Income Tax Appellate Tribunal - Kolkata
Shree Prakash Chhawachharia (Huf), ... vs I.T.O.,Ward-36(2), Kolkata on 24 February, 2021
IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA 'A' BENCH, KOLKATA
(Before Sri J. Sudhakar Reddy, Hon'ble Accountant Member & Sri Aby T. Varkey, Hon'ble Judicial Member)
ITA No. 1622/Kol/2019
Assessment Year: 2011-12
Shree Prakash Chhawchharia (HUF)......................................................................................Appellant
4th floor
R/No. 51
1, R.N. Mukherjee Road
Kolkata - 700 001
[PAN : AARHS 0125 B]
Vs.
Income Tax Officer, Ward-36(2), Kolkata...........................................................................Respondent
Appearances by:
Shri Miraj D. Shah, A/R, Advocate, appeared on behalf of the assessee.
Shri Dhrubajyoti Ray, JCIT, D/R, appearing on behalf of the Revenue.
Date of concluding the hearing : February 10th, 2021
Date of pronouncing the order : February 24th, 2021
ORDER
Per J. Sudhakar Reddy, AM :-
This appeal filed by the assessee is directed against the order of the Learned Commissioner of Income Ta (Appeals)-10, Kolkata, (hereinafter the "ld. CIT(A)"), passed u/s. 250 of the Income Tax Act, 1961 (the 'Act'), dt. 30/05/2019, for the Assessment Year 2011-12.
2. The assessee is a HUF and is in the business of commodity transaction and other sources. He filed its return of income originally u/s 139 of the Act. Notice for reopening of this assessment was issued u/s 148 of the Act. The assessee replied that the original return filed by it u/s 139 of the Act, may be treated as a return filed in response to the notice u/s 148 of the Act. To state briefly, the reopening of the assessment was done for the reason that the assessee has not declared income of Rs.9,62,385/-, earned by it from commodity profit from National Multi Commodity Exchange (NMCE) during the Financial Year 2010-11. The Assessing Officer in his order u/s 143(3) r.w.s. 147 of the Act, determined the total income of the assessee at Rs. 53,09,020/-. While doing so, the Assessing Officer held that the assessee had already offered to tax, the profit on commodity trading earned by the assessee of Rs.9,62,385/- in his original return of income. In other words this income was declared by the assessee in its original return of income. He later observed that a detailed analysis of saudas, the losses booked by the assessee cannot be allowed. Thus, he disallowed the claim of loss made by the assessee from commodity trading on a platform of NMCE and he made an addition of 2 ITA No. 1622/Kol/2019 Assessment Year: 2011-12 Shree Prakash Chhawchharia (HUF) Rs.52,17,270/-. Aggrieved the assessee carried the matter in appeal before the ld. CIT(A) without success.
3. Further aggrieved, the assessee is in appeal before us.
4. The ld. Counsel for the assessee submitted that, the assessment order is bad in law for the reason that the Assessing Officer has not made any addition on the basis of issue on which the reasons was recorded for reopening of the assessment. He submits that once no addition is made on the issues based on which the reasons for reopening was recorded by the Assessing sessing Officer, then no addition can be made on other issues which are not part of any reasons recorded for re re-opening.. For this propositions, he relied on the judgment of the Hon'ble Bombay High Court in the case of Commissioner of Income Tax vs. Jet Airways reported in 331 ITR 236 (Bom.) and the judgment of the Hon'ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. v. CIT reported in 336 ITR 136 (Del.) and the judgment of the Hon'ble Jurisdictional High Court in the case of ITAT No. 60 of 2014 in GA No. 1736 of 2014 CIT Vs. M/s. Infinity Infotech Parks Ltd.
Ltd... He relied on the order of this Bench of the Tribunal in the case of ACIT vs Harsh Vardhan Neothia in ITA Nos. 2143 & 2144/Kol/2019; Assessment Year 2006 2006-07, 07, order dt. 14/08/2020 and submitted that all the judgments on this issue were considered and applied in this case by the Kolkata Bench of the ITAT.
