Income Tax Appellate Tribunal - Rajkot
Kamnath Oil Mill,, Keshod vs Income Tax Officer, Ward-1(1),, ... on 23 February, 2017
आयकर अपील य अ
धकरण, राजकोट यायपीठ, राजकोट ।
IN THE INCOME TAX APPELLATE TRIBUNAL
RAJKOT BENCH, RAJKOT
[ Conducted through E-Court at Ahmedabad ]
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER And
SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A. No.241/RJT/2014
( नधा रण वष / Assessment Year : 2005-06)
M/s.Kamnath Oil Mill बनाम/
The ITO
Near T.B. Hospital Vs. Ward-1(1)
Keshod Junagadh
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. AACFK 2097 H
(अपीलाथ /Appellant) .. ( यथ / Respondent)
अपीलाथ ओर से / Appellant by : Shri D.M. Rindani, AR
यथ क! ओर से/Respondent by : Shri C.P. Bhatia, Sr.DR
ु वाई क! तार ख /
सन Date of Hearing 09/02/2017
घोषणा क! तार ख /Date of Pronounce ment 23/02/2017
आदे श / O R D E R
PER PRADIP KUMAR KEDIA, AM :
The captioned appeal by the Assessee is directed against the order of the Commissioner of Income Tax(Appeals)-IV, Rajkot ['CIT(A)' in short] dated 28/02/2014 pertaining to Assessment Year (AY) 2005-06.
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2. Briefly stated, the return of income for AY 2005-06 was filed declaring total income of Rs.NIL. The return was subjected to scrutiny and the assessment under s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") was finalized determining the total income at Rs.28,400/-. Thereafter, notice under s.148 of the Act was issued on 29/03/2011 seeking to reopen the completed assessment. The re-assessment order was consequently finalized after making additions/disallowances of Rs.22,04,321/- owing to alleged violation of section 40A(3) towards cash payment for purchases of raw-material in excess of prescribed limit. The re-assessment order was thus framed determining the re-assessed income at Rs.22,32,721/-.
3. The assessee challenged the re-assessment order before the CIT(A). On both counts namely validity of jurisdiction assumed under s.148 of the Act as well as merits of disallowances. The CIT(A) however, did not find merit any jurisdictional defect alleged by the assessee. The plea on merit were also rejected by CIT(A). The CIT(A) consequently dismissed the appeal of the assessee on all counts.
4. Aggrieved by the aforesaid order of the CIT(A), the assessee has filed appeal before the Tribunal. The grounds of appeal raised by the assessee read as under:-
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1. The Learned Commissioner of Income-tax (Appeals)-IV, Rajkot erred in confirming the reopening of assessment u/s.148 of the I.T.Act 1961.
2. The Learned Commissioner of Income-tax (Appeals)-IV, Rajkot erred in not admitting additional evidence submitted by the appellant during the course of appellate proceedings by holding that the reasons given by the appellant do not constitute sufficient cause for not producing the evidence before the assessing officer.
3. The Learned Commissioner of Income-tax (Appeals)-IV, Rajkot failed to appreciate that the appellant was prevented by sufficient cause from producing the evidence before the assessing officer.
4. On merits, The Learned Commissioner of Income-tax (Appeals)-IV, Rajkot erred in confirming the disallowance of Rs.22,04,321/- made by the assessing officer u/s.40A(3) by way of groundnut purchases from non-agriculturists.
5. Since the assessee has raised legal question on usurption of jurisdiction by the Assessing Officer (AO) to re-open the completed assessment in the instant case, it would be pertinent to deal with the aforesaid question at the outset.
