Income Tax Appellate Tribunal - Kolkata
Shankar Kr. Sharma, Asansol vs Assessee
आयकर अपीलीय अधीकरण, Ûयायपीठ - " ऐ ", कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH: KOLKATA
(सम¢)Before ौी महाबीर िसंह, Ûयायीक सदःय,, एवं/and ौी,ौी सी.डȣ.राव लेखा सदःय)
[Before Hon'ble Sri Mahavir Singh, JM & Hon'ble Sri C. D. Rao, AM]
आयकर अपील संÉया / I.T.A No. 814/Kol/2010
िनधॉरण वषॅ/Assessment Year: 2005-06
Shankar Kr. Sharma Vs.
Assistant Commissioner of Income-tax,
(PAN AIXPS 9783 R) Circle-2, Asansol
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
&
आयकर अपील संÉया / I.T.A No. 815/Kol/2010
िनधॉरण वषॅ/Assessment Year: 2007-08
Shankar Kr. Sharma Vs.
Assistant Commissioner of Income-tax,
(PAN AIXPS 9783 R) Circle-2, Asansol
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent
&
आयकर अपील संÉया / I.T.A No. 1143/Kol/2010
िनधॉरण वषॅ/Assessment Year: 2007-08
Assistant Commissioner of Income-tax, Vs. Shankar Kr. Sharma
Circle-2, Asansol
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
For the Assessee: S/Sri D. R. Sindhal & P. P. Sarkar
For the Revenue: S/Sri S. K. Tulsiyan & R. N. Ram
आदे श/ORDER
Per Mahavir Singh, JM ( महावीर िसंह, Ûयायीक सदःय)
सदःय Out of these three appeals two by assessee and one by revenue are arising out different orders of CIT(A), Asansol in appeal Nos. 123 & 120/CIT(A)/Asl/Cir-2/Asl/2009-10 dated 23.03.2010. Assessments were framed by ACIT, Circle-2, Asansol u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Years 2005-06 and 2007-08 vide his separate orders dated 30.12.2009 and 31.12.2009.
First we take up ITA No. 814/K/2010 (Assessee's appeal) 2
2. The first issue in assessee's appeal is as regards to assumption of jurisdiction by Assessing Officer by initiating proceedings u/s. 147 read with section 148 of the Act. For this, assessee has raised following two effective grounds:
"1.That on the fact and circumstances of the case the Ld. CIT(A), Asansol erred in confirming the action of A.O. in initiating proceeding u/s. 148 whereas the assessment was already completed u/s. 143(3) after considering all the relevant material which were filed at the time of return of income and which were also filed in course of assessment proceeding and whereas relevant books of accounts, papers and documents were duly produced before the A.O.
2. That on the fact and circumstances of the case the Ld. CIT(A), Asansol erred in confirming the action of the Assessing Officer of reopening the completed assessment on the basis of internal Audit Report which cannot form reasonable belief for reopening the assessment as the Assessing Officer had completed the assessment u/s. 143(3) after considering the payments of transport charges amounting to Rs.1,27,97,855/- and after being satisfied that provisions of TDS were not attracted in the instant case and whereas all the proceeding of reassessment are bad in law and is liable to be quashed."
3. The brief facts leading to the above issue are that original assessment was framed for relevant assessment year 2005-06 u/s. 143(3) of the Act by ACIT, Circle-2, Asansol vide his order dated 23.8.2007. Subsequently, Assessing Officer in view of Internal Audit Objection on account of transport charges amounting to Rs.1,27,97,855/- as wrongly allowed during original assessment, as assessee failed to deduct tax as required u/s. 194C of the Act. In view of audit objection Assessing Officer recorded reasons u/s. 148 of the Act and issued notice u/s. 148 on 07.07.2008 as under:
"The assessee is a transport contractor and debited transport hire charges of Rs.1.27 crore without deducting of tax on the payment of transportation charges.
According to section 40(a)(ia) of the Act the above expenses should be added with taxable income as computed by the assessee. I have reason to believe that the assessee has escaped the above income within the periphery of section 147."
