Vildirect IncomeTaxcaselaws2013VIL978ITATHYD nbsp 2013VIL978ITATHYD Income Tax Appellate Tribunal HYDERABAD ITA No456Hyd2012 Date 05042013 Ms  VANSUN ERECTORS PRIVATE LIMITED Vs INCOME TAX OFFICER WARD 3 2  For The Appellant  Shri KCDevadas For The Respondent Shri Gangadhar Panda DR BENCH SHRI CHANDRA POOJARI ACCOUNTANT MEMBER AND SMT ASHA VIJAYARAGHAVAN JUDICIAL MEMBER JUDGMENT 13 13 Per Smt Asha Vijayaraghavan Judicial Member 13 13 This appeal by the assessee is directed against the order of the Commissioner of IncometaxAppealsIV Hyderabad dated 22122011 for assessment year 20060713 13 2 Brief facts of the case leading to the filing of the present appeal before us are that the assessee is engaged in the business of erection testing and commissioning of Power Plant equipments The assessee filed its return of income for the assessment year 200506 on 28102005 declaring an income of Rs 486711 The same was processed under S1431 of the Act Later on the case was reopened by issuing notice under S148 of the Act on 3092009 and the assessment was ultimately completed determining the total income of the assessee at Rs 2707840 Aggrieved by the assessment assessee preferred appeal13 13 3 In the appeal before the CITA the assessee has in the first place contested the legality and validity of the reopening the assessment13 13 The case was reopened by the Assessing Officer issuing a notice under S148 of the Act on the ground that there was a difference of Rs 579332 in the gross receipts reflected in the TDS certificates visavis the gross receipts as per in the Profit amp Loss Account Therefore the Assessing Officer was of the opinion that there was reason to believe that income chargeable to tax has escaped assessment The learned Authorised Representative submitted before the first appellate authority that once the difference in the gross receipts mentioned above was duly reconciled by furnishing a reconciliation statement and a copy of the sales tax assessment order the book results shown by it should have been taken as correct and the Assessing Officer should not have gone on to demand production of books of accounts bills and vouchers etc and rejecting the book results on account of nonproduction thereof proceeded to estimate income at 10 of the gross receipts The CITA was of the opinion that even if no addition was made in the reassessment order on the issue on which notice under S148 has been issued the Assessing Officer was well within his power to make such estimate further in view of the fact that the book results are not proved to be correct by producing the relevant books of accounts bills and vouchers The CITA relied on the decisions of Delhi Bench of the Tribunal in the case of Poonam Rani Singh 97 ITD 390 of Allahabad Bench of the Tribunal in the case of DCIT Vs Alok Banergee111 ITD 339 and held that even if in ultimate analysis no addition is made in respect of issues on which notice us 148 was issued the reopening of assessment under S147 would still be valid As for the estimated income brought to tax the CITA following the decision of Special Bench in the case of Arihant Builders Developers and Investors P Ltd 106 ITD 10 restricted estimation of profit in the assessees case to 8 of the gross receipts as against 10 adopted by the Assessing Officer for both sales as well as job work charges clear of all deductions and directed the Assessing Officer to recompute the income accordingly13 13 4 Still aggrieved assessee preferred the present appeal before us13 13 5 Effective grounds of the assessee in this appeal are as follows13 13 1 The learned Commissioner of IncometaxAppeals IV erred both on facts of the case and in law involved in this case13 13 2 The learned Commissioner of IncometaxAppeals IV erred in sustaining the estimation of income  8 on the turnover13 13 3 The learned Commissioner of IncometaxAppeals IV should have sustained the profit reflected by the Appellant13 13 4 13 13 6 Assessee also filed additional grounds which read as follows13 13 1 The reopening of Assessment and the reasons recorded for reopening of assessment  Reconciliation of receipts shown in TDS certificates and profits credited to PampL Ac  and the assessment made us 1433 rw 147 has no nexus between the recording of reasons and the final assessment and therefore the reopening of assessment Us 147 is invalid bad in law and therefore the reassessment proceedings must be quashed13 13 2 The reasons recording for reopening of assessment laid more stress on reconciliation of gross receipts and not on escapement of any income and therefore there was no belief that there was any escapement of income and therefore the entire order passed us 1433 rw 147 is without jurisdiction invalid and bad in law and is to be quashed13 13 3 The learned CITA IV Hyderabad to note that since no additions were made in relation to the grounds for which the assessment was reopened the scope of additions could not be enlarged to include incomes which were not within the realm of reopening of assessment and therefore the estimate of income at 8 of the gross receipts of Rs 426259705 at Rs 2100776 is wholly unsustainable in law13 13 7 The learned counsel for the assessee reiterating the averments made in the above grounds and additional grounds submitted that the very reopening is bad in law and no addition in relation to the grounds on which reopening was initiated having resulted in the reassessment made by the Assessing Officer the impugned reassessment order cannot be sustained He placed reliance on the decision of the Calcutta Bench of the Tribunal in the case of Meheria Reid amp Co Vs ITO 81 DTR Cal Trib 36 and the Gujarat High Court in the case