5. On merits, he submitted that, the assessee has conducted all the transactions in question on the NMCE platform. He pointed out that the Assessing Officer had written to the authorities in NMCE by issuing notice u/s 133(6) of the Act and that the NMCE had confirmed all the transactions. Thus, he submits that the Assessing Officer has no material whatsoever to come to the conclusio conclusionn that loss in question cannot be allowed. He filed a paper book containing copies of contract notes from 1) M/s. Prognosis Commodities Pvt. Ltd., 2) M/s. Bhootnath Commodities Pvt. Ltd., and 3) M/s. Goenka Capital Market Services Ltd. of ledger accounts, bills etc., and submitted that this is a case where the Assessing Officer has not conducted any enquiry on his own or verified the evidences/documents filed and has only relied on general observations made by the Investigation Wing of the Department and made the disallowance.. He prayed for relief.
6. The ld. D/R, on the other hand, submitted that it is true that no addition was made by the Assessing Officer on the profit earned on commodity transactions of Rs.9,62,385/-, which was the reason recorded for th thee reopening of the assessment. At the same time, he 3 ITA No. 1622/Kol/2019 Assessment Year: 2011-12 Shree Prakash Chhawchharia (HUF) submitted that this does not prevent the Assessing Officer from verifying all the transactions of the assessee with NMCE and assessing the income correctly. He relies on the order of the Assessing Officer as well as the ld. CIT(A) and argued that the saudas placed by the assessee were immediately squared off by the counter party and they were synchronizing trading. He argued that by organising commodity transactions, the assessee had made huge artificial loss of Rs.19,89,350/- from M/s. Prognosis Commodities Pvt. Ltd. and loss of Rs.32,27,740/ Rs.32,27,740/- by trading from M/s. Anand Resources (Bhoothnath Commodites). He prayed that the order of the ld. CIT(A) be upheld.
6.1. The ld. Counsel for the assessee submitted tthat hat just because certain allegations are made by the Department against a third party with whom the assessee has traded, no disallowance can be made in the hands of the assessee when all trades are confirmed as having been done on the platform of NMCE by NMCE itself.. He prayed for relief.
7. We have heard rival contentions. On careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, we hold as follows:
follows:-.
8. On the first issue, there is no dispute on the fact that the Assessing Officer has not made an addition of Rs.9,62,385/ Rs.9,62,385/- being profit earned by the assessee on commodity trading which was the reasons for the Assessing Officer to believe that income subject to tax has escaped aped assessment, based on which, reasons were recorded and reopening of assessment was done u/s 147 of the Act. The question is, when no addition is made on the issue on which the assessment was reopened, is it open for the Assessing Officer to make additions or disallowance on other issues which were not the reason recorded for re-
re opening the assessment.. Th Thee Hon'ble Jurisdictional High Court in the case of M/s. Infinity Infotech Parks Ltd. (supra) from para 9 to 11, has held as follows:
follows:-
"9.
