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TMI Blog2021 (9) TMI 802X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, even there before, which was in a direct contravention of the binding directions of the Hon'ble Supreme Court given in the case of GKN Driveshafts (India) Ltd. vs. ITO & ORS 259 ITR 0019 (2002) and therefore, the impugned order so passed, deserves to be quested. 2. The impugned addition and disallowances made in the order dated 30.03.2016 u/s 143(3) of the Act are bad in law and on facts of the case, for want of jurisdiction and for various other reasons and hence the same may kindly be deleted. 3.1 Rs. 1,12,256/-: The ld. CIT(A) erred in law as well as on the facts of the case in confirming the addition of Rs. 1,12,256/-made by the AO by applying estimated GP rate of 9.45% on the alleged suppressed sale of Rs. 5,77,150/-, merely based on a search conducted by the Central Excise Department (even though the said Department itself has taken back their allegation) and merely on suspicion, surmises & conjectures, without arriving at an independent opinion/ satisfaction over the impugned addition. The allegation of suppressed sale being completely contrary to the provisions of law and facts and the consequent addition of the suspected gross profit thereon so made, als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce u/s 148. Finally, the assessment order was passed determining total income of the assessee at Rs. 53,72,500/-. 4. Being aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A), who after considering the submissions of both the parties and material placed on record, upheld the action of the A.O. 5. Against the order passed by the ld. CIT(A), the assessee has preferred the present appeal before the ITAT on the grounds mentioned above. 6. Ground Nos. 1 and 2 of the appeal raised by the assessee relates to challenging the order of the ld. CIT(A) in confirming the reopening of the assessee U/s 147 of the Act. In this regard, the ld. AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also relied on the written submissions filed before the Bench and the contents of the same are reproduced below: "1.1 Reassessment invalid-without deciding the objections within stipulated time: At the outset it is submitted that the AO failed to dispose off the objections raised by the assessee against the reassessment u/s 148 within a reasonable period. The assesse filed objection vide letter dated 04.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and in accordance with law. The Respondents having delayed the proceedings at their own end, it would not be open for them to justify their conduct and have complete disregard to the orders and directions which were binding on them. In such circumstances, Court was not in agreement with the contention that the assessment order having now been passed, the Writ Petition should not be entertained and the Petitioner must be relegated to the statutory remedies. Having regard to the factual statements in para 12 of the Writ Petition and there being absolutely no reply thereto in the affidavit in reply, this contention of the Respondents cannot be accepted." 1.4 In Bharat Jayantilal Patel vs. Union of India (2015] 378 ITR 596 (Bom.) it was held that: "Where Assessing Officer passed assessment order within period of four weeks from date of rejection of assessee's objections to reopening of assessment, order so passed being invalid, deserved to be set aside" 1.5 In some other cases i.e. Jayanti Natarajan (Ms.) vs. ACIT (2018) 401 ITR 215 (Mad.) & Mayer Material Science Pvt. Ltd. vs. DCIT (2016) 382 ITR 333 (Bom.) the Hon`ble Courts observed that the law laid down by the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 147 (SC). 2.4 On the facts it is proved that above judicial guideline has not been followed by the AO in this case, if the following facts, which were undisputedly available on record, on the date of recording of the reasons, are considered. 3. Complete non application of mind- Borrowed Satisfaction: 3.1 Because to assume a valid jurisdiction u/s 147 of the Act, the AO must form a reason to believe on his own and such a satisfaction or belief should not / cannot be borrowed from someone else. 3.2 A bare perusal of the impugned reasons (PB 54-57) clearly shows that the information relied upon being the SCN is based on a search conducted by the Central Excise Authorities and not by the Income Tax Department and that too at the premises of the Transporters and/or Dealers but not at the place of the assessee (which is a wrong fact stated in the reasons). Thus, the impugned reasons are based upon wrong facts and a third-party information that too unreliable and misinterpreted. 3.3 No material was found (and/ or referred in the reasons) showing that the assessee was indulged in a clandestine clearance/ suppressed sale from its factory without paying excise duty and notices is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee 04.06.2015 04.06.2015 04.06.2015 04.06.2015 Again objection filed on 04.08.2015 05.08.2015 05.08.2015 05.08.2015 Request for early disposal 22.07.2015 22.07.2015 22.07.2015 22.07.2015 Objections disposed off 22.03.2016 22.03.2016 22.03.2016 22.03.2016 Written submission along with number of documents filed on 28.03.2016 (PB 1-51) 28.03.2016 (PB 1-173) 28.03.2016 (PB 1-198) 28.03.2016 (PB 1-155) Asst. Order Passed 30.03.2016 30.03.2016 30.03.2016 30.03.2016 A bare reading of the above chart and impugned order shall reveal that the AO passed the order to penalize the assessee in as much as Firstly, it is beyond imagination that the AO carefully read and considered more than 763 pages of paper books in one day and passed the impugned orders in five assessment