Income Tax Appellate Tribunal - Ahmedabad
Hitesh Natverlal Shah, Surat vs Assessee on 31 January, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'C' BENCH - AHMEDABAD
(BEFORE SHRI BHAVNESH SAINI, JM AND SHRI B. P. JAIN, AM)
ITA No.4119 and 4120/Ahd/2007 and 1432/Ahd/2010
A. Y.: 2003-04, 2004-05 and 2004-05
Shri Hitsh Natverlal Shah, Vs The Income Tax Officer,
C-7, Saruvan Society, Ground Floor, Ward No. 3(2), Surat,
New Rander Road, Surat Majura Gate,
PA No. AMUPS 4536 R Surat
(Appellant) (Respondent)
Appellant by Shri Hardik Vora, AR
Respondent by Shri Vinod Goswami, Sr. DR
Date of hearing: 31-01-2012
Date of pronouncement: 07-02-2012
ORDER
PER BHAVNESH SAINI: This order shall dispose of all the above appeals filed by the assessee for the above assessment years.
2. We have heard the learned representatives of both the parties and perused the findings of the authorities below.
ITA No.4119/Ahd/2007(AY:2003-04)3. This appeal by the assessee is directed against the order of the learned CIT(A)-II, Surat dated 31-08-2007 for assessment year 2003-04. In this appeal, the assessee challenged the reopening of ITA No.4119 and 4120/Ahd/2007 & 1432/Ahd/2010 2 Shri Hitsh Natverlal Shah Vs ITO, W-3(2), Surat the assessment u/s 147 of the IT Act, addition of Rs.3,01,814/- on account of cheques discounting commission on estimate basis, addition of Rs.3,00,000/- u/s 68 of the IT Act on account of unexplained cash credit.
4. On ground No.1 regarding initiation of reassessment proceedings, it was recorded by the AO that information had been received from Investigation Wing at Surat regarding large scale tax evasion by 100% Export Oriented Units (EOUs) of Surat. Since the assessee was one of such units, assessment was reopened u/s 147/148 of the IT Act. It was submitted before the learned CIT(A) that the assessee was not engaged in any export oriented business. During the year under consideration the assessee was engaged in the business of garment labour work and there was no other business activity including cheques discounting activities. The assessee had nothing to do with evasion of tax by 100% Export Oriented Units. The learned CIT(A) however, did not accept the contention of the assessee and confirmed the reopening of the assessment and dismissed this ground of appeal of the assessee. His findings in Para 6 of the appellate order are reproduced as under:
"6. I have carefully considered the matter. I have also examined the assessment records for the relevant assessment year. In the reasons recorded prior to the initiation of proceedings u/s. 147 of the IT Act, the AO had noted that information had been received from the Director of Income-tax(Investigation), Ahmedabad through the CIT-I, Surat wherein it was stated that there had been wide-spread violation of various schemes introduced by the Customs Deptt. This involved certain ITA No.4119 and 4120/Ahd/2007 & 1432/Ahd/2010 3 Shri Hitsh Natverlal Shah Vs ITO, W-3(2), Surat EOUs which was treated as export, whereas, in actuality no goods were manufactured or sold. Each EOU received the benefits for showing purchases as well as sales below the chain. Profit was earned on shortages shown in production since, the premium on such shortage was retained by the EOU. Moreover, there were huge cash deposits in the account of such EOUs as well as those entities which were used by them to rotate money. Allegedly, in the list of such EOUs furnished by the DIT (Inv.), Ahmedabad, was the name of the Assessee as the proprietor of M/s. Tarak Nidhi whose PAN was given as AMPUS 4536 R. The AO further noted that for the year under consideration, the Assessee had shown very negligible income of Rs.48.320 which meant that income which was chargeable to tax, had escaped assessment. The point to note here is that, the information which was received pertained to the misuse and manipulation of exemption granted to the EOUs under the Customs Act and its consequent implications under the Income-tax Act. The information clearly listed the entities which were allegedly engaged in such misuse and manipulation, and included the Assessee as well. The information was such that the AO had sufficient ground to prima-facie hold the belief that as far as the Assessee was concerned, income chargeable to tax during the year under consideration has escaped assessment. Irrespective of the fact that in the re-assessment proceedings no such manipulation was either found or established. The final finding could in no manner whatsoever negate or invalidate either the information of belief or the initiation of proceedings u/s. 147 of the IT Act. Reliance is placed on the decision of the Hon. Gujarat High Court in the case of Praful Chunilal Patel: Vasant Chimanlal Patel Vs. ACIT (1999) 236 ITR 832, 840 - 42. The Assessee's appeal on this ground is therefore, rejected."
