Income Tax Appellate Tribunal - Hyderabad
Jastir Rama Rao, Ongole vs Assessee on 29 March, 2007
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B', HYDERABAD
BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND
SHRI CHANDRA POOJARI ACCOUNTANT MEMBER
ITA No.630/Hyd/2007 Astt. Year 2000-01
M/s Jasti Rama Rao, Ongole ITO Ward No.1, Ongole
(Applicant) (Respondent)
Applicant by : Shri K.C. Devadas
Respondent by : Shri E.S. Nageswara Prasad
ORDER
Per: Chandra Poojari, Accountant Member This appeal preferred by the assessee is directed against the order passed by the CIT(A), Guntur dated 29.3.2007 and pertains to the assessment year 2000-01.
2. The first ground in this appeal is with regard to reopening of the assessment.
2.1. The second ground is with reference to the addition of Rs.7,03,231 which also formed part of the opening capital as on 1.4.1999.
3. Brief facts of the case are that the assessee filed return of income for the assessment year 2000-01 declaring income at Rs.92,190 besides net agricultural income of Rs.20,000 on 11.9.2003. The Assessing Authority issued notice u/s 148 dated 29.3.2005. In response to this notice, assessee filed return on 30.3.2005 stating that the return filed on 11.9.03 for the assessment year 2000-01 may be treated as return filed in response to notice issued u/s 148. The assessing officer completed the assessment u/s 143 (3) read with S. 147 of the IT Act after making addition of Rs.7,33,231 on the reason that the assessee has introduced fictitious sundry debtors and the realization that of and failed to explain the source of investment and that is nothing but investment made by the assessee from the undisclosed source of 2 income and the opening capital balance shown by the assessee having no basis and the same has been treated as income of the assessee.
4. On appeal, the CIT(A) deleted Rs.30,000 out of this on the reason that it includes the cost of agricultural land of Rs.30,000 being brought forward from earlier years. The CIT(A) sustained addition of Rs.7,03,231. Against this the assessee is in appeal before us.
5. The Authorised Representative of the assessee submitted that for reopening of assessment there is no material in the hands of the assessing officer. Filing of belated return of income that itself cannot be the reason for reopening the assessment since it is not a material to reopen the assessment. The assessee has given note in its return of income stating that the assessee has got provisional registration Certificate in the name of Shri Venkata Sadguru Stone Crushers, Prop:
Jasti Ramarao, Budawada (v) as No.010811840 dated 23.12.1999 from District Industries Centre, Govt. of Andhra Pradesh, Department of Industries, Ongole for carrying on the trade of "crushed stone Chips'. The assessee has been incurred Rs.50,000 towards construction of sheds, office room and others. The cost of machinery implements and others amounting to Rs.5,20,000. The assessee had not derived any income during the ay under consideration. Hence taken at Nil. This note cannot be the reason for reopening of the assessment. He submitted that there is no nexus between the material available on record for reopening assessment and belief formed by the assessing officer to reopen the assessment.