years. Secondly, the AO disposed off the objection on 22.03.2016 (PB 65-66) i.e. just before the completion of the assessment i.e on 30.03.2016 and thereafter served on the assessee on the fag end. He has not bothered to raise his doubt, if any regarding the submission filed by the assessee. He without giving any opportunity to the assessee to explain the doubts, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be bodily lifted, relied and applied blindly in a different and legal factual context of Income Tax Law. This is against the settled principal of Jurisprudence. He relied on the decision in the case of Zirconia Cera Tech Glazes vs. DCIT in ITA No. 376 & 377/Ahd/2016 dated 30.11.2017 and CIT vs. Bharat Poetries Pvt. Ltd. in DBITA No. 493/2008 order dated 12.09.2017. Since, the impugned assessment order is seriously lacking due application of mind and satisfaction of the AO, the same suffers from illegality, vitiating the entire order which, results into as nullity and is not case of mere irregularity, hence deserves to be quashed. The ld. AR has further filed another written submission and the contents of the same are reproduced as under: "2. Reason to believe and not reason to suspect: In addition, it is further submitted: 2.5 The information, vaguely referred and relied in the reasons to believe of escaping income, was otherwise premature being in the shape of a SCN only issued by a third party (CCE) and at that time even CCE was not sure of the correctness of the fact of allegation of the clandestine sale or the correctness of the amount thereof. The AO himself referred it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons, not made: It is submitted that in the present case, in the reasons recorded (PB 54), the reasons to believe refer to some information with regard to searches conducted on 20.07.2012. Such information although not detailed in the reasons to believe but is a SCN no. DZU/INV/G/CE/GRU/152/2012/ dated 02.01.2013 issued by the DGCEI, Department of Custom & Central Excise, Jaipur through the Commissioner Central Excise, Jaipur (CCE) being the Assessing authority (II PB 136-138). He also refers to the documents seized from the premises of transporters /dealers, which are bunched in separate annexures and marked as Annexure A to Annexure G. Based thereon it is alleged that the appellant was involved in clandestine clearance of goods without payment of excise duty (Suppressed Sales). In the impugned reasons, a table is appended showing the figures of the suppressed sale for the period starting from 01.12.2007 to 28.01.2010 i.e. for 4 assessment years A.Y. 2008-09 to A.Y. 2011-12, totaling to Rs. 49,39,94,027/- towards the quantity of 16043.50 MT relating to Annexure A. This annexure is a booking register 2/1-2/6 recovered from New Vikas Transport Company Ajmer and referred by the dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustain merely on presumption and assumption as the same has to be supported by tangible evidences which are not available or perhaps have not been investigated upon appropriately, in the present matter, the truck driver who are named along mobile number should have been investigated, inspite of search and investigation no discrepancy in stock for the given period could be noticed in the factory of notice by DGCEI, further huge amount in crores alleged to be involved in purchase and sale of clandestine excisable goods has not been brought on record having a nexus with buyers/sellers of final goods and raw materials. Since the investigation has not alleged or issued show cause notice for short payment of service tax to Shri Moin Khan for his alleged collusion in the said activities and for rendering unaccounted goods transport services rather the GR register, challan book and ledger accounts have not been disputed. Also, demand based on booking register and statements of third party without backward and forward consolidations as already discussed does not sustain. Hence, I hold that demand on account of serial no. A, based on booking register does not sustain. DISCUSSION ON POINTS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections so filed before him in the rejection (disposal) order dated 22.03.2016 (PB 65-66) which is passed in a summary manner, on the face of it. Thus, the very purpose of giving the assessee an opportunity of filing objection as mandated by the directions of the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. ITO & Ors. (2003) 259 ITR 19 (SC), has lost its purpose and non-consideration of the objection as rather violated the said decision. Interestingly, even the legislature has also taken note of such SC directives and made amendment vide the Finance Act 2021 by inserting new S. 148A for mandatorily considering objections. 4.3.2 New income considered: Surprisingly, the AO when found that the escaped income stated in the reason to believe stands deleted fully, he immediately changed his stand in as much as he did not make any addition of the escaped income of Rs. 7.69 Cr based on the seized documents RUD-24- Annexure A, instead made a reference to the other Annexures B to G (being loosed attendance sheet, report of Commercial Tax Department etc.) totaling to Rs. 3.81 Cr as per the chart reproduced at Pg 2 Pr 3 of the AO finding place in the same said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ped assessment." 