The ITO, Ward-3(2),, Surat v. M/s. Dutta Construction, Surat

ITA 2013/AHD/2008 | 2004-2005
Pronouncement Date: 21-01-2011 | Result: Dismissed

Appeal Details

RSA Number 201320514 RSA 2008
Bench Ahmedabad
Appeal Number ITA 2013/AHD/2008
Duration Of Justice 2 year(s) 7 month(s) 23 day(s)
Appellant The ITO, Ward-3(2),, Surat
Respondent M/s. Dutta Construction, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 21-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 21-01-2011
Date Of Final Hearing 05-01-2011
Next Hearing Date 05-01-2011
Assessment Year 2004-2005
Appeal Filed On 28-05-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI MAHAVIR SINGH JUDICIAL MEMBER AND SHRI D. C. AGRAWAL ACCOUNTANT MEMBER ITA NO.2013/AHD/2008 ASSESSMENT YEAR :2004-05 DATE OF HEARING:5.1.11 DRAFTED:6.1.11 INCOME TAX OFFICER WARD-3[2] SURAT V/S . M/S. DUTTA CONSTRUCTION A/2-11 B-13 TIRUMALA COMPLEX B/H. BHULKA BHAVAN SCHOOL ADAJAN ROAD SURAT PAN NO.AADFD0026E (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SMT. SUMIT KAUR DR RESPONDENT BY:- SHRI M.J. SHAH AR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE REVENUE IS ARISING OUT OF THE O RDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-II SURAT IN APPEAL NO.CAS/ II/433/06-07 DATED 29-02- 2008. THE ASSESSMENT WAS FRAMED BY ITO WARD-3(2) U /S143(3) R.W.S. 147 OF THE INCOME-TAX ACT 1961 (HEREINAFTER REFERRED TO A S THE ACT) VIDE HIS ORDER DATED 28-12-2007 FOR ASSESSMENT YEAR 2004-05. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN DELETING IN QUASHING THE NOTICE U/S.148 OF THE A CT MADE BY ASSESSING OFFICER. ITA NO.2013/AHD/2008 A.Y.2 004-05 ITA WD-3(2) SRT V. M/S. DUTTA CONSTRUCTION PAGE 2 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT ASSESSEE IS ENGAGED IN THE BUSINESS OF FABRICATION AND CIVIL MAINTENANC E WORK ON JOB WORK BASIS MAINLY FOR L & T LTD. AS ALSO FOR CERTAIN OTHER COM PANIES. THE ASSESSEE ON RECEIPT OF THE NOTICE U/S 148 OF THE ACT THE ASSESS EE HAD REQUESTED FOR A COPY OF THE REASONS RECORDED BEFORE ISSUING SUCH NOTICE VIDE LETTER DATED 17-10- 2007 AND ASSESSING OFFICER HAD FURNISHED THE FOLLOW ING REASONS:- IN THIS CASE RETURN OF INCOME WAS FILED ON 1.11.2 004 DECLARING TOTAL INCOME AT RS.3 11 475. THE SAME WAS PROCESSED U/S 1 43(1) OF THE ACT ON 2.3.2005. DURING THE YEAR ASSESSEE HAS SHOWN TO TAL LABOUR JOB WORK RECEIPT OF RS.1 61 19 639 AND GROSS PROFIT OF RS.38 91 171 IN TERMS OF PERCENTAGE AT 24.14% AND NET PROFIT AT1.93% THE N.P . DECLARED IS VERY LOW WHICH REQUIRES VERIFICATION. THEREFORE I HAVE REASON TO BELIEVE THAT THIS IS A FIT CASE FOR RE-OPENING. LD. COUNSEL FOR ASSESSEE STATED THAT THE REOPENING OF THE ASSESSMENT WAS BAD IN LAW AND ASSESSMENT HAD BEEN REOPENED ONLY ON THE GROUND THAT THE NET PROFIT DECLARED DURING THE YEAR WAS