Income Tax Appellate Tribunal - Kolkata
Biseswar Pandey, Hooghly vs Assessee on 8 July, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL "SMC" BENCH : KOLKATA
[Before Hon'ble Sri N.V.Vasudevan, JM ]
I.T.A No.246/Kol/2014
Assessment Year : 2007-08
Biseswar Pandey -vs.- I.T.O., Ward-2(2)
Hooghly Hooghly
(PAN:AFKPP 8794 D)
(Appellant) (Respondent)
For the Appellant : Shri Somnath Ghosh, Advocate
For the Respondent : Shri Rajat Kumar Kureel, JCIT
Date of Hearing : 04.07.2016.
Date of Pronouncement : 08.07.2016.
ORDER
This is an appeal by the Assessee against the order dated 30.12.2013 of CIT(A)-XXXVI, Kolkata, relating to AY 2007-08.
2. The assessee is an individual. He is engaged in the business of wholesale trading in potato seeds and also earned income from plying his truck on hire. For AY 2007- 08, the Assessee filed return of income u/s. 139(1) of the Income Tax Act. 1961 (Act) on 31-10-2007, disclosing total income of Rs.4.00,570/-. The Assessee had incurred expense in the amount of Rs. 18,45,600/- on account of transportation of potato seeds from Punjab. This was shown as part of the purchase cost and incorporated in the purchase account and the purchases shown in the books of accounts by the Assessee at Rs.1,70,73.975/- was inclusive of the Transportation expenses. In the course of the original assessment proceedings u/s.143(3) of the Act, the AO, made enquiries in respect of the transportation cost incurred by the Assessee. In reply to the query of the AO, the Assessee gave details of expenses incurred on this account and produced bills and vouchers in support of the aforesaid expenses. In the order of assessment framed u/s.143(3) of the Act dated 31.12.2009, the Assessing Officer had verified such transactions and recorded his satisfaction as follows:
"In regard of the transport charges for potato seeds purchased from Punjab for which considerable amount of carrying charges for long distance (Punjab to ITA No.246/Kol/2014-Biseswar Pandey-A.Y.2007-08 1 Hooghly), the assessee have incurred which has been explained by the A/R. discussed and heard...."
The Ld. Assessing Officer thereafter framed the assessment order u/s. 143(3) of the Act determining the total income at Rs.4,08.470/- by resorting to a disallowance in the amount of Rs. 8,100/- out of "Car running expense" to the income returned by the assessee. The order of assessment was passed on 31.12.2009.
3. The AO addressed a letter dated 22.6.2011 to the assessee in which, the AO raised two objections to the order of assessment dated 31.12.2009 framed by him u/s.143(3) of the Act viz., "1. According to the AO, on scrutiny of the assessment records, it was noticed by him that the Assessee had declared income from the business of plying, hiring goods carriage at Rs.50,000/- u/s.44AE of the Act. The AO noticed from the Balance Sheet of the Assessee that the Assessee owned 3(three) vehicles i.e 1.'I'ruck 2.Maruti 3.in nova. According to the AO u/s..44AE of the Act, profits and gains have to be computed by applying presumptive income for heavy goods vehicle at Rs.3500/- per month and other vehicles at Rs.3150/- p.m. Since the Assessee owned one truck and two other vehicles, according to the AO income of Rs.1,17,600/- ought to have been declared from the said business by the Assessee , whereas only Rs.50,000/- had been declared by the Assessee. Hence, according to the AO there was escapement of income of Rs.67,600/ (Rs.117600- Rs.50000 ).
2. The Assessee had incurred transport /carriage inward charges of Rs.18,45,600/-. A sum of Rs.16,43,100/- out of the transportation charges was payment to transporter in excess of Rs.20,000/-in each transaction or aggregate of payments made during the previous year was more than Rs.50,000/- and therefore the Assessee ought to have deducted tax at source on the payments made to transporters u/s.194-C of the Act. Even the Tax Audit report col.no.27(a) & (b) had referred to the fact that provisions of sec.40
(a) (ia) of the Act on expenditure of Rs. 16,43,100/- on account of carriage inward were attracted and hence would have to be added back to total income of the Assessee. This was not looked into while completing the original assessment."
The AO after pointing out to the above facts called upon the Assessee to explain within 7(seven) days from receipts of the said letter why the above Rs.17,10,700/- (Rs.16,43,100 + Rs.67,600) should not be treated as income concealed for which remedial measure u/s.147 should not be initiated as per Act.