5. The learned Counsel for the assessee reiterated the submissions made before the authorities below and submitted that ultimately no addition is made against the assessee for any tax ITA No.4119 and 4120/Ahd/2007 & 1432/Ahd/2010 4 Shri Hitsh Natverlal Shah Vs ITO, W-3(2), Surat evasion. There was no nexus between the reasons u/s 148 of the IT Act and escapement of income in the case of the assessee. Estimated additions are made for cheques discounting because of non-production of books of accounts by the assessee. Therefore, reopening of the assessment is not valid. The learned Counsel for the assessee also filed copy of the reasons recorded for reopening of the assessment which is placed on record. On the other hand, the learned DR relied upon the orders of the authorities below and submitted that sufficiency of reasons or material cannot be considered at the stage of reopening of the assessment and relied upon the decision of the Hon'ble Supreme Court in the case of Raymond Woolen Mills Ltd. Vs ITO and Others, 236 ITR 34. He has also relied upon the decision of the Hon'ble Delhi High Court in the case of Jindal Photo Films Ltd. Vs DCIT and Another, 234 ITR 170 in which it was held that "mere fresh application of mind by same ITO to same set of facts amounted to mere change of opinion"
and since in the case of the assessee no assessment was framed earlier so there is no change of opinion. The learned DR also relied upon the unreported decision of the Hon'ble Delhi High Court in the case of Rajat Export Import India Pvt. Ltd. - Writ Petition (Civil) No.8341/2011 dated 18-01-2012 and referred to reasons in Para 7 of the judgment in which the DIT (Investigation) discovered the parties who have unaccounted money introduced in the books of account without paying tax through entry operators and the assessee was found one of the beneficiaries. The Hon'ble Delhi High Court, therefore, held that what is considered at the stage of reopening is whether the material before the AO relevant for forming the prima ITA No.4119 and 4120/Ahd/2007 & 1432/Ahd/2010 5 Shri Hitsh Natverlal Shah Vs ITO, W-3(2), Surat facie belief that income chargeable to tax has escaped assessment. Sufficiency of material for formation of the belief is not necessary at this stage. The learned Counsel for the assessee in the rejoinder submitted that facts of the case of the assessee and reasons recorded are clearly distinguishable from the facts of the case of Rajat Export Import India Pvt. Ltd. (supra) as relied upon by the learned DR.
6. We have considered the rival submissions and material on record. The learned Counsel for the assessee place on record copy of the reasons recorded for reopening of the assessment u/s 147 of the IT Act which reads as under:
"REASONS FOR REOPENING ASSESSMENT U/S.147 OF THE I.T. ACT ============= A study report conducted by the Investigation Wing into the large scale evasion of tax by the 100% textile EOUs of Surat has been received from the Director of Income tax (Inv). Ahmedabad vide confidential letter No.DI/V/10- 16/EUOs Surat 2004-05 dated 28.3.2005 through the CIT-I, Surat vide letter dtd. 16.6.2005
2. On perusal of said report there is widespread violation of various schemes introduced by the Customs Department which has consequential income tax implication. The modus operandi of these EOUs and lot of market intelligent has been indulged in the same. In brief, the EOUs have set up a chain where one EOU shows sales on another of EOU, which is treated as export whereas in reality no goods are manufactured and sold. Each EOU receives premium for showing purchase from the EOU above it and buys premium to EOU below it in the chain. In effect, profit is earned on shortage shown on ITA No.4119 and 4120/Ahd/2007 & 1432/Ahd/2010 6 Shri Hitsh Natverlal Shah Vs ITO, W-3(2), Surat production since the premium on this shortage is retained by the EOU. Moreover, there are huge cash deposits in the accounts of the some EOUs as well as entities used by them to rotate money. The case of Tarak Nidhi, Prop. Shri Hitesh N Shahof Surat is one of the entities the list at Sr. No.20 and PA No. is AMPUS 4536R given.