VERY LOW AN D THAT IT REQUIRED VERIFICATION THE REASON RECORDED BY AO WAS VERY VAGUE AND UNSUBS TANTIATED. WHILE THE ASSESSMENT HAD BEEN REOPENED ON THE BASIS OF AN AUD IT OBJECTION AND AS HELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF RAJAN LEASING & FINANCE LTD. (SUPRA) PROCEEDINGS U/S147 CANNOT BE INITIATED ON THE BASIS OF THE AUDIT REPORT AND HE SUBMITTED THAT REASSESSMENT BE QUASHED AS IT WAS BAD IN LAW. WE FIND THAT CIT(A) HAS CONSIDERED THIS ISSUE AS UNDER:- 5. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS. I HAVE ALSO DISCUSSED THE MATTER WITH THE AO WHO PASSED THE IMPUGNED ORDE R. HE HA ACCEPTED THE FACT THAT THE REASSESSMENT PROCEEDINGS WERE INITIATED BECAUSE OF AN AUDIT OBJECTION. THERE ARE TOW ASPECT S TO THIS ISSUE. FIRSTLY WHETHER THE ASSESSMENT COULD BE REOPENED O N THE BASIS OF AN AUDIT OBJECTION AND SECONDLY WHETHER THERE WAS ANY APPLICATION OF MIND BY THE AO. IN THE CASE OF INDIAN & EASTERN NEWS] PAPER SOCIETY LTD. VS. CIT (1979) 119 ITR 996 THE HON. SUPREME COURT HELD THA T THE INFORMATION OF THE AUDIT PARTY ON A POINT OF LAW CA NNOT BE THE BASIS FOR ITA NO.2013/AHD/2008 A.Y.2 004-05 ITA WD-3(2) SRT V. M/S. DUTTA CONSTRUCTION PAGE 3 INITIATING REASSESSMENT PROCEEDINGS. IT WAS HELD TH AT THE OPINION OF THE AUDIT PARTY IS STILL AN OPINION BUT IS NOT INFORMA TION WHICH IS GOOD ENOUGH TO JUSTIFY THE REOPENING OF THE ASSESSMENT. THIS VIEW OF THE HON. SUPREME COURT WAS FOLLOWED IN CIT VS. MUITTUR CHEMICALS AND INDUSTRIAL CORPN. (2000) 242 ITR 119 (MAD). THE HON. SUPREME COURT THEN REITERATED THE VIEW TAKEN IN INDIAN & EASTERN NEWS PAPER SOCIETY LTD. IN THE CASE OF CIT VS. LUCAS TVS LTD. (2001) 249 ITR 306 WHERE THE HON. SUPREME COURT THEN REITERATED THE VIEW TAK EN IN INDIAN & EASTERN NEWS PAPER SOCIETY LTD. IN THE CASE OF CIT VS. LUCAS TVS LTD. (2001) 249 ITR 306 WHERE THE HON. COURT OBSERVED T HAT AN AUDIT OBJECTION IN THE ABSENCE OF ANY OTHER INFORMATION COULD NOT JUSTIFY ARE OPENING OF AN ASSESSMENT. EVEN THOUGH THIS JUDGEMEN T WAS DELIVERED IN THE CONTEXT OF THE PRE-AMENDED PROVISIONS OF SEC .147(3) THIS POSITION OF LAW CONTINUES EVEN UNDER THE AMENDED PROVISIONS W.E.F. THE ASSESSMENT YEAR 1989-90. IT WAS ALSO HELD THAT IF T HE AUDIT PARTY DRAWS THE ATTENTION OF THE AO TO THE CORRECT POSITION OF LAW IT COULD BE A BASIS FOR REASSESSMENT AS WAS HELD IN THE CASE OF CIT VS. ASSEMBLY ROOMS (2000) 242 ITR 64 (MAD). VARYING SLIGHTLY FROM THE DECISION OF THE HON. SUPREME COURT IN INDIAN NEWS EASTERN NEWS PAPER SOCIETY LTD A ALSO IN LUCAS TVS LTD. IT HAS BEEN HELD BY CERTAIN HIGH COURTS THAT IN SP ITE OF THE AUDIT OBJECTION IF THE AO APPLIES HIS OWN MI ND AND COMES TO THE CONCLUSION THAT REOPENING IS NECESSARY THEN PROCEED INGS U/S.147 CANNOT BE QUESTIONED. THIS VIEW HAS BEEN EXPRESSED IN THE