9. It should be kept in mind that the concept of assessment is governed by the time barring rule and the assessee acquires a right as to the finality of proceedings. Queitus of the completed assessment is the Fundamental Rule and exception to this rule is Re- opening of assessment by AO under section 147 or exercise of Revisional jurisdiction by CIT under section 263 of the Act. Therefore, the Parliament in its wisdom has provided safeguards for exercise of the reopening of assessment jurisdiction to AO; and revisional jurisdiction of CIT by providing condition precedent which is sine qua non for assumption/usurpation of jurisdiction. In the case of reopening of assessment, the reason to believe escapement of income is the jurisdictional fact and law (mixed question uestion of fact and law) and for revisional jurisdiction the order of the AO should be erroneous as well as prejudicial to the revenue. Unless the condition precedent is not satisfied, the AO or the CIT can exercise their reopening jurisdiction or revisionrevisional 4 ITA No. 1622/Kol/2019 Assessment Year: 2011-12 Shree Prakash Chhawchharia (HUF) jurisdiction respectively. The legislative history in respect to the reopening u/s. 147 of the Act, is that the Parliament by Direct Tax Laws (Amendment) Act 1987 w.e.f. 01.04.1989 had substituted "for reason to believe escapement of income" to 'for rea reasons to be recorded by him in writing, is of the opinion'' which gave unbridled subjective satisfaction to the AO was later substituted back to 'reason to believe escapement of income'', by the Direct Tax Laws (Amendment) Act, 1989. The Hon'ble Apex Court as well as the Hon'ble High Courts have already held in plethora of cases the test of a prudent person instructed in law in understanding jurisdictional fact and law (mixed question of fact and law) the reason to believe escapement of income (supra). For reopening eopening the assessment by the AO the condition precedent of reason to believe escapement of income is sine qua non. It must be kept in mind that reasons to believe postulates foundation based on information and belief based on reason. Even if there is foundation ndation based on information, still there must be some reason warrant holding the belief that income chargeable to tax has escaped assessment. It has to be kept in mind that the Hon'ble Supreme Court in Ganga Saran & Sons P. Ltd. Vs. ITO (1981) 130 ITR 1 (SC) SC) held that the expression "reason to believe" occurring in sec. 147 "is stronger" than the expression "if satisfied" and such requirement has to be met by the AO in the reasons recorded before usurping the jurisdiction u/s. 147 of the Act. We note that before the AO assumes jurisdiction to rere-open open it is necessary that the conditions laid down in the said section 147 has to be satisfied viz., AO should record "reason to believe" that the income chargeable to tax for that assessment year has escaped assess assessment.
ment. If this condition is not satisfied at the first place, then it cannot be said the AO has validly assumed jurisdiction u/s. 147 of the Act. Therefore, the question for consideration is whether on the basis of the reasons recorded by the AO, he could h have ave validly usurped the jurisdiction to reopen and reassess the assessee on a different issue which has not found place in the reason recorded, when the fact is that the precise basis (issue) recorded in reasons to believe escapement of income has disappea disappeared red or dropped. For that it has to be seen as to whether the AO on the basis of whatever material before him, [which he had indicated in his "reasons recorded"] the AO had reasons warrant holding a belief that income chargeable to tax has escaped assessmen assessment.
t. It is important to remember that the reasons recorded by AO to reopen has to be evaluated on a stand stand-alone alone basis and no addition/extrapolation can be made or assumed, while adjudicating the legal issue of AO's usurpation of jurisdiction u/s. 147 of the Act. Moreover, the Parliament has given power to AO to reopen the assessment, if the condition precedent as discussed above is satisfied, and not otherwise. It has to be kept in mind that the jurisdictional fact and law is the 'income' which according to A AO, O, escaped assessment, which he has to spell out while recording reasons for reopening u/s. 147 of the Act. This "income" which has escaped assessment and which according to him, constituted the basis/foundation