Whetherof)Thefactsandcircumstances Of The Case, The Tribunal'sorder Can Be Said As Perverse In Nature As The.tribunal Has Failed To Apply The Principle Laiddown v. Cit (Reported In 247 Itr Page818) And Phool Chand Bajrang Lal V/S Ito(Reported In 203 Itr Page 456)?

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 1/ DAY OF AUGUST 20271 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’/BLE MR. JUSTICE HEMANT CHANDANGOUDAR BETWEEN: LT.A. NCO.542 OF 2016 1.THE PR. COMMISSIONER OF INCOME-TA®X5TH FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BENGALURU 560 OQ9OS5TH FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BENGALURU 560 OQ9OS D2 |THE DEPUTY COMMISSIONER OF INCOME-TAXCIRCLE-11(3), PRESENT ADDRESS|CIRCLE-3(1)(1), 2ND FLOOR, BMTC BUILDING|SO FEET ROAD, KORMANGALA BENGALURU 560 O95.CIRCLE-11(3), PRESENT ADDRESS|CIRCLE-3(1)(1), 2ND FLOOR, BMTC BUILDING|SO FEET ROAD, KORMANGALA BENGALURU 560 O95. .., APPELLANTS. (BY MR. K.V. ARAVIND, ADV.,) AND" M/S. FIBRES AND FABRICS INTERNATIONAL PVT. LTD.,.NO.21, E-1, 2ND STAGEPEENYA INDUSTRIAL AREA|BENGALURU 560 O58.PAN - AAACEF 6841. .., RESPONDENT (BY MR. SURYANARAYANAT A/WMISS. MAHIMA GOUD, ADVS.) THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX|ACT 1961, ARISING OUT OF ORDER DATED 10.02.2016 PASSED IN ITA NO.1352/BANG/2014 FOR THE ASSESSMENT YEAR 2005-06, PRAYING TO: | (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW,STATED ABOVE. (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDERS.PASSED BY THE ITAT, BENGALURU IN ITA NO. 1352/BANG/2014DATED:10/02/2016 AND CONFIRM THE ORDER OF THE APPELLATECOMMISSIONER CONFIRMING THE ORDER PASSED BY THE.DEPUTY COMMISSIONER OF INCOMETAX, CIRCLE-3(1)(1),_BENGALURU.» (iil) PASS SUCH OTHER SUITABLE ORDERS AS THIS.HON BLE COURT DEEMS FIT TO GRANT IN THE FACTS AND|CIRCUMSTANCES OF THE CASE IN THE INTERES! OF JUSTICE.AND EQUITY. THIS I.T.A. COMING ON FOR FINAL HEARING, THIS DAY, | ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (hereinafter referred to as the Act for short)has been preferred by the assessee against the order|dated 31.10.2014 passed by Income Tax AppellateTribunal (hereinafter referred to as the tribunal’ forshort). The subject matter of the appeal pertains to theAssessment year 1999-00. The appeal was admitted bya bench of this Court on the following substantialquestions of law:| (1)WhetherOf)thefacts|andcircumstances of the case, the Tribunal Is right in law in holding that the re-assessment|order passed in the case of assesse /s null and void on the ground that the said proceedings|are Initiated based on the same set of’information as was available at the time of|Original assessment.proceedingsandtherefore it amounts to mere change of|opinion|eCVeCwhenthere-assessmentproceedings are initiated n the basis of the|incriminating|documents|collectedduringSUIVEYand|belieffor.re-openingtheassessment is based on the tangible material!sand the ali the ingredients for initiating re-assessment proceedings under section 147|are satisfied in the case of the assessee? (11)WhetherOf)thefacts|andcircumstances of the case, the Tribunal's|order can be Said as perverse in nature as the.Tribunal has failed to apply the principle laiddown by Apex Court in case M/s. Ess Kay Kay.Engg Co. V/s CIT (reported in 247 ITR page818) and Phool chand Bajrang Lal V/s ITO(reported in 203 ITR page 456)? (11)WhetherOf)thefacts|andcircumstances of the case, the Tribunal's|order can be Said as perverse in nature as the.Tribunal has failed to apply the principle laiddown by Apex Court in case M/s. Ess Kay Kay.Engg Co. V/s CIT (reported in 247 ITR page818) and Phool chand Bajrang Lal V/s ITO(reported in 203 ITR page 456)? 2D Facts leading to filing of this appeal brieflystated are that assessee iS a company which is engagedin the Dusiness of manufacture and export of garments.The assessee filed the return of Income for theAssessment Year 2005-06 on 31.10.2005. The return|filed by the assessee was selected for scrutiny underSection 143(2) of the Act. The assessee furnished thedetails pertaining to liabilities which included details.relating to sale commissions paid to certain foreigncompanies and tax deducted at source on such salecommissions. The Assessing Officer after examining the.details furnished by the assessee passed an originalorder of assessment on 31.12.2008 without making anydisallowance.pertainingtO.salesCcommiISsSSITnecontention of the assessee that payments were madethe assessee to non residents and since, the serviceswere rendered outside India, therefore, no incomeaccruedOrarOoSeIn|India|and|therefore,|salescommission were not exigibdle to tax was rejected. 3.The Assessing Officer issued a notice dated|12.03.2010 under Section 148 of the Act proposing to.re-assess the income of the assessee on the ground thathe has reasons to believe that income chargeable to taxhad escaped assessment. The assessee sought reasonsfor re-opening the assessment which was supplied to it.and thereafter, the assessee filed objections to the.notice for reopening assessment on the ground that theSame was Dased on a mere change of opinion. TneAssessing Officer passed an order of re-assessment.under Section 143(3) read with Section 14/7 of the Actdisallowing the deduction claimed by the assessee.towardssalesCOMMISSIONCO.thetune|ofRs.16,93,91,847/- and added the same to the totalincome of tne assessee. 4The assessee thereupon preferred an appealbefore the Commissioner of Income Tax (Appeals) who-by an order dated 01.08.2014 dismissed the appealpreferred by the assessee and upheld the order of re- assessment. The assessee thereupon preferred anappeal before the tribunal. The tribunal by an orderdated 10.02.2016 inter alia held that the proceeding for.re-assessment were tnitiateed on the same set ofinformation which was called for by the Assessing Officerand was looked into at the time of original assessment.and therefore, the order of re-assessment was based onchange of opinion, which is not a valid ground for re-Opening tne assessment. In the aforesaid factualbackground, this appeal has been filed. 5.Learned counsel for the revenue submittedthat proceeding for re-assessment were initiated underSection 14/7 of the Act, wnicn was in existence atrelevant point of time and the proceeding for re-assessