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TMI Blog2018 (1) TMI 778X X X X Extracts X X X X X X X X Extracts X X X X ..... ose details and books of accounts and had the TDS provision been applicable on such payments, he would not have disallowed a sum of ₹ 3,00,000/- out of machinery rent paid by the appellant. It is pertinent to mention here that no new material has come on record which goes to show that these payments are to be disallowed u/s 40(a). Also the contract under reference was machinery hire contract and not a contract for carrying out any work within the meaning of limb (a) of section 194C of the Act The issue regarding machinery rent has already been considered vide para no.2 of the original assessment order made "u/s 143(3) in which an addition of ₹ 3,00,000/- has already been made, secondly, the appellant explained the same during the course of proceedings u/s 154. On these facts of the assessee's case, it cannot be held that the A.O. can entertain the "reason to believe" for income chargeable to tax escaping assessment. A.O. rejected all the object ions raised by the assessee against initiation of re-assessment proceedings on the ground that the Assessing Officer has not examined the above expenses with regard to provision of tax deduction at source i.e. disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment is placing reliance upon the fact that re-opening has been done on the basis of audit objection pointed out in the scrutiny assessment order passed u/s 143(3) dated 10.12.2009. It was her submission that the reasons have been recorded and objections to the same have been placed on record by the assessee. These objections, it was submitted, have been disposed off by the AO by way of a speaking order, copy of this, it was submitted, has been placed at pages 167 to 174. Accordingly, it was her submission that re-opening on facts was justified and heavy reliance was placed by the Revenue upon this order. It was clarified that the re-opening has been done within four years. It was also her submission that the AO had issued notice u/s 154 and thereafter it was dropped. Copy of the said order available with the ld. Sr.DR was shown to the Bench. Ld. AR submitted that the same is placed at page 140 of the Paper Book filed and thus, is available on record. 2.1 Reverting back to the arguments, it was submitted by the ld. Sr.DR that the proceedings have been initiated u/s 148 after dropping the proceedings u/s 154 of the Act. The Department, it was submitted, places heavy reliance on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry by the AO was addressed to the AO on the issues para 9 and 10 would demonstrate this fact. Attention was invited to another reply placed at page 21 of the Paper Book where in paras 3 and 4 are again detailed reply on the aforesaid issue which was made available on query to the AO by the assessee during the assessment proceedings by the assessee. Inviting attention to Paper Book page 23, it was submitted that copy of accounts of machinery rented from various parties had been attached at Paper Book page 24 to 122 Reply of the assessee at page 23 para 3, typed copy of the same, it was submitted, is placed at Paper Book page 124. Attention was invited to the order dated 10.12.2009 of the AO and it was submitted that the order was passed after considering the detailed replies on this very issue. Copy of the order, it was submitted, is placed at pages 125-128. A perusal of the same, it was submitted, would show that when at page 125 paras 2 and 3 of the same are read alongwith the last 4-5 lines in para 4, it would demonstrate that ultimately the AO considering these specific facts and after going through various replies of the assessee finally made an addition of ₹ 1,60,000/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct for sale of goods. In view of this, the provisions of Sec 194C are not applicable in the case of the assessee as either the payment has been made for purchase of material i.e. Mitti/Water etc or on account of rent of JCB Machines and Tractors. Wef. 13/07/2006 such payments are covered U/s 1941 of the Income Tax Act, 1961 i.e. TDS form rent payment. The provisions are applicable only where the amount of such payments exceed ₹ 120000/- in the account of each payee. The copies of account of all these persons/parties to whom payments were made or credited on account of purchase of material (which do not fall under the TDS provisions), rent for Tractor/JCB machines/ shuttering are enclosed. Your Honour will appreciate that out of total claim made for ₹ 10496430/- -on account of machinery rent, material purchase is for ₹ 3311565/- and rent for Road-Roller, JCB Machine and Tractor etc. at ₹ 7184865/- and the payment in none of the cases exceed ₹ 120000/- and hence the provisions of Sec. 1941 of the Income Tax Act. 1961 are also not applicable. 3.4 On the next issue, the following reply was filed by the assessee. The relevant extract heavily relied u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vited to page 138 of the Paper Book. On the basis of these facts, it was his submission that it is a case of change of opinion, as such the issue had been correctly decided by the CIT(A). 3.7 For the legal proposition relied upon in support of the said assertion, attention was invited to the Paper Book numbering 130 pages which contained the judgements relied upon. Inviting attention to the case of Indian Eastern Newspaper Society V CIT 119 ITR 996 (S.C), it was submitted, that the Court has categorically held that the opinion of the internal audit party on a point of law does not constitute information. Reliance was also placed upon the case of CIT Vs Sant Ram Mangat Ram 312 ITR 100 (P H). Inviting attention to specific page 4 of the Paper Book, it was submitted, it is again for the proposition that assessment can not be reopened merely upon the advice of the Audit Party because such an act would amount to change of opinion. Attention was invited to N K Roadways Pvt. Ltd. Vs ITO (OSD) 362 ITR 522 (Guj) specific page 8 of the Paper Book, again for the proposition that re-opening based only on the objection raised by the Audit Party without any independent belief of the AO c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not necessary to enter into arena of judging whether AO had issued notice on strength of his own belief that income chargeable to tax had escaped assessment upon issue being pointed out by revenue audit party or that in plain terms, it was opinion of revenue audit party upon which AO had acted without independent application of mind-impugned notice quashed-Petition allowed. 3.10 In the facts of the present case, it was submitted that it is a case of change of opinion. Inviting attention to the decisions relied upon, it was submitted, that change of opinion cannot be the basis for re-opening. Attention was invited to the case of Aroni Commercials Ltd. V DCIT 88 CCH 62 (Mum-HC) wherein Hon'ble Court has held that Very basis of reasons for re-opening was examined during course of assessment proceedings, leading to assessment order and thus, present notice for re-opening was only on account of change of opinion . For similar proposition, reliance was placed upon order of the ITAT in Audco India Ltd. Vs ITO 39 SOT (Mum-Trib) 481 for the proposition , Scope of s. 147 is not for reviewing its earlier order suo motu irrespective of there being any material to come to a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income Tax V/s Vikas Sharma 34 ITR (Trib) 617(Chd-Trib); Raajratna Metal Industries V/s Assistant Commissioner of Income Tax 371 ITR 222 GUJ-HC; Purity Tech textile (P) Ltd. V/s Assistant Commissioner of Income Tax 325 ITR459 MUM-HC Sunil Gavaskar V/s Income Tax Officer (International Taxation) 47 ITR (Trib) MUM-TRIB, Income Tax Officer V/s Everlon Synthetics Pvt. Ltd. 47 CCH 113 MUM-Tribunal; BBF Industries Ltd V/s The Joint Commissioner of Income Tax (OSD) ITA No.1162/CHD/2012, ITAT, Chandigarh Bench, Chandigarh Baldev Singh V/s The Income Tax Officer ITA No.293/CHD/2012, ITAT, Chandigarh Bench, Chandigarh the Courts have consistently frowned upon re-opening concluded assessments without adequate reasons which fully apply to the facts of the present case and these decisions were heavily relied upon. Specific attention was invited to the order dated 20.11.2014 of ITAT Chandigarh Bench, Chandigarh in BBF Industries Ltd. Vs JCIT (OSD) ITA No. 1162/CHD/2012 and order dated 26.02.2016 in Baldev Singh Vs ITO ITA 293/CHD/2012. Reliance was also placed upon order dated 28.08.2017 in ITA 1252/CHD/2016 alongwith C.O. and others in ACIT Vs Nikka Mal Jewellers, 318 ITR 295 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the present case, it was her submission that the reasons have been recorded by the AO and it is not a case of change of opinion. 5. We have heard the rival submissions and perused the material available on record. The assessee in the facts of the present case derives income from civil contractor business. The return filed on 31.10.2007 having been processed u/s 143(1) was subjected to a scrutiny order u/s 143(3) on 10.12.2009 wherein the returned income of ₹ 4,48,260/- was assed at an income of ₹ 11,08,260/- wherein the following additions admittedly stood made by the AO : i Out of machinery rent expenses vide para No. 2 of the assessment order dated 10.12.2009 300000.00 ii Out of labour expenses vide para No. 3 of the assessment order dated 10.12.2009 200000.00 iii Out of material, labour and other expenses vide para No. 4 of the assessment order dated 10.12.2009 160000.00 Total 660000.00 5.1 It is further borne out from the record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. Thereafter, no order seems to have been passed in pursuance of notice u/s 154. 