Income Tax Appellate Tribunal - Mumbai
Power Fulimpex P. Ltd , Mumbai vs Assessee on 13 July, 2011
1
ITA 2776 & 2777/M/09, Powerful Impex P. Ltd.
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "C"
BEFORE SHRI D. MANMOHAN, V.P. AND SHRI R.K. PANDA, A.M.
ITA No. 2776/Mum/2009
ITA No. 2777/Mum/2009
Assessment years 1999-2000 & 2000-01
M/s Powerful Impex Pvt. Ltd., ITO - Ward 7(1)(2),
C/o Noble Hygience Pvt. Ltd., 623 Aayakar Bhawan,
Swaroop Arcade, 4th floor, M.K. Marg,
Sahar Road, Andheri (E), Vs. Mumbai.20
MUMBAI - 400 099.
PAN AABCP 6131 F
Appellant Respondent
Appellant by : Shri M.S. Mathuria
Respondent by : Shri Devi Singh
Date of hearing : 13.07.2011
Date of Pronouncement : 05.10.2011
ORDER
PER R.K. PANDA A.M. The above two appeals filed by the assessee are directed against the separate orders dated 10.02.2009 of the ld. CIT(A)- VII, Mumbai relating to A.Yrs. 1999-2000 & 2000-01respectively. Since identical grounds have been taken by the assessee in both these appeals, therefore, these were heard together and are being disposed of by this common order.
2ITA 2776 & 2777/M/09, Powerful Impex P. Ltd.
ITA No. 2776/Mum/2009 (By the assessee for A.Y. 1999-2000)2. In grounds of appeal No. 1 & 2 the assessee has challenged the order of the ld. CIT(A) in upholding the reassessment proceedings initiated by the A.O. 2.1. Facts of the case, in brief, are that the assessee is a Private Limited Company engaged in the business of export of diamonds. The assessee filed its return of income on 31.12.1999 declaring total income of ` 1,68,410/-. The return was processed u/s 143(1) and intimation was sent to the assessee. Subsequently, the A.O. issued notice u/s 148 after re-opening the assessment u/s 147 by recording the following reasons:-
"A search action was conducted under section 132 of the I.T. Act, 1961 in the assessee's case on 14.03.2000. In the block assessment order under section 158BC consequent to search, it was held that the assessee was not entitled to deduction under section 80HHC of the I.T. Act as the entire purchases were bogus and the export sales were also bogus. For the Assessment Year 1999-2000 and 2000-01 the assessee has filed returns of Income declaring income of ` 1,64,410/- and ` 40,370/- respectively. In both these years the assessee has shown purchases of diamonds/jewellery from sister concerns by the names of M/s Galaxy Exports, M/s Kunal Exports and M/s Prima Star Exports. These purchases were found to be bogus.
Accordingly, the A.O. had reason to believe that income chargeable to tax has escaped assessment for the Assessment Years 1999-2000 & 2000-01. The reassessment proceedings under section 147 are initiated by issue of notice under section 148."
2.2 In response to the notice issued u/s 148, the assessee requested the A.O. to treat the original return filed as return filed in response to notice issued u/s 148. Thereafter, the A.O. issued notice u/s 143(2) and 142(1). The assessee filed objections to the re-opening which has been rejected by the A.O. After considering the various details furnished by the assessee, the A.O. determined the total income at ` 2,18,55,220/-. While doing so, the A.O. treated the purchase of diamonds from M/s Galaxy Exports to the tune of ` 66,78,000/-, M/s Kunal Exports to the tune of ` 1,40,000/- and from M/s 3 ITA 2776 & 2777/M/09, Powerful Impex P. Ltd.
Prime Star Exports to the tune of ` 16,00,300/- as bogus and accordingly considered the same as un-explained expenditure u/s 69-C of the I.T. Act. Since he treated the purchases as bogus, he held that the entire sale of ` 1,30,097,024/- as un-accounted income of the assessee being un-explained cash credit u/s 68 of the I.T. Act. The A.O. further made an addition of ` 3,39,896/- as "income from other sources" and disallowed the deduction u/s 80HHC claimed to the tune of ` 63,50,720/- on the ground that assessee had no genuine export transaction.