FOLLOWING CASES: 1. CIT V. JUHI METAL WORKS (2003) 263 ITR 287 (ALL ) 2. INDIRA DEVI V. CIT (1994) 210 ITR 537 (MAD) 3. TUBE SUPPLIERS V. CIT (1995) 216 ITR 596 (MAD) 4. NEW LIGHT TRADING CO. V. CIT (2002) 256 ITR 391 (DEL) 5.1 THUS WHERE THERE IS NO APPLICATION OF MIND ON T HE PART OF THE AO THE NOTICE FOR REASSESSMENT CANNOT BE JUSTIFIED. TH IS WAS HELD IN ITA NO.2013/AHD/2008 A.Y.2 004-05 ITA WD-3(2) SRT V. M/S. DUTTA CONSTRUCTION PAGE 4 TRANSWORLD INTERNATIONAL INCOME. V. JCIT (2005) 273 ITR 242 (DEL). WHAT EMERGES FROM THE VIEWS EXPRESSED BY THE HON. C OURTS IS THAT FIRSTLY REASSESSMENT IS NOT JUSTIFIED IF THE AO A CTS PURELY ON AN OBJECTION RAISED BY THE AUDIT PARTY WITHOUT APPLYIN G HIS OWN MIND. IN THE CASE OF ASSESSEE WHILE RECORDING THE REASONS FOR R EOPENING THE AO MERELY REPRODUCED THE OBJECTION RAISED BY THE AUDIT PARTY. THERE WAS ABSOLUTELY NO APPLICATION OF HIS OWN MIND NOR DID T HE AUDIT PARTY POINT OUT EITHER ANY FACTUAL ERROR OR THE CORRECT POSITIO N OF LAW. THE ONLY GROUND WAS THAT THE NET PROFIT DISCLOSED BY THE AS SESSEE AS COMPARED TO THE TOTAL TURNOVER WAS LOW AT 1.93% WHICH REQUI RED VERIFICATION. THERE WAS NO SPECIFIC FINDING GIVEN THAT A PARTICUL AR INCOME UNDER A PARTICULAR HEAD HAD ESCAPED ASSESSMENT. SEC. 147 OF THE IT ACT BEGINS WITH THE WORDS IF THE AO HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAP ED ASSESSMENT FOR ANY ASSESSMENT YEAR HE MAY . IT IS ABSOLUTELY CLEAR THAT IT IS THE AO WHO HAS TO HIMSELF ENSURE THAT INCOME ASSESSABLE TO TAX HAS ESCAPED ASSESSMENT. FOR THIS PURPOSE HE HAS TO GIV E A SPECIFIC FINDING AS TO HOW INCOME HAS ESCAPED ASSESSMENT. IT HAS BEE N HELD BY THE HON. MADRAS HIGH COURT IN THE CASE OF S. HARINIVAS CHOWDRY V. ASST. CIT (2000) 246 ITR 256 THAT THE INFERENCE OF ESCAPEMENT SHOULD BE CLEARLY INDICATED IN THE GROUNDS FOR REOPENING A CO MPLETED ASSESSMENT. THE REASONS FOR REOPENING MUST BE OBJECTIVE AND NO T VAGUE FARFETCHED OR FANCIFUL. THIS HAS BEEN REPEATEDLY POINTED OUT B Y SEVERAL COURTS. THE EXPRESSION REASON TO BELIEVE CANNOT POSSIBLY COVER CASES BASED UPON VAGUE UNSPECIFIC CONJECTURES AND SURMISES. IN THE CASE OF ASSESSEE THE REASON TO BELIEVE WAS BASED PURELY ON SURMISES AND CONJECTURES SINCE IT ONLY REFERRED TO THE LOW PERCENTAGE OF NE T PROFIT WHICH ACCORDING TO THE AO NEEDED VERIFICATION. IN OTHER WORDS WHAT COULD BE TAKEN UP IN SCRUTINY THE AO SOUGHT TO DO THE SAME BY REOPENING THE ASSESSMENT. IN THE CASE OF VIPAN KHANNA V. CIT (2002) 255 ITR 220 THE PUNJAB & HARYANA HIGH COURT POINTED OUT THAT SE C.147 IS NOT AN ITA NO.2013/AHD/2008 A.Y.2 004-05 ITA WD-3(2) SRT V. M/S. DUTTA CONSTRUCTION PAGE 5 EXTENSION OF THE RIGHT U/S.143(2) OF THE IT ACT. IN THE CASE OF ASSESSEE THE AO HAD NO SPECIFIC INFORMATION NOR DID HE HAVE ANY SPECIFIC GROUND TO REOPEN THE ASSESSMENT. WHAT HE WISHED TO DO WAS ONLY TO CONDUCT FISHING INQUIRIES WHICH WAS NOT PERMISSIBLE AS HEL D BY THE HON. BOMBAY HIGH COURT IN IBM WORDTRADE CORPNH. V. ND BHATT IAC (1982) 138 ITR 742. 5.3 TAKING THE ABOVE DISCUSSION INTO CONSIDERATION IT IS HELD THAT THE AO WAS NOT COMPETENT TO REOPEN THE ASSESSMENT MEREL Y ON THE BASIS OF AN AUDIT OBJECTION ESPECIALLY WHEN THE AUDIT OBJ ECTION ITSELF WAS VAGUE AND BASELESS. IT DID NOT POINT OUT EITHER ANY FACTUAL ERROR OR THE CORRECT POSITION OF LAW. ON THE OTHER HAND THE AO FAILED TO APPLY HIS MIND TO THE ISSUE. HE MERELY SOUGHT TO VERIFY THE N ET PROFIT DISCLOSED BY THE ASSESSEE WHICH ALLEGEDLY WAS VERY LOW. THIS WAS A SUBJECT-MATTER OF PROCEEDINGS U/S.143(2) AND THE REASSESSMENT PROC EEDINGS COULD NOT BE USED AS AN EXTENSION AND/OR SUBSTITUTION FOR SUC H POWER. THE NON- APPLICATION OF MIND BY THE AO AND HIS FAILURE TO RE CORD HIS OWN REASONS HAD VITIATED THE PROVISIONS OF SEC. 147 OF THE ACT. THE REASSESSMENT PROCEEDINGS INITIATED WAS THUS ABSOLUTELY BAD IN LA W AND IS THEREFORE QUASHED. AGGRIEVED REVENUE CAME IN SECOND APPEAL BEFORE TRI BUNAL. 4. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES. WE FIND THAT THE ASSESSING OFFICER H AD RECORDED REASONS FOR REOPENING OF ASSESSMENT THAT HE WANT TO VERIFY THE CORRECTNESS OF NET PROFIT ASSESSED BY HIS PREDECESSOR. WHETHER IN SUCH CIRCU MSTANCES REOPENING IS PERMISSIBLE OR NOT? THIS QUESTION HAS BEEN ANSWERED BY CIT(A) IN HIS ORDER THAT THE ASSESSING OFFICER IS NOT COMPETENT TO REOP EN THE ASSESSMENT MERELY ON THE BASIS OF AN AUDIT OBJECTION ESPECIALLY WHEN THE AUDIT OBJECTION ITSELF WAS VAGUE AND BASELESS. WE FIND THAT EVEN NOW BEFOR E US LD.SR DR COULD NOT FIND OUT ANY FACTUAL ERROR OR ESCAPEMENT OF ANY INCOME WHICH SUGGEST REOPENING. RATHER THE AO FAILED TO APPLY HIS MIND TO THE ISSUE AND MERELY ITA NO.2013/AHD/2008 A.Y.2 004-05 ITA WD-3(2) SRT V. M/S. DUTTA CONSTRUCTION PAGE 6 SOUGHT TO VERIFY THE NET PROFIT DISCLOSED BY THE AS SESSEE WHICH ALLEGEDLY WAS VERY LOW. WE ARE OF THE VIEW THAT CIT(A) HAS RIGHTL Y HELD THAT THIS IS A SUBJECT- MATTER OF PROCEEDINGS U/S.143(2) AND THE REASSESSME NT PROCEEDINGS COULD NOT BE USED AS AN EXTENSION AND/OR SUBSTITUTION FOR SUC H POWER. THE NON- APPLICATION OF MIND BY THE AO AND HIS FAILURE TO RE CORD HIS OWN REASONS HAD VITIATED THE PROVISIONS OF SEC. 147 OF THE ACT. ACC ORDINGLY CIT(A) HAS RIGHTLY QUASHED THE REASSESSMENT PROCEEDINGS AND WE UPHOLD THE SAME. 5. IN THE RESULT REVENUES APPEAL IS DISMISSED ORDER PRONOUNCED IN OPEN COURT ON 21/01/2011 SD/- SD/- (D.C.AGRAWAL) (MAHAVIR SIN GH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD DATED : 21/01/2011 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-II SURAT 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD