Income Tax Appellate Tribunal - Kolkata
Aluminium Small Industries vs Income-Tax Officer on 26 December, 2005
Equivalent citations: [2006]287ITR111(KOL)
ORDER
N.L. Dash (J), Member
1. The assessee is in appeal being aggrieved with the order of the Commissioner of Income-tax (Appeals) against his upholding the order of the Assessing Officer regarding the validity of initiation of proceeding under Section 147/148. Although the assessee-appellant has taken 6 grounds as per the grounds of appeal filed but the sole question revolves round the only point i.e., regarding the validity of the initiation of the proceedings under Section 147/148 initiated by the Assessing Officer as per the order of the Commissioner of Income-tax (Appeals) in the original appeal passed under Section 143(3)/182/158/251.
2. In the original appeal, the Commissioner of Income-tax (Appeals) although has given part relief to the assessee-appellant, vide para. 5 of his order at page 4, directed to delete an amount of Rs. 1,40,000 as addition under Section 68 for the assessment year 1988-89. At the same time, he issued direction giving restricted freedom to the Assessing Officer to reopen the case for the earlier year and if necessary to examine afresh this issue and to make a decision in accordance with law.
3. The relevant portion of the order of the Commissioner of Income-tax (Appeals) is quoted here for better appraisal of facts:
5. I have considered the argument of earned Counsel and perused the fact of the case. Since there has been lapse of time and the creditors are very small in nature it is definitely difficult on the part of the appellant now to bring them before the Assessing Officer. At the same time, on a perusal of the balance-sheet, I find that the same was in the earlier year and has figured in this year has coming from the earlier year, thus the norm desires that the same should not be added/disallowed in this year. In view of the above legal provision the Assessing Officer is directed to delete this addition in the present year. However, the Assessing Officer is free to reopen the case for the earlier year and if necessary to examine afresh of this issue and to take a decision in accordance with law.
4. Learned senior counsel for the assessee Mr. M.N. Banerjee, while arguing on this point before the Bench, took serious exception to this restricted direction of the Commissioner of Income-tax (Appeals) in the order for the assessment year 1988-89 and respectfully submitted that the Commissioner of Income-tax (Appeals) is precluded from passing such direction as per law as the assessee's case comes within the period of pre-amendment period, i.e., prior to April 1, 1989. In this connection, he cited a number of case laws which are discussed as follows:
(i) Munna Lal and Sons v. CIT (All)--In this case it has been held that the assessment was reopened on the basis of and in pursuance of the report or remarks made by the Inspecting Assistant Commissioner who pointed out the errors in the assessment order. It was not a case of the Inspecting Assistant Commissioner bringing the correct position of law to the notice of the Income-tax Officer, but it was a case where the Inspecting Assistant Commissioner pointed out the errors in the assessment order. Such a proceeding or remarks of the Inspecting Assistant Commissioner could not constitute information within the meaning of Section 147(b). Therefore, the reopening of the assessee was not valid.
(ii) CWT v. S. Muthukumarasamy Udayar (Mad) at pages 868-869--In this case it has been held as under:
In Munna Lal and Sons v. CIT , the Allahabad High Court held that a proceeding or remarks of the Inspecting Assistant Commissioner could not constitute information within the meaning of Section 147(b) of the Income-tax Act, 1961. Therefore, the reopening of the assessment was not valid.
A similar view was taken by this Court in G.K. Devarajulu Naidu v. CIT [1983] 144 ITR 686.
In Bireswar Sarkar v. GTO , the Calcutta High Court held that notice issued by the Inspecting Assistant Commissioner instructing to reopen the assessment is not valid information, so as to enable the Assessing Officer to reopen the assessment.
In Arvind Kumar v. ITO , the Madhya Pradesh High Court held that a letter from the Inspecting Assistant Commissioner, pointing out an omission would constitute information under Section 147(b) of the Act.
Inasmuch as the Tribunal being the highest fact-finding authority, after perusing the memorandum issued by the Inspecting Assistant Commissioner, came to the conclusion that the Inspecting Assistant Commissioner has interpreted the law and directed the assessing authority to reopen the assessment, it is not possible to come to a different conclusion as suggested by learned standing counsel for the Department that the Inspecting Assistant Commissioner merely pointed out the law and not interpreted the law. In view of the foregoing reasons, we consider that the order passed by the Tribunal in the case of both the assessees appears to be in order.
(iii) ITO v. Lakhmani Mewal Das --In this case it has been held that the duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Income-tax Officer of the account books or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. It is not a responsibility of the assessee to advise the Income-tax Officer with regard to the inference which he should draw from the primary facts. If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment.
(iv) CIT v. Foramer France -In this case it has been held that (i) Section 147 substituted in the Income-tax Act, 1961, by the Direct Tax Laws (Amendment) Act, 1987, had made a radical departure from the original Section 147, inasmuch as clauses (a) and (b) had been deleted and under the proviso thereto notice for reassessment would be illegal if issued more than four years after the end of the assessment year, if the original assessment was made under Section 143(3) ; (ii) Section 153 related to the passing of an order of assessment and not to the issuing of a reassessment notice under Section 147/148 ; (iii) the direction or finding contemplated by Section 153(3)(ii) had to be a finding in relation to the particular assessee and the particular year and to be a finding it had to be directly involved in the disposal of the case ; (iv) on the facts, the notices issued under Section 148 on November 20,1998, to the assessee for reopening the original assessments for the assessment years 1988-89, 1989-90 and 1990-91, on the basis of the Appellate Tribunal's decision rendered in the case of Boudier Christian relating to the assessee's technicians deputed to India, the income of the assessee was to be treated as fee for technical services and not as business income as assessed in the original assessments for those assessment years, were without jurisdiction as they were barred by limitation in view of the proviso to Section 147, as amended by the Direct Tax Laws (Amendment) Act, 1987, as that was the provision that was applicable on November 20, 1998, when the reassessment notices were issued, and admittedly there was no failure on the part of the assessee to disclose fully and truly all material facts for assessment; (v) on the facts, the notices were bad as they were only on the basis of a change of opinion and the law that an assessment could not be reopened on a change of opinion was the same before and after amendment by the Direct Tax Laws (Amendment) Act, 1987, of Section 147 ; and (vi) as the notices were without jurisdiction, the assessee should not be relegated to the alternative remedy, the Department preferred appeals to the Supreme Court. The Supreme Court saw no reason to differ and dismissed the appeals.
5. Further, learned senior counsel for the assessee submitted that the transaction of Rs. 1,40,000 belongs to 14 parties in the shape of supply of materials and the amount involved is either Rs. 1 lakh or Rs. 8,000 each as the assessee is engaged in spare parts dealing. The transaction being such an old one, initiation of proceedings even otherwise after a decade is totally invalid. In the meantime, the firm has been closed in 1993 and there is no contact with the said parties.
6. According to learned senior counsel, both factually and legally, the assessee's case stands on sound footing. Therefore, the order passed by the Commissioner of Income-tax (Appeals) confirming the validity of the initiation of proceeding under Section 147/148 is totally invalid.
7. The learned Departmental Representative Mr. S.K. Jain while defending the cause of the revenue, drew the attention of the Bench to the finding of the Commissioner of Income-tax (Appeals) and accordingly it has been deemed proper to quote the relevant portion of the order of the Commissioner of Income-tax (Appeals) which is self-explanatory, as under:
The appeal has been filed on July 20, 1999. The hearing of the appeal was fixed for September 22, 2000 but from the order sheet it appears that none attended on that date. However, Sri M.N. Baner-jee appeared on September 25, 2000, and was heard. Next the appeal was fixed for hearing on October 27, 2000, but there seems to be non-compliance on that date. Further, notices for hearing were issued for December 13, 2002 and November 27, 2003. Sri M.N. Banerjee, the Authorised Representative appeared on November 27, 2003, and was asked by the learned Commissioner of Income-tax (Appeals) to submit the copy of accounts showing that the sum in question is opening balance. The hearing was adjourned to December 22, 2003, but no details were filed. After obtaining the remand report from the Assessing Officer the hearing was fixed for March 7, 2005, but none attended on this date nor were any written submissions filed. The appeal is, in the light of the abovementioned facts, decided on the merits on the basis of the relevant evidence.