2.3 Before the ld. CIT(A), it was submitted that the re-opening of the assessment u/s 147 of the Act is bad in law, void ab initio and illegal. It was submitted that on the very same ground a block assessment was framed by the A.O. u/s 158BC, the ld. CIT(A) deleted the addition and the Tribunal also confirmed the decision of the ld. CIT(A). Now the A.O. has taken other route to make the same addition which was already made in the block assessment proceedings. It was submitted that the search was conducted in the year 2000 and the block assessment was completed in the year 2002. Since the law is very clear that the proceedings u/s 158BC as well as the proceedings u/s 147 have a common object and purpose i.e. to tax the undisclosed income, the A.O. cannot reopen the assessment u/s 147 if same issues were already considered in the block assessment. For this proposition, various decisions were cited before the ld. CIT(A).
2.4 However, the ld. CIT(A) was not convinced with the explanation given by the assessee. He noted that no clause in the provisions of section 147 as well as 148 of the Act prohibits the A.O. from re-opening an assessment if he has genuine reasons to believe that income chargeable to tax has escaped assessment. What is required from the A.O. is that before making any assessment, the A.O. shall serve on the assessee a notice u/s 148 and will record reasons to believe that income chargeable to tax has escaped assessment. If these conditions are fulfilled, there is no bar on the A.O. from 4 ITA 2776 & 2777/M/09, Powerful Impex P. Ltd.
taking an action u/s 147 of the Act. He noted that the reasons were duly recorded by the A.O., a copy of the reasons so recorded were supplied to the assessee and finally the A.O. after receipt of the objections raised by the assessee has rejected the objection and thereafter proceeded to reassess the income which has escaped the assessment. As regards the contention of the assessee that the A.O. wanted a second route to make the same addition by re- opening the case u/s 147 after the CIT(A) deleted similar additions in the block assessment, the ld. CIT(A) noted that such allegation has no strength. He noted that the subject matter of the appeal before the ld. CIT(A) was block assessment order and not a regular assessment order or a reassessment order. He further noted that in the block assessment u/s 158 BC only one addition of ` 63,50,720/- on account of bogus purchase was the subject matter. However, in the re-assessment order u/s 143(3)/147 there are various other additions/disallowances. Therefore, he held that the contention of the assessee that the order passed u/s 158BC dtd. 14.03.2000 is the same as the order u/s 143(3) r.w.s. 147 dtd. 28.03.2006 is misplaced. He accordingly, rejected the ground raised by the assessee. Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before us.
3. The ld. Counsel for the assessee referring to page 1 to 7 of the paper book submitted that the return of income u/s 139(1) of the Act for the A.Y. 1999-2000 was filed by the assessee on 31.12.1999. Referring to paper book page no. 18, he submitted that the same was processed u/s 143(1) and intimation issued on 29.12.2000.
3.1 He submitted that a search u/s 132 was conducted on 14.3.2000. Referring to page 19 to 21 of the paper book, he submitted that in the order passed u/s 158BC (c) r.w.s. 143(3), the A.O. had treated the purchase/export sales as bogus and disallowed the claim of deduction u/s 80HHC of the Act amounting to ` 63,50,720/-. Referring to page 22 to 29 of the paper book, he drew the attention of the Bench to para 9 of the order of the ld. CIT(A) where 5 ITA 2776 & 2777/M/09, Powerful Impex P. Ltd.
the ld. CIT(A) has treated the exports as genuine by observing that the sales invoices and bills etc. are attested by the Customs Officials, there are Airways bills issued by the agents of the Airlines, the particulars of actual carriage of goods by Airlines are endorsed on these documents which conclusively prove the fact of export of goods outside India. The ld. CIT(A) in the said order has held that Customs Officials are part of the Revenue Department of the Government and their attestation could not be doubted unless otherwise proved beyond doubt. The export proceeds were realized through proper banking channel through convertible foreign exchange as certified by them in their certificates. Thus, the ld. CIT(A) has allowed the claim of deduction u/s 80HHC both in law and on facts.
3.2 Referring to page 30 to 32 of the paper book, the ld. counsel for the assessee submitted that the Revenue has filed an appeal before the Tribunal against the order of the ld. CIT(A). Referring to page 33 to 73 of the paper book the ld. counsel for the assessee drew the attention of the Bench to para 83 at page 72 of the paper book and submitted that the Tribunal in an elaborate order passed has upheld the order of the ld. CIT(A). He submitted that the Department has not gone to High Court against the order of the Tribunal dismissing the appeal filed by the Revenue.
3.3 Referring to the decision of Hon'ble Bombay High Court in the case of Metro Auto corporation vs. ITO and Others reported in [2006] 286 ITR 618 (Bom) he submitted that when an addition made by the A.O. was deleted by the CIT(A) and was appeal filed by the Department before the Tribunal against such order, during the pendency of such appeal, no notice u/s 148 could be issued and the notice issued was liable to be quashed. Since, in the instant case when the notice u/s.148 issued on 29.07.2004 the matter was pending before the Tribunal (since the date of order of Tribunal is 31.01.2005) therefore, in view of the decision of the Jurisdictional High Court, the notice issued by the AO is liable to be quashed.
6ITA 2776 & 2777/M/09, Powerful Impex P. Ltd.
3.4 Referring to the decision of Hon'ble Bombay High Court in the case of Ador Technopark Ltd. v. Dr. Zakir Hussein, Dy. CIT reported in 271 ITR 50 he submitted that when there is no failure on the part of the assessee to furnish material facts necessary for assessment and when no reasons could be found alleging any failure on the part of the assessee to disclose the material facts necessary for the assessment, notice issued u/s 148 is liable to be quashed. He submitted that all relevant documents necessary for completion of the assessment were filed as per page 2 to 27 of the paper book. Referring to the Index of the paper book, he submitted that the above paper book contains copy of purchase bills from M/s Galaxy Exports, M/s Kunal Export and Prime Star Exports, it contains export invoices for export made to M/s Style Pearl Gem Ltd., Japan, M/s Shah Imexport BVBA, Belgium along with Bank advice, licence issued by Jt. Director general of foreign Trade. The assessee has also filed assessment order for local and Central Sales tax and stock book for the A.Y. 1999-2000. He submitted that the ITAT had already held the transactions of the assessee as genuine. Since there is no failure on the part of the assessee to furnish all material facts necessary for completion of assessment, therefore, in view of the above decision, the reassessment proceedings are void.
3.5 Referring to the decision of the co-ordinate Bench of the Tribunal in the case of Western India Bakers (P.) Ltd. vs. DCIT reported in [2003] 87 ITD 607 (Mum), he drew the attention of the Bench to the following observation of the Tribunal:-
"Chapter XIV-B enacts a special procedure to deal with the search cases. The assessment pursuant to search cases cannot be equated with the ordinary assessment. The purpose of section 147 is to bring to tax the escaped income. Section 147 is a device to detect the escaped income under the normal assessment procedure. Normal assessment is being done on the basis of material and evidence available on record. In the normal assessment procedure, Assessing Officer sees the facts through the records. In the search cases facts get exposed directly. If you go to a Doctor, he will first examine you through his stethoscope. If doubt persists he will advise X-ray etc. 7 ITA 2776 & 2777/M/09, Powerful Impex P. Ltd.
But once Surgeon cuts open the body, he can see the things directly. Likewise in the search cases, when things get exposed to the revenue official, there is nothing further left to see. Chances of escapement are not there. Escapement is possible so long the object is hidden from the eyes. Once you see to it, where is the question of escapement? Probably due to these reasons only Legislature, in its wisdom, not put the block assessments within the ken of reassessment proceedings."
3.6 Referring to the decision of Hon'ble Allahabad High Court in the case of Vishwanath Prasad Ashok Kumar Sarraf v. CIT & Others reported in [2010] 327 ITR 190 (All) he submitted that reassessment for years comprised in block period to tax same sums not permissible. Referring to the decision of the Hon'ble Gujarat High Court in the case of Cargo Clearing Agency (Gujarat) v. JCIT reported in [2008] 307 ITR 1 (Guj) he submitted that the A.O. has no jurisdiction to re-open a block assessment by issuing notice u/s 148. Referring to the decision of the Hon'ble Bombay High Court (Goa Bench) in the case of Smt. Mira Ananta Naik & Ors. V. DCIT (Investigation) & Ors. reported in (2008) 15 DTR (Bom) 8, he submitted that merely because the block assessment made u/s 158 BC has not been upheld, it cannot be said that assessee's income has escaped assessment and therefore the same cannot be reason enough to invoke section 147 more so when the reasons recorded for reopening the assessments make no reference to the block assessment or the proceedings pursuant thereto. Referring to the decision of Hon'ble Kerala High Court in the case of CIT vs. C. Sivanandan reported in (2011) 52 DTR (Ker) 428, he submitted that once the A.O. proceeds to make block assessment u/s 158 BC based on materials gathered during search u/s 132, he cannot proceed to make assessment u/s 147 on the basis of the same material after block assessment is cancelled by the first appellate authority. The A.O. has no jurisdiction to assess the very same amount which was considered and given up while making block assessment. He also relied on the decision reported in 105 TTJ 262.
