Ita/377/2009 Of The Commissioner Of Income Tax v. M/S.parrisons Roller Flour Mills Pvt.ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY, THE 15TH DAY OF MARCH 2018 / 24TH PHALGUNA, 1939 I.T.A.No.377 of 2009 ----------------------------------- AGAINST THE ORDER IN I.T.A.No.191/COCH/2005 DATED 30.06.2005OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN.(ASSESSMENT YEAR 1996-97) ---------------------------------- APPELLANT(S):- THE COMMISSIONER OF INCOME TAX (CENTRAL), COCHIN. BY SR.COUNSEL FOR GOI (TAXES) SRI.P.K.R.MENON & STANDING COUNSEL FOR GOI (TAXES) SRI.JOSE JOSEPH. RESPONDENT(S):- M/S.PARRISONS ROLLER FLOUR MILLS PVT. LTD.,CHEROOTTY ROAD, CALICUT. BY ADVS.SRI.E.K.NANDAKUMAR SRI.P.GOPINATH.. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 15-03-2018,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:- I.T.A.NO.377 OF 2009 APPENDIX APPELLANT'S ANNEXURES:- ANNEXURE A TRUE COPY OF THE RE-ASSESSMENT ORDER. ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OFINCOME TAX (APPEALS).INCOME TAX (APPEALS). ANNEXURE C CERTIFIED COPY OF THE ORDER OF THE INCOME TAXAPPELLATE TRIBUNAL. ANNEXURE D TRUE COPY OF THE LETTER DATED 9.6.1999. ANNEXURE E TRUE COPY OF THE REPORT DATED 20.5.1999. ANNEXURE F TRUE COPY OF THE ASSESSMENT ORDER DATED 30.03.1999FOR THE ASSESSMENT YEAR 1996-97.FOR THE ASSESSMENT YEAR 1996-97. RESPONDENT'S ANNEXURES:- ANNEXURE R1(a)TRUE COPY OF THE LETTER DATED 23.09.1998 SUBMITTED BY THE RESPONDENT BEFORE THE ASSISTANT COMMISSIONER OF INCOME TAX, CALICUT (WITHOUT ENCLOSURES).SUBMITTED BY THE RESPONDENT BEFORE THE ASSISTANT COMMISSIONER OF INCOME TAX, CALICUT (WITHOUT ENCLOSURES). ANNEXURE R1(b)TRUE COPY OF THE ORDER DATED 16.11.1998 ISSUEDBY THE DEPUTY COMMISSIONER OF INCOME TAX, 'CALICUT.BY THE DEPUTY COMMISSIONER OF INCOME TAX, 'CALICUT. ANNEXURE R1(c)TRUE COPY OF THE THE ASSESSMENT ORDER DATED 30.03.1999 ISSUED UNDER SECTION 143(3) BY THE DEPUTY COMMISSIONER OF INCOME TAX (APPEALS), COCHIN.30.03.1999 ISSUED UNDER SECTION 143(3) BY THE DEPUTY COMMISSIONER OF INCOME TAX (APPEALS), COCHIN. ANNEXURE R1(d)TRUE COPY OF THE ORDER DATED 10.11.1999 ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS),COCHIN.BY THE COMMISSIONER OF INCOME TAX (APPEALS),COCHIN. ANNEXURE R1(e)TRUE COPY OF THE ORDER DATED 31.12.2003 IN I.T.A.NO.104/COCH/2000 FOR THE YEAR 1996-97 ISSUED BY THE INCOME TAX APPELLATE TRIBUNAL, COCHINBENCH.NO.104/COCH/2000 FOR THE YEAR 1996-97 ISSUED BY THE INCOME TAX APPELLATE TRIBUNAL, COCHINBENCH. Vku/- [ true copy ] K. Vinod Chandran & Ashok Menon, JJ. ------------------------------------------------------- I.T.A.No.377 of 2009 ------------------------------------------------------- Dated, this the 15[th] day of March, 2018 Vinod Chandran, J: JUDGMENT The appellant-Revenue is aggrieved with the order ofthe Tribunal deleting the additions made on re-assessmentproceedings, initiated under Section 147(1) of the Income TaxAct, 1956 (for brevity “the Act”). The proceedings were initiatedwithin the six year period but beyond four years. Hence,necessarily there ought to have been either failure to make areturn under Section 139 or failure to respond to a notice underSections 142 or 148 or non-disclosure, fully and truly of materialfacts necessary for the assessment. The questions of law raisedare the following:- 1.Whether, on the facts and in thecircumstances of the case and also in the light of thereasoning, approach and conclusion reached by theSupreme Court in 203 ITR 456, the Tribunal is legallyand factually correct in holding that the reassessment iswithout jurisdiction,illegal and time bared. 1.Whether, on the facts and in thecircumstances of the case and also in the light of thereasoning, approach and conclusion reached by theSupreme Court in 203 ITR 456, the Tribunal is legallyand factually correct in holding that the reassessment iswithout jurisdiction,illegal and time bared. 2.Whether, on the facts and in thecircumstances of the case and really and factually thecredits being bogus and the same being factually knownto the Revenue only subsequent to the completion ofthe original assessment, the Tribunal is right in law andfacts in interfering with the reassessment. 3.Whether, on the facts and in thecircumstances of the case and factually and in realitythe credits being bogus will not the finding of theTribunal in paragraph 27 that the 'the Assessee hasproduced every material before the Assessing Officer onthe basis of which the Assessing Officer himself hasconcluded that the said six alleged bogus parties wereregistered dealers and some of the payments weremade by cheques and some by cash” throw light on theignorance and lack of knowledge of the AssessingOfficer reached in the original assessment on the basisof the untrue material produced by the assessee? 4. Whether, on the facts and in the circumstancesof the case the Tribunal is right in law and facts ininterfering with the reassessment? 2. To buttress the contention of a change of opinion as also there being full disclosure of material facts the assesseerespondent has produced Annexure RI(c) original assessmentorder. Hence, the narration of facts should commence from that. Aregular assessment was made under Section 143(3) as perAnnexure R-I(c) computing a total income of Rs.42,48,320/-.There were certain dis-allowances made and what is relevant tothe present appeal is the dis-allowance of 20% of the expenditureunder Section 40A(3) on the ground that the payments weremade in excess of Rs.20,000/- in cash and not by cheque or draft. The said dis-allowance has been over turned by the first appellateauthority. Subsequently re-assessment proceedings were initiated with respect to Rs.63,87,841- which were the payments made tosix dealers allegedly from Tamil Nadu. This was included in thetotal dis-allowance made under Section 40A(3); which totalledRs.2,03,05,505/- as seen from Annexure R-I(c). 3. A notice was issued under Section 148 and thesame related to six specific payments made to six dealers beingM/s: Sree Ram Chandan Traders, C.Subramaniam, GuruswamiCommission Agents, Raghunath Traders, C.Gani & Co. andBarkath Stores. The reassessment was made on the basis of areport dated 26.9.1999 of the Income Tax Officer Tirupur, who hadconducted enquiries about the said six dealers and found them tobe non-existent. The assessee then was required to furnish thedetails of the dealers by a notice under Section 148. Latersummons were issued under Section 31 of the Income Tax Act1961. The said summons were also returned with the postalendorsement that no such addressee is available. The assesseealso failed to produce any documents to prove that the said sixdealers were actually existing dealers. The assessee contentedthat for reason of long lapse of time they were unable to produceany evidence to substantiate the payments having been made to the said six dealers. Additions were made as per Annexure-Areassessment order adding on the said amounts to the totalincome which was successfully challenged in first appeal, by theassessee. The revenue took the matter in second appeal whichwas rejected by the Tribunal. 4. The learned Senior Counsel for the Revenue, the said six dealers. Additions were made as per Annexure-Areassessment order adding on the said amounts to the totalincome which was successfully challenged in first appeal, by theassessee. The revenue took the matter in second appeal whichwas rejected by the Tribunal. 4. The learned Senior Counsel for the Revenue, Shri.P.K.Raveendranatha Menon relied on Phool Chand BajrangLal v. I.T.O. [(1993) 203 ITR 203]. It was argued that there wasnon-disclosure fully and truly of material facts in so far as theassessee having shown in the books of accounts persons whowere not in existence, as dealers from whom the assessee hadpurchased goods. There can also be no contention raised ofchange of opinion since there has been no finding on facts withregard to the existence of the six dealers and only on subsequentinformation received, the re-assessment proceedings were takenup for bringing to tax the income escaped assessment . 5. The learned Counsel appearing for the respondent, however, asserted that reassessment of the assessee in thesubject year, is clearly a case of change of opinion and therecould not be any allegation of non-disclosure fully and truly of material facts. The learned Counsel would take us through theoriginal assessment order and the Tribunal's order to indicate thatthere was a finding that the six dealers were registered dealersand existing in places where there were no banking facilities. It isalso pointed out that the Assessing Officer in a letter addressed tothe assessee, while the regular assessment proceedings werepending, as produced at Annexure R-I(b), had specifically calledfor the details regarding the sundry creditors and there is apresumption that the genuineness of the parties were acceptedby the Assessing Officer. The learned Counsel would rely on twoFull Bench decisions of the Delhi High Court in C.I.T. v.Kelvinator of India Ltd. [(2002) 256 ITR 1 (Delhi)] and C.I.T. v.Usha International Ltd. [(2012) 348 ITR 485 (Delhi)]as also thedecision of the Hon'ble Supreme Court in Asst.CIT v. ICICISecurities Primary Dealership Ltd. [2012] 348 ITR 299. 