The Assessing Officer noted that in pursuance of the directions of the appellate authority in the case of the appellant for the assessment year 1988-89 the proceedings for the assessment year under consideration were initiated under Section 148. To verify the genuineness of the loan creditors summons under Section 131 of the Income-tax Act were issued to 14 parties. As per the report of the Inspector the persons were not available in the address given. The appellant was asked to produce the loan creditors but the appellant neither appeared before the Assessing Officer nor produced the sundry creditors. The Assessing Officer, therefore, framed the assessment ex parte. Placing reliance on the decision of the hon'ble Kolkata High Court in Shankar Industries v. CIT , the Assessing Officer held that the appellant has failed to prove the identity of the creditors, their capacity to advance the loans and also the genuineness of the transactions and proceeded to make the addition of Rs. 1,40,000.
The appellant has in the statement of facts and grounds of appeal stated that the Assessing Officer has wrongly assumed jurisdiction in reopening the assessment under Section 148 after lapse of nine years. The approval of the Additional Commissioner of Income-tax, in this respect was unwarranted. There was no formation of reasonable belief to issue notice under Section 148 which is invalid in law and barred by limitation. The remark by the learned Commissioner of Income-tax (Appeals) in the appellate order for the assessment year 1988-89 cannot be treated as finding or information for making addition in the assessment year 1987-88. The learned Commissioner of Income-tax (Appeals) had no power to give such direction. The addition made by the Assessing Officer of Rs. 1,40,000 is arbitrary.
The observations of the Assessing Officer and the submissions of the appellant have been considered. A brief background of the case is that the learned Commissioner of Income-tax (Appeals) while passing the order in the case of the appellant for the assessment year 1988-89 in Appeal No. 968/A-V111/W-15(2)/94-95, dated December 28,1995, in para. 5 of the order made the following directions in view of the above legal provision the Assessing Officer is directed to delete the addition in the present year. However, the Assessing Officer is free to reopen the case for the earlier year and if necessary to examine afresh this issue and to take a decision in accordance with law. The Assessing Officer in pursuance to this direction initiated proceeding under Section 148 of the Income-tax Act for the assessment year 1987-88 after obtaining approval of the statutory authority as already noted above. The identity and capacity of loan creditors and the genuineness of the transaction could not be proved by the appellant and the Assessing Officer made addition. During the course of hearing of the appeal, remand report of the Assessing Officer was called by this office letter dated January 29, 2004, on the challenge raised by the appellant to the proceedings initiated under Section 148. The Assessing Officer has submitted his remand report by his letter dated January 14, 2005 which reads as under:
The contention of the assessee:
The issuance of notice under Section 148 after 4 years without the approval of the learned CIT/CCIT was bad in law and challenged.
The return was filed on March 8, 1988, and that was processed on October 3, 1988, under Section 143(1)(a), not assessed under Section 143(3)/147.
The learned Commissioner of Income-tax (Appeals) directed to the Assessing Officer to reopen the case for the assessment year 1987-88 vide order No. 968/VII/W-15(2)/94-95, dated December 28, 1995.
The approval was given by the learned Additional Commissioner of Income-tax, R-15 vide No. R-15/95-96/Wd.l5(2)/1067, dated March 27, 1997 and the notice under Section 148 was issued on the very day. It will not be redundant to mention here that the income escaped in the assessment year 1987-88 was Rs. 1,40,000.
The notice was duly served on April 25, 1996.