3.7 Referring to the decision of Hon'ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd. reported in [2010] 320 ITR 561(SC) he submitted that 8 ITA 2776 & 2777/M/09, Powerful Impex P. Ltd.
after 1.4.89 the A.O. has power to reopen the assessment, provided there is tangible material to come to the conclusion that there was escapement of income from assessment. Reason must have a link with the formation of the belief. It cannot reopen the assessment on mere change of opinion. The concept of change of opinion must be treated as an in-built test to check abuse of power by the A.O. He also relied on the decision of the Hon'ble Bombay High Court in the case of Prashant S. Joshi vs. ACIT reported in 324 ITR 154 and various other decisions.
4. The ld. D.R., on the other hand, submitted that the original return in this case was filed on 31.12.1999 declaring total income at ` 1,68,410/-. The assessment was completed u/s 143(1), there was no scrutiny assessment and notice u/s 148 was issued on 29.7.2004. Since in this case there was no scrutiny assessment and proper reasons have been recorded for re-opening of the assessment, therefore, such re-opening is valid. For this proposition, he relied on the decision of Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. reported in 291 ITR 500 (SC) and the decision of Kolkata Bench of ITAT in the case of Som Datt Builders Pvt. Ltd. vs. DCIT reported in 98 ITD 78. Referring to the unreported decision of the Hon'ble Guwahati High Court in the case of M/s Peerchand Ratanlal Baid (HUF) (a copy of which is filed by the ld. D.R.) , he submitted that the Hon'ble Guwahati High Court has dissented from the decision of Hon'ble Gujarat High Court in the case of Cargo clearing Agency (Gujarat) (supra) and held that section 147 does not apply to block assessment cannot be accepted in view of the judgment of the Hon'ble Supreme Court in the case of Suresh N. Gupta reported in 297 ITR 322 where it was held that the other provisions of the Act would be applicable to the scheme under chapter XIV-B if no conflict arises above such application.
4.1 The ld. counsel for the assessee, in his rejoinder, submitted that the decision of the Hon'ble Supreme Court in the case of Suresh N. Gupta (supra) 9 ITA 2776 & 2777/M/09, Powerful Impex P. Ltd.
has been doubted and referred to a larger Bench in Vatica Township reported in 314 ITR 338.
5. We have considered the rival arguments made by both the sides, pursued the orders of the Assessing Officer and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. The only question to be decided in the impugned ground is as to whether the notice issued by the A.O. u/s.148 for the impugned assessment year is valid or not in view of the block assessment proceedings taken place for assessing the same income. At the cost of repetition, the reasons recorded by the A.O. as per para 2 & 3 of the assessment order are reproduced as under:-
"A search action was conducted under section 132 of the I.T. Act, 1961 in the assessee's case on 14.03.2000. In the block assessment order under section 158BC consequent to search, it was held that the assessee was not entitled to deduction under section 80HHC of the I.T. Act as the entire purchases were bogus and the export sales were also bogus. For the Assessment Year 1999-2000 and 2000-01 the assessee has filed returns of Income declaring income of ` 1,64,410/- and ` 40,370/- respectively. In both these years the assessee has shown purchases of diamonds/jewellery from sister concerns by the names of M/s Galaxy Exports, M/s Kunal Exports and M/s Prima Star Exports. These purchases were found to be bogus.
Accordingly, the A.O. had reason to believe that income chargeable to tax has escaped assessment for the Assessment Years 1999-2000 & 2000-01. The reassessment proceedings under section 147 are initiated by issue of notice under section 148."