6. The thrust of the arguments of the assessee isbased on the original assessment order which is produced asAnnexure R-I(c). Admittedly, there was a discussion between theAssessing Officer and assessee regarding the payments madeotherwise than by cheque or drafts amounting to Rs.2,03,05,505/-. The issue was discussed only in the context ofthe dis-allowance proposed under Section 40A(3). The assesseeoffered an explanation that the payments were made at placeswhere no bank facility was available. However, the AssessingOfficer found that there was no evidence furnished to show theabsence of banking facilities. The specific reliance placed is onthe statement. “All the above payments have been made to a fewregistered dealers of wheat at Tamil Nadu and they are all locatedin towns with bank facilities” (sic-para-3 of Ann:R-1(c)). Obviously,the finding of the Assessing Officer was on the submission ofassessee that they were registered dealers and looking at theiraddresses, as supplied in response to Annexure R-1(b); whichindicated the towns where there exist banking facilities. 7. It cannot be said that there was any enquiry on theaspect of the existence as such of the said six dealers or anyother dealers to whom payments were made in excess of Rs.20,0000/- by cash. The issue discussed was only with respect tothe dis-allowance under Section 40A(3); of having paid amountsin excess of Rs.20,000/-, otherwise than by cheque; which wasexplained by the assessee to be for reason of lack of access to banking facilities. We do not think that there is any finding orenquiry as to the existence or genuineness of the dealers towhom the payments were said to have been made. 8. The additions were deleted by the first appellate 7. It cannot be said that there was any enquiry on theaspect of the existence as such of the said six dealers or anyother dealers to whom payments were made in excess of Rs.20,0000/- by cash. The issue discussed was only with respect tothe dis-allowance under Section 40A(3); of having paid amountsin excess of Rs.20,000/-, otherwise than by cheque; which wasexplained by the assessee to be for reason of lack of access to banking facilities. We do not think that there is any finding orenquiry as to the existence or genuineness of the dealers towhom the payments were said to have been made. 8. The additions were deleted by the first appellate authority in an appeal from the regular assessment. It is based onthe aforementioned statements made in the assessment order,that the Tribunal allowed the claim of the assessee affirming theorder of the first appellate authority. The Tribunal has found thatthe Assessing Officer, at the time of original assessment hadmade detailed enquiries in respect of payments made to the sixparties and made dis-allowances in respect of cash paymentsunder Section 40A(3). We do not think such an enquiry wasmade at the time of assessment especially when the dis-allowance of 20% of expenses was for reason of the expenditureotherwise than by cheque or draft and not on any suspicion raisedof the existence of the dealers. 9. There never arose a question of the genuineness or existence of the dealers, to whom such payments in cash weremade at the time of regular assessment. What can be discernedfrom a reading of the assessment order, at best, is that the Assessing Officer found the towns, in which the dealers were saidto be existing, having proper banking facilities. The question to bedecided was only as to whether there was any reason why thepayments were made in cash and not by cheque or draft. Thisdoes not necessarily require an enquiry as to the genuineness ofthe dealers and the finding was only as against the contentionsraised by the asseessee that cash payments were necessitatedonly for the reason of there being no access to bank facilities. Wedo not think that the Tribunal was correct in arriving at a findingthat detailed enquiries were made with respect to the dealers atthe time of original assessment. 10. The Tribunal has noticed the report made by theITO at Tirupur based on which the reassessment proceedingswere initiated. The Tribunal has frowned upon the AssessingOfficers delay in so far as action taken on the report of the ITOdated 26.09.1999; much later on 26.8.2002. We also see thatthere is considerable delay and if the reassessment proceedingswere initiated immediately, then necessarily there would havebeen no question of non-disclosure, since then the action wouldhave been justified, for mere escapement of income, without anything more, within the limitation period of four years.However, if there is non-disclosure fully and truly of material factsfor assessment purposes, then despite the fact that there was adelay occurred in acting upon the report; if the period of six yearshas not elapsed, the proceedings cannot fall foul on the aspect ofdelay or limitation. In the present case there is no ground that theperiod of six years have elapsed. 11. Phool Chand Bajrang Lal was almost on similarfacts. The assessee-firm had claimed borrowings from a CalcuttaCompany of Rs.50,000/-, which was entered in its books ofaccounts. The I.T.O. completed the assessment for the subjectyears accepting the genuineness of the loan and allowingdeduction of the interest. Thereafter on enquiry, the I.T.O. havingjurisdiction to assess the Calcutta Company informed theassessee's I.T.O. that the Managing Director of the CalcuttaCompany had made a confession to the effect that the Companywas only a name lender and had never advanced any loan to anyperson. Based on this information, proceedings were taken forre-assessment, which were upheld by the Supreme Court. 