3. On verification of the return filed for A. Y. 2003-04 on 8.3.3004 vide receipt No.302013971, it is noticed that the assessee has shown very negligible income of Rs.48,320.00. Therefore, it is apparent that there is income chargeable to tax, which has escaped assessment and that the assessee has under stated its income for the year in question.
3. For the above reasons, the A. Y. 2003-04 is being reopened U/s. 147 of the Act and notice U/s. 148 of the Act is hereby issued.
Date: 7.7.2005."
6.1 The AO in the assessment order specifically noted that the assessee is engaged in the business of commission agent and cheques discounting. Therefore, the assessee was not found to be 100% Export Oriented Unit of Surat. The assessee also pleaded before the learned CIT(A) that the assessee was not engaged in any export oriented business and as such the assessee has nothing to do with evasion of tax by the 100% Export Oriented Units. No finding has been given by the learned CIT(A) on the contention of the assessee on this issue. The assessee was not found involved in violation of any scheme of Customs Department as is recorded in the reasons for reopening of the assessment. No sales or purchases by the assessee had been made as is noted in the reopening of the assessment. Mere mention of name of the assessee is not enough to record reasons for ITA No.4119 and 4120/Ahd/2007 & 1432/Ahd/2010 7 Shri Hitsh Natverlal Shah Vs ITO, W-3(2), Surat reopening of the assessment in mechanical manner. The findings of the learned CIT(A) in favour of the assessee that in the reassessment proceedings no such manipulation was either found or established would support the case of the assessee. Further, the AO made the addition on estimate basis on account of cheques discounting or because the assessee could not produce the books of accounts before the AO. Further, the addition of unexplained credit was made along with estimated household expenses. These facts would clearly establish that assessee has nothing to do with the evasion of tax by 100% Export Oriented Units. Thus, the reasons recorded by the AO for reopening of the assessment are not connected with the assessee and qua the assessee the same are irrelevant or invalid. No nexus between the reasons u/s 148 of the IT Act and escapement of income were found in the case of the assessee. The reasons recorded in the case of the assessee for reopening not found to exist. The AO did not verify the correctness of information received and acted in most mechanical manner to record the reasons for reopening of the assessment. There was no material to show on what basis the AO had formed his belief that income escaped assessment. No relevant information was with the AO to prima facie establish escapement of income of the assessee to justify reopening of the assessment.
6.2 The Hon'ble Punjab & Haryana High Court in the case of CIT Vs Atlas Cycle Industries, 180 ITR 319 held as under:
"Held, (i) that the Tribunal was right in canceling the reassessment as both the grounds on which the reassessment notice was issued were not found to ITA No.4119 and 4120/Ahd/2007 & 1432/Ahd/2010 8 Shri Hitsh Natverlal Shah Vs ITO, W-3(2), Surat exist, and, therefore, the Income-tax Officer did not get jurisdiction to make a reassessment."
6.3 The Hon'ble Delhi High Court in the case of CIT Vs (1) Atul Jain & (2) Smt. Vinita Jain, 299 ITR 383 held as under
"Held, dismissing the appeals, that the only information was that the assessee had taken a bogus entry of capital gains by paying cash along with some premium for taking a cheques for that amount. The information did not indicate the source of the capital gains which in this case were shares. There was no information which shares had been transferred and with whom the transactions had taken place. The Assessing Officer did not verify the correctness of the information received by him but merely accepted the truth of the vague information in a mechanical manner. The Assessing Officer had not even recorded his satisfaction about the correctness or otherwise of the information for issuing a notice under section 148. What had been recorded by the Assessing Officer as h is "reasons to believe" was nothing more than a report given by him to the Commissioner. The submission of the report was not the same as recording of reasons to believe for issuing a notice. The Assessing Officer had clearly substitu4ed form for substance and therefore the action of the Assessing Officer was not sustainable."
