TaxTMI 
TaxTMI 
2026 (7) TMI 338
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....the assessee had filed its return of income for the impugned assessment year declaring total income of Rs. 35,06,53,550/-. Notice u/s. 148 of the Act was issued for reopening the case of the assessee and subsequently assessment was framed making addition of Rs. 74,64,822/- on account of low GP @ 0.25 of the gross turnover Rs. 11,83,044/- on account of contract charges paid without effecting TDS and Rs. 18,73,024/- on account of belated PF deposits. Resultant, the income of the assessee was assessed at Rs. 36,11,74,440/-. 4. Aggrieved by the order of the Assessing Officer (AO), the assessee carried the matter before the Ld. CIT(A), who dismissed the assessee's appeal in limine on account of non-participation of the assessee in appellate proceedings. The Ld. CIT(A) held that he found no reason to interfere with the findings of the AO. 5. Aggrieved by the order of the Ld. CIT(A), the assessee has now come in appeal before us raising the following grounds: "The Ld. CIT(A) erred in law and on facts in dismissing the appeal of the Appellant without giving proper opportunity of being heard much less appreciating the facts available on record 2. The Ld. CIT(A) erred....
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....r Sales during pre. year Closing the stock Wastage 4. Wastage Kg. 30310 1254963 143960 0 405598 0 8. The AO noted that as per the details of wastage furnished in Point No. 35.bc, (the total of opening stock and purchases less the quantity sold /manufactured during the year,) the closing stock of wastage came to 1141313 Kgs. The assessee, however, reflected only at 40598 Kgs. and, therefore, of 1100715 Kgs. was noted to be the understated closing stock which was valued at Rs. 61.28 lakhs. Finding the assessee to have reflected the closing stock only at 2.18 lakhs, the AO noted the assessee has understated the closing stock of Rs. 61.28 lakhs. The assessee, however, contended that there was no linear correlation between the details furnished in point no. 35.bc of the tax audit report. That, the scrap generated was reused in the manufacturing process of the assessee. That to the extent the stock of scrap was found short, the same was actually consumed in the manufacturing process of the assessee, being sent to three job-workers for the said purpose. The names of the parties/job-workers to whom it was sent along with their confirmations were filed....
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....in response to notice u/s. 148A(b) of the Act, placed before us, at page Nos. 4 to 6 of the paper-book are as under:- "Shakti Polyweave Private Limited 801, Narnarayan Complex, Opp. Navrangpura Post Office, Navrangpura, Ahmedabad 380 009 (INDIA) Telefax # +91 7926442149, 26560115 Email # [email protected] CIN U17110GJ1997PTC033436 PAN: AACCS 1107 M To Circle 4 (1)(1) Ahmedabad Dear Sir, Subject: Escaped Assessment for A.Y. 2018-19 under clause (b) of Section 148A of the IT Act, 1961 Ref:-Your office notice no ITBA/AST/F/148A (SCN)/2021-22/1041122099(1) dated 21.03.2022 u/s. 148 A of IT Act, 1961 We are in receipt of notice from your honor issued u/s. 148A of the Act for AY 2018-19. We would like to submit at the outset that there is no wastage claimed by the assessee. The attention of your honor is drawn to Tax Audit Report last column where Shortage/excess, if any is "0" that following reply to the issue raised by you. It is because the plastic waste that is generated during the manufacturing process are reprocessed to granules & reintroduced in the manufacturing process & it is wrong to presum....
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....essee was dealing in technical textile products, such as, HDPE/LDPE laminated/unlaminated fabrics. The waste generated during manufacturing process was recycled and reprocessed in form of Granules or finished goods. That, during the impugned year, the alleged understated wastage as per the figures reported in point No. 35.bc of the tax audit report, were in fact, the reprocessed waste used for production. That this quantity was included in point no. 35.ba(2) under raw-material "Consumption during the previous year". That, in point No. 35.bc pertaining to scrap, there was no option of disclosing reprocessed scrap and, therefore, the same was not reflected therein. 10.2 Thereafter, she pointed out that vide response dated 28/03/2022, the assessee submitted evidences of reprocessing of wastage to the tune of 11.00,715 Kgs. by submitting a chart containing complete details of the job-workers and invoices substantiating the quantity of plastic wastage reprocessed by them. Sample copies of invoices, in support of the same was also submitted and it was pointed out that the aggregate of the invoices came to 11,04,710 Kgs. which tallied with the quantity noted to be understated in the ta....