12. The reliance placed by the assessee is on two Full 11. Phool Chand Bajrang Lal was almost on similarfacts. The assessee-firm had claimed borrowings from a CalcuttaCompany of Rs.50,000/-, which was entered in its books ofaccounts. The I.T.O. completed the assessment for the subjectyears accepting the genuineness of the loan and allowingdeduction of the interest. Thereafter on enquiry, the I.T.O. havingjurisdiction to assess the Calcutta Company informed theassessee's I.T.O. that the Managing Director of the CalcuttaCompany had made a confession to the effect that the Companywas only a name lender and had never advanced any loan to anyperson. Based on this information, proceedings were taken forre-assessment, which were upheld by the Supreme Court. 12. The reliance placed by the assessee is on two Full Bench decisions of the Delhi High Court in Kelvinator of IndiaLtd. and Usha International Ltd. The question posed before theFull Bench was as to whether a mere change of opinion by theI.T.O. could lead to an action under Section 147 forreassessment. In Kelvinator of India Ltd, the reassessment wasproposed inter alia seeking to disallow rent and depreciation,which were earlier allowed under Section 30 and 32 of the IT Actin regular assessment. The re-assessment was made confirmingthe addition of the rent and depreciation relying also upon theorder of the Commissioner of Income Tax (Appeals) for theassessment year 1986-87, the previous assessment year. It wascontended by the Department that the reassessment was also onthe basis of the tax audit report. The Full Bench of the Delhi HighCourt found that the assessment was re-opened on 20.04.1990,whereas the first appellate authority's order was on 27.07.1990. Insuch circumstance, there was no possibility of the re-openinghaving been made on the basis of the first appellate authority'sorder, which was later to the re-opening. It was also found that thetax audit report was already available in the files and, hence,there could not have been a re-opening on that basis. While setting aside the re-opening, a reservation was made in thefollowing words: “We, however, may hasten to add that if “reason tobelieve” of the Assessing Officer is founded on aninformation which might have been received by theAssessing Officer after the completion of assessment, it maybe a sound foundation for exercising the power undersection 147 read with section 148 of the Act”. In the present case, admittedly the re-opening was on the basis ofthe report of the I.T.O., Tirupur, which informed the AssessingOfficer that the dealers to whom payments were said to havebeen made in cash, were bogus. 13. Usha International Ltd. laid down the following guidelines: “(1) Reassessment proceedings can be validly initiated in casereturn of income is processed under section 143(1) and noscrutiny assessment is undertaken. In such cases there isno change of opinion.return of income is processed under section 143(1) and noscrutiny assessment is undertaken. In such cases there isno change of opinion. (2) Reassessment proceedings will be invalid in case theassessment order itself records that the issue was raisedand is decided in favour of the assessee. Reassessmentproceedings in the said cases will be hit by the principle of“change of opinion”.assessment order itself records that the issue was raisedand is decided in favour of the assessee. Reassessmentproceedings in the said cases will be hit by the principle of“change of opinion”. (3) Reassessment proceedings will be invalid in case an issueor query is raised and answered by the assessee in originalor query is raised and answered by the assessee in original (2) Reassessment proceedings will be invalid in case theassessment order itself records that the issue was raisedand is decided in favour of the assessee. Reassessmentproceedings in the said cases will be hit by the principle of“change of opinion”.assessment order itself records that the issue was raisedand is decided in favour of the assessee. Reassessmentproceedings in the said cases will be hit by the principle of“change of opinion”. (3) Reassessment proceedings will be invalid in case an issueor query is raised and answered by the assessee in originalor query is raised and answered by the assessee in original assessment proceedings but thereafter the AssessingOfficer does not make any addition in the assessmentorder. In such situations it should be accepted that theissue was examined but the Assessing Officer did not findany ground or reason to make addition or reject the standof the assessee. He forms an opinion. The assessment willbe invalid because the Assessing Officer had formed anopinion in the original assessment, though he had notrecorded his reasons”. 