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TMI Blog2020 (8) TMI 146X X X X Extracts X X X X X X X X Extracts X X X X ..... the absence of any allegation by the AO, the Explanation-1 to section 147 cannot be pressed into service. All the sales including the sales in dispute are duly accounted in the books of account which were audited and subject to scrutiny of the Commercial Taxes Department, therefore, the assessee cannot be held guilty for not furnishing all the information necessary for assessment. If the AO proposed to treat some of the sale transactions as bogus, then the assessee is not expected to disclose any other fact than the transaction itself which is duly recorded in the books of account and part of the primary record of the assessee. Therefore, the primary facts disclosed by the assessee at the time of original assessment and in the absence of any allegation on the part of the AO in the reasons recorded for reopening that there is a failure on the part of the assessee to disclose fully and truly all the relevant facts necessary for assessment, the reopening is hit by the provisions of section 147. Appeal of the revenue is dismissed. - ITA No. 739/JP/2019 - - - Dated:- 30-7-2020 - Shri Vijay Pal Rao, JM And Shri Vikram Singh Yadav, AM For the Assessee : Shri Mahendra Gargieya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hallenging the validity of reopening was decided against the assessee. Aggrieved by the impugned order of ld. CIT (A), the revenue has filed the present appeal. The assessee respondent has not filed any appeal or cross objection. However, the assessee has filed an application under Rule 27 of ITAT Rules, 1963 to defend the impugned order of the ld. CIT (A) on the ground of validity of reopening of the assessment which was decided against the assessee by the ld. CIT (A). Thus the plea raised by the assessee under Rule 27 of ITAT Rules, 1963 is as under :- The very action taken u/s 147 r/w 148 is bad in law without jurisdiction and being void ab-initio, the same kindly be quashed. Consequently, the impugned assessment framed u/s 144/148 dated 04.03.2016 also kindly be quashed. The issue agitated by the assessee under Rule 27 of the ITAT Rules is a pure legal issue and goes to the root of the matter. Further if the assessee succeeds on this issue as raised under Rule 27, then the appeal of the revenue would become infructuous. Accordingly, we first take up the plea raised by the assessee respondent under Rule 27 of the ITAT Rules. The ld. A/R of the assessee has subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment. The AO has even not verified the veracity of the information on the basis of which the assessment was reopened. The AO was not having so-called investigation report in his possession but only on the basis of the letter he has blindly reopened the assessment. Therefore, the AO has not applied his independent mind but reopened the assessment based on the communication received by the AO without having report of the Investigation Wing which is the basis of said communication. The ld. A/R has relied upon a series of decisions in support of his contention that the reopening of the assessment after lapse of 4 years from the end of the assessment year is not valid when original assessment was completed under section 143(3) and there is no failure on the part of the assessee to disclose fully and truly all the relevant facts necessary for assessment. The AO has suspected the sales made to a particular party which is only a friction of the total turnover of the assessee which is more than ₹ 331 crores. All the sales so declared were subjected to provisions of sections of Rajasthan Value Added Tax Act and made against C Form. The Commercial Taxes Department has accepted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on the ground that the Tribunal has no jurisdiction to entertain such a plea which is not subject matter of appeal. As regards the validity of reopening, the ld. D/R has submitted that the AO has received the information vide letter dated 16th January, 2018 wherein all the details of accommodation entries provided by various persons including M/s. Shree Ram Trading Co. with whom the assessee has transactions of sale. Therefore, the AO was having definite information about the bogus accommodation entries received by the assessee on account of sales. He has also referred letter dated 13.03.2018 of ADIT Investigation Jaipur to Pr. CIT, Kota wherein the information received from DIT Investigation Gurgaon was shared with the respective Pr. CITs for appropriate action. Thus the ld. CIT D/R has submitted that the relevant information was also annexed with the said letter which constitutes a tangible material to form the belief that the income assessable to tax has escaped assessment. This is new material and information which was received by the AO after completion of the assessment and, therefore, based on such new material, the AO has formed the opinion that the income assessable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. CIT (A) on such issue which was decided against the assessee. Thus in case the assessee succeeds on this ground, then the appeal of the revenue would fail because of the reason that the validity of the assessment itself is decided in favour of the assessee. Though the plea raised under Rule 27 would not disturb the order of the ld. CIT (A) but the effect of the outcome of such plea in favour of the assessee would be failure of the revenue s appeal. The scope of Rule 27 of the ITAT Rules was considered by the Hon ble Bombay High Court in case of B.R. Bamasi vs. CIT, 83 ITR 223 (Bom.) and observed at para 244 to 246 as under :- 39. Now there is no doubt that, as the assessee had already filed a voluntary return, the notice under section 34(1)(a) was wrongly issued and the proceedings of assessment which took place in pursuance of that notice are invalid. This is the ratio laid down by the Supreme Court in its said judgment in the case of Commissioner of Income-tax v. Ranchhoddas Karsondas. Mr. Joshi has not disputed this position. The only question is whether the Tribunal was entitled in law to refuse to allow the assessee to urge that ground in the appeal before it. Now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be outside the scope of the appeal. That judgment holds that the position of an appeal under section 33 of the Income-tax Act and an appeal under the Code of Civil Procedure is identical. A Full Bench of the Madras High Court has in Venkata Rao v. Satyanarayanamurthy, held that it was open to a respondent in appeal who had not filed cross objection with regard to the portion of the decree which had gone against him to urge in opposition to the appeal of the plaintiff a contention which it accepted by the trial court would have necessitated the total dismissal of the suit, but the decree in so far as it was against him would stand. The judgment of the Tribunal in our case clearly shows that, although the assessee wanted to raise a new point as a ground of defence in the appeal, he specifically stated that he wanted to rely upon it only for the purpose of having the appeal by the department for enhancement in income-tax dismissed. But even if the assessee had not made such a statement, the above judgment shows that the assessee would be entitled to raise a new ground, provided it is a ground of law and does not necessitate any other evidence to be recorded, the nature of which woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue would fail. The Hon ble Gujarat High Court in case of PCIT vs. Sun Pharmaceuticals Industries Limited (supra) has held in para 11 to 15 as under :- 11. To put the controversy beyond doubt, Rule 27 of the Rules makes it clear that the respondent in appeal before the Tribunal even without filing an appeal can support the order appealed against on any of the grounds decided against him. It can be easily appreciated that all prayers in the appeal may be allowed by the Commissioner (Appeals), however, some of the contentions of the appellant may not have appealed to the Commissioner. When such an order of the Commissioner is at large before the Tribunal, the respondent before the Tribunal would be entitled to defend the order of the Commissioner on all grounds including on grounds held against him by the Commissioner without filing an independent appeal or cross-objection. 12. Rule 27 of the Rules is akin to Rule 22 Order XLI of the Civil Procedure Code. Sub-rule (1) provides that any respondent, though he may not have appealed from any part of the decree, may not only support the decree but may also state that the finding against him in the Court below in respect of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndum of cross-objections, was not entitled to canvass the correctness of the finding on the bar of Order II Rule 2 rendered by the trial court. 14. Similar issue came-up before Division Bench of this Court in case of Dahod Sahakari Kharid Vechan Sangh Ltd. v. CIT [2006] 282 ITR 321/[2005] 149 Taxman 456 (Guj.) in which the Court observed as under: 17. Taking up the second issue first, the Tribunal has committed an error in law in holding that the assessee having not filed cross-objection against findings adverse to the assessee in the order of Commissioner (Appeals), the said findings had become final and remained unchallenged. The Tribunal apparently lost sight of the fact that the assessee had succeeded before the Commissioner (Appeals). The appeal had been allowed and the penalty levied by the assessing officer deleted in entirety. In fact, there was no occasion for the assessee to feel aggrieved and hence, it was not necessary for the assessee to prefer an appeal. The position in law is well settled that a cross objection, for all intents and purposes, would amount to an appeal and the cross objector would have the same rights which an appellant has before the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, therefore, answered against the Revenue and in favour of the assessee. The Hon ble High Court