5.2. Further he relied on the judgement in the case of ITO & Others Vs. Lakhmani Mewal Das (SC) (103 ITR 437) 2 3 5.3. He further submitted that there should be application of mind while reopening of the assessment. He drew our attention to the documents wherein the assessing officer sent a proposal dated 24.3.05 to the Addl. CIT for approval to issue a notice u/s 148 of the IT Act, wherein the assessing officer stated that the assessee filed its return of income for the assessment year 2000-01 on 11.8.2008 which is a belated return. Moreover, the assessee has not shown any income from the crushers. Hence, he proposed to issue a notice u/s 148. The learned AR submitted that the Addl.CIT has given approval for reopening of the assessment by just writing as follows:
"Yes , approved for 148"
5.4. He submitted that the above noting clearly shows that there is no application of mind either by the assessing officer or by the Addl.CIT. He submitted that the lower authorities have not able to drew inference regarding escapement of income while at the time of issuing notice u/s 148. Thus, he submitted that issue of notice u/s148 is without forming a belief that income escaped from assessment. He relied on the judgement of SC in the case of Associated Stone Industries (Kotah) Ltd. Vs. CIT (224 ITR 560) (SC). Without prejudice to the above argument, he submitted that though the assessment was reopened for the purpose of treating the income from the Crushers Unit there was no addition on this count and as such the reopening itself is invalid. He submitted that the assessing officer not justified in acting on the belated return of the assessee though the assessee stated that it was filed in response to notice u/s 148 that the belated return filed on 11.9.2003 may be treated as a return filed in response to notice u/s
148. He submitted that assessing officer must have asked for fresh return of income and should not have acted on belated return of income.3 4
He submitted the assessing officer not recorded the proper reason for reopening of the assessment and 'notes' prepared by the assessing officer or 'note' in the order sheet cannot be constituted as reasons recorded for reopening of assessment. He submitted that recording of reasons is statutory requirement for reopening of assessment as such in the present case, there is no valid reason recorded for reopening of the assessment. Therefore, the reassessment is invalid. For this purpose he relied on the judgement in the case of Vijayalakshmi Oil Industries Vs. ITO (155 ITR 748)( Karnataka HC). He submitted that the assessment was framed on 31.3.2006. However, the reasons recorded for reopening of the assessment was furnished to the assessee by assessing officer vide his latter dated 14.9.2006. As such, the reassessment itself is invalid. On merit the learned AR submitted that the assessee has been assessed to tax from the assessment years 1984-85. The amount of investment shown by the assessee is from brought forward balance in the capital account which were already disclosed to the department. The cash flow statement filed by the assessee in the course of assessment clearly reflected the balance available to the assessee as a source of investment. The assessing authority without examining the said statements and without accepting the fact that the assessee assessed to tax from 1984-85 came to the conclusion that there is no surplus fund is available for investment. The assessee is also having agricultural income. This income also not considered by the assessing officer as per cash flow statement. The amount available as on 1.4.1996 works out to Rs.8,14,052 in the capital account and Rs.1,29,221 in the cash flow statement.
5.5. He submitted that the assessing officer had not taken into account the total refund obtained Rs.21,506/- for assessment year 1997-98, 1998-99 and 1999-2000 in the statement prepared at page 11 of the assessment order. The assessing officer had also not included deposits 4 5 of Rs.87,109, Rs.39,213, Rs.14,710 received in the accounting years relevant to assessment years 1997-98, 1999-2000 and 2000-01 respectively from the government contract works. He further submitted that there was no deficit as worked out by the assessing officer after considering opening cash balance of Rs.1,29,221, refund of Rs.21,506 and deposits realized from the govt. department amounting to Rs.1,28,541. Thus, the total receipts which are not considered by the assessing officer works out to Rs.2,79,268 and therefore against the deficit of Rs.2,77,475 as worked out by the assessing officer finally he worked out surplus amount of Rs.1793(279268 - 277475).
5.6 He submitted that in response to summons, some of the family members of the deceased have furnished confirmatory letters to the assessing officer by courier which the assessing officer had ignored.
5.7 He further submitted that in the year under appeal from 30 debtors along with principal amount of Rs.5,20,000 and interest of Rs.38,000 was realized and the interest was disclosed under the head 'other sources of income'.
5.8. He further submitted that all the debtors were brought forward as on 1.4.1996 were realized during the period April, 1999 to December, 1999. Out of the realized amount, the assessee constructed sheds and others at a cost of Rs.50,000 in Nov. 1999 and acquired second had machinery at a cost of Rs.5,20,000 in December 19999. Thus, he submitted that the amounts lent by the assessee way before 1.4.1996 were realized in the year under appeal was sufficient for investment in construction of shed and in purchase of second had machinery for crusher unit.
5 66. On the other hand the DR submitted that the assessee has requested the assessing officer vide its letter dated 31.3.2005 that the return filed on 11.9.2003 for the assessment year 2000-01 may be treated as return filed in response to notice u/s 148 and now the assessee cannot say that the assessing officer not justified in treating the belated return. The assessing officer not acted upon the belated return, he used the information in the belated return for the purpose of competing the assessment u/s 143(3) read with S. 148 and the same was considered as per the request of the assessing officer, he relied on the following judgments:
1. Chandra Prabha Charitable Trust Vs. State of Kerala (316 ITR 175) (ker)
2. Saberaj Industries Vs. CIT & Others (217 ITR 831) ( Bombay)
3. CIT Vs. Sun Engineering Works (P) Ltd. (198 ITR 297) (SC) 6.1. He submitted that the Addl. CIT, Guntur vide his letter dated 29.3.2005 accorded approval for issue of notice u/s 148 for the assessment years 2000-01. The receipt of approval from the office of the Addl. CIT is recorded in the note sheet entry dated 29.3.2005.
Notice u/s 148 was issued on 29.3.2005 and served upon the assessee on 30.3.2005. In response, the assessee filed a letter dated 30.3.2005 received on 31.3.2005 in which he stated as follows:
I wish to state that I have voluntarily filed my return admitting a net income of Rs.92,190 besides net agricultural income of Rs.20,000 relating to the assessment years 2000-01 u/s 139 of the act on 11.9.2003 vide inward receipt No.1926 after applying the provisions of section 44AD of the Act towards income under the head business. I pray that the said return filed on 11.9.2003 may kindly be treated as that filed in response to notice u/s 148 of the act dated 29.3.2005 received by me on 30.3.2005.6 7
6.3. He further submitted that the assessing officer issued notice u/s 143(2) on 10.10.2005 for the assessment years 2000-01 for completion of assessment proceedings. The assessing officer processed return of income u/s 143(1) on 28.3.2006 and no intimation was issued to the assessee as no demand or refund was payable. Since no return of income was pending for completion of assessment therefore, the submission of the assessee that the assessing officer issued notice u/s 148 in spite of pendency of return is not found to be correct.
6.3. He further submitted that the return of income for assessment years 2000-01 was to be filed by the assessee on or before 31.7.2000 whereas, he filed return of income belatedly on 11.9.2003. The date of filing mentioned in the note sheet for obtaining approval as on 11.8.2002 is appeared to be not correct and the correct date of filing of return is 11.9.2003. In the reasons recorded for issue of notice u/s 148, the first reason mentioned that the return of income filed for assessment years 2000-01 is a belated return. Second reason mentioned in the note sheet is that the assessee has not shown income from crushers.
6.4. He further submitted that as per provisions of section 147 if the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment years he may subject to provisions of sec.148 to 153, assess or reassess such income. In the present case, the total income of the assessee for the year under appeal was Rs.92,190 which was more than the minimum limit prescribed for non filing of the return of income and thereby, the said income was chargeable to tax and accordingly, it was escaped assessment by meaning of provisions of section 147 of the IT Act.7 8
6.5. He further submitted that the assessing officer had properly recorded reasons before issue of notice u/s 148. The recording of reasons may be in the note sheet or it can be in separate paper/page which is part of the assessment record and the said proceeding was submitted within the prescribed period before the Addl. CIT for obtaining approval as per the provisions of section 151 of the Act.
6.6. He further submitted that keeping in view of total facts and response made by the assessee vide in its letter dated 30.3.2005 wherein he categorically stated that return of income filed on 11.9.2003 may be treated as return filed in response to notice u/s 148, it would be clear that the assessee had filed return of income in response to notice u/s 148 by his action of filing letter dated 30.3.2005 and accepted all particulars available in the return of income filed on 11.9.2003 as in response to notice u/s 148. He submitted that therefore, it can be said that the return of income filed on 11.9.2003 for all purposes became return of income in response to notice u/s 148 as on 31.3.2005 when he delivered a letter dated 30.3.2005 to the assessing officer.
6.7. He further submitted that the assessing officer intimated reasons for issue of notice u/s 148 vide letter dated 25.1.2006 in detail in which he pointed out that the notice u/s 148 was issued considering the belated return of income which was due on 31.7.2000. He also referred that in the belated return the total income was disclosed 92,190 in addition to net agricultural income of Rs.20,000. He also mentioned investment in purchase of second hand machinery and construction of factory shed and non disclosure of income from the crusher. The DR further submitted that there is no proper format for recording the reasons as such the assessee is not justified in stating that there are no reasons recorded properly. The assessee accordingly, in the course of assessment proceedings, responded to the assessing officer on the 8 9 queries and after taking into account explanation of the assessee, the assessing officer completed the assessment.
6.8. He submitted that there was no violation of natural justice in respect of intimation of reasons recorded for issue of notice u/s 148.
6.9 He further submitted that the assessment order passed u/s 143 (3) r.w.s. 147 on 31.3.2006 is not on the belated and invalid return and the argument of the assessee is not tenable and acceptable in view of the fact that the assessing officer passed order u/s 143(3) r.w.s. 147 on 31.3.2006 on the valid return filed on 31.3.2005 by submitting letter dated 30.3.2005 in response to notice u/s 148 by the assessee disclosing the same income and particulars as disclosed in the belated return on 11.9.2003. Thus, the assessment made u/s 143(3) read 147 was on the valid return filed in response to notice u/s 148 and the assessment was accordingly, completed in accordance to the provisions of income tax Act, 1961.
6.10. He further submitted that keeping in view the above facts and circumstances, the ground of appeal of the assessee in respect of recording of reason, issue of reasons to the assessee processing of return of income u/s 143(1), violation of natural justice and making assessment on non valid returns are to be rejected.
7. On merit he submitted that the assessee has not furnished the details of creditors from whom the amount was realized as such the addition to be made and to be treated as unexplained income. He relied on the assessment order as well as CIT(A) order.
8. We have heard both the parties and perused the material on record.
9 10We have carefully gone through the paper book field by the learned counsel for the assessee containing 1 - 106 pages. The main contention of the assessee counsel is that the assessing officer not properly recorded the reasons for reopening the assessment u/s 148 (2). The assessing officer shall, before issuing any notice u/s 148, record his reason for doing so. After satisfied to act under the provisions relating to reassessment, he must put in writing as to why he holds the belief that the income has escaped assessment. Such belief must be reflected from the record of reasons made by the assessing officer. In the present case, the assessing officer put a note before the Addl. CIT on 24.3.2005 as below:
Office of ITO, Ward 1, Ongole Dated 24.3.2005 PROPOSAL FOR OBTAINING APPROVAL OF THE ADDL. CIT TO ISSUE NOTICE U/S 148 OF THE INCOME TAX ACT, 1961.
1. Name and address of the assessee Shri Jasti Rama Rao, s/o Sri Venkaiah, 110/1, Budawada Chimakurthy Mandal
2. GIR No. R-1573
3. Assessment years 2000-01
4. Remarks of the assessing officer The assessee filed his return of income for the assessment years 2000-01 on 11.8.2002 which is belated return. Moreover, the assessee has not shown any income from the crusher. Hence, I propose to issue notice u/s 148. The Addl. CIT may kindly accord approval for issue of notice u/s 148.
Sd/-
(K.G. PRASADA RAO) ITO, Ward-1, Ongole Submitted to the Addl. CIT, Rang-2 Guntur.
Yes approved for 148
Sd/-
(M. ANIL KUMAR)
Addl. CIT, Range 2 Guntur.
