2013-VIL-978-ITAT-HYD

Income Tax Appellate Tribunal HYDERABAD

ITA No.456/Hyd/2012

Date: 05.04.2013

M/s . VANSUN ERECTORS PRIVATE LIMITED

Vs

INCOME TAX OFFICER WARD 3 (2) ,

For The Appellant : Shri K.C.Devadas
For The Respondent: Shri Gangadhar Panda DR

BENCH

SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER

JUDGMENT

Per Smt. Asha Vijayaraghavan, Judicial Member:

This appeal by the assessee is directed against the order of the Commissioner of Income-tax(Appeals)-IV, Hyderabad dated 22.12.2011 for assessment year 2006-07.

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 2005-06 on 28.10.2005 declaring an income of Rs. 4,86,711. The same was processed under S.143(1) of the Act. Later on, the case was reopened by issuing notice under S148 of the Act on 30.9.2009 and the assessment was ultimately completed determining the total income of the assessee at Rs. 27,07,840. Aggrieved by the assessment, assessee preferred appeal.

3. In the appeal before the CIT(A), the assessee has in the first place contested the legality and validity of the reopening the assessment.

The case was reopened by the Assessing Officer issuing a notice under S.148 of the Act, on the ground that there was a difference of Rs. 5,79,332 in the gross receipts reflected in the TDS certificates, vis-avis the gross receipts as per in the Profit & 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 non-production thereof, proceeded to estimate income at 10% of the gross receipts. The CIT(A) was of the opinion that even if no addition was made in the reassessment order on the issue on which notice under S.148 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 CIT(A) 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 V/s. Alok Banergee(111 ITD 339) and held that even if in ultimate analysis, no addition is made in respect of issues on which notice u/s. 148 was issued, the reopening of assessment under S.147 would still be valid. As for the estimated income brought to tax, the CIT(A), 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 assessee’s 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 accordingly.

4. Still aggrieved, assessee preferred the present appeal before us

5. Effective grounds of the assessee in this appeal are as follows-

(1) The learned Commissioner of Income-tax(Appeals) IV erred both on facts of the case and in law involved in this case.

(2) The learned Commissioner of Income-tax(Appeals) IV erred in sustaining the estimation of income @ 8% on the turnover.

(3) The learned Commissioner of Income-tax(Appeals) IV should have sustained the profit reflected by the Appellant.

(4) …..

6. Assessee also filed additional grounds which read as follows-

1. The re-opening of Assessment and the reasons recorded for reopening of assessment - “Reconciliation of receipts shown in TDS certificates and profits credited to P&L A/c. – and the assessment made u/s. 143(3) r.w. 147 has no nexus between the recording of reasons and the final assessment and therefore the re-opening of assessment U/s. 147 is invalid, bad in law and therefore the re-assessment proceedings must be quashed.

2. The reasons recording for re-opening 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 u/s. 143(3) r.w. 147 is without jurisdiction, invalid, and bad in law and is to be quashed.

3. The learned CIT(A) IV, Hyderabad to note that since no additions were made in relation to the grounds for which the assessment was re-opened, 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. 42,62,59,705 at Rs. 21,00,776 is wholly unsustainable in law.”

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 re-assessment order cannot be sustained. He placed reliance on the decision of the Calcutta Bench of the Tribunal in the case of Meheria Reid & Co. V.s. ITO (81 DTR Cal. Trib 36) and the Gujarat High Court in the case of CIT V/s. Mohmed Juned Dadani (Tax Appeal No.984 of 2011 to 967 of 2011 dated 29.1.2013), copy filed before us.

8. The learned Departmental Representative on the other hand, strongly relied on the orders of the Revenue authorities.

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 S.147 of the Act, by statutory amendment, reads as under-

“Clarificatory amendment in respect of re-assessment Proceedings under section 147

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 re-opening 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 section.

Some courts have held that the Assessing Officer has to restrict the re-assessment 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 intent.

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 sub-section (2) of section 148.

This amendment will take effect retrospectively from 1st April, 1989 and will accordingly, apply in relation to assessment year 198990 and subsequent years.”

10. In the case of Travancore Cements V/s. Addl. CIT and Anr. (305 ITR 178), it was held that Explanation of S.147 of the Act does not in any manner even purport to expand the power to the Assessing Officer under S.147 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 Hon’ble High Court, interpreted the provisions of S.147 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 S.148 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 s.148 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 S.148 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 re-opening 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 & Loss Account, and hence, following the decision of the Bombay High Court in the case of Jet Airways (supra), we find that the impugned re-assessment made by the Assessing Officer cannot be upheld.

11. With respect to 2nd additional ground of appeal, we refer to the decision in the case of Meheria Reid & Co. Vs. ITO, [2013] 81 DTR (Kol)(Trib) 386 wherein it has been held as under:

“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 quashed.”

12. We accordingly set aside the impugned order of the CIT(A) and cancel the re-assessment made under S.14(3) read with S.147 of the Act, by the Assessing Officer, allowing the grounds of the assessee in this appeal.

13. In the result, appeal of the assessee is allowed.

Order pronounced in the court on 05.04.2013

 

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