5.1 We find from the copy of the block assessment order dtd. 20.3.2002 for the block period 1.4.90 to 14.3.2000 (paper book page 19 to 21) that the A.O. while disallowing the claim of deduction u/s 80HHC ` 63,50,720/- has held as under:-
"In the course of block assessment proceedings, the assessee was asked to furnish details of proof of the purchases and export claims to have been made in the block period. The assessee submitted vide 10 ITA 2776 & 2777/M/09, Powerful Impex P. Ltd.
letter dated 28.03.2002 photo copies of purchase and sale bills and also submitted as under:-
"M/s galaxy Exports & M/s Kunal Exports were partnership firms in which apart from the family of Mr. Kamal Johari the family of Mr. Hariom Sharma was also Partner in the said firms. Due to certain disputes between them, their firms were dissolved in Aug 1998. Powerful Impex Pvt. Ltd. is a company owned by the family of Mr. Kamal Johari and since the exports to be made were to belong to Mr. Kamal Johari family and since there was stock of diamonds in the above partnership firms, the same was purchased from them instead of purchasing from outside.
Similarly purchase from Prime Star Exports was made, as the said company was dealing in local trade and all exports were being done through Powerful Impex Pvt. Ltd. which had various Import/export code to carry out exports."
However, the assessee has not furnished any independent confirmation from the above sellers. Nor has he been able to produce the said seller for examination. Similarly, the so called exports are also not free from doubt and the assessee has not produced any further proof in this regard.
As stated earlier as per the findings in the case of search, the assessee group basically consists of two persons viz. Shri Kamal Kumar Johari and Shri Hari Om Sharma, who are C.As.by qualification. They have only shown purchase and sale of diamonds on paper without any actual purchase/sale. The remittances from abroad are nothing but hawala transaction for laundering of black money of its clients to take undue advantage of VDIS 97 scheme and to enable them to claim huge incomes under VDIS 97 and thereafter to convert the same into white money by showing capital gains on account of sale of the said diamonds.
As stated earlier the entire purchases are bogus. Hence the sales are also bogus. In view of the same, the assessee's claim of ` 63,50,720 u/s 80HHC in the year A.Y. 99-2000, is not genuine and the same is disallowed and added in assessee hands as undisclosed income for the block period."
5.2 From the above, it is clear that the AO in the block assessment has doubted the genuineness of the purchases from the parties mentioned in the 148 notice and also doubled the sales treating the same as bogus.
11ITA 2776 & 2777/M/09, Powerful Impex P. Ltd.
5.3 We find the ld. CIT(A) in his order dtd. 25th July, 2000 while directing the A.O. to delete the disallowance of ` 63,50,720/- at para 9 & 10 of his order (at paper book page 27 & 28) has held as under:-
"Though I have accepted the appellant's legal contention regarding the scope of block assessment vis-à-vis the completed assessment, I would record my findings on the factual aspect as well. The appellant has filed copies of various documents in the paper book to prove its case that the export of diamonds was genuine. From the details filed I find that during the previous year relevant to A.Y. 1999-2000, there were two export transactions, one with M/s Style Pearl Gem Ltd., Japan for $ 2,12,930.92 and another with M/s shah Imexports, BVBA, Belgium for $ 98,20.89. The sales invoices and shipping bills in both these transactions are attested by the Customs Officials. There are Airways bills issued by the agents of the Airlines. The particulars of actual carriage of goods by airlines are endorsed on these documents, which conclusively prove the fact of export of goods outside India. Customs are part of the Revenue Department of the government and their attestation could not be doubted unless otherwise proved beyond doubt. The export proceeds were realized through banking channel by Vyasa Bank in convertible foreign exchange as certified by them in their Certificates. The A.O. has held these remittances as hawala transactions. This is a serious allegation under exchange control regulations. In the absence of any evidence to prove these allegations, the A.O. was not justified in his conclusion when the documentary evidence states otherwise. It is further seen that there is no reason to disbelieve the bank as it is an independent body. Further, the appellant has received import licenses from the office of Director General of Foreign Trade on the basis of these exports. Therefore, it is not correct to assume that such licenses were issued without verifying the genuineness of the exports by the issuing authority. Section 114 of the Indian Evidence Act, 1872 provides for a legal presumption that the official acts have been regularly performed unless the contrary is proved. Hence, the acts of custom Officials and the officials of DGFT are to be taken as properly performed in the course of their official duties. The presumption attached to the official records cannot be taken away merely by assumptions or suggestion raising doubts. Considering the documentary evidence placed on record, in my view, the actual export of diamonds is clearly proved. On the other hand, the Assessing Officer has not placed any material to disprove the same. The only plank of the Assessing Officer's argument is that the concerns from whom purchases were made indulged in bogus transactions. As rightly pointed out by the AR, this is too general and vague an observation to be made the basis for disallowance of the appellant's claim for deduction u/s.80HHC of I.T. Act, 1961. Be that as it may, the issue here is whether exports were bogus so as to withdraw the deduction u/s.80HHC and once the export is proved to be genuine, it is immaterial as to from whom the goods were purchased, because 12 ITA 2776 & 2777/M/09, Powerful Impex P. Ltd.
without purchases there could be no actual exports. Hence, the issue whether purchases were made from the appellant's sister concerns or someone else, is not material. In my view, therefore, the Assessing Officer's reliance on the findings in the case of sister concerns of the appellant does not gain importance, once the export of goods by the appellant is proved to be genuine.
In view of the above facts, I hold that the disallowance of deduction u/s.80-HHC amounting to ` 63,50,720/- is not justified both, in law and on the facts of the case. I, therefore, direct the AO to delete the addition of `.63,50,720/- from the assessed undisclosed income. The appellant succeeds on this ground and relief of ` 63,50,720/- is allowed."
5.4 We find when the Revenue filed an appeal before the Tribunal against the order of the ld. CIT(A), the Tribunal dismissed the appeal filed by the Revenue by holding as under : (Page 83 and 84 of the order of the Tribunal at paper book para 72 & 73) "Now we take up IT(SS)A No. 604/M/2002 being revenue's appeal in the case of Powerful Impex Pvt. Ltd. the revenue has raised several grounds of appeal but they all constitute single issue disputing the deletion of addition of undisclosed income of ` 63,50,720/- which the Assessing Officer made by withdrawing/disallowing deduction u/s 80HHC by treating the assessee's purchases of diamond to be bogus and in turn the assessee's exports of diamond to be non-genuine. The ld. D.R. has supported the order of Assessing Officer which the ld. A.R. of assessee has supported order of Ld. CIT(A).
We have considered the rival contentions as also the relevant matter on record. From the perusal of record we find that it was contended by Ld. AR of assessee before Ld. CIT(A) that the Assessing Officer's inference was based on mere suspicion/surmises and there was no evidence on record to substantiate the same citing 248 ITR 562 (Guj) it was contended before the Ld. CIT(A) that the assessee had disclosed the particulars of income or expenditure in the returns/books of account and on the same material Assessing Officer wanted to take a different view but such income could not be treated as undisclosed income , the ld. CIT(A) noted that the Assessing Officer had not referred to any specific or ....evidence found during search to justify his action. The ld. CIT(A) held that in the absence of any evidence the Assessing Officer's finding to the effect that foreign remittances received by assessee were hawala transactions was not tenable in law as no addition could be made merely on suspicion. He accordingly deleted the addition aforesaid addition of undisclosed income. Considering all the facts & circumstances of the case as also 13 ITA 2776 & 2777/M/09, Powerful Impex P. Ltd.
the elaborate discussion made by Ld. CIT(A), we find the impugned order of Ld. CIT(A) in deleting this addition of undisclosed income to be quite justified and so we uphold the same.
In the result, revenue's appeal being IT(SS)A No. 604/M/2002 is dismissed."
5.5 The submission of the ld. counsel for the assessee that the Revenue has not challenged the order of the Tribunal before the Hon'ble High Court could not be controverted by the ld. D.R. Under these circumstances, it is to be seen as to whether the notice issued by the A.O. u/s 148 is valid or not. We find the A.O. in his reasons recorded for re-opening of the assessment for the impugned assessment year has again referred to the block assessment order wherein it has been held that the assessee was not entitled to deduction u/s 80HHC as the entire purchase and sales are bogus in A.Y. 1999-2000 and 2000-01.