4. The Assessee did not send any reply to the aforesaid letter of the AO. On 7.7.2011, the AO issued a notice u/s. 148 of the Act. The Assessee filed return of income in response to the said notice on 30.8.2011. The assessee objected to initiation of proceedings u/s.147 of the Act vide his letter dated nil filed before the AO on ITA No.246/Kol/2014-Biseswar Pandey-A.Y.2007-08 2 28.3.2012, on the ground that the first justification regarding non declaration of income of plying of trucks was not correct and that the Assessee had disclosed income from plying of his one lorry u/s. 44AE of the Act and that he had not used the Maruti Car and Toyota Innova on hire and therefore applying the provisions of s. 44AE of the Act in respect of the other two vehicles was erroneous. As far as disallowance of transportation charges u/s.40(a)(ia) of the Act is concerned, the Assessee submitted that the admissibility of the transportation charges were enquired into by the Ld. Assessing Officer by calling for details and evidence which was duly complied with and after due deliberation he was fully satisfied with the propriety of the expense. The Assessee argued that it was not proper to reopen completed assessment on this ground because no tangible material came to the possession of the AO based on which the AO entertained belief that income of Assessee chargeable to tax has escaped assessment. In such circumstances, the Assessee pleaded that initiation of reassessment proceedings would be merely on change of opinion which was not permissible in law. The Assessee also requested the AO to furnish a copy of the reasons recorded for initiating proceedings u/s.147 of the Act.
5. However. the Ld. Assessing Officer was not impressed by such submissions of the Assessee and he held that initiation of reassessment proceedings was valid. The AO further added a sum of Rs. 50,000/- as income from business of plying trucks on hire as the Assessee had given on hire only one truck during the previous year. According to the AO, the sum of Rs.50,000 was disclosed only in the return filed in response to notice u/s.148 of the Act and not in the original return of income. The plea of the Assessee was that the sum of Rs.50,000 had been declared as income from plying trucks in the original return of income itself. Ignoring such submission a sum of Rs.50,000/- was added to the total income of the Assessee by the AO. The AO further held that a sum of Rs.18,45,600/- which was expenses incurred on transportation charges had to be disallowed u/s.40(a)(ia) of the Act because of non deduction of tax at source on such payments by the Assessee as required by Sec.194-C of the Act. The AO further disallowed expense to the tune of Rs.50.122/- out of depreciation on car, interest on car loan and car expenses. The AO thus completed the ITA No.246/Kol/2014-Biseswar Pandey-A.Y.2007-08 3 assessment u/s.147 of the Act by order dated 08-08-2012 computing the total income at Rs. 23.46,290/- for the assessment year under dispute.
6. On appeal by the assessee the CIT(A) deleted the addition on account of income from transport business and also the disallowance of transport charges on the ground of contravention to the provision of section 40(a)(ia) of the Act. With regard to the disallowance of expenses in the form of depreciation on car, interest on car loan and car expenses CIT(A) sustained the disallowance of 20% of expenses on account of depreciation and interest on car loan. The revenue has not preferred any appeal against the order of CIT(A) on which the relief was given to the assessee by CIT(A). The assessee is aggrieved by the order of CIT(A) for upholding the validity of initiation of proceedings u/s 147 of the Act and has preferred the present appeal before the Tribunal.
7. The grounds of appeal raised by the assessee in this regard are projected in ground nos. 1 to 3 of the grounds of appeal which read as under :-
"1. FOR THAT the Ld. Commissioner of Income Tax (Appeals) XXXVI, Kolkata was legally remiss in failing to appreciate that none of the conditions precedent existed and/or have been complied with and/or fulfilled by the Ld. Income Tax Officer, Ward 2(2), Hooghly for his alleged assumption of jurisdiction u/s. 147 of the Income Tax Act, 1961 and the specious order passed u/s. 147/143(3) of Act in pursuance to the impugned notice dated 07-07-2011 issued u/s. 148 of the Act is therefore ab initio void, ultra vires and ex-facie null in law.
2. FOR THAT on a true and proper interpretation of the scope and ambit of the provisions of s. 147 of the Income Tax Act, 1961, the Ld. Commissioner of Income Tax (Appeals) XXXVI, Kolkata was absolutely in error in upholding the action of the Ld. Income Tax Officer, Ward 2(2), Hooghly of issuing notice u/ s. 148 of the Income Tax Act, 1961 misconstruing the crucial expression "tangible material' in support of such futile exercise and the purported conclusion reached on that behalf is wholly erroneous, flawed and contrary to the settled position in law.
