TaxTMI 
TaxTMI 
TaxTMI 
2021 (3) TMI 1477
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....01,80,490 3. Against this, the assessee went in appeals before the CIT(Appeals) challenging the additions on merits. The CIT(A), however, confirmed the order of AO. Against this, the assessee is in appeals before us. 4. The assessee has raised common grounds of appeal in all these years and there is only change in figures. The grounds of appeal in ITA No.3384/B/2018 are reproduced below :- 1. The impugned Appellate order dated: 24-10-2018 passed by the Ld. CIT(A), Bangalore-7 is opposed to law, facts and circumstances of the case. 2. The Ld. CIT(A) has erred in confirming the addition of Rs. 2,41,99,928/- which was estimated by the AO by adopting 8% Net Profit Margin Method based on the alleged voluntary statement of the Appellant made u/s. 133A of the Act and also on the Post Survey Statements recorded on oath u/s. 131 of the Act without appreciating the fact that the Appellant had declared 8% Margin of Profit subject to deductions and depreciation which was neither considered by the AO nor by the Ld. CIT(A). 82,22,964/- (exclusive of interest charged u/s. 234B and 234C amounting to Rs.1,02,83,852 and Rs.5,64,490 respectively. 3, The Ld. CIT(A) has erred in confi....
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....o tax and therefore the Notice so issued u/s. 148 of the Act is not maintainable in law and the same is liable to be quashed. 9. The Appellant craves leave to add, alter, amend and delete any of the grounds at the time of hearing. Common main grounds raised in all the appeals i.e., ITA Nos. 3384 to 3388/Bang/2018: 5. The ld. AR submitted that in the assessment year under consideration, the assessee declared profit as per books of account. However, it was rejected by the AO and estimated it as follows :- A.Y. Turnover Declared Percentage Percentage age of Addition Taxable Income Declared Additions on enhanced percentage Disallowance of Interest Assessed Income by the AO 2010-11 112,26,24,898 5.67% 8% 6,36,35,113 2,41,94,928 89,09,701 9,67,39,742 2011-12 62,30,57,675 6.42% 8% 3,99,77,626 80,47,903 1,35,28,782 6,15,54,311 2012-13 39,62,83,279 6.29% 8% 2,49,07,920 48,41,786 1,35,28,782 4,32,78,488 2013-14 30,62,50,788 4.50% 8% 1,37,94,818 83,28,008 1,04,26,768 3,25,49,594 2015-16 8,85,56,648 9.45% 8% 83,67,603 1,01,80,490 1,85,48,012 The AO made estimation on the reason that during the survey u/s. 133A conduc....
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..... Further, the Hon'ble Delhi High Court in the case of CIT v. Bharat General Reinsurance Co. Ltd., 83 ITR 303 (Del) held as follows :- "It was true that the assessee itself had included that dividend income in its return for the year in question, but there was no estoppel in the Income-tax Act and the assessee having itself challenged the validity of taxing the dividend during the year of assessment in question, it must be taken that it had resiled from the position which it had wrongly taken while filing the return. Quit apart from it, it was incumbent on the income-tax department to find out whether a particular income was assessable in the particular year or not. Merely because the assessee wrongly included the income in its return for a particular year, it could not confer jurisdiction on the department to tax that income in that year even though legally such income did not pertain to that year. Therefore the income from dividend was not assessable during the assessment year 1958-59, but it was assessable in the assessment year 1953-54. It could not, therefore, be taxed in the assessment year 1958-59." 9. Further, the Hon'ble Bombay High Court in the case of Nirmala ....
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....usiness" includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. The lower authorities should have approached the question of allowability of interest on the borrowed funds from the above angle. In other words, the lower authorities should have enquired as to whether the interest free loan was given to the sister company as a measure of commercial expediency, and if it was, it should have been allowed. The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure, if it was incurred on grounds of commercial expediency." 16. It was the plea of assessee that amount advanced to sister concern was by way of commercial expediency. It was also argued by the ld. AR that the assessee is having interest free funds which was invested in sister concern and there was no basis for the AO to presume that interest free funds would have been utilized for the business purposes instead of advancing to sister ....