10
11
9.1. By the above noting, we are unable to appreciate how the assessing officer hold the opinion that the assessee has any income from the crushers unit. The reasons recorded by the assessing officer does not discloses by what process of reasoning he holds such a belief that crusher unit of the assessee have not earned income from it. Merely saying that the assessee belatedly filed the return of income for the assessment year 2000-01 on 11.8.2002 and he has not shown any income from the crusher unit cannot considered to be the reason for reopening of the assessment. The assessing officer is required to disclose the reason which led him to hold such a belief otherwise it does not confirm jurisdiction on the assessing officer to take action u/s 147 and 148. The assessing officer is required to record the reason for the formation of his belief to reopen the assessment before initiating the proceedings u/s 148. In the absence of the recorded reasons the conclusion is inescapable that exercise of power u/s 148 is without any jurisdiction. When the reasons for issue of notice u/s148 were not recorded the assessment in pursuance of the impugned notice u/s 148 would be void and nonest. Section 148(2) is mandatory in nature and failure of the assessing officer to produce reasons and communicate the same to the assessee was sufficient reasons to annul reassessment proceedings. In the present case, the assessing officer not having compiled with the mandatory requirement of recording the reasons before issue of notice u/s 148 as such the reassessment is invalid. Generally, note/notes prepared by subordinate or even by the very same officer an aide memoire are to help memoire or enable a superior officer to examine the same and pass his orders thereon. A 'note' even when the same is prepared by the very same officer or even placing the most chargeable construction on the same cannot be elevated to or treated as the assessing officer recording his reasons u/s 148 which is a statutory requirement. On any legal principles, one cannot treat the 11 12 notes prepared by the assessing officer as one recording his reasons required by u/s 148. Requirement of recording reasons would not be satisfied if the assessing authority simply writes that he has reason to believe that income as escaped assessment without mentioning any reason. Further, when the assessee requested the assessing officer to furnish the details and reasons for reopening the assessment, the assessing officer bound to give the reason for reopening of the assessment before completion of the assessment.
10. We agreed to the argument of the DR that there is no specific format for recording reasons for reopening of the assessment that itself does not mean that the assessing officer can indicate broadly the facts which constitute the reopening of assessment and lead to the escarpment of income. The recording of reasons, in our opinion is not an idle formality but it is a mandatory requirement of the Act casting a duty and obligation on the ITO to record his reasons for issuing a notice for reopening of assessment and the Commissioner/Addl. Commissioner being satisfied it is a fit case for issuing of such notice solely on the basis of the said reasons recorded by assessing officer, required to accord the sanction to issue of such notice to the assessee. The reasons recorded by the assessing officer must disclose prima facie facts which would justified the issuance of the notice and to any person by persuasion, the reasons it should be obvious as to how the mind of the assessing officer worked when he issued the notice for reopening of assessment. Such reasons, therefore, have a particular reference to the case of the assessee though it should not be in the form detailed judgement containing all the reasons and justifications for the same but must objectively satisfy any person examining the reasons recorded in the order that the assessing officer has applied his mind to the facts of the case and has issued the notice. The mere reproduction of the words and sections in section 148 is not sufficient compliance with the 12 13 requirement of section 148. While perusing the reasons recorded by the assessing officer, it is very difficult to us to appreciate as to what was in the mind of assessing officer or what was the material on record which lead to believe that the assessee had any income from the crushers unit. Moreover, in the present case, the assessing officer while completing the assessment not added any income from the crushers unit being so we are unable to uphold the reopening of the assessment. In our opinion, the assessing officer acted improperly while issuing the notice u/s 148. Hence the reassessment based on such notice issued u/s 148 is annulled. Since we have annulled the reopening of the assessment on legal issue, we refrain from going into the merit of the additions made by the assessing officer.
11. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on : 29.1.2010
Sd/- sd/-
N.R.S. GANESAN CHANDRA POOJARI
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated 29th January, 2010
Copy forwarded to:
1. Shri Jasti Rama Rao, C/o P.V. Subramanyam, IT Practitioner, 37-1-407 (148) 3rd Lane, Bhagyanagar, Near Park, Ongole- 523 001.
2. ITO Ward No.1, Ongole
3. CIT, Guntur.
4. CIT, Hyderabad
5. The D.R., ITAT, Hyderabad.
Np 13