3. FOR THAT the Ld. Commissioner of Income Tax (Appeals) XXXVI, Kolkata acted unlawfully in upholding the action of the Ld. Income Tax Officer, Ward 2(2), Hooghly of issuing notice u/s. 148 of the Income Tax Act, 1961 merely on change of opinion basing only on the evidence already adduced on record in course of the original assessment proceedings and the specious action on that behalf is thoroughly arbitrary, unwarranted and perverse."
8. I have heard the submissions of the ld. Counsel for the assessee and the ld. DR on the aforesaid grounds of appeal. I deem it convenient to deal with the arguments raised before me that the proceedings u/s 148 of the Act have not been validly ITA No.246/Kol/2014-Biseswar Pandey-A.Y.2007-08 4 initiated because the proceedings u/s 148 of the Act were initiated purely based on change of opinion without any fresh material coming to the knowledge of the AO. The undisputed facts in so far as the aforesaid issue are that the assessee is an individual. He is engaged in the business of potato seeds. The assessee was also engaged in the business of transportation. For A.Y.2007-08 the assessee filed return of income on 31.10.2007 declaring total income of Rs.4,00,570/-. The AO issued notice u/a 143(2) and section 143(1) of the Act for completing the assessment u/s 143(3) of the Act. The AO in one of the notices had specifically called for the details of party-wise transport/carriage inward charges. The assessee gave the details of transport/carriage inward for the year ended 31.03.2007 totalling a sum of Rs.18,45,600/-. Copy of the details so furnished is at page 43 of the assessee's paper book. The details of the purchase and the parties from whom the purchase was made are also given at page 42 of the assessee's paper book. The AO passed an order of assessment u/s 143(3) of the Act dated 31.12.2009. In the said order the AO has specifically recorded the fact that since the potato seeds were purchased by the assessee from Punjab carriage inward charges were considerable because of the long distance from Punjab to Hooghly. Ultimately the AO did not make any addition to the total income except disallowance of car running expenses of Rs.8,100/-.
9. The AO issued a letter dated 22.6.2011 the contents of which, I have extracted in the earlier part of this order. The assessee had not sent any reply to the aforesaid letter to the AO. The AO thereafter issued a notice u/s 148 of the Act dated 07.07.2011 calling upon the assessee to file the return of income in response to the said notice. The assessee filed the return of income on 30.08.2011. In response to the aforesaid notice he demanded a copy of the reasons recorded for initiating the proceedings u/s 148 of the Act. It appears that the assessee was not furnished the reasons recorded by the AO but on the other hand, the AO had relied upon the letter dated 22.06.2011 which was issued to the assessee prior to the issue of notice u/s 148 of the Act. From a perusal of the letter dated 22.06.2011 of the AO, it is clear that with regard to the first reason recorded by the AO namely not offering truck income to the extent of Rs.67,600/-, the assessee had declared income from lorry plying of Rs.50,000/- under ITA No.246/Kol/2014-Biseswar Pandey-A.Y.2007-08 5 the head "income from Basanti Automobiles". Income u/s 44AE of the Act has been taken in the capital account. Therefore the assessee had declared income from truck plying in the original return of income. This factual position is not being disputed by the AO. Besides the above, there was no tangible material based on which the AO came to a conclusion that income from truck plying was not offered to tax by the Assessee in the original return of income. In fact the factual assertion in the letter dated 22.6.2011 that the Assessee owned three vehicles and that these were used in the business of plying trucks on hire is without any basis and is purely a surmise of the AO.
10. As far as the second reason recorded by the AO is concerned it relates to the carriage inward charges in the business of wholesale dealing in potato seeds. I have already observed that the AO examined the carriage inward account in the original assessment proceedings and did not think it fit that there was any violation of section 40(a)(ia) of the Act. It can thus be seen that this issue on which the AO initiated reassessment proceedings had been duly considered by the AO while concluding the proceedings u/s 143(3) of the Act. In the paper book before us the assessee filed the order sheet entry of the proceedings before the AO and these are available in pages 96 to 102 of the assessee's paper book. As far as the reassessment proceedings are concerned the first order sheet entry is dated 21.06.2011 and it refers to the audit query dated 10.02.2011. Thereafter there is a discussion with regard to seeking of an approval u/s 147 of the Act from CIT(A).