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....u/s. 148 was u/s. 147(c) of the Act which is not applicable to the facts and circumstances of the Appellant's case and hence the proposal itself is bad and non-est in law. 4. The approval granted by the Pr. CIT vide letter dtd: 24-03- 2017 itself is bad in law since the said sanction was accorded without application of mind." 22. Further, the assessee has filed petition for admission of additional grounds explaining the reasons for filing the additional grounds. The ld. AR submitted that these additional grounds are very necessary for the cause of rendering substantial justice and equity and there is no necessity of investigation of any fresh facts so as to adjudicate these additional grounds and requested to admit the additional grounds. He relied on the following judgments in support of his arguments :- (i) National Thermal Power Corporation v. CIT (1998) 229 ITR 383 (SC) (ii) ACIT v. Hotel Blue Moon, 321 ITR 362 (SC) (iii) Order of Tribunal in the case of DCIT v. Shriram Chits (Karnataka) Pvt. Ltd. in ITA No.499/Bang/2011 dated 22.2.2013. 23. On the other hand, the ld. DR opposed admission of additional grounds. 24. We have heard both the parties and perused the m....
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....ollows :- 31. In the present case, it is to be noted that there was no valid issue of notice u/s. 143(2) of the Act. Therefore, the assessment order framed thereafter is bad in law as held by the Hon'ble Supreme Court in the case of CIT v. Hotel Blue Moon, 321 ITR 362 (SC) wherein it was held that issue of legally valid notice u/s. 143(2) is mandatory for assuming jurisdiction to frame scrutiny assessment u/s. 143(3) of the Act and absence of a valid notice u/s. 143(2) is not a curable defect. This ratio laid down by the Supreme Court in Hotel Blue Moon (supra)was reiterated by the Supreme Court once again in the case of CIT v. Laxmandas Khandelwal, 108 taxmann.com 183 (SC). The relevant observations of the Supreme Court are as follows :- "5. At the outset, it must be stated that out of two questions of law that arose for consideration in Hotel Blue Moon's case (supra) the first question was whether notice under Section 143(2) would be mandatory for the purpose of making the assessment under Section 143(3) of the Act. It was observed :- "3. The Appellate Tribunal held, while affirming the decision of CIT (A) that non-issue of notice under Section 143(2) is only a proce....
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.... 01.04.2008 has effected any change. Said Section 292BB is to the following effect :- "292BB. Notice deemed to be valid in certain circumstances .- Where an assessee has appeared in any proceeding or cooperated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was - (a) Not served upon him; or (b) Not served upon him in time; or (c) Served upon him in an improper manner: Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment." 7. A closer look at Section 292BB shows that if the assessee has participated in the proceedings it shall be deemed that any notice which is required to be served upon was duly served and the assessee would be precluded from taking any objections that the notice was (a) not served upon him; or (b) not served upon him in time....
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....s, we are of the opinion that there is no valid issue of notice u/s. 143(2) of the Act and the assessment for AY 2010-11 is bad in law. 34. On merits of additional grounds raised on 10.02.2021, the ld. AR drew our attention to 148 notice dated 27.3.2017 which is placed in PB page 4 of the PB of the additional rejoinder and submitted that though the date was mentioned as 27.3.2017, but it was despatched on 27.6.2017. The time limit for issue of notice is 6 years from the end of assessment year, ending on 31.3.2017 the assessment year involved being AY 2010-11. Since it was despatched on 27.6.2017, the issue of notice u/s. 148 on 27.6.2017 is barred by limitation. Further it was submitted that the first notice was issued on 21.11.2016 on which no assessment has been framed. The second notice dated 27.6.2016 is also not maintainable during the pendency of the first notice dated 21.11.2016. It was also submitted that notice u/s. 148 stated to have been issued is not maintainable since it was not at all served on the assessee within the limitation period. 35. The ld. AR submitted that the assessment year ended on 31.3.2011. Six years limitation period commences from 1.4.2011 and ends ....
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.... notice issued u/s. 148 dated 27.3.2017 left the office of the DCIT Circle 7(2)(1) on 27.6.2017 as seen from the dispatch seal. It might have actually been sent by Speed Post on 4.7.2017. Now the question before us is whether notice u/s. 148 was issued within the time limit prescribed u/s. 149 of the Act. In the present case, the impugned notice dated 27.3.2017 though said to be despatched from the department on 27.6.2017, was actually sent by speed post to the assessee on 4.7.2017. It is apparent that though signature to the said notice was affixed by the Officer on 27.3.2017, actually it was despatched to the assessee on 4.7.2017 and mere signing of the notice cannot be equated with the actual issuance of notice as contemplated u/s. 149 of the Act. The date of issue of notice would be the date on which the same was handed over to service to the proper person which in effect in the present case, would be the date on which notice was actually handed over to the post office for the purpose of effecting service to the assessee. Till that point of time, the envelope containing the notice was with the dispatch Clerk, it cannot be stated that the process of issue of notice was completed....