6. The Ld.AR for the assessee at the outset submitted that the AO has wrongly assumed the jurisdiction for making re-assessment by issuing notice under s.148 of the Act without authority of law. The Ld.AR submitted that the ingredients of section 147/148 are not fulfilled in the instant case to enable the AO to exercise jurisdiction and to proceed with re-assessment proceedings. The Ld.AR further submitted that the ITA No.241/RJT/2014 M/s. Kamnath Oil Mill Vs. ITO Asst.Year - 2005-06 -4- assessment has been re-opened without meeting the requirements of first proviso to section 147 of the Act. The Ld.AR next submitted that the assessment was earlier completed under s.143(3) and the notice for re-
assessment has been issued after four years from the end of the relevant AY 2005-06. Thus, the AO was entitled to exercise jurisdiction under s.147 of the Act only upon fulfillment of additional conditions imposed under first proviso to section 147 of the Act. It was alleged that the AO has issued the notice under s.147/148 of the Act without meeting these requirements of first proviso to section 147 of the Act. It was further contended that the original assessment was made after proper enquiry. The material placed before the AO was later reviewed by the Internal Audit Party and based on the recommendation of Internal Audit Party on review of the material placed in the file of the AO, the AO proceeded to invoke provisions of section 147 of the Act. In this regard, the Ld.AR adverted our attention towards copy of letter received from the office of the Income Tax Officer-Internal Audit Party-III-25/02/2009 annexed at page Nos.12&13 of the paper-book. The Ld.AR objected to the action of the AO for issuing notice under s.148 of the Act and contended that the view of by the audit party as adopted by AO does not give rise to a legally sound basis for invoking the provisions of section 147 of the Act. The action of the AO is nothing but change of opinion on the same issue based on review of material already placed on record as per the findings of the Internal Audit party. It was thus alleged that this act of the AO is ITA No.241/RJT/2014 M/s. Kamnath Oil Mill Vs. ITO Asst.Year - 2005-06 -5- not sustainable in law. The Ld.AR also submitted that it is not discernible from the record as to what material facts were not disclosed fully and truly which has resulted in alleged escapement of income. It was thus contended that the AO has wrongfully assumed the jurisdiction vested under s.147 of the Act without meeting legal requirements. It was submitted in consequence that the CIT(A) committed error in sustaining the wrongful action of the AO in assuming the jurisdiction for re- assessment which requires to be quashed and set aside.
7. The Ld.DR, on the other hand, relied upon the order of the CIT(A) dealing with the issue of validity of usurption of jurisdiction under s.147 of the Act and submitted that substantial amount of purchases of raw- material i.e. groundnut pegged at staggering amount of Rs.1,18,94,000/- has been made in cash and that too above Rs.20,000/- and therefore 20% of the aforesaid purchases amounting to Rs.23,78,800/- should have been disallowed by the AO in the original assessment where he failed to do so. In the circumstances, the AO has correctly re-opened the assessment in accordance with law after taking necessary approvals of the superior authority contemplated under s.151 of the Act. It was thus pleaded that no interference with the order of the CIT(A) is called for on the legal ground raised by the assessee.
ITA No.241/RJT/2014M/s. Kamnath Oil Mill Vs. ITO Asst.Year - 2005-06 -6-
8. The legal issue on validity of assumption of jurisdiction under s.147/148 is dealt with hereunder.
8.1. The reasons recorded under s.148(2) giving cause for issuance of notice under s.148 is pertinent to determine the issue. Accordingly, the reasons so recorded by the AO is reproduced hereunder:-
"In this case, the assessee has filed return of income on 22.7.2005 declaring total income of Rs.Nil/-. It is noticed by the internal audit party the assessee has shown to have purchased cotton from various persons in cash that too above Rs.20,000/-. In light of the provisions of section 40A(3), 20% of Rs.1,18,94,000/- i.e. Rs.23,78,800/- to be disallowed. Prima facie this is a case of escapement of income of Rs.23,78,800/- for A.Y. 2005-06. Hence, I have reason to believe that the assessee is having escaped income of Rs.23,78,800/- within the meaning of section 147 of the I.T.Act, 1961."
8.2. Before we look into the reasons so recorded, it will be pertinent to notice that the instant case pertains to AY 2005-06 where the assessment order was earlier framed under s.143(3) vide order dated 06/02/2007. As pointed out on behalf of the assessee from the paper-book filed, a copy of questionnaire dated 01/06/2007 issued in the course of original proceedings seeks to make enquiry about all payments made exceeding Rs.20,000/- with reference to section 40A(3) of the Act in respect of purchases/expenses debited to Profit & Loss Account in cash etc. Thus, as per the questionnaire specific show cause was issued examining the ITA No.241/RJT/2014 M/s. Kamnath Oil Mill Vs. ITO Asst.Year - 2005-06 -7- issue on the touchstone of section 40A(3) of the Act. The assessment was thereafter framed wherein no disallowance was made in consequence of aforesaid enquiry.
8.3. Subsequently, an internal audit memo prepared dated 25/05/2009 (placed in paper-book) makes out a case of purported infringement of section 40A(3) of the Act ostensibly on review of existing records. In consequence thereof, the AO appears to have recorded reason for re- opening the completed assessment after four years from the end of the relevant AY 2005-06 as noted in earlier paras.