5.2 In Hotel Regal International & Anr. Vs. ITO (2010) 320 ITR 573 (CAL), it was held: "Section 148 of the Income-tax Act, 1961 - Income escaping assessment - Issue of notice for - Assessment year 2006-07 - Where petitioners were called upon to file objection to notice under section 148 proposing to reopen assessment on ground that a sum of Rs. 73,219 had 'escaped assessment', revenue could not shift its stand and pass an order on ground of 'concealment of investment'; further where petitioner had disclosed its income fully and truly and return was accepted, notice under section 148 could not be issued on ground that valuation report was received subsequent to passing of order [In favour of assessee] Original assessment of the assessee was made under section 143(3). Later the reassessment notice was issued and the recorded reasons stated that sum of Rs. 73,219 had "escaped income" for the said assessment year. Thereafter, notices under sections 142(1) and 143(2) were issued. The petitioners filed the written objections to the recorded reasons. After the objections were filed the matter was considered and order was passed by the ITO holding tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words "and also" are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion of Expln. 3 to S. 147. Parliament must be regarded as being aware of the interpretation that was placed on the words "and also" by the Rajasthan High Court in Shri Ram Singh (supra). Parliament has not taken away the basis of that decision. While it is open to Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of s. 147(1) as they stood after the amendment of 1st April, 1989 continue to hold the field." 5.4 Ranbaxy Laboratories Ltd. v/s CIT (2011) 336 ITR 136/57 DTR 281 (Del HC) 5.5 The other decisions taking the same view are CIT v/s Adhunik Niryat Ispat Ltd. (2011) 63 DTR 212 (DeI HC) and ACIT v/s Major Deepak Mehta (2012) 65 DTR 237/ 344 ITR 641 (Chhattisgarh HC). 5.6 CIT v/s Mohmed Juned Dadani (2013) 85 DTR 12/355 ITR 172 (Guj HC) (DPB 58-70) " Headnote: Reopening of Assessment - Jurisdictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to Rs. 53,21,78,463/- was given by way of a table (Also kindly refer internal Pg 73 of the adjudication order dated 24.07.2015). However, the AO in its wisdom, while recording the reasons to believe as to escaped income by way of suppress sale, chose the 1st entry at serial no. A only in the said table, which is related to the alleged clandestine sale for the period 01.12.2007 to 28.01.2010 for the quantity of 16043.50 MT valuing Rs. 49,39,94,028/-. The AO formed reason to believe as to the escapement of Rs. 49.39 only for 4 years A.Y. 2008-09 to A.Y. 2011-12 including Rs. 7.69 Cr for this year A.Y. 2008-09. Thus, the AO, despite having the information of the alleged suppress sale relating to item no. B to G also, consciously decided and did not form any reason to believe as to escapement of the alleged income relating to other items no. B to G. Hence, it cannot be said that something new item of income was noticed by the AO escaping assessment during the reassessment proceedings in as much as the related information was already available before the AO when he recorded the reason prior to the issuance of the notice u/s 148 dated 19.03.2015. To sum up, the AO cannot take even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not disposed off within the reasonable time, therefore, the assessee made a request to the A.O. to dispose off its objections but ultimately the objections of the assessee were disposed off after huge gap i.e. on 22/3/2016 and the orders U/s 147/148 of the Act was passed on 30/03/2016 immediately thereafter. The entire sequences and the dates mentioned by us above clearly shows that the objections filed by the assessee were not disposed off within the reasonable time and were disposed off in a hurriedly manner just before passing the final order i.e. on 30/03/2016 that too without providing opportunity to the assessee which is in violation of principles of natural justice. In this respect, we draw strength from the decision of the Hon'ble Apex court in the case of GKN Driveshafts (India) Ltd. vs. ITO & Ors. (2003) 259 ITR 19 (SC) has held as under: "When a notice under s. 148 of the Income-tax Act is issued, the proper course of action for the noticee is to file a return and if he so desires, to seek reasons for issuing notices. The AO is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 993] 45 TTJ 114 (Hyderabad) (SB) has held that: In the preceding paragraphs it has been indicated why the assessee's version cannot be rejected as regards the credits appearing in his books. Perhaps the only justification, if at all it can be called a justification, for the ITO to reject the credits as not genuine is the failure of the assessee to produce the creditors when called upon to do so by the ITO. At this stage it is but necessary to state the circumstances in which the assessee was unable to produce the creditors. We are concerned with the asst. yr. 1985- 86. For the first time the ITO called upon the assessee to produce the creditors by his letter dt. 7th March, 1988 which was served on the assessee on 9th March, 1988. The rules of natural justice operate as implied mandatory requirement, nonobservance of which amounts to arbitrariness and discrimination. The principles of natural justice have been elevated to the status of fundamental rights guaranteed in the Constitution of India as is evident from the decision of the Full Bench of the Hon'ble Supreme Court in the case of Union of India vs. Tulsiram Patel & Ors. reported in AIR 1985 SC 1416 at 1469, holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement that the A.O. has reasons to believe and not mere reasons to suspicion. As per the record, once the information relied upon by the A.O. itself was at an initial stage and which was yet to be tested after hearing the notice, that too by a third party i.e. the CCE then in that eventuality the A.O. could not have formed an honest believe even prima facie because the demand raised by the Custom and Excise