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....n 23.3.2017. Therefore, the notice u/s. 148 dated 21.11.2016 issued without approval is bad in law, consequently the assessment framed thereon is also bad in law. Further he submitted that the notice issued u/s. 148 on 21.11.2016 has not resulted in framing of assessment, hence second notice u/s. 148 cannot be issued. He relied on the judgment of the coordinate Bench of the Tribunal in the case of M/s. The Archdiocesan Board of Education v. DCIT in ITA No.585/Bang/2019 dated 19.07.2019 and also drew our attention to the copy of 1st notice u/s 148 of the Act on 21.1.2016, which is as follows :- 45. The ld. DR submitted that only notice u/s. 148 dated 27.3.2017 was issued no other notice u/s. 148 was issued for AY 2010-11. 46. Admittedly, in this case there was a copy of notice dated 21.11.2016 and no action was taken consequent to issue of this notice for framing the assessment. It is to be noted that the Tribunal in the case of M/s. The Archdiocesan Board of Education (supra) held as follows :- "6. We have considered the rival submissions. First of all, we examine the applicability of the judgment of Hon'ble Karnataka High Court cited by ld. DR of revenue because if we find....
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....ed at the time of filing a revised return. Though the said document is dated 24.10.1992, it has not been filed in the Income Tax Office. In the absence of there being any return filed, notice under Section 148 of the Act was issued dated 14.12.1992 stating that, return has to be filed in the prescribed form within 30 days from the date of service of notice. Between the date of service of notice dated 14.12.1992 and the receipt of notice on 24.12.1992 the appellant has filed Return of Income on 22.12.1992 as per Annexure-D. After receipt of notice dated 24.12.1992 reply was given by the petitioner on 29.12.1992 stating that return has been filed on 22.12.1992. After verifying the said return notice under Section 148 of the Act was issued on 24.11.1994 stating that there has been escapement of income. In response to the said notice, the appellant filed another statement of Return of Income on 18.10.1995. The case was taken up for scrutiny by issue of notice under Section 143(2) on 15.5.1996 and thereafter various details were called for and the assessment order was passed on 27.3.1997. 14. Under explanation to Section 147 certain situations which are deemed to be cases of income es....
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....ribed under Section 139(1) or within the time allowed under Section 142(1), a notice can be issued under Section 148 seeking a return to be filed in the prescribed form as it would be deemed to be a case of income escaping assessment, particularly when the total income is above the total limit. After the filing of his return on 22.12.1992, another notice was sent on 24.11.1994 pursuant to which the assessee filed a revised return declaring revised total income of Rs. 4,57,934/- on 20.10.1995. In fact, in the return filed on 22.12.1992, the assessee had declared a total income of Rs. 3.00 lakh without profit and loss account and balance sheet. 17. Having regard to the position of law and the peculiar facts of the case, in the absence of any return being filed notice under Section 148 of the Act dated 14/12/1992 was rightly issued by the Assessing officer. When the return was filed by the assessee on 22/12/1992 the Assessing officer had time till 31/3/1995 to complete the assessment, when he considered the return dated 22/12/1992 and found that there was escapement of income, he issued notice dated 24/11/1994 which was also responded to by the appellant- assessee only on 20/10/1995....
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.... to be borne in mind. The Hon'ble High Court has noted that the first notice dated 14.12.1992 was issued u/s. 148, when there was no return filed and the said notice was validly issued. This is also noted by Hon'ble Karnataka High Court that when return was filed on 22.12.1992 even before the service of the said notice, the purpose of sending such a notice was fulfilled but there is no bar in law to send a notice u/s. 148 of the Act after the return dated 22.12.1992 was filed by the assessee. It is also noted by Hon'ble Karnataka High Court in that case that after perusal of the return filed by the assessee on 22.12.1992, the AO found that there was escarpment of income although no assessment has been made and because of this reason, second notice was issued on 24.11.1994. It is also noted by Hon'ble Karnataka High Court in that case that second notice dated 24.11.1994 was in fact responded to by filing a revised return on 20.10.1995 and under these facts, it was held that the second notice u/s. 148 dated 24.12.1994 was validly issued after considering the return filed by the assessee on 22.12.1992. Hence as per this judgment of Hon'ble Karnataka High Court, it ....
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....t the return of income was filed by the assessee because the first notice was for asking the assessee to file return of income because no return was filed by the assessee even after expiry of time permitted u/s 139 (1) and therefore, the second notice was held to be not during the pendency of an earlier or first notice under Section 148 of the Act. But in the present case, the reasons recorded for both notices are same as noted above being non eligibility of the assessee for exemption u/s 11 and section 10 (23C) (vi). Hence in the facts of the present case, the second notice was issued during pendency of the first notice and therefore, in our considered opinion, this judgment of Hon'ble Karnataka High Court rendered in the case of P. Dayananda Pai Vs. ACIT (Supra) is not applicable in the present case. 9. Now we examine the applicability of the remaining judgments cited by ld. DR of revenue. First of all, we examine the applicability of the judgment of Hon'ble Apex Court rendered in the case of Comunidado of Chicalim vs. ITO (supra). In this case, it was held by Hon'ble Bombay High Court that section 148 merely required that reasons should be recorded, not that they s....
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....s. 148 and regarding the issue of two notices also, it is seen that the first notice was issued u/s. 158BC whereas the second notice was issued u/s. 158BD and therefore, in our considered opinion, this judgment of Hon'ble Apex Court is also not applicable in the facts of present case. 11. The remaining judgements cited by ld. DR of revenue are of various other High Courts i.e. Hon'ble Allahabad High Court and Hon'ble Kerala High Court and hence, before examining the applicability of these two judgments, we feel it proper to examine the applicability of the judgment of Hon'ble Gujarat High Court cited by ld. AR of assessee having been rendered in the case of Marwadi Shares & Finance Ltd. Vs. DCIT (supra). As per the facts of that case, for Assessment Year 2010-11, the assessee filed return of income on 29.09.2010 and the assessment order was passed by the AO u/s. 143(3) on 28.02.2013. Later on, the AO issued notice u/s. 148 on 31.03.2015 and as per the reasons recorded by the AO for issuing that notice as reproduced by Hon'ble Gujarat High Court, it is stated by the AO in the reasons recorded by him that information has been received by him in respect of fictit....
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....impermissible in law. Nevertheless, there has to be an action of withdrawal. Mere intention, a stated intention or even an intention which is otherwise put in practice cannot be equated with withdrawal of the notice. By mere intention to abandon the proceedings arising out of the notice, the Assessing Officer cannot bring about the desired result of withdrawing the notice. The notice was either withdrawn or is stood as it is, may be without any follow up action on part of the Assessing Officer. 18. The material on record would clearly demonstrate that the Assessing Officer in the present case did not travel beyond expressing his clear intention to withdraw the notice. He had so stated before the High Court through his advocate on 21.06.2016 when Special Civil Application No. 2120 of 2016 was being disposed of. He has so stated at multiple places in the reply dated 20.11.2017 filed before us. At no stage, either he passed and communicated the order of withdrawal of the notice to the petitioner. Even the files do not show any such formal withdrawal of the notice with or without communication thereof to the petitioner. The conclusion that we have reached would invariably result in f....
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.... have to follow the judgment of Hon'ble Gujarat High Court which favours the assessee and therefore, we do not examine the applicability of these two judgments cited by ld. DR of revenue having been rendered by Hon'ble Allahabad High Court and Hon'ble Kerala High Court. In view of this decision that the assessment order is void-ab-initio, other grounds raised by the assessee in this appeal have become infructuous and no adjudication is called for." 47. Being so, in our opinion, no further notice for reassessment could be issued unless an earlier notice u/s. 148 was culminated by framing assessment or closing the further action for framing assessment in accordance with law. Accordingly, we are of the opinion that the second reassessment notice issued on 148 on 4.7.2017 cannot be proceeded with and the assessment framed consequent to this notice is bad in law. ITA NO.3385/Bang/2018 (AY 2011-12) 48. The assessee has filed additional ground as follows :- "The ld. AO has erred in completing the scrutiny assessment for the AY 2011-12 u/s. 143(3) r.w.s. 147 dtd: 08.11.2017 of the Act without issue of mandatory notice u/s. 143(2) of the Act as a result of which the Assessm....
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.... sheet entry, the notice u/s. 143(2) has been issued along with show cause notice fixing the hearing on 6.10.2017 and she filed copies of order sheet entries. 54. We have carefully gone through the relevant order sheet entry dated 26.9.2017 and 27.9.2017. However, physical copy of notice u/s. 143(2) is not made available to the Bench. Being so, under these circumstances, we are not in a position to hold that there was issue of notice u/s. 143(2) to the assessee before completion of assessment for AY 2010-11. Relying on the judgments of the Hon'ble Supreme Court in the case of Hotel Blue Moon (supra) and CIT v. Laxmandas Khandelwal (supra) on this issue, the assessment cannot be upheld. The additional ground is allowed. 55. On the additional ground with regard to notice u/s 148 of the Act, the ld. AR submitted as follows:- "1 The AR of the Appellant Company in obedience to the directions of the Hon'ble ITAT has inspected the Assessment Records for the A. Y 2011-12 in the office of the Departmental Representative on 08-02-2021. The events observed during Inspection of records are submitted as under. i. A Proposal dtd: 14-03-2017 for approval for issue of Notice u/s. 148....