The provisions of the Section 149 prescribed the time limit and other conditions for issue of notice under Section 148. The synopsis is given for your kind consideration.
Provisions as applicable up to May 31, 2001
Beyond 4 years but up Beyond 7 year s but up
Up to 4 years from , to seven years from to 10 years from the
the relevant assessment the end of the relevant end of the relevant
year assessment year assessment year
1. In cases subject to (a) The case can be (b) If the escaped (c) If the escaped
scrutiny by way reopened for any income is Rs. income is Rs. 1
of assessment amount escaped by 50,000 or more, lakh or more,
under section ACIT/DCIT. An ITO approval from approval from
143(3) or 147 have to take approval CCIT/CIT is a CCIT/CIT is a must
from the Jt. CIT. must.
2. In other cases (a) Whatever amount (b) If the escaped (c) If the escaped
escaped, any Assess income is Rs. income is Rs.
ing Officer can 25,000 or more, 50,000 or more, the
reopen. the Assessing Assessing Officer
Officer has to take has to take
approval from the approval from the
Jt. CIT. Jt. CIT.
In the particular case, the assessment year relates to 1997-98 and the case was processed under Section 143(1)(a) [not assessed under Section 143(1)/147]. The notice had been issued on March 27, 1996, after taking the proper approval from the Joint Commissioner of Income-tax, i.e., within 8 years from the end of the relevant assessment year, and notice under Section 148 was duly served on April 25, 1996, within 9 years from the end of the assessment year. All proceedings were observed according to supra 2(c) above as prescribed in Section 149 of the Income-tax Act.
There was no imperative to take approval from the CCIT/CIT as per the provision of Section 149 of the Income-tax Act. As the case had not been assessed under Section 143(3)/147, approval from the Joint Commissioner of Income-tax was sufficient. Had the case been assessed under Section 143(3)/147, then it was mandatory to take approval from the learned CIT/CCIT.
On the above fact, the contention of the assessee is not tenable. Consequently, the action of the Assessing Officer was fully justified and lawful as per the Act.' The important point to note is that the proceedings under Section 148 were initiated within the statutory time limit and after taking approval of the appropriate authority. There is no merit in the challenge of the appellant to the proceedings under Section 148. The observations of the learned Commissioner of Income-tax (Appeals) in the appellate order for the assessment year 1988-89 in the case of the appellant have not been challenged by the appellant in any higher forum. Section 150(1) of the Income-tax Act permits issue of notice under Section 148 in pursuance to finding or direction contained in an order passed in appeal. Explanation 2 to Section 153(3) stipulates that any income excluded from the total income of the assessee for an assessment year the assessment of such income for another assessment year shall for the purpose of Section 150 and Section 153 be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order. In the light of these facts and legal position the Assessing Officer's action in initiating proceedings under Section 148 of the Income-tax Act is valid. As regards the merits of the addition on account of unexplained credits, it is evident that even after several opportunities the appellant failed to prove the genuineness of the credits. The appellant even failed to produce the alleged creditors before the Assessing Officer. It is well-settled that the identity and capacity of the creditors and genuineness of the transaction has to be established by the appellant. The onus to do so has not been discharged by the appellant. The addition is upheld.
8. Further, according to the learned Departmental Representative, when Sections 147 to 153 relate to procedural law, in all fairness, it should be applicable according to the time of issue of notice. In this connection, he cited a number of case laws, the gist of which are analysed hereunder:
(i) Navketan Enterprises v. CIT --In this case it has been held that the petitioner's application challenging the initiation of proceedings under Section 147 by issuance of notice under Section 148 on the ground that the Assessing Officer had wrongly obtained the approval of the Joint Commissioner before issuing notices instead of obtaining the approval of the Board because that was the requirement of law as it stood in the year 1988 relating to the assessment year 1988-89, was liable to be dismissed. Whenever the Assessing Officer decides to initiate proceedings for reassessment, it is only the law as it exists at that time which is applicable for issuing notice under Section 148.