for reopening is precisely the jurisdictiona jurisdictionall fact and law which empowered him to usurp the jurisdiction to reopen and reassess the escaped income as contemplated u/s. 147 of the Act. We note that in the present case in hand notice u/s. 148 for reopening was issued on 17.02.2015 and the reasons reco recorded rded for reopening the assessment was that the assessee has suppressed the actual production of iron ore to the tune of 8,78,079 MT valued at Rs.1,79,41,61,259/- thereby escapement of income happened and for which precise reason recorded AO invoked the reo reopening pening jurisdiction after the assessment was framed u/s. 153A/143(3) of the Act on 28.04.2014 (supra). However, we note that at page 3 of the reassessment order the AO has accepted the contention of the assessee after going through the Form HI filed before DG, Mines and has recorded that he is not drawing any adverse inference so far as production of iron ore by the assessee and did not make any addition/disallowance on this issue for which purpose only he invoked his reopening jurisdiction u/s. 147 of the Act. So, we note that here is a case wherein the AO invoked the reopening jurisdiction for a specific purpose which issue was dropped, then according to assessee and rightly so, the condition precedent for assuming jurisdiction has disappeared/absent, then the AO lacks jurisdiction to proceed further to reassess any other income which he has not taken note in the 5 ITA No. 1622/Kol/2019 Assessment Year: 2011-12 Shree Prakash Chhawchharia (HUF) reasons recorded to reopen. Therefore, the AO ought not to have proceeded to reassess the assessee on a new issue of artificial loss created by mi misusing the client's code modification. And, therefore, the jurisdictional fact which is sine qua non to assume jurisdiction is found to be lacking/absent and, therefore, the very invocation of jurisdiction to reopen itself is not existing and, therefore, w when the foundation on which reopening was initiated is non non-existing existing then the AO's assumption of jurisdiction is without jurisdiction and so all subsequent action is a nullity in the eyes of law. At the cost of repetition we say that AO without satisfying thehe condition precedent as stipulated under section 147 of the Act cannot have successfully usurped the reopening jurisdiction, so as discussed above the precise fact for which the AO re re-opened opened in this case disappeared after AO dropped the same, thereafter ideally the AO should have dropped the reassessment proceedings and ought not to have proceeded to reassess the assessee on an issue which he did not refer at all in the reasons recorded to justify re-opening.
opening. The Explanation (3) to Sec. 147 of the Act, wi will ll come to the aid of the AO/department only when the AO has successfully usurped/assumed the reopening jurisdiction on the strength of the reasons recorded by him to re re-open the assessment. So without successfully satisfying the condition precedent to reopen pen i.e. reason to believe escapement of income, which can be discerned from reading of the reasons recorded by the AO that too on a stand alone basis, the AO cannot proceed to make any other additions without making any additions on the facts specifically stated in the reasons recorded for which he decided to reopen. We would like to make it clear that in this case when the AO realized that the reason for re-opening opening i.e, suppression of iron ore production is non non-existing, existing, then the AO should have first dropped ped this reassessment; and thereafter ought to have recorded reasons indicating escapement of income on account of misuse of client code modification and issued fresh notice u/s 148 of the Act and initiated reassessment for the same. We note that the Hon'ble le Bombay High Court in Jet Airways (I) Ltd. (supra) have discussed all the case laws on the issue and considered various Hon'ble High courts decisions. However, we note that the Hon'ble Punjab & Haryana High court in Majinder Singh Kang (supra) has not delved lved into the ratio decidendi laid by the Hon'ble Bombay High Court decision in Jet Airways (I) ltd. (supra). The Hon'ble Punjab &Haryana High court in the case of CIT Vs. Mehak Finvest (P) Ltd. (supra) has followed the Division bench order in Majinder Singg Kang (supra) since it was binding on the same High Court and taking into consideration that the SLP against the Majinder Singh Kang has been dismissed.