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....ome. 3.3 The Appellant Company begs to place reliance on the decision of the Delhi High Court in the case of United Electrical Co. P. Ltd v/s. CIT and others (2002) 258 ITR 317 (Del), wherein it has been held that the competent authority is not entitled to grant approval causally or in a routine manner without application of mind. In this view of the matter the Pr. CIT was not justified to issue the approval dtd: 23-03-2017 upon which a Notice u/s. 148 dtd: 27-03-2017 was issued and despatched on 27-06-2017 which was barred by limitation of time. Therefore the assessment for the A. Y 2010-11 is not sustainable in law and more so the reasons recorded were based on the material already available on records and not on the basis of any new material evidence which lead to form a opinion as to the escapement of income chargeable to tax." 56. The ld. DR submitted that as per the available assessment records, no such notice dated 21.11.2016 was issued to asse, but notice u/s. 148 dated 27.3.2017 was issued to assessee and furnished a copy of the same. According to the ld. DR, as per the copy of proposal it could be seen that proposal was made under section 147 (b) of the Act and not und....
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.... 27.3.2017, we are of the opinion that the first notice dated 21.11.2016 for AY 2011-12 has not culminated with the framing of assessment or closure of further action for framing the assessment in accordance with law. Accordingly, by placing reliance on the order of Tribunal in M/s. The Archdiocesan Board of Education (supra) the reassessment order is bad in law on this count also. 62. In view of the above discussion, we are of the opinion that reassessment order cannot be sustained. 63. The next additional ground in this appeal is that notice u/s. 148 has been issued only on change of opinion since all the issues are considered in the original assessment. We have heard both the parties on this issue. The issue taken up by the AO in reopening assessment is with regard to low net profit margin and disallowance of interest on account of diversion of funds to sister concern, Smilex Labs Pvt. Ltd. These issues are not subject matter of original assessments, being so, it cannot be said that there is change of opinion to reopen the concluded assessment on the basis of notice u/s. 148 of the Act. ITA No.3386/Bang/2018 (AY 2012-13) 64. The assessee has filed additional ground as follow....
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....ated 21.11.2016 as reproduced above and there is no merit in the argument of the ld. DR that that there is no such notice dated 21.11.2016 and only there was a notice dated 23.11.2016. Being so, we are of the opinion that the first notice dated 21.11.2016 for AY 2012-13 has not culminated with the framing of assessment or closure of further action for framing the assessment in accordance with law. Accordingly, by placing reliance on the order of Tribunal in M/s. The Archdiocesan Board of Education (supra), the reassessment order is bad in law on this count also. 72. The next additional ground in this appeal is that notice u/s. 148 has been issued only on change of opinion since all the issues are considered in the original assessment. We have heard both the parties on this issue. The issue taken up by the AO in reopening assessment is with regard to low net profit margin and disallowance of interest on account of diversion of funds to sister concern, Smilex Labs Pvt. Ltd. These issues are not subject matter of original assessments, being so, it cannot be said that there is change of opinion to reopen the concluded assessment on the basis of notice u/s. 148 of the Act. ITA No.3387....
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.... 21.11.2016 was issued to the assessee and the notice u/s. 148 dated 23.11.2016 only was issued to the assessee, after getting approval from the competent authority. 80. After hearing both the parties, we are of the opinion that there was issue of notice u/s. 148 dated 21.11.2016 as reproduced above and there is merit in the argument of the ld. DR that that there is no such notice dated 21.11.2016 and only there was a notice dated 23.11.2016. As seen from the order sheet entry on 23.11.2016 there was approval for issue of notice u/s. 148 for the AY 2013-14 by Addl. CIT, Range 7(1) on 23.11.2016 only which is reproduced below :- 81. This is supported by the corresponding order sheet entry date 23.11.2016 as follows :- 82. Being so, we are of the opinion that notice u/s. 148 was issued to the assessee on 21.11.2016 i.e., before getting approval from Addl. CIT, Range 7(1). As such, assessment framed on the basis of such notice u/s. 148 is bad in law. 83. The next additional ground in this appeal is that notice u/s. 148 has been issued only on change of opinion since all the issues are considered in the original assessment. We have heard both the parties on this issue. The issue ta....