The assessee vide letter dated 28.8.2008 requested Assessing Officer to treat the original return as return submitted in response to notice u/s. 148 of the Act. Assessing Officer disallowed the expenditure relating to transport charges by invoking the provisions of section 194C(2) r.w.s. 40(a)(ia) of the Act. Aggrieved, assessee preferred appeal before CIT(A) for assumption of jurisdiction. The CIT(A) upheld the validity of assumption of jurisdiction u/s. 147 r.w.s. 148 of the Act by stating that "I have considered the matter. These judgments relate to Assessment Years prior to A.Y. 1989-90. The provisions of section 147 were amended by the Direct Tax Laws (Amendment) Act 1987 with effect from 01.04.89. Therefore, these decisions would not be applicable to the provisions of Section 147 as it stands now. Attention is invited to Clause C 3 of Explanation 2 of Section 147. This clause states that income would have deemed to have escaped assessment in cases where assessment had been made but income chargeable to tax had been under assessed or such income had been made the subject of excessive relief under the Act. Moreover, the reopening is within 4 years from the end of the relevant assessment year. In view of these facts, I hold that the reopening u/s. 147 and issue of notice u/s. 148 was valid. Grounds 1 & 2 are therefore dismissed." Aggrieved, now assessee is in appeal before us.
4. Before us the assessee's counsel Shri S. K. Tulsiyan made two fold arguments. First he argued that the reassessment is framed in view of internal audit objection and on audit objection no reopening is possible in view of the decision of Hon'ble Apex Court in the case of Indian & Eastern Newspaper Society Vs. CIT (1979) 119 ITR 996 (SC) and I.M.C. Ltd & Anr. Vs. JCIT (2003) 261 ITR 731 (Cal). He stated that Assessing Officer has no independent reason to believe that income has escaped assessment and i.e. just on the basis of audit objection reopening is not possible.
5. On the other hand, the Ld. CIT DR relied on the order of CIT(A) upholding the action of Assessing Officer in validating reassessment u/s. 147 r.w.s. 148 of the Act.
6. We have heard rival submissions and gone through facts and circumstances of the case. We find from reasons recorded and case law cited by Ld. Counsel for the assessee that the Assessing Officer has recorded reasons after framing a reasonable belief and he has reasons to believe that assessee's income has escaped assessment within the provisions of section 147 of the Act and it is not merely on the basis of audit objection as is clear from reasons recorded, reproduced above. Accordingly, we are of the view that this argument of assessee will not stand and Assessing Officer has reopened the assessment after having reasons to believe and after recording reasons to that effect. The Ld. Counsel for the assessee made another aspect of argument in respect to assumption of jurisdiction that the assessee before the Assessing Officer during the course of original assessment proceeding filed complete details and for this, he filed original assessment order framed u/s, 143(3) vide order dated 23.8.2007. He referred to very first para of assessment order, which reads as under:
"Return of income was filed on 31.3.2006 disclosing taxable income for Rs.4,22,540/-, which was duly processed u/s. 143(1) on 17.5.2006 at returned income. The assessment for the year has come under the net of compulsory scrutiny as per Action Plan for the Financial Year 2005-2006 as the assessee claimed refund exceeding Rs. 5 lakhs. Accordingly, notice u/s. 143(2) was issued on 25.7.2006 fixing the case for hearing on 22.8.2006 and was duly served upon the assessee. Subsequently, notice u/s. 142(1) along 4 with questionnaire was issued on 07.05.2007 fixing the case for hearing on 22.5.2007 and was duly served upon the assessee on 14.5.2007. Shri Goutam Manna, Advocate, Authorised Representative of the assessee appeared with Books of A/c. on different dates to explain the return of income. The assessee is a transport contractor and worked under Indian Oil Corporation and Bharat Petroleum Corporation Ltd. As per audited Profit & Loss A/c. filed on 31.10.2005, the assessee has disclosed gross bill received at Rs.2,48,32,607/- and shown Net Profit at Rs.52,934/-. Books of A/c. and other relevant papers/documents filed/produced were examined with reference to audited Profit & Loss A/c. and Balance Sheet filed on 31.10.2005. Information collected from 3rd parties was verified from Books of A/c. i.e. Cash Book and ledger. The case was discussed with him and was heard."