department was ultimately found not sustainable by the competent authorities. Thus, in our view also the believe of the A.O. should have been honest and reasonable basis upon reasonable grounds. An officer may act on direct or circumstantial evidences but his belief must not base on mere suspicion, gossip or rumor. The AO would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the provision of law. Different higher courts at different point of time have examined these aspects though the declaration or sufficiency of the reasons for the belief cannot be investigated by the Court as has already been held in the case of Sheo Nath Singh v/s AAC (1971) 82 ITR 147 (SC) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon wrong facts and are on the basis of third-party information which is unreliable. Apart from this, no material was found showing that the assessee was indulged in a clandestine clearance/ suppressed sale from its factory without paying excise duty and notices issued by the Excise Department is only on the basis of statement of third party or some information gathered from third party because no direct material or evidence was found or seized from the premises of the assessee. It is also important to mention here that neither any stock was seized nor was it found that it was the case of lesser stock or excess stock of finished goods or of raw materials found. Absolutely, no evidence was recovered nor has been placed on record to prove illicit transaction of money involved in the alleged transactions. The Excise Department though alleged huge clandestine clearance of goods yet not an iota of evidence to prove procurement of huge quantities of raw materials has been placed on record, though the list of raw material suppliers was with the investigation. Without showing receipt of the raw material clandestinely, manufacture of such huge quantities of excisable goods and clandestine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before him, income had escaped assessment. There was no substantial question of law for consideration" The Coordinate Bench of ITAT Jodhpur, has quashed the assessment made u/s 147 in the case of Surbhi Minchem P. Ltd vs. ITO in ITA No. 102 & 103/Jodh/2014 vide order dated 16.05.2014 by holding as under: "From the above provisions, it is clear that for taking action u/s 147 of the Act, the Assessing Officer must have reason to believe that an income chargeable to tax has escaped assessment for any assessment year. Therefore, the Assessing Officer must satisfy himself regarding the escapement of income. He should not act mechanically on the information supplied by any other person. In the present case, the Assessing Officer acted on the information supplied by the Directorate of the Income Tax (Inv.), Udaipur and Mumbai but he has not applied his independent mind and the reassessment proceedings were initiated only on the basis of information received from the investigation wing of the department. In the present case, the satisfaction regarding the escapement of income, was not of the Assessing Officer, therefore, without applying his mind, the Assessing Officer was not justified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A No. 376 & 377/Ahd/2016 dated 30.11.2017 wherein the Coordinate Bench has held as under: "11. We find that the basis of addition is contents of show-cause notice issued by the Excise Department. An investigation was carried out by DGCEI at assessee premises on 25/08/2008, wherein it was alleged by the Excise Department that assessee has not declared actual assessable value of goods manufactured and cleared from factory. Based on above DGCEI issued show-cause notice dated 19/04/2010, Excise department concluded that assessee was engaged in under valuation of sales and clandestine removal of goods. Only on the basis of same Assessing officer reopened assessee's income tax assessment for the years under consideration and made addition of estimated Gross Profit on under valuation sales and clandestine removal of goods. The Revenue has brought nothing on record that it has applied it's mind over and above the contents of show-cause notice in question thus there is lack of independent application of mind on behalf of revenue in these matters." 12. We further observed from perusal of the record that a part of such alleged suppressed sale being of Rs. 7,69,00,267/- pertained to the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the factory of notice by DGCEI, further huge amount in crores alleged to be involved in purchase and sale of clandestine excisable goods has not been brought on record having a nexus with buyers/sellers of final goods and raw materials. Since the investigation has not alleged or issued show cause notice for short payment of service tax to Shri Moin Khan for his alleged collusion in the said activities and for rendering unaccounted goods transport services rather the GR register, challan book and ledger accounts have not been disputed. Also, demand based on booking register and statements of third party without backward and forward consolidations as already discussed does not sustain. Hence, I hold that demand on account of serial no. A, based on booking register does not sustain. DISCUSSION ON POINTS NO. B TO G OF SCN The investigation for raising the demand under Serial No. B-G in Para No. 68 of the Show Cause Notice has primarily relied upon loose attendance sheet of employees and workers RUD-10, 11, 12, 13, 17, statement U/s. 14 of various buyers and survey reports of commercial taxes department carried out on 19.1.2010 wherein there is admission on the part of notice on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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