5.6 We find the Hon'ble Gujarat High Court in the case of Cargo Clearing Agency (Gujarat) (supra) at page 29 of the order has held that once the assessment has been framed u/s 158 BA in relation to undisclosed income for the block period as a result of search there is no question of the A.O. issuing notice u/s 148 of the Act for reopening such assessment as the said concept is abhorrent to the special scheme of assessment of undisclosed income for block period. It has been emphasized in the said decision that the first proviso u/s 158BC(a) of the Act specifically provides that no notice u/s 148 of the Act is required to be issued for the purpose of proceeding under Chapter XIV-B of the Act.
5.7 It has been held by the Hon'ble Bombay High Court in the case of Metro Auto Corporation vs. ITO (286 ITR 618) that during the pendency of proceeding before the Tribunal, notice u/s 148 could not have been issued and notice is liable to be quashed.
5.8 We find the Hon'ble Kerala High Court in the case of C. Sivanandan (supra) has held as under (short note ):-
14ITA 2776 & 2777/M/09, Powerful Impex P. Ltd.
"Even though block assessment under s.158BC and assessment under s.147 can probably be made for the same period on different basis, assessments could not be successively made one after another for the same period under these provisions based on the same materials. Once materials are gathered either during search under s.132 or during survey under s. 133A, it is upto the AO to make block assessment under s. 158BC or if he feels that reassessment is called for under s. 147, it is upto him to elect between the two and make assessment under the provision he finds appropriate. However, once the AO, after conducting search and based on materials gathered during search under s.132, proceeds to make block assessment under s.158BC, then he cannot, based on the same materials which in this case is deposit amounts found during search, proceed to make assessment under s. 147 after block assessment was cancelled by the first appellate authority. The AO obviously cannot get over the findings in the order of the first appellate authority against a block assessment by invoking powers under s. 147. During block assessment, the AO obviously considered as to whether bank deposits in the names of family members of the assessee found during search represent his undisclosed income but accepted the assessee's contention that the same belong to his family members. Rightly or wrongly only the interest from these deposits were assessed as part of undisclosed income of the assessee for the block period. In appeal, the CIT(A) cancelled the assessment on interest income. The AO cannot after cancellation of block assessment by the CIT(A) proceed to make an assessment for assessing the very same bank deposits as escaped income. The AO has no jurisdiction to assess the very same amount, which was considered and given up while making block assessment. It cannot be accepted that deposit amounts were not considered in block assessment, because when interest from the same deposits were assessed as undisclosed income of the block period, it can be legitimately assumed that the officer considered the deposit amounts for assessment but gave up the same. In this context, the findings of the Tribunal that reassessment under s.147 is a result of change of opinion of the AO, cannot be said to be illegal or incorrect because what was not treated as undisclosed income in block assessment is later treated as escaped income in another round of assessment under a difference provision of the Act (s.147) which is impermissible."
5.9 We find the Hon'ble Supreme Court in the case of Kelvinator of India Ltd. 9supra) at page 564 and 565 has held as under:-
"On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, 15 ITA 2776 & 2777/M/09, Powerful Impex P. Ltd.
reopening could be done under the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from 1st April, 1989), they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has the power to reassess. But reassessment has to be based on fulfilment of certain preconditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment.
Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in section 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament reintroduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer."
5.10 The various other decisions relied on by the Ld. Counsel for the assessee also supports his case. From the various documents placed in the paper book we find it as an attempt on the part of revenue to, somehow or other, re-open the proceedings and more particularly the block assessment proceeding which they could not successfully support and sustain right up the Tribunal. It is an attempt which is apparent from the notice and, therefore, the reasons which are relied upon by the revenue failed to indicate any escapement or 16 ITA 2776 & 2777/M/09, Powerful Impex P. Ltd.
concealment of income by the assessee or suppression of any material fact by him. They do not meet the requirement u/s 147 of the Act. In this view of the matter and in view of the ratio of various decisions cited (supra) by the ld. counsel for the assessee, the notice issued u/s 148 in our opinion, is void ab initio. Since the assessee succeeds on this preliminary ground raised by the assessee, the other grounds being academic in nature are not decided.
6. In the result, the assessee appeal for A.Y. 1999-2000 is allowed.
ITA 2777/M/2009 for A.Y. 2000-01 (By assessee)
7. In grounds of appeal No. 1, the assessee has challenged the order of the ld. CIT(A) upholding the reassessment proceeding for the impugned assessment year.