11. Thus it is clear that the reassessment proceedings have been initiated without any tangible material coming to the possession of the AO. In other words. the Assessing Officer had formed his belief regarding escapement of income based on the existing materials which were provided by the assessee in course of the original assessment proceedings. Doing so would amount to assuming jurisdiction merely on a change of opinion, which is impermissible in law. The statutory requirement for issuing notice u/s. 148 of the Act is that there must be tangible material which in the opinion of the Assessing Authority leads to the conclusion of escapement of income. Assessing Officer does not have power to review his own orders. He cannot under the guise of ITA No.246/Kol/2014-Biseswar Pandey-A.Y.2007-08 6 reassessment proceedings seek to review his own order. The Hon'ble Supreme Court in the case of CIT. - VS-KELVINATOR OF INDIA LTD (2010) 320 ITR 561 (SC) has held that the AO has no power to reopen assessment proceedings merely on "change of opinion" and that even after the substitution of s. 147 of the Income Tax Act. 1961 by the Direct Tax Laws (Amendment) Acts. 1987 and 1989, the AO has to have reasons to believe that income escaped assessment and that it does not imply that the Assessing Officer can reopen an assessment on a mere change of opinion. The concept of "change of opinion" must be treated as an in-built test to check abuse of power. Hence after April 1, 1989. the Assessing Officer has power to reopen an assessment. provided there is "tangible material" to come to the conclusion that there was escapement of income from assessment.
12. The ld. DR has however argued before me that though the transport inward charges were not inquired into by the AO he did not apply his mind on the applicability of the provision of section 40(a)(ia) of the Act. According to him the initiation of re-assessment proceedings were valid. In this regard, it is worthwhile to refer to the decision of the Hon'ble Delhi High Court in the case of CIT vs Usha International Ltd. (2012) 348 ITR 485 (Del) wherein it was held that reassessment proceedings will be invalid in case an issue or query is raised and answered by assessee in original assessment proceedings and Assessing Officer does not make any addition in assessment order.
13. It is clear from the facts available on record that reassessment proceedings in the present case were initiated purely on the change of opinion. On this issue the CIT(A) has taken the following view :-
"On perusal of the assessment record it is seen that during the course of original assessment, it is seen that no query regarding Tax deduction at source from transport payment has been made. Consequently no examination regarding disallowance u/s 40(a)(ia) has been made. Similarly other heads under for which assessments were reopened were not touched upon by the assessing officer during the original assessment. When in the original assessment proceeding the assessing officer has not examined the issue at all, no opinion was formed, the principle of change of opinion cannot apply. Further this is a case where the assessment has been reopened within 4 years of the end of the assessment year. Therefore the re-assessment proceeding cannot be treated as invalid on the ground that full and true disclosure of material fact was made in the original proceeding."ITA No.246/Kol/2014-Biseswar Pandey-A.Y.2007-08 7
14. I am of the view that the aforesaid reasons assigned by the CIT(A) cannot be sustained in the light of the proposition laid down by the Hon'ble Supreme Court in the case of CIT vs Kelvinator India Ltd. (supra). In the given facts and circumstances I am of the view that the initiation of re-assessment proceedings u/s 147 of the Act is not valid as it was based on the change of opinion and no tangible material coming to the possession of the AO after conclusion of the original assessment proceedings. The re-assessment proceedings is liable to be annulled. Since the re-assessment proceedings are annulled the issue with regard to the disallowance of car running expenses, depreciation on car and interest on car loan do not require any consideration.
15. In the result the appeal of the assessee is allowed.
Order pronounced in the Court on 08.07.2016.
Sd/-
[ N.V.Vasudevan ]
Judicial Member
Dated : 08.07.2016.
[RG PS]
Copy of the order forwarded to:
1.Bisweswar Pandey, C/o Shri Somnath Ghosh, Advocate, Seven Brohters Lodge, P.O.Buroshibtala, P.S.Chinsurah, Dist. Hooghly, Pin-712 105.
2. I.T.O., Ward-2(2), Hooghly.
3. CIT(A)-XXXVI, Kolkata 4. CIT-XX, Kolkata.
5. CIT(DR), Kolkata Benches, Kolkata.
True copy By Order Asstt.Registrar, ITAT, Kolkata Benches ITA No.246/Kol/2014-Biseswar Pandey-A.Y.2007-08 8 ITA No.246/Kol/2014-Biseswar Pandey-A.Y.2007-08 9