has observed that if order of the Commissioner (Appeals) is at large before the Tribunal, the respondent before the Tribunal would be entitled to defend the order of the Commissioner (Appeals) on all the grounds including on the grounds held against him by the Commissioner without filing an independent appeal or cross objection. In case of CIT vs. BPL Systems Projects Ltd. (supra), the Hon ble Kerala High Court while considering the issue of raising a plea under Rule 27 of the ITAT Rules, has held as under :- The first question relates to the exercise of powers by the Income-tax (Appellate Tribunal) Rules, 1963. This was with regard to an aspect decided against the assessee and seeking to support the order of the first appellate authority on submissions in regard thereto. We had an occasion to consider this aspect when we decided Income-tax Reference No. 2 of 1992 Travancore Chemical and Manufacturing Co. Ltd, v. CIT [1997] 226 ITR 429-on September 17, 1996, where we had an occasion to refer to the statutory provisions of sections 253(4), 254(4) along with the necessary prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of reopening before the ld. CIT (A) and the ld. CIT (A) decided the same against the assessee. 5. Now we consider the validity of reopening as agitated by the assessee before the ld. CIT (A) and decided against it by the ld. CIT (A) and now the assessee has raised the same plea under Rule 27 of the ITAT Rules. At the outset, we note that the original assessment was completed under section 143(3) on 29th March, 2014 and thereafter the AO issued notice under section 148 on 29/30th March, 2018. Therefore, undisputedly the notice under section 148 was issued after expiry of 4 years from the end of the assessment year in question and thus the proviso to section 147 would be attracted in this case. The reasons recorded by the AO for reopening of the assessment is reproduced in the assessment order as under :- Return of income was filed by the assessee on 29.09.2011 declaring the total income of ₹ 4,52,11,890/-. Assessment u/s 143(3) of the I.T. Act, was completed on 29.03.2014 at income of ₹ 4,66,65,470/-. Further the Addl. DIT (Inv.) Jaipur vide letter no. 587 dated 13.03.2018 has informed that an investigation report was received from DIT (Inv.) Chandigarh al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the accommodation entries were found to be on account of sales made by the assessee which is the primary record as part of the Profit Loss account as well as computation of income and, therefore, in the absence of any allegation by the AO, the Explanation-1 to section 147 cannot be pressed into service. All the sales including the sales in dispute are duly accounted in the books of account which were audited and subject to scrutiny of the Commercial Taxes Department, therefore, the assessee cannot be held guilty for not furnishing all the information necessary for assessment. If the AO proposed to treat some of the sale transactions as bogus, then the assessee is not expected to disclose any other fact than the transaction itself which is duly recorded in the books of account and part of the primary record of the assessee. Therefore, the primary facts disclosed by the assessee at the time of original assessment and in the absence of any allegation on the part of the AO in the reasons recorded for reopening that there is a failure on the part of the assessee to disclose fully and truly all the relevant facts necessary for assessment, the reopening is hit by the provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee has failed to disclose fully and truly all the particulars necessary for assessment. It is not the case of the AO that the assessee has not furnished the requisite documents and details of purchase rather the AO conducted a detailed enquiry during the original assessment on the issue of genuineness of purchases. Thus the information received by the AO from Investigation Wing Mumbai would not amount to non disclosure of particulars by the assessee, rather it was the subject matter of enquiry by the AO in the original assessment. Therefore, if the AO failed to conduct proper enquiry regarding the genuineness of the purchases, the same would not give jurisdiction to the AO to review the order or remove the defect based on subsequent information. The statute has provided segregation of powers and jurisdiction between the hierarchy of the taxing authorities and, therefore, the power and jurisdiction vested with one authority cannot be assumed by the other authority. Section 263 is a provision of check and balances and, therefore, in case of failure on the part of the AO to conduct a proper enquiry as revealed by a subsequent material and information came to the kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and were subjected to verification and examination. The third part of the reasons recorded is regarding the purchases worth ₹ 21,57,500/- from the company M/s. New Planet Trading Co. Pvt. Ltd. The AO has considered the said company as shell