of CIT Vs Mohmed Juned Dadani Tax Appeal No984 of 2011 to 967 of 2011 dated 2912013 copy filed before us13 13 8 The learned Departmental Representative on the other hand strongly relied on the orders of the Revenue authorities13 13 9 We have heard both the parties With respect to 1st and 3rd of additional grounds of appeal the Explanatory Memorandum presented in the Parliament at the time of introduction of Explanation 3 to S147 of the Act by statutory amendment reads as under13 13 Clarificatory amendment in respect of reassessment Proceedings under section 14713 13 The existing provisions of section 147 provides inter alia that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year he may assess or reassess such income afte4r recording reasons for reopening the assessment Further he may also assess or reassess such other income which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section13 13 Some courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which the reasons have been recorded for reopening the assessment He is not empowered to touch upon any other issue for which no reasons have been recorded The above interpretation is contrary to the legislative intent13 13 With a view to further clarifying the legislative intent it is proposed to insert an Explanation in section 147 to provide that the Assessing Officer may asses or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under this section notwithstanding that the reason for such issue has not been included in the reasons recorded under subsection 2 of section 14813 13 This amendment will take effect retrospectively from 1st April 1989 and will accordingly apply in relation to assessment year 198990 and subsequent years13 13 10 In the case of Travancore Cements Vs Addl CIT and Anr 305 ITR 178 it was held that Explanation of S147 of the Act does not in any manner even purport to expand the power to the Assessing Officer under S147 of the Act In any case an explanation cannot expand the scope and speech of the main body of the statutory provision In the leading decision of the Bombay High Court in the case of CIT Jet Airways I Ltd 331 ITR 236 while considering an identical situation the Honble High Court interpreted the provisions of S147 of the Act has held that the situation would not be different by virtue of introduction of Explanation 3 to the said section It has been held in that case that if upon issuance of notice under S148 of the Act the Assessing Officer does not assess the income which he had reason to believe has escaped assessment and which forms the basis for the issuance of notice under s148 of the Act it is not open to Assessing Officer to assess independently any other income which does not form the subject matter of the notice It also observed that for every new issue coming before the Assessing Officer during the proceedings of assessment or reassessment of escaped income which he intends take into account he would be required to issue a fresh notice under S148 of the Act In the present case before us since no additions were made in relation to the grounds for which the assessment was reopened the scope of additions cannot be enlarged to include incomes which are not within the realm of the reopening of the assessment  The reopening of the assessment as per the reasons recorded for that purpose was only in relation to reconciliation of receipts shown in the TDS certificates and the receipts credited in Profit amp Loss Account and hence following the decision of the Bombay High Court in the case of Jet Airways supra we find that the impugned reassessment made by the Assessing Officer cannot be upheld13 13 11 With respect to 2nd additional ground of appeal we refer to the decision in the case of Meheria Reid amp Co Vs ITO 2013 81 DTR KolTrib 386 wherein it has been held as under13 13 In the instant case assessment has been reopened on the ground that there is discrepancy between professional income declared by the assessee and the professional income as per TDS certificates and that it requires verification to find out whether any taxable income has escaped assessment  There is nothing in the reasons to indicate that there is escapement of income  A variation in these two figures does not necessarily lead to escapement of income  Mere need to verify the discrepancy does not bring the matter within the scope of cases in which reassessment proceedings can be validly initiated  There is subtle though significant distinction between reason to believe and reason to suspect  While the former is good enough to hold that income has escaped assessment and initiate suitable remedial measures in respect thereof the latter can at best be the ground to verify and examine the matter further  Mere fact that matter needs to be verified and examined further can never be a reason good enough to believe that income has escaped assessment and to invoke the reassessment proceedings  Therefore the very initiation of reassessment proceedings on the facts of the instant case was devoid of legally sustainable merits  Reassessment quashed13 13 12 We accordingly set aside the impugned order of the CITA and cancel the reassessment made under S143 read with S147 of the Act by the Assessing Officer allowing the grounds of the assessee in this appeal13 13 13 In the result appeal of the assessee is allowed13 13 Order pronounced in the court on 0504201313 nbsp DISCLAIMER Though all efforts have been made to reproduce the order accurately and correctly however the access usage and circulation is subject to the condition that VATinfoline Multimedia is not responsibleliable for any loss or damage caused to anyone due to any mistakeerroromissions