6.4 The Hon'ble Bombay High Court in the case of Hindustan Dorr Oliver Ltd. Vs DCIT and others, 305 ITR 288 held as under:
"Held, that there was nothing on record to show that the petitioners had allowed the two bogus firms run by the Joshis to sell the steel procured by them and thereby earned any income based on which the notice under section 147 of the Income-tax Act, 1961, could have been issued. There was no other material ITA No.4119 and 4120/Ahd/2007 & 1432/Ahd/2010 9 Shri Hitsh Natverlal Shah Vs ITO, W-3(2), Surat to show on what basis the authority had formed the belief that income had escaped assessment. The notice was not valid and was liable to be quashed."
6.5 ITAT Delhi Bench in the case of ACIT Vs O. P. Chawla, 306 -ITR -
(AT) 328 (T M) held that "no fresh material before the AO leading to reason to believe that income escaped assessment - reassessment is not valid."
7. Considering the above discussions, it is clear that the AO has not validly assumed jurisdiction u/s 147/148 of the IT Act in the case of the assessee. The reassessment proceedings are, therefore, liable to be quashed. The decisions cited by the learned DR are clearly distinguishable and as such would not support the case of the revenue. Considering the above discussion, we are of the view that there was no justification to reopen the assessment in the case of the assessee. We accordingly, set aside the orders of the authorities below and quash the reassessment proceedings/orders u/s 147/148 of the IT Act. Ground No.1 of the appeal of the assessee is accordingly allowed. Resultantly, all additions on merit would stand deleted. Therefore, there is no need to decide the remaining grounds of appeal on merit.
8. In the result, the appeal of the assessee in ITA No.4119/Ahd/2007 is allowed.
ITA No.4119 and 4120/Ahd/2007 & 1432/Ahd/2010 10 Shri Hitsh Natverlal Shah Vs ITO, W-3(2), Surat ITA No.4120/Ahd/2007 : (A.Y.2004-05)
9. This appeal by the assessee is directed against the order of the learned CIT(A) -II, Surat dated 31-08-2007 for assessment year 2004-05 in which the assessee challenged reopening of the assessment u/s 147 of the IT Act, addition of Rs.3,93,047/- for cheques discounting commission and disallowance of interest of Rs.54,400/- on unexplained cash credit. On the issue of reopening of the assessment, facts are same as have been noted in the assessment year 2003-04. Since the issue is identical which is also submitted by both the parties, we, therefore, following order for assessment year 2003-04 above, set aside the orders of the authorities below and quash the reassessment proceedings. All the additions on merit would stand deleted as is decided earlier.
10. In the result, appeal of the assessee in ITA No.4120/Ahd/2007 is allowed.
ITA No.1432/Ahd/2010:A.Y.2004-0511. This appeal by the assessee is directed against the order of the learned CIT(A)-II, Surat dated 26-02-2010, for assessment year 2004-05, challenging levy of penalty u/s. 271 (1) ( c ) of the IT Act. Penalty was imposed on disallowance of interest of Rs.54,400/- on which we have set aside and quashed the reassessment proceedings and additions have been deleted in ITA No.4120/Ahd/2007. Therefore, nothing survives for levy of penalty against the assessee. ITA No.4119 and 4120/Ahd/2007 & 1432/Ahd/2010 11 Shri Hitsh Natverlal Shah Vs ITO, W-3(2), Surat We accordingly, set aside the orders of the authorities below and cancel the penalty.
12. In the result, the appeal of the assessee in ITA No.1432/Ahd/2010 is allowed.
13. In the result, all the appeals of the assessee are allowed.
Order pronounced in the open Court.
Sd/- Sd/-
(B. P. JAIN) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Deka/--
Lakshmikant Deka/
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Dy. Registrar, ITAT, Ahmedabad