(ii) Varkey Jacob Co. v. CIT --In this case it has been held that the petitioner admitted escaped income by filing revised returns on the basis of which assessment was initiated. Since there was no proper assessment under Section 143(3), limitation available for the Department was ten years. Since tax that would have been evaded for these years was more than Rs. 50,000 for each year, notice could be issued within ten years under the new Section 147. Section 147 authorises the Assessing Officer to make an assessment for charging the escaped income if the officer has reason for the same. The assessment was valid.
(iii) Deputy CIT v. Kelvinator of India [1998] 67 ITD 213 (Delhi)-- In this case it has been held that where period of limitation had not expired and original assessment was also not completed prior to the coming of the amendment in force with effect from April 1, 1989, the Assessing Officer had legal jurisdiction in initiating proceedings under Section 147 by issue of notice under Section 148 under the amended provisions of Section 147.
(iv) Upcom Cables Ltd. v. Deputy CIT [1997] 63 ITD 404 (All)--In this case it has been held that as regards the assessee's objection about the applicability of the amended provisions of Section 147, the view taken by the Commissioner (Appeals) was that since it was a machinery section, the provisions that existed at the time of issue of notice should be applied. This was a correct view. Thus, it would be the new law which would be applicable to the facts of the case as it came into effect from April 1, 1989, and notice was issued to the assessee on March 7, 1991. The proceeding initiated by the Assessing Officer under Section 147 were, therefore, legally valid.
9. Besides this, the learned Departmental Representative in order to combat the argument put forward by learned senior counsel on the point of change of opinion having been cited (CIT v. Foramer France stated above, forcefully argued that it does not amount to change of opinion as the assessment completed earlier was under Section 143(1)(a) and, therefore, in the absence of any scrutiny assessment, summary assessment under Section 143(1)(a) cannot give a clear-cut finding to the criteria of Section 68 (identity, creditworthiness and genuineness of the creditors). In this connection, he relied on a catena of decisions which are also quoted as under:
(i) Mahanagar Telephone Nigam Ltd. v. Chairman, CBDT .
In this case it has been held that so long as the ingredients of Section 147 are fulfilled, the Assessing Officer is free to initiate proceedings under Section 147 and failure to take steps under Section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under Section 143(1) had been issued.
(ii) Raymond Woollen Mills ltd. v. ITO --In this case it has been held that the case of the Revenue was that the assessee was charging to its profit and loss account, fiscal duties paid during the year as well as labour charges, power, fuel, wages, chemicals, etc. However, while valuing its closing stock, the elements of fiscal duty and the other direct manufacturing costs were not included. This resulted in undervaluation of inventories and understatement of profits. This information was obtained by the Revenue in a subsequent year's assessment proceedings. The commencement of reassessment proceedings was valid.
(iii) Ess Ess Kay Engineering Co. P. Ltd. v. CIT --It has been held that the mere fact that the case of the assessee was accepted as correct in the original assessment for an assessment year, does not preclude the Income-tax Officer from reopening that assessment under Section 147(a) of the Income-tax Act, on the basis of his findings of fact made on the basis of fresh materials obtained in the course of assessment for the next assessment year.
(iv) Pal Jain v. ITO --In this case it has been held that acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of the original assessment is different from drawing a fresh inference from the same facts and material which were available with the Income-tax Officer at the time of the original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself, on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of the original assessment proceedings cannot be said to be a disclosure of the "true" and "full" facts in the case and the Income-tax Officer would have the jurisdiction to reopen the concluded assessment in such a case.
10. Further, the learned Departmental Representative again drawing the attention of the Bench to page 4 of the order of the Commissioner of Income-tax (Appeals) submitted that in the instant case, time-limit of 7 to 10 years will be applicable as has been given in column 4 of the chart made by the Commissioner of Income-tax (Appeals) at page 4 of his order as the escaped income exceeds Rs. 50,000. Even otherwise, as has been mentioned at page 2 of the order of the Assessing Officer, the Assessing Officer has cited the case law reported in Shankar Industries v. CIT wherein it has been held by the hon'ble jurisdictional High Court on the point that it is necessary for the assessee to prove prima facie the transactions which result in a cash credit in his books of account. Taking that into consideration, since the assessee's case was decided ex parte, despite opportunities, the Assessing Officer had to make the addition.