10. However, we note that the Hon'ble Bombay High Court in the case of Jet Airways (supra) has considered ered at length the effect of the insertion of Explanation (3) to sec. 147 of the Act by the Finance No. 2 Act, 2009 retrospectively w.e.f. April 1, 1989 and has laid down the ratio decidendi of the issue before us. We note that the jurisdictional High Courtt i.e. Hon'ble Calcutta High Court in ITAT No. 60 of 2014 in GA No. 1736 of 2014 CIT Vs. M/s. Infinity Infotech Parks Ltd. has concurred with the view taken by the Hon'ble Delhi High Court judgment in Ranbaxy Laboratories Vs. CIT 336 ITR 136 (Del.) and Hon'ble 'ble Bombay High Court in CIT Vs. Jet Airways India Ltd. 331 ITR 236 (Bom.) approved the Tribunal's view on the same which is reproduced as under:
"We further find that similar view was taken by the Hon'ble Bombay High Court in the case of CIT Vs. Jet Air Airways ways India Ltd. (supra) and the Hon'ble Delhi High Court in the case of Ranbaxy Laboratories India Ltd. (supra). The ratio laid down in these decisions is that reassessment must be in the first place, be in respect of income escaped assessment for which th thee reasons were recorded and only thereafter in respect of some other items of escaped income. If, however, the income, escapement of which was the foundation for recording of reasons to believe, is not assessed or reassessed in the order under section 147, 6 ITA No. 1622/Kol/2019 Assessment Year: 2011-12 Shree Prakash Chhawchharia (HUF) then it is not mere open to the AO to independently assess any other income, which comes to his notice subsequently." (Emphasis given by us)
11. Since we have taken note that there is no whisper about the escapement of income i.e. loss created by misusing client's code modification has been mentioned in the reasons for reopening conveyed to the assessee vide letter dated 19.03.2015 no addition in respect of this can be made without making any addition in respect to the item shown to have been escaped ed assessment in the reasons recorded by ibid letter dated 19.03.2015. During reassessment when the AO finds that the item on the basis of which he reopened does not survive, then the reasons recorded to reopen loses its significance and the fall out is thatat the AO's jurisdiction to reassess is without jurisdiction and therefore is illegal and fragile in the eyes of law; and thereafter he should have dropped the reassessment proceeding there only as discussed supra. Therefore, after having no jurisdiction tto reassess his further action of a new fact finding in the absence of any item specified in the reasons recorded which is the foundation on which he reopens when no longer subsists, the AO's action is hit being 'Quarum non non-judice' judice' and, therefore, the impugned impug addition is non-estest in the eyes of law and so it has to necessarily go. Therefore, the appeal of the Revenue is devoid of any merits and, we find that the legal issue has been rightly decided in favour of the assessee and the action of the Ld. CIT(A) iis upheld. Since we have decided the legal issue, the merits of the case have become academic in nature and needs no adjudication. (Emphasis ours)
9. Applying the propositions of law laid down by the Hon'ble Jurisdictional High Court, to the facts of this ccase, ase, we have to necessarily hold that the Assessing Officer cannot make additions on issues which had not formed the basis of reopening of assessment,, when no additions has been made in the assessment order passed u/s 147 r.w.s. 143(3) of the Act on the issue, based on which the reasons were recorded and assessment reopened. Thuss,, we hold that the assessment order passed u/s 147 r.w.s. 143(3) of the Act on 29/08/2018, is bad in law. On merits, we find that the Assessing Officer has issued notice u/s 133(6 133(6)) of the Act to NMCE and that NMCE has confirmed all the transactions. The assessee has filed voluminous evidence and confirmations. These evidences, were not controverted by the Assessing Officer. Anyhow, as we have held that the assessment order in quest question ion is bad in law, we do not adjudicate on merits as it would be an academic exercise.
10. In the result, appeal of the assessee is allowed.
Kolkata, the 24th day of February, 2021.
Sd/- Sd/-
[Aby T. Varkey] [J.
J. Sudhakar Reddy]
Reddy
Judicial Member Accountant Member
Dated : 24.02.2021
{SC SPS}
7
ITA No. 1622/Kol/2019
Assessment Year: 2011-12
Shree Prakash Chhawchharia (HUF)
Copy of the order forwarded to:
1. Shree Prakash Chhawchharia (HUF)
4th floor
R/No. 51
1, R.N. Mukherjee Road
Kolkata - 700 001
2. Income Tax Officer, Ward-36(2),
36(2), Kolkata
3. CIT(A)-
4. CIT- ,
5. CIT(DR), Kolkata Benches, Kolkata.
True copy
By order
Assistant Registrar
ITAT, Kolkata Benches