AI Drafter 
TaxTMI 
TaxTMI 
2020 (8) TMI 947
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....ice to the ground No. (1) above on the facts and in the circumstances of the case, the ld. CIT(A) is wrong, unjust and has erred in law in upholding the rejecting of books of accounts of the appellant company by the Assessing Officer U/s. 145(3) of the I.T. Act, 1961 on account of alleged unverifiable purchases of Rs. 15024461 and in further upholding addition of Rs. 1500000 to the income of the appellant on this count as trading addition. 3. That the appellant craves the permission to add to or amend to any of the above grounds of appeal or to withdraw any of them." 2. The hearing of the appeals was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic. 3. Ground No. 1 of all these appeals is regarding validity of reopening of the assessment. The assessee company is engaged in the business of manufacturing and exports of coloured gems stones and gold studded jewellery and diamonds. The assessee has one Export Oriented Unit (EOU) at Jaipur, two Domestic Tariff Area (DTA) units. The assessee also has one Santacruz Electronics Export Processing Zone located in Mumbai. The assessee filed its return of income for the year under consi....
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.... the persons to whom the total sales/any receipt of above Rs. 5.00 lacs booked during the year. Similarly, list of all such persons against whom total purchases/any expenses above Rs. 5.00 lacs have been booked. These requisite information and details were duly filed by the assessee in the reply dated 15/09/2010. After verification of all the details and recording, the A.O. passed scrutiny assessment and made various additions but has not found anything wrong with the purchases and sales of the assessee. Thus, the A.O. examined all the details and the claim of purchases for these two years in the scrutiny assessment. In the reasons recorded, the A.O. has not pointed out any default on the part of the assessee to disclose fully and truly all the materials necessary for the assessment. Thus, in absence of failure on the part of the assessee to produce fully and truly all necessary material and facts necessary for assessment, the reopening after four years in case of scrutiny, assessment was completed U/s. 143(3) of the Act is not valid. He has referred to proviso to Section 147 of the Act and submitted that the A.O. is barred to invoke provisions of Section 147 of the Act after expir....
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.... that during the scrutiny assessment, the A.O. issued notice U/s. 142(1) of the Act which is attached with a questionnaire containing 21 queries to be replied by the assessee. Question No. 7 is relevant for the purpose of considering whether the assessee has disclosed fully and truly all material facts necessary for the assessment. For ready reference, we reproduce question No. 7 raised by the A.O. alongwith notice U/s. 142(1) of the Act dated 26/08/2010. "7. Furnish a list of all the person to whom total sales/any other receipt of above 5 lacs has ben booked during the A.Y. 2008-09. Similarly, furnish a list of all such persons against whom total purchase/any other expense above 5 lacs has been booked." Thus, it is clear that the A.O. asked the assessee to furnish list of all the persons from whom the purchases were made above Rs. 5.00 lacs. The assessee vide reply dated 15/09/2016 has furnished details in the format as given by the A.O. The reply to question No. 7 of the assessee is also reproduced as under: "7. Details of purchases and sales exceeding Rs. 5 lacs made during the year under assessment in the given format are enclosed." Thus, the A.O. has ta....
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.... 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 chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:" Even the explanation 1 to Section 147 of the Act would not support the case of the A.O. when the A.O. has specifically called all the details and documents including purchases and verified/examined the same at the time of scrutiny assessment. All the purchases were undisputedly recorded in the books of account and also supported by the bills/vouchers as well as payment made by the assessee. Further the corresponding export of the assessee was not disputed by the A.O., therefore, when all these relevant documents were produced before the A.O. as called for by the A.O. vide notice issued U/s. 142(1) of t....
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....plication money and share premium amount received during the year. The same details may also be filed in respect of all unsecured loans accepted during the year, including squared up accounts. 5. Copies of accounts of all the directors. 6. Please produce all books of account, bills/vouchers and relevant records maintained for the year under consideration. The above details should reach this office by 27.08.2010 at 11.30 A.M., the date on which your case is fixed for hearing. Notice u/s. 142(1) is enclosed. Encl.: As above. Yours faithfully, Income-tax Officer Ward-2(2), Jaipur. The AO asked the assessee to furnish comparative chart of turnover, GP for last 3 years to justify the reason for decline in the GP rate, if any. In question no. 4, the AO has specifically asked the details of the shareholders from whom the paid-up share capital, share application money and premium money received during the year. The details ca led by the AO include name, address, PAN of all the shareholders. The AO also asked the assessee to produce all the books of account, bills/vouchers and relevant record maintained for the year under consideration. ....
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....nder:- "In the case of assessee company the information was received from investigation Wing, Mumbai in the case of Praveen Kumar Jain group, it observed that the assessee is one of the beneficiaries and has obtained accommodation money received amounting to Rs. 1.10 crore from the following group concerns details on which is as under:- On the basis of this information, survey action u/s. 133A (1) of the Income Tax Act, 1961 was carried on in the case of Zari Silk (India) Pvt. Ltd. on 26.11.2014. Bogus Share Application Money: The issue regarding introduction of share capital totaling Rs. 1.10 crores through 08 shell companies of Mumbai was explored during survey operation. It was found that 1,10,000 shares of face value Rs. 10/- had been allotted to these shell companies at premium of Rs. 90/- each. The Director, Sh. Arun Kumar Palawat and his in-house Chartered Accountant Sh. Virendra Dadhich were repeatedly questioned and cross questioned on this issue. They were asked to produce the share Application Forms supposedly submitted by these companies for allocation of shares of the assessee Company (as also recorded in the Minutes of Board meeting....
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....rvey conducted by the AO at the premises of the assessee. We find that except the non-discovery of the share application forms, nothing was detected by the AO during the survey which can lead to belief that the transaction of share capital received by the assessee is bogus. Thus whatever the AO has alleged in the reasons recorded and proceedings of survey all these facts and details were part of the books of account already produced before the AO during the scrutiny assessment and were subjected to verification and examination. The third part of the reasons recorded is regarding the purchases worth Rs. 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 cond....
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....n the commercial complex, namely, Silver Square. The said space which was to be assessed as Income from House Property is at 4th Floor of the said commercial complex. The AO has recorded identical reasons for all the three years. The recorded reasons for the assessment year 2007-08 are as under:- "Return of income for the A.Y. 2008-09 was filed on 20.07.2009 at an income of Rs. 1,83,170/-. During the course of assessment proceedings for A.Y. 2012-13 it is found that 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 Inc....
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....pra). The reasons do not indicate that the AO has received any fresh factual information but all the relevant facts, information and record were available with the AO at the time of framing the scrutiny assessment for all these three assessment years. Though the assessment under section 143(3) for the assessment year 2012-13 was completed prior to the reopening of these assessments and therefore, the said assessment order for the assessment year 2012-13 may constitute tangible material apart from 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 ....
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....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, measuring thereby that at least this portion of stock 12722.82 Sq. ft. was unsold during the F.Y. 2007-08 also. Further, as per the rent agreement dated 27.06.2006 entered by the assessee with M/s. Dominos. Pizz....
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....Report under Companies Act, 1956, for the year under consideration. These details were completely given in note No. 8 of 'Notes to Accounts' and also in Tax Audit Report column No. 28. It would be appropriate to summarize the details in column no. 28 of the tax audit report as under: (v) It is to be noted that the details under the head 'Total' in the above table are tallying with the details stated in column no. 8 to "Notes forming part of accounts for the year ended on 31st March, 2008". Thus, it is evident that the reasons recorded by the AO for initiating proceedings u/s. 147 of the Act were prima facie wrong and based on incorrect facts. Thus, the proceedings initiated u/s. 147 on a wrong premise, cannot be legally sustained. It may be mentioned that in the case of CIT vs. Corporation Bank Ltd [2002] 122 Taxman 826/254 ITR 791 (SC) in a case wherein the balance sheet filed along with the income-tax return, the assessee furnished particulars of interest suspense account showing a sum which was not recoverable for the relevant account year, it was held that the proceedings under Section 147 of the Act was not justified since there was no failure on the p....
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....ilure if any on the part of the assessee, it is not possible to form the opinion that there had been a failure on the assessee's part to truly and fully disclose the material facts. A notice issued without a record of the Assessing Officer's reasonable belief that there was such failure on the part of the assessee would be indicative of a failure on the part of the Assessing Officer to apply his mind to material facts, and on that ground also the notice issued would be vitiated." (emphasis supplied) (viii) In the case of Cadila Healthcare Ltd. Vs. ACIT [2017] 85 taxmann.com 257 (Gujarat], it was held by the Hon'ble High Court of Gujarat that: "Claim of exemption of income of Rs. 130 crores by way of remuneration as a partner of the firm had come up for consideration before the Assessing Officer in the original assessment proceedings. The Assessing Officer had called upon the assessee to explain the said deduction as remuneration from partnership firm. He called upon the assessee to state how such income was exempt in the hands of the company. In reply to such question, the assessee had explained that such income was not chargeable to tax since the s....
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....n 147 is attracted.[Para 20] * The jurisdictional requirement that has to be fulfilled for justifying such re-opening of assessment where an assessment originally has been made under section 143(3) and where the re-opening is after the expiry of 4 years from the end of the relevant assessment is that the revenue has to show that some income chargeable to tax escaped assessment by reason of the failure on the part of the assessee 'to disclose fully and truly all material facts necessary for his assessment, for that assessment year'.[Para 21] * It has been repeatedly emphasized in several decisions that the re-opening of an assessment on the same material that was available with an Assessing Officer during the original assessment proceedings would be a case of mere change of opinion.[Para 23] * What Explanation (I) does is to clarify that the mere production of the account books or other evidence by the assessee before an Assessing Officer from which the Assessing Officer, with due diligence, could have discovered 'material evidence' would not necessarily amount to disclosure. In other words, the fact of production of the account books and o....