company owned and operated by Shri Praveen Kumar Jain. This belief was formed by the AO on the basis of the information received from the Investigation Wing Mumbai. Except the Inward Register, no other incriminating material found during the survey to say that the purchases made by the assessee are bogus. It is pertinent to mention that the purchases were made by the assessee when the assessee was having its only show room at M.I. Road, Jaipur whereas the survey was conducted at the show room at Narain Singh Circle, Jaipur. Subsequently the assessee has filed this record of inventory register showing the entries of the alleged purchases. Moreover, during the assessment proceedings under section 143(3), the AO has specifically called for purchase and sales vouchers, bills along with cash book, ledger, bank book and those details were furnished by the assessee for the verification and examination of the AO. The last part of the reasons rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee is a builder and developer and has developed a commercial complex Silver Square at C-18, Bhagwan Das Road, Jaipur. The project was started on 15.08.2003 and was completed on 10.08.2005. The assessee was requested to file the details of total area constructed and year-wise area sold. In response, the assessee filed details of opening stock as on 1.4.2011 and closing stock as on 31.03.2012. One more request was made vide letter dated 17.03.2015 to file year-wise details of area sold from the date of completion of project but no compliance was made. Assessment for A.Y. 2012-13 has been completed u/s 143(3) of the I.T. Act, treating the income from unsold portion of project under the head Income from house property keeping in view the finding of Hon ble Delhi High Court in the case of Commissioner of Income Tax vs. M/s. Ansal Housing Finance Leasing Co. Ltd. in ITA 18/1999 dated 31.10.2012 wherein it is held that the income from unsold portion of stock in trade is also assessable under the head Income from house property. On examination of details filed, it is found that the assessee was having 12722.82 Sq. ft. unsold area as on 1.4.2011, meaning thereby tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Hon ble Delhi High Court in case of CIT vs. M/s. Ansal Housing Finance Leasing Co. Ltd. (supra) for forming the belief that income assessable to tax on account of notional rent in respect of unsold stock of the assessee escaped assessment. However, even if the decision of Hon ble Delhi High Court and the assessment order passed under section 143(3) for the assessment year 2012-13 may constitute tangible material for forming the belief, the same shall be subject to the fulfillment of the conditions as prescribed in the first proviso to section 147 of the IT Act. There is no allegation by the Assessing Officer in the reasons recorded that the income proposed to be assessed in the reassessment proceedings has escaped assessment due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Even otherwise, we find that all the relevant material in respect of the issue of assessment of rental income of the unsold stock was already available with the Assessing Officer at the time of scrutiny assessment. Hence, when the original assessment was framed under section 143(3) and the reopening is after the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout jurisdiction being hit by the proviso to section 147 of the Act as such not within the prescribed period provided under proviso to section 147 of the Act. In the circumstances, it would be necessary to turn to section 147 of the Act, which reads as under : 147. Income escaping assessment. -If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereinafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence. That vital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no suppression. No such submission has in addition, been urged by the Revenue. 9. The A.O. has sought to reopen the assessments on the ground that under Section 36(1)(ii) only such commission payments are allowed as expenditure as any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend, if it had not been paid as bonus or commission . The A.O. has stated that a payment made to a shareholder would not be covered by the section to be eligible for deduction as the payment could have been made to a director who is a shareholder as disbursement of profit or dividend. These reasons are not postulated on there being any suppression on the part of the assessee or a failure on the part of the assessee to state fully and truly all material facts necessary for the assessment. It is an admitted position that for A.Y.2006-07 as well, the position is same. Hence, for these reasons, we have come to the conclusion that the reopening of the assessments for 2005-06 and 2006-07 does not fulfill the requirement set out in the proviso to Section 147 and that the notices of reopening would accordingly have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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