14. The Full Bench in Usha International Ltd. followed Kelvinator of India Ltd., which was upheld by theSupreme Court. The expression “change of opinion” was found topostulate formation of an opinion and then a change thereof. Itwas found that merely because an opinion was not expressed inthe assessment order, that would not entitle the Assessing Officerto reopen it and contend that there is no change of opinion. It washeld that, experience shows that the Assessing Officers doexamine several aspects and raise queries, but when the writtenopinion is expressed in the form of an assessment order, therewould be no discussion or elucidation on certain aspects andissues, which has been discussed with the assessee and held inthe assessee's favour. The assessee is not the author of the assessment order and, hence, he could not be held liable to onlythat which is specifically expressed in the assessment order, wasthe finding. However, if new facts, material or information comesto the knowledge of the Assessing Officer, which were not onrecord and available at the time of regular assessment, theprinciple of “change of opinion” was held to be not applicable. Itwas specifically held: “Opinion” formed or based on wrong and incorrectfacts or which are belied and untrue do not getprotection and cover under the principle of “change ofopinion” (sic). In the instant case, the aforesaid dictum squarely applies. The Assessing Officer considered the expenditure of payments madeto suppliers and a dis-allowance was made to the extent of 20%,wherein money transaction was made other than by way ofcheque or draft. The explanation of the assessee that thesuppliers did not have access to banking facility was specificallydeclined noting the address of the suppliers furnished by theassessee. There was no further enquiry made, which is evidentfrom the assessment order. The re-assessment was on the basisof the report of the I.T.O., Tirupur pointing out that six dealers to whom payments were said to have been made are bogus. Theopinion formed for the purpose of dis-allowance to the extent of20% was on incorrect facts and, hence, there is no infirmity in there-assessment proceedings. 15. There is definitely acquisition of fresh information,specific in nature and reliable in character relating to theconcluded assessment in the present case. The Income TaxOfficer having jurisdiction over the area in which certain dealers towhom the assessee had made payments, were situated, hadmade enquiries and found that they were non-existent. Thisinformation of bogus dealers as supplied by the ITO havingjurisdiction over the disclosed address of the dealers, was reliedon by the Assessing Officer of the assessee to initiatereassessment. whom payments were said to have been made are bogus. Theopinion formed for the purpose of dis-allowance to the extent of20% was on incorrect facts and, hence, there is no infirmity in there-assessment proceedings. 15. There is definitely acquisition of fresh information,specific in nature and reliable in character relating to theconcluded assessment in the present case. The Income TaxOfficer having jurisdiction over the area in which certain dealers towhom the assessee had made payments, were situated, hadmade enquiries and found that they were non-existent. Thisinformation of bogus dealers as supplied by the ITO havingjurisdiction over the disclosed address of the dealers, was reliedon by the Assessing Officer of the assessee to initiatereassessment. 16. On the issue of non-disclosure of fully and truly ofmaterial facts required for assessment, it has to be noticed thatthe dealer had supplied the details of persons who werenon-existent, in the returns filed. The dealer had claimedpurchases from the said non-existent persons as also entered inthe books of accounts payments made to them, which were also cash payments. The non-disclosure in the return, as also in thebooks of accounts, is insofar as the dealers having been shownas existing registered dealers to whom payments were made bythe assessee in the course of their business. The non-disclosuregermane to the facts herein was that the six dealers were bogusand there was in the regular assessment, no such question raisedor enquiry conducted. We do not think that there was any reasonfor the first appellate authority or the Tribunal to interfere with thefindings of the Assessing Officer. We reject the contentions of theassessee; both on the ground of change of opinion and ondisclosure of true and material facts required for assessment. Weanswer the questions of law in favour of the Revenue and againstthe assessee. The appeal is allowed. No costs. Sd/-K.Vinod ChandranJudge Sd/- Ashok MenonJudge skv-vku/-[ true copy ]