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....to make a full and true disclosure of material facts. They should indicate in what manner was there such a failure.[Para 27] * In many of the cases, where the re-opening of an assessment is challenged, the revenue tries to make up for the obvious defect in the reasons themselves which do not spell out the reasons by providing a justification at the stage of disposal of the objections or later in the counter-affidavit when the re-opening is challenged by a writ petition. This, again, is impermissible in law. Since the reasons must speak for themselves, a subsequent attempt to supply the omission at the stage of an order disposing of the objections raised by the assessee or providing them in the counter-affidavit in reply to the writ petition or even worse, making good that defect in the course of arguments before the Court, will simply not suffice.[Para 28]" (x) In the case of CIT Vs. Hindustan Zinc Ltd. [2016] 70 taxmann.com 262 (Rajasthan), it was held by the Hon'ble High Court of Rajasthan that: * In the matter of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191, the Supreme Court while dealing with the ambit and scope of the provisions of sectio....
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.... and truly, the Assessing Officer cannot exercise jurisdiction. Prima-facie, it appears that the impugned notice is without jurisdiction. Accordingly, there shall be interim stay restraining the Revenue from acting further upon the impugned notice dated 30th March, 2017 for Assessment Year 2010-11" Reliance is also placed on the judgment of Hon'ble ITAT, Jaipur dated 13.12.2017 in the case of Navrattan Kothari vs. ACIT in ITA No. 425/JP/2017 wherein similar view was taken by the Hon'ble ITAT. (xii) Therefore, in view of the above discussion and looking to the totality of facts and circumstances of the case, it is held that the initiation of proceedings u/s. 147 of the Act by the AO for the year under consideration was not in conformity with the provisions of section 147 of the Act. Further, the assessment was reopened after 4 years from the end of the relevant assessment year, which was earlier completed u/s. 143(3] of the Act, therefore, proviso to the section 14/ of the Act is clearly applicable to the facts of the instant case under consideration. (xiii) It has already been discussed in the earlier part of this order that the details of unsold ....
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....otice issued by the AO under section 148 on 5th February, 2015 after 4 years from the end of the assessment year is hit by the first proviso to section 147 and thereby the AO cannot exercise the jurisdiction to reopen the assessment. Hence we hold that the initiation of proceedings under section 147/148 of the I.T. Act is bad in law. The same is quashed." There is no dispute that in the case in hand, the assessee disclosed all necessary and primary facts during the scrutiny assessment which were duly examined and verified by the A.O. while passing the assessment order. The requirement of assessee to disclose fully and truly all material facts necessary for assessment does not extend beyond furnishing of the primary facts before the assessing authority. Hence, in absence of any failure on the part of the assessee to disclose fully and truly all relevant material facts for reopening of the assessment is not valid as the condition precedent for exercising the power of reopening of assessment as provided U/s. 147 of the Act was absent and consequently the A.O. acted beyond his power while issuing notice U/s. 148 of the Act. Accordingly, the reopening of the assessment for the A.Y. 2....
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....elief by reducing the addition by considering the past history of the G.P. declared by the assessee. He has relied on the orders of the authorities below. 13. We have considered the rival submissions as well as relevant material on record. The A.O. rejected the books of account of assessee by invoking provisions of Section 145(3) of the Act. Once the A.O. has rejected books of account U/s. 145(3) of the Act, the income of the assessee is required to be estimated by considering some proper and reasonable basis. The A.O. has to pass a best judgment assessment in terms of Section 144 of the Act and therefore, the income of the assessee has to be estimated by considering either the G.P. declared by the assessee in past years or the G.P. prevailing in the particular trade and business. It is settled proposition of law that for estimation of the income after rejection of books of account, the average of the past history of the G.P. declared by the assessee is a proper guidance. The Hon'ble Jurisdictional High Court in the case of CIT(A) Vs. Gupta K.N. Construction Co. 371 ITR 325 as well as in the case Clarity Gold (P) ltd. Vs. PCIT 102 taxmann.com 421 has held that the average of....
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....7,77,251/- 0.73% 2008-09 51,82,95,195/- (-) 35,79,872/- - 0.69% From the above details, it is clear that for the A.Y. 2005-06 to 2007-08, the average G.P. declared by the assessee is (-2.38%) where for the A.Y. 2008-09 the G.P. declared by the assessee is (-0.69%) which is better than the average of past history of the G.P. declared by the assessee. Similarly, for the A.Y. 2010-11, the assessee has declared G.P. of (-4.64%) which is less than the average of past history and therefore, the income of the assessee is required to be estimated by taking average of G.P. declared by the assessee in the preceding year at (-2.38%). However, since we have quashed the reopening of the assessment for the A.Y. 2008-09 and 2010-11, therefore, no consequential addition is called for. 14. For the A.Y. 2011-12, the assessee has declared G.P. of (-1.38%) which is better than the average of past history of (-2.38%), accordingly, no addition is called for even after rejection of books of account U/s. 145(3) of the Act. It is settled proposition of law that the rejection of books of account would not ipso facto result to an addition if the G.P. declared by the assessee is better th....