7.1 The ld. counsel for the assessee referring to the notice issued u/s 148 for the impugned assessment year drew the attention of the Bench to the reasons recorded which has been mentioned in the assessment order and which reads as under:
"A search action was conducted under Section 132 of the I.T. Act, 1961 in the assessee's case on 14.03.2000. In the block assessment order under section 158BC consequent to search, it was held that the assessee was not entitled to deduction under section 80HHC of the I.T. Act as the entire purchases were bogus and the export sales were also bogus. For the Assessment Year 1999-2000 and 2000-01 the assessee has filed Returns of Income declaring income of ` 164,410/- and ` 40,370/- respectively. In both these years the assessee has shown purchases of Diamonds/jewellery from sister concerns by the names of M/s Galaxy Exports, M/s Kunal Exports and M/s Prime Star Exports. These purchases were found to be bogus.
Accordingly, the A.O. had reason to believe that income chargeable to tax has escaped assessment for the Assessment years 1999-2000 & 2000-01. The reassessment proceedings under section 147 are initiated by issue of notice under section 148."17
ITA 2776 & 2777/M/09, Powerful Impex P. Ltd.
7.2 He submitted that during the impugned A.Y., there is no purchase from the above parties therefore, the reason itself is wrong. Referring to page 1 to 16 of the paper book, he drew the attention of the Bench to page 11 where the details of purchases and sales are given. He submitted that the assessee during the impugned assessment year has made only one purchase of ` 11,40,000/- from Mr. Vijay Bhav. Similarly, the assessee has sold during the year to M/s Galaxy Trading Co. ` 299,990.00, M/s Prime Star Exports ` 1290195.00 and M/s Dauji & Co ` 9 lacs. He submitted that M/s Galaxy Trading Co. is different from Galaxy Exports. There is no purchase from galaxy Exports or M/s Kunal Exports or from M/s Prime Star exports. Therefore, the reasons recorded in the notice issued u/s 148 are wrong and, therefore, 148 proceeding is bad in law and hence to be quashed.
8. The ld. D.R. on the other hand submitted that since the notice has been issued within a period of 4 years from the end of the relevant assessment year, therefore, the re-assessment proceedings cannot be held as invalid.
9. We have considered the rival arguments made by both the sides, pursued the orders of the Assessing Officer and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. From the copy of the assessment order where the reasons are recorded, we find the A.O. re-opened the assessment on the ground that purchase of diamonds/jewellery from the sister concerns namely M/s Galaxy Exports, M/s Kunal Exports and M/s Prime Star Exports were found to be bogus, hence, he has reason to believe that income has escaped assessment. From the details of purchase and sales given by the assessee as per paper book 2 we find the assessee has made purchase from Vijay Bhav only during the year and there is no purchase from any of the three parties namely M/s Galaxy Exports, M/s Kunal Exports and M/s Prime Star Exports as mentioned in the Notice issued u/s.148. A perusal of the reasons shows that the same is just a repetition of the reasons recorded for A.Y. 1999-2000 and there is no 18 ITA 2776 & 2777/M/09, Powerful Impex P. Ltd.
application of mind. The reasons recorded by the A.O. suffers from defect and the reasons itself are wrong. It has been held in a number of decisions that when there is no reason recorded or the reasons recorded are wrong/absurd or irrelevant the re-assessment proceedings based on such no reason or absurd or irrelevant reason is invalid. Since in the instant case, the reasons recorded by the A.O. are wrong therefore, the notice itself is invalid. Therefore, the subsequent proceedings are also invalid. Accordingly, we hold that the ld. CIT(A) was not justified in upholding the re-assessment proceedings and accordingly the same is set aside and the ground raised by the assessee is allowed. Since the assessee succeeds on this legal ground, the other grounds raised by the assessee being academic in nature are not decided.
10. In the result, both the appeals filed by the assessee are allowed.
Order pronounced on 5th October 2011.
Sd/- sd/-
(D. MAN MOHAN) (R.K. PANDA)
VICE PRESIDENT ACCOUNTANT MEMBER
Mumbai, dated 5.10.11.
RK
Copy to...
1. The appellant
2. The Respondent
3. The CIT(A) - Concerned, Mumbai
4. The CIT - Concerned, Mumbai
5. The DR Bench, "C"
6. Master File
// Tue copy//
BY ORDER
DY/ASSTT. REGISTRAR
ITAT, MUMBAI