 were initiated during the pendency of proceedings under section 154 of the Act, then the same were iliegal, and bad in law, as has been held above, and in case the proceedings under section 154 had been concluded, then it was only due to change in opinion, and this conclusion is supported by the decisions in the following cases :
(i) VXL India Ltd. v. Asstt. CTT (1995) 215 ITR 295 (Guj)
(ii) Birla VXL v. Asstt. CIT (1996) 217 ITR 1 (Guj)
(iii) CIT v. EDI Parry Ltd. (1995) 216 ITR 489 (Mad).
In the cases of VXL India Ltd. (supra) and Birla VXL Ltd. (supra), the Hon'ble High Court has held that "howsoever the wide scope for taking action under section 147 read with section 148 may be, it does not confer jurisdiction on 'change of opinion' on the interpretation of a particular provision earlier adopted by the assessing officer. The scope of section 147 is not for reviewing its earlier order sue motu irrespective of there being any material to come to different conclusion apart from just having second thought about the inference drawn earlier." Similarly, in the case of VXL India Ltd. (supra), the Hon'ble High Court of Gujarat has, on the facts of the case, held that the assessing officer merely wanted to change basis of valuing cost of assets for the purpose of reducing the amount of deduction without specifying any reason why the basis of valuing assets earlier was considered by him to be erroneous. Yet, in another case of Birla VXL Ltd. (supra), Hon'ble High Court on the facts of that case, quashed the proceedings by holding that the assessment proceedings under section 147 were initiated on the ground that while making out book profit as per provisions of section 115J, in relation to assessment year 1990-91, certain assets were erroneously included without indicating reason in that regard.
In view of that discussion, it is quite clear that if the assessing officer has preferred to apply a particular provision, then, later on, if. he proceeds to shifts his stand and adopts a procedure to apply some other provision, then such action will be termed as due to change in opinion, which, as per the settled provisions of law cannot be justifiable reason for initiating proceedings under section 147 of the Act.
8. So far as the decision of the Hon'ble High Court of Madras in the case of EDI Parry Ltd. (supra) is concerned, that assessee which was a company had furnished its returns of income for the assessment years 1968-69 and 1969-70 which were accepted by the Income Tax Officer after due enquiry. Later on, the assessing officer initiated proceedings under section 147(b) of the Act and issued notice under section 148 which resulted in substantial change in assessments and demand of tax. The assessee appealed against the said orders and while appeals were pending, the Income Tax Officer decided to write to the appellate authority to take recourse to the proceedings for rectification of mistake under section 154 of the Act, when it was not satisfied about the reopening under section 147(b) of the Act and notwithstanding the pendency of the appeals and the letter which he had written to the appellate authority, the assessing officer took up proceedings allegedly for rectification of mistake apparent from the record under section 154 of the Act and, therefore, rectified the original assessments. The assessments framed in consequence upon the notices issued under section 147(b) were cancelled. The assessee challenged the orders of rectification and it was in this context the Hon'ble High Court of Madras quashed the rectification order and the observations of the Hon'ble High Court at page No. 489 of the Report read as under :
"The provisions for rectification of error apparent on the record and for taking proceedings regarding escapement are common features in the tax laws and they are to be involved in different circumstances. The Income Tax Officer can have recourse to one or the other, but he must have recourse to the appropriate provisions having regard to the facts and circumstances in each case, In cases where the two appear to overlap, the Income Tax Officer must choose one in preference to the other and proceed. He should not take one as the appropriate proceedings and give it up at a later stage to have recourse to the other, since such proceedings are quasi-judicial and adjudication after notice is intended for the same purpose. In such a case of overlapping, constructive res judicata and not the statutory inhibition should make the Income Tax Officer resist from using one proceeding after the other instead of using one of the two with due care and caution.
So far as the present case is concerned, it is an admitted fact that the assessing officer had first initiated proceedings under section 154 of the Act proposing to tax the income of Rs. 1,27,000, computed on the basis of TDS certificate issued by M/s Madhusudhan Industries Ltd., because assessee had shown the receipts at Rs. 40,496 as against Rs. 1,41,496 computed by the assessing officer during the pendency of these very proceedings initiated under section 147 of the Act and issued notice under section 148 for taxing the same income, as is evident from the reasons recorded by the assessing officer (extracted in earlier part of this order),
9. In view of the above admitted facts, I, after relying on various decisions referred to by the learned counsel for the assessee and also the decision of the Hon'ble Madras High Court (supra) and also of Hon'ble Gujarat High Court (supra), have no hesitation to hold that proceedings under section 147 in the present case were initiated only due to change in opinion, which cannot be sustained in law. Consequently, the initiation of proceedings under section 147of the Act is held to be bad in law and illegal.
10. Having held as above, the natural outcome to be held is that all subsequent proceedings, i.e., issuing of notice under section 148 and making of consequential assessment also have to be declared illegal and bad in law, and I hold so.
11. In view of the above discussions, the assessment in the present case dated 17-3- 2003, is declared illegal, bad in law and, therefore, cancelled.
12. So far as merits of the case are concerned, I am of the opinion that the assessee has to succeed on merits also because of the following reasons :
1. So far as the assessee's claim that it had entrusted the work to a subcontractor and had paid an amount of Rs. 1,27,000, resulting in net payment to the assessee at Rs. 14,496, having not been refuted by the revenue by way of any cogent material, the assessee's version has to be accepted and once it is accepted, then there remains nothing to be added to the assessee's income. The addition of Rs. 1,27,000, therefore, gets deleted.
2. So far as the addition of Rs. 27,000 is concerned, I am again of the opinion that the revenue having not disputed the correctness of assessee's balance sheet as on 31-3-1997, which amply clarifies that the assessee had not raised a single penny as interest bearing loan, there was no question of considering any interest bearing loan to have been used for purposes other than business and so far as giving of interest-free loans or advances out of one's own capital is concerned, the law does not compel the assessee for charging of any interest. The addition of Rs. 27,000 was, in my opinion, absolutely on the basis of conjectures and surmises and without application of mind by the authorities below. The same is, therefore, directed to be deleted.
13. In the result, the assessee's appeal is allowed.