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....pliance with generally accepted accounting standards. This particular quantity represents reprocessed granules and has been reintroduced in the production process & effectively utilized as raw material in the manufacturing process c) I certify that the manufacturing process generates 2 types of wastage i.e. (1) waste which cannot be reprocessed (normal loss/consumables etc.) and (2) waste which can be further reprocess back as granules. The second type of wastage is being reprocessed through job worker and converted into reprocess granules. The said reprocessed granules is again used in the manufacturing of finished products. The conversion of waste into reprocess granules also generates some waste and invisible loss d) In Sr No. 35bc, we have shown 1254963 kg as purchase which is actually waste generated at the time of converting raw materials into semi/finished goods from our own manufacturing process and out of job worker process. The quantity manufactured from waste as reprocessed granules is 1100715 kg which arrives as under:- Sr No Particulars Qty in Kg 1 Opening Stock of Waste 30310 Add 2 Waste Generated during....
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.... the alleged understated stock was furnished by the assessee substantiated with documentary evidences. He was also unable to point out on facts the infirmity noted by the AO in the explanation of the assessee as above or in the documentary evidences submitted by the assessee. The only infirmity noted by the AO with respect to the same in the assessment order is that the amounts of scrap reprocessed by the job-workers as certified by them did not tally with the amounts certified by the CA in his Certificate. There is no specific instance of such discrepancy noted in the assessment order, however, we have gone through the contents of the CA's certificate and the certificate furnished by the job-workers, and we find no anomaly in figure of wastage processed by them. It is abundantly clear, therefore, that the assessee had clearly demonstrated that there was no case of understated stock of wastage . 12. In the light of the same, we agree with the Ld. Counsel for the assessee that there was no reason at all for rejecting the books of accounts of the assessee and estimating the GP earned by the assessee. The rejection of books of accounts by the AO is, therefore, set aside so also as ....
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....2011) 336 ITR 131 (Delhi) and the decision of Hon'ble Bombay High Court in the case of Jet Airways (India) Ltd. reported in (2011) 331 ITR 236(Bom). 18. We find merit in the contention of the Ld. Counsel for the assessee. There is no dispute with proposition of law laid down by the Hon'ble Delhi High court in the case of Ranbaxy(supra) and the Hon'ble Bombay High Court in the case of Jet Airways(supra) that where the basis of reopening the case of the assessee is found not to exist the AO cannot make addition on any other issue, which did not form the basis for reopening the case .The fundamental principle recognized being that the AO's jurisdiction to frame assessment u/s. 147 of the Act is ousted the moment his basis for reopening the case ceases to exist. 19. Having said case the peculiar facts of the present case are that though the AO made addition of the income noted by him to have escaped assessment in his reasons recorded, however the same stand deleted in appeal. The question before us is that, in such facts and circumstances will the proposition laid down by the Hon'ble Delhi and Hon'ble Bombay High court still apply. The answer to the same is in the affirmative. Th....
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....e-tax has escaped assessment. Apart from above, assessee has also claimed deduction u/s. 54 amounting to Rs. 3,77,65,215/- & Rs. 1,70,00,000/- by making investment in two capital assets (new property) whereas deduction u/s. 54 is allowable for only one property. In view of this, the assessee has claimed excess deduction u/s. 54 which is liable to be withdrawn and taxed. In view of this, I have reason to believe that income as mentioned above has escaped assessment and accordingly proceedings u/s. 147 of the Income-tax Act, 1961 are initiated. Notice u/s. 148 of the Income-tax Act, 1961 is being issued." 28. It is clear from the above, that the AO had reinitiated the assessment proceedings for two reasons. First, that the deduction under Section 54EC of the Act was in excess of Rs.50,00,000/- which according to the AO was not permissible. And second, that the Assessee had claimed deduction under Section 54 of the Act on account of investments made in two properties: Rs.3,77,65,215/- for purchasing a flat at Mumbai [new asset] and Rs.1,70,00,000/- for construction of the one half share of the subject property retained by the Assessee. According to ....