5.2 That , af ter lapse of 17 months from the submission of reply in response to notice u/s 154, the AO initiated re-assessment proceedings U/s 147 of the Income Tax Act, 1961 on 05.03.2012 on the following grounds:- (i) The assessee firm has filed its return of income declaring an income of Rs . 448260/ - on 31.10.2007. The same was processed U/s 143(1) on 03.03.2009. As sessment in this case has been completed U/s 143(3) on 10.12.2009 at a total income of ₹ 1108260/-. Later on it was noticed that the assessee has debi ted an amount of ₹ 10496430/- in the Profit 85 Loss account under the head machinery rent, out of which ₹ 9995660/- has been shown as payable to various person Form the reply of the assessee dated 02.12.2009, in which the assessee stated that during the last quarter of year. The assessee undertook subcontract work of Gawar Construction Company of construction of road. For the purpose, the assessee had to engage JCB/Tractors for digging of Mitti, lifting and bringing of Mitti . It is clear that the assessee engaged the JCB and tractor for ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date proceedings initiated U/s 154, supra. From these facts, it is clear that the department wanted to rectify the mistakes, mentioned in the notice U/s 154, though there was no mistake of facts or law; and in the pendency of proceedings U/s 154, initiation of re-assessment proceedings U/s 147 of the Income Tax Act, 1961 is not in order in the eyes of law. Rectification of mistake apparent from the record cannot be equated with the power of reopening under section 147 and 148 which is conferred on the Assessing Officer to reopen the cases under assessments when the conditions mentioned in the said sections are satisfied. The object and purpose of the two provisions is separate and the preconditions and requirements are different. The words reasons to believe when income chargeable to tax has escaped assessment has a different connotation and requirements and cannot be equated with the power under section 154 to rectify the mistakes apparent from the record . In support of the above submissions, the appellant has relied upon various judgments of the Ronnie Courts and ITAT's. 5.4. The A.R. also submitted that during the course of assessment proceedings. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the Hon'ble Courts and ITAT's. 6. The A.O. rejected al l the object ions raised by the assessee against initiation of re-assessment proceedings on the ground that the Assessing Officer has not examined the above expenses with regard to provision of tax deduction at source i.e. disallowance U/s 40(a)(ia) of the Income Tax Act, 1961. Hence, there is no change of opinion. Change of opinion comes to the rescue of the assessee only when Assessing Officer has taken one of the permissible views at the time of original proceeding. A wrong application of law can not be held as a permissible view and that can always be changed for appreciating law and in support of his finding The A.O. cited various judgments of the Hon'ble Courts and ITAT's. 5.4 It is seen tat the Sr.DR has not made any arguments to assail that the factual consideration of the issue, the CIT(A) has either ignored a fact or has taken a fact into consideration whose existence was in doubt. Thus, no infirmity in the facts being considered by the CIT(A) has been pointed out by the Revenue. Reverting back to the order under challenge, it is seen that on considering the facts in the aforementi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied . The belief entertained by the Assessing Officer must not be an arbitrary or irrational. It must be based on the reasons which are relevant and material. The reasons to believe does not mean purely subjective satisfaction on the part of the Assessing Officer. The belief must be held in a good faith and it cannot be merely pretence for reopening the case u/s 147 in a casual manner or on extraneous factor. Not only this, the reason to believe should have a rational connection and relevant bearing on the formation of the belief having live link or nexus with the income chargeable to tax escaping the assessment. It should neither be extraneous nor irrelevant. Nowhere from the reasons recorded by the Assessing Officer can a reasonable belief be entertained in this case that the income chargeable to tax has escaped assessment primarily on the ground that firstly, the issue regarding machinery rent has already been considered vide para no.2 of the original assessment order made u/s 143(3) in which an addition of ₹ 3,00,000/- has already been made, secondly, the appellant explained the same during the course of proceedings u/s 154. On these facts of the assessee's case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s account. It is a common knowledge and practice that mitti is purchased from the persons who are residing nearby site of work/ contract. The tractor owners supply mitti to the contractors at the site and the suppliers of mitti do not involve themselves in leveling of the site or mitti. The expenditure of ₹ 3311565/- shown under the head is only on account of purchase of material i.e. mitti etc which has been supplied by the selling parties on FOR basis. Even the contractors sometime purchase such material from the persons who bring such material at the site without order from the contractors. Since the assessee has paid amount for purchase of material only, there was no requirement of the assessee to deduct tax at source. 