11. On hearing the contested rival submissions from both the sides and going through the case laws cited by them, we are of the considered opinion that the validity of initiation of proceedings under Section 147/148 of the Act cannot be challenged by the assessee in this case for the reasons given below:
(i) As has been held in the case of Shankar Industries v. CIT as per the decision of the hon'ble jurisdictional High Court, the onus lies on the assessee to prove the case prima facie in case of Section 68 which has not been done in the impugned case. It has been rightly held by the Assessing Officer that when the case was decided ex parte despite several opportunities granted and the assessee could not prove it to be the opening balance in subsequent year, the case becomes weakened for the assessee in the impugned appeal. Even the same view has been held by the Commissioner of Income-tax (Appeals).
(ii) The primary onus has not been discharged by the assessee at all as it appears from the facts and circumstances of the case.
(iii) The relevant para. 5 of the order of the Commissioner of Income-tax (Appeals) for the assessment year 1988-89 has been partly challenged by earned Counsel for the assessee on the ground that it is an inference drawn by the Commissioner of Income-tax (Appeals) without any basis which he is precluded from doing so according to earned Counsel for the assessee. But according to the considered opinion of the Bench, as per the rule of interpretation, the entire para. 5 quoted above has to be read and interpreted wholly. One part which is favourable to the assessee cannot be accepted by the assessee and for the other part which is not favourable to the assessee, the assessee cannot refuse to accept that. With this analogy even otherwise the Bench considers that it is not an inference drawn by the Commissioner of Income-tax (Appeals) but it is a direction and that too, not a blanket direction. It is a restricted direction to the Assessing Officer to apply his discretion in accordance with law.
(iv) Even the order of the Commissioner of Income-tax (Appeals) while upholding the order of the Assessing Officer for the assessment year 1987-88 is considered to be a speaking one as per his finding portion as quoted above.
(v) Case laws cited by earned Counsel for the assessee, as it appears from a bare reading, has been stretched to defend the cause of the assessee but in the considered opinion of the Bench, some sort of accountability has to be fixed on the assessee. Simply because the assessee-company has been closed as stated by learned Counsel, it does not enable the assessee to escape from the accountability.
(vi) The decision made by the learned Commissioner of Income-tax (Appeals) is a speaking one as enumerated above.
(vii) Even otherwise on a bare reading of Section 150, it is crystal clear that no time-limit can be fixed for issue of notice under Section 148 if it has been done as a result of direction by any appellate authority. Section 150 is quoted below:
150. Provision for cases where assessment is in pursuance of an order on appeal, etc.--(1) Notwithstanding anything contained in Section 149, the notice under Section 148 may be issued at any time for the purpose of making an assessment or reassessment or recompu-tation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision or by a court in any proceeding under any other law.
(2) The provisions of Sub-section (1) shall not apply in any case where any such assessment, reassessment or recomputation as is referred to in that sub-section relates to an assessment year in respect of which an assessment, reassessment or recomputation could not have been made at the time the order which was the subject-matter of the appeal, reference or revision, as the case may be, was made by reason of any other provision limiting the time within which any action for assessment, reassessment or recomputation may be taken.
12. On a total consideration of the facts and circumstances of the case along with the case record and the case law cited with reference to the order of the Commissioner of Income-tax (Appeals) for the assessment year 1988-89, in our considered opinion, the contention and argument of learned senior counsel on behalf of the assessee-appellant cannot be accepted for the reasons stated above. Hence the appeal filed by the assessee deserves to be dismissed.
13. In the result, the assessee's appeal is dismissed.