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....ssment proceedings. We consider it apposite to set out the following extract of the said decision: "17. Now, coming back to the interpretation which was given by the Bombay High Court to sections 147 and 148 in view of the precedent on the subject, the court held as under (pages 243 and 247 of 331 ITR): "Interpreting the provision as it stands and without adding or deducting from the words used by Parliament, it is clear that upon the formation of a reason to believe under section 147 and following the issuance of a notice under section 148, the Assessing Officer has the power to assess or reassess the income which he has reason to believe had escaped assessment, and also any other income chargeable to tax. The words 'and also' cannot be ignored. The interpretation which the court places on the provision should not result in diluting the effect of these words or rendering any part of the language used by Parliament otiose. Parliament having used the words 'assess or reassess such income and also any other income chargeable to tax which has escaped assessment', the words 'and also' cannot be read as being in the alternative. On the contrary,....
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....not independently assess the latter. .. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ('such income') which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee." 18. We are in complete agreement with the reasoning of the Division Bench of the Bombay High Court in the case of CIT v. Jet Airways (I) Limited (2011) 331 ITR 236 (Bom). We may also note that the heading of section 147 is "income escaping assessment" and that of section 148 "issue of notice where income escaped a....
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....scaped assessment, once it is found that the reassessment power had been validly invoked, the power of the AO would not stand confined only to those aspects which may have been noticed in the original notice issued under Section 148 of the Act but would also extend to any other income which may be found to be exigible to tax. 24. This clearly appeals to reason, since Section 147 of the Act embodies a power to assess, reassess as well also to recompute. Consequently, and once that power is validly invoked, the original assessment would cease to exist in the eyes of law. Undoubtedly, once an assessment already made comes to be reopened, the AO stands empowered statutorily to undertake an assessment afresh in respect of the entire income which may have escaped assessment. However, the only additional caveat which Ranbaxy Laboratories Ltd. enters is with respect to a situation where, in the course of reassessment, the AO ultimately comes to the conclusion that no additions or variations were warranted in respect of the heads or items of income which had formed the basis for initiation of action under Section 148 of the Act. It is in the aforesaid backdrop that the Court in Ran....
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....essment." 9. Support was also drawn from the decision of the Rajasthan High Court in CIT v. Shri Ram Singh (2008) 306 ITR 343 (Raj) wherein judgment of this court in Atlas Cycle Industries' case (1989) 180 ITR 319 (P&H) was followed." Xxxx xxxx xxxx 12. A plain reading of Explanation 3 to section 147 clearly depicts that the Assessing Officer has power to make additions even on the ground on which reassessment notice might not have been issued in case during the reassessment proceedings, he arrives at a conclusion that some other income has escaped assessment which comes to his notice during the course of proceedings for reassessment under section 148 of the Act. The provision nowhere postulates or contemplates that it is only when there is some addition on the ground on which reassessment had been initiated, that the Assessing Officer can make additions on any other ground on the basis of which income may have escaped assessment. The reassessment proceedings, thus, in the present case cannot be held to be vitiated. 36. This court has, in a recent decision in Pr. Commissioner of Income Tax-7 v. Sunlight Tour and Travels Pvt. Ltd. 2024 SCC OnL....
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....n opportunity to cross examine them and the alleged incriminating material /information/ details of enquiries conducted etc. despite specifically demanded by the Appellant and thus, the reassessment proceedings are bad in law. 5 Without prejudice to the above, the Ld. CIT(A) further erred in law and on facts in confirming the disallowance of claim of Deduction made u/s. 80G of Rs. 13,25,500/- without appreciating that the AO has made double disallowance. 6. The Appellant craves leave to add, amend, delete or alter one or more grounds of appeal." 22. The Ld. Counsel for the assessee, at the outset, contended that her only grievance is with respect to the disallowance of deduction made u/s. 80G of the Act amounting to Rs. 13,25,500/-. Remaining grounds, i.e Ground Nos. 1 to 4 were not pressed and it was only Ground No. 5 which was stated to be pressed before us. 23. Drawing our attention to the facts of the case, Ld. Counsel for the assessee stated that the disallowance u/s. 80G of the Act included the following: Sl. No(s) Particulars Amount (Rs.) 1. Donation made to All India Social Education Charitable Trust 2,50,000/- 2. Donation mad....