5.6 Noting the fact that the remaining expenditure of ₹ 7184865/- (10496430-3311565) related to payment on account of hiring of machinery and equipment required for execution of contract work where the assessee took subcontract from M/s Gawar Construction Co. for construction of roads/mainly upto pad level and considering the argument on facts that for completion of contract work within the stipulated period, the assessee required machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid conclusion or for that matter on facts has been pointed out by the Revenue. The ld. AR in the facts of the present case, on the contrary drew specific attention to these submissions before the CIT(A) where the assessee had argued and it was submitted that it has been considered as the assessee had successfully demonstrated that the running cost of these equipments were borne by the assessee. The said findings, it was submitted, have not been assailed by the Revenue. In view of these facts, even otherwise the case of the assessee does not fall under the provisions of sec. 194C. It can fall under the provision of section 194-1 of the Income Tax Act, 1961. Relying on the order, it has been argued that in assessee's case the contract under reference was not for carrying out any specified work-tangible or intangible- with or without the help of machinery. Rather the machinery/equipment were taken on hire after taking their possession/control for use in the assessee's business at assessee's discretion and the command, control and possession of the machinery remained with the assessee during the per iod of hi re . The payment to the per sons f rom whom thei r machinery/equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the assessee holding as under : 9.1 I have carefully considered the facts of the case and have gone through the AO's order and the submissions of the appellant. The undisputed facts are that the Ld. A.O. vide para No.2 of the original assessment order made u/s 143(3) has observed that assessee firm itself is having machinery of the type that is HYWA, Denfer etc. which has been shown as taken on rent. Further, during the course of proceedings u/s 154, the appellant submitted the copy of accounts of the parties/persons from whom material was purchased and machinery rent was paid/payable. All the machinery i.e. tractor, JCB and road roller etc. running expenses like salary and diesel etc. as claimed by the appellant were allowed as such while framing the assessment u/s 147. In view of the above facts the contract under reference was purely a contract for the hiring of machinery equipment and the obligation of the lender under the contract was limited to supplying specific machines, his contractual obligation stood discharged with the handing over of temporary possession of the machines to the hirer and he was not responsible thereafter for the performance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the provisions of Section 194C of the Act were not applicable to the facts of the present case. 5.9 We find that these material findings on facts stand unrebutted on record. 6. Accordingly, in the peculiar facts and circumstances, which we had elaborated at length in the earlier part of this order, we find that there is no merit in the appeal of the Revenue. The detailed finding on the jurisdiction issue by itself is sufficient to address the departmental grievance, however, since the parties have argued in detail on merits also which issue has also been dealt by the CIT(A), we find that even on merits, the Revenue has no case as not only the issue has been considered by the AO in the first round and then in the 154 proceedings, even on merits, the Revenue has failed to make out any case in its favour. Being satisfied with the reasoning and conclusion arrived at by the CIT(A) on the facts as they stand, the departmental appeal is dismissed. 6.1 Before parting, we deem it appropriate to observe that the matter being purely factual has been decided on the basis of facts on record. The decisions relied upon by the parties for the proposition/principle of law they ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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