8.4 In the background of aforesaid facts, we now take notice of the reasons recorded(supra). A bare perusal of the reasons recorded suggests that the AO has propelled himself to act on the findings of the internal audit party. Although the AO has reiterated the statutory language employed in section 147 of the Act that he holds reasons to believe that chargeable income to the extent of Rs.23,78,800/- has escaped assessment, we do not find any process of reasoning for holding such belief except reference to the memo of the internal audit party. It is not discernible from the reasons recorded as to how the enquiry made on the very issue at the time of the original assessment suffered from error and was unsustainable on facts and law. It is well settled that mare review of existing facts by the same authority later to come to a different ITA No.241/RJT/2014 M/s. Kamnath Oil Mill Vs. ITO Asst.Year - 2005-06 -8- conclusion and thereby re-opening the completed assessment is not permissible in law. Notably, section 40A(3) is not plenary in nature but is subject to certain exceptions as provided in Rule 6DD of the IT Rules 1963. Therefore, while raising specific question on the subject matter in controversy and thereafter accepting the cash purchases would give logical inference that an opinion on the issue was framed by the Statutory Authority whereby disallowance under s.40A(3) was not found attracted. Besides, on review of existing facts on records, the internal audit party appears to have come to a different conclusion. The AO seems to have merrily adopted the opinion of the internal audit party as reason to believe on escapement of income without any independent application of mind. Needless to say, re-opening is not permissible on a mere change of opinion on the same issue examined earlier. Therefore, it is difficult to agree that the AO has passed the stringent requirement of law for conferment of power under s.147 of the Act. Section 147 is a substantive provision granting jurisdiction to reopen completed assessment and therefore conditions stipulated therein are strictly required to be adhered. Section 147 is structured with inbuilt safeguards. The AO is not permitted exercise the power under s.147 arbitrarily or mechanically.
9. In the instant case, we find that the action under s.147 was sought to be taken in respect of assessment completed under s.143(2) earlier after ITA No.241/RJT/2014 M/s. Kamnath Oil Mill Vs. ITO Asst.Year - 2005-06 -9- expiry of four years from the end of relevant assessment order alleging escapement of income from taxation. Therefore, the action of the AO is also required to be tested on the touchstone of embargo placed by the first proviso to section 147 of the Act. The first proviso to section 147 of the Act places additional restrictions on the AO for usurption of jurisdiction. As per the proviso, the escapement of chargeable income should be by reasons of the failure on the part of the assessee to inter-alia disclos fully and truly all material facts necessary for assessment of the assessee for the relevant assessment year. We do not find anything in the reasons recorded which goes to demonstrate that the assessee has failed to disclose any material fact relevant for assessment. At the first place, there is no allegation of the AO on this score in the reasons recorded as noted above. We do not find anything on record to show as to what material facts remained to be disclosed by the assessee in the original assessment proceedings. The re-assessment order passed under s.147 also does not portray any concern of the AO on this aspect. Ostensibly, the conditions stipulated under first proviso under s.147 is not complied with. In this event, provisions of section 147 of the Act could not have been triggered. The entire reassessment proceedings, thus, is without jurisdiction and liable to annulled. The consequent re- assessment order is also therefore liable to be struck down and cancelled. We do so accordingly.
ITA No.241/RJT/2014M/s. Kamnath Oil Mill Vs. ITO Asst.Year - 2005-06
- 10 -
10. In view of our finding that the issuance of notice under s.147/148 is void ab initio and accordingly re-assessment order is without jurisdiction and therefore illegal, we do not consider it expedient to deal with the merits of the factual aspects of the case.
11 . In the result, appeal of the Assessee is allowed.
Order pronounced in the Court on 23/02/2017 at Ahmedabad.
Sd/- Sd/-
( RAJPAL YADAV) ( PRADIP KUMAR KEDIA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad ; Dated 23/02/2017
ट .सी.नायर, व.,न.स./T.C. NAIR, Sr. PS
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं
धत आयकर आयु.त / Concerned CIT
4. आयकर आयु.त(अपील) / The CIT(A)-IV, Rajkot
5. 2वभागीय ,त,न
ध, आयकर अपील य अ
धकरण,राजोकट/DR,ITAT, Rajkot
6. गाड@ फाईल / Guard file.
आदे शानुसार/ BY ORDER,
स या2पत ,त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.Registrar)
आयकर अपील%य अ&धकरण, राजोकट / ITAT, Rajkot