In view of this, the Ld. Counsel for the assessee stated that every detail in respect to transport charges were before Assessing Officer and he has examined with reference to audited P&L Account and Balance Sheet filed on 31.10.2005 along with the return of income. The Ld. Counsel for the assessee referred to assessee's paper book pages 27 to 79 where complete details in respect to transport charges showing therein the details of payment with vehicle no., name of party were in the paper book and filed during the course of original assessment proceedings. Ld. Counsel for the assessee stated that original assessment was framed u/s. 143(3) of the Act and the Assessing Officer has gone through these details, which were subject matter of reassessment u/s. 147 r.w.s.148 of the Act. He stated that the reassessment on the same facts is not permissible in view of the decision of Hon'ble Apex Court in the case of CIT Vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) wherein Hon'ble Apex Court has held that the concept of "change of opinion" on the part of the Assessing Officer to reopen an assessment does not stand obliterated even after substitution of section 147 of the Act by Direct Tax Laws (Amendment) Acts, 1987 and 1989. After the amendment, the Assessing Officer has to have reason to believe that income has escaped assessment, but this does not imply that the Assessing Officer can reopen an assessment on mere change of opinion. The concept of "change of opinion" must be treated as an in-built test to check the 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. Reason must have a link with the formation of the belief and affirmed the decision of Hon'ble Delhi High Court in the case of CIT Vs. Kelvinator of India Ltd. (2002) 256 ITR 1 (Del.) (FB). Hon'ble Delhi High Court held as under:
The Board in exercise of its jurisdiction under the aforementioned provisions had issued the circular on October 31, 1989. The said circular admittedly is binding on the Revenue. The authority, therefore, could not have taken a view, which would run counter to the mandate of the said circular. Clause 7.2 as referred to hereinbefore is important.5
From a perusal of clause 7.2 of the said circular it would appear that in no uncertain terms it was stated as to under what circumstances the amendments had been carried out, i.e., only with a view to allay fears that the omission of the expression "reason to believe" from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion.
It is, therefore, evident that even according to the Central Board of Direct Taxes a mere change of opinion cannot form the basis for reopening a completed assessment. The submission of Mr. Jolly to the effect that the said circular cannot be construed in such a manner whereby the jurisdiction of the statutory authority would be taken away is not apposite for the purpose of this case. In Union of India's case, AIR 1996 SC 849 ; [1996] 11 SCC 701, whereupon Mr. Jolly had placed strong reliance, the apex court was dealing with administrative instructions whereby no right was conferred upon the respondents to have the house rent amount included in their emoluments for the purpose of computing over- time allowance. The apex court held that otherwise also the Government's instructions have to be read in conformity with the provisions of the Act. Therein the apex court was not concerned with the statutory powers of a statutory authority to issue binding circulars.
Another aspect of the matter also cannot be lost sight of. A statute confer- ring an arbitrary power may be held to be ultra vires article 14 of the Consttution of India. If two interpretations are possible, the interpretation which upholds constitutionality, it is trite, should be favoured.
In the event it is held that by reason of section 147 if the Income-tax Officer exercises his jurisdiction for initiating a proceeding for reassessment only upon a mere change of opinion, the same may be held to be unconstitutional. We are therefore of the opinion that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceeding upon his mere change of opinion.
We, however, may hasten to add that if "reason to believe" of the Asses- sing Officer is founded on an information which might have been received by the Assessing Officer after the completion of assessment, it may be a sound foundation for exercising the power under section 147 read with section 148 of the Act.
We are unable to agree with the submission of Mr. Jolly to the effect that the impugned order of reassessment cannot be faulted as the same was based on information derived from the tax audit report. The tax audit report had already been submitted by the assessee. It is one thing to say that the Assessing Officer had received information from an audit report which was not before the Income-tax Officer, but it is another thing to say that such information can be derived by the material which had been supplied by the asses- see himself.
We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under section 147 of the Act. The said sub- mission is fallacious. An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub- section (3) of section 143. When a regular order of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything 6 further, the same would amount to giving a premium to an authority exercising quasi- judicial function to take benefit of its own wrong. For the reasons aforementioned, we are of the opinion that the answer to the question raised before this Bench must be rendered in the affirmative, i.e., in favour of the assessee and against the Revenue. No order as to costs."
7. We find that in the present case every detail in respect to transport charges were before Assessing Officer and he has examined with reference to audited P&L Account and Balance Sheet filed on 31.10.2005 along with the return of income. The assessee filed paper book and at pages 27 to 79 complete details in respect to transport charges showing therein details of payment with vehicle no., name of party were in the paper book and filed during the course of original assessment proceedings. We find that original assessment was framed u/s. 143(3) of the Act and the Assessing Officer has gone through these details, which were subject matter of reassessment u/s. 147 r.w.s.148 of the Act. We find that exactly the similar issue was before Hon'ble Delhi High Court in the case of Kelvinator of India Ltd. (supra) wherein Full Bench has considered the issue of reassessment and held that only because in the assessment order detailed reason has not been recorded, and analysis of materials on record by itself may not justify the AO to initiate proceedings u/s. 147 of the Act. Hon'ble Delhi High Court held that an order of assessment can be passed either in terms of sub-section (1) of section 143 or sub- section (3) of section 143 of the Act. When a regular assessment order is passed in terms of sub-section (3) of section 143 of the Act, a presumption can be raised that such an order has been passed on application of mind. Hon'ble Delhi High Court has also discussed the implication of section 114(e) of Indian Evidence Act and held that an order which has been passed purportedly without application of mind would itself not confer jurisdiction to AO to reopen the proceedings and if given, the same would amount to premium to an authority exercising quasi judicial authority to take benefit of its own wrong. Respectfully following the decision of Hon'ble Apex Court and of Hon'ble Delhi High Court (FB) in the case of Kelvinator of India Ltd. (supra), we quash the reassessment proceedings in the present case. This issue of assessee's appeal is allowed.
7. The next issue in respect to merits is as regards to the order of CIT(A) not allowing deduction of payment of transport charges. Since we have already adjudicated the issue on assumption of jurisdiction and the Assessing Officer has not assumed the jurisdiction validly and reassessment proceedings are quashed, we need not to go into merits of the case. Accordingly, this issue is not adjudicated.
78. Now, we take up ITA No.1143/K/2010 (Revenue's appeal) and ITA No.815/K/2010 (assessee's appeal).
9. The only common issue in these cross-appeals is as regards to the order of CIT(A) in restricting the net profit rate at 20% as against estimated by Assessing Officer at 23% and disclosed by assessee at 16.68%. For this, revenue as well as assessee is in appeal before us.
10. We have heard rival submissions and gone through facts and circumstances of case. We find that Assessing Officer during the course of assessment proceedings estimated gross profit at 23% as against the gross profit rate disclosed by assessee at 16.68%. The assessee's net profit rate for Assessment Year 2006-07 was at 16.44% and for Assessment Year 2005-06 it was 21%. The admitted facts are that books of account along with bills and vouchers were lost in transit on 21.8.2009 and thus, any verification is not possible and even book results cannot be accepted. But a fair and reasonable estimate should have been made. The assessee has disclosed the net profit rate at 16.68% in this assessment year and in Assessment Year 2005-06 it was 21% and in Assessment Year 2006-07 it was 17.44%. We are of the view that taking a considerable approach, we average out the net profit of three years and that comes to 18%. Accordingly, we direct the Assessing Officer to adopt 18% net profit of gross receipts and accordingly estimate addition. These two appeals are partly allowed as indicated above.
11. In the result, ITA No. 814/K/2010 of assessee's appeal is allowed and ITA No.815/K/2010 of assessee's and 1143/K/2010 of revenue's appeal are partly allowed.
12. Order is pronounced in open court on 22.7.2011 Sd/- Sd/-
सी.डȣ.राव, लेखा सदःय ौी महाबीर िसंह, Ûयायीक सदःय
(C. D. Rao) (Mahavir Singh)
Accountant Member Judicial Member
तारȣख)
तारȣख) Dated 22nd July, 2011
(तारȣख
वǐरƵ िनǔज सिचव Jd.(Sr.P.S.)
8
आदे श कȧ ूितिलǒप अमेǒषतः- Copy of the order forwarded to:
1. अपीलाथȸ/APPELLANT - Shri Shankar Kumar Sharma, Prop. Of Bardhaman Transport Corporation, 279, Apcar Gardel, Asansol.
2 ू×यथȸ/ Respondent, ACIT, Circle-2, Asansol
3. आयकर किमशनर/CIT, Asansol
4. आयकर किमशनर (अपील)/CIT(A), Asansol
5. वभािगय ूितनीधी / DR, Kolkata Benches, Kolkata स×याǒपत ूित/True Copy, आदे शानुसार/ By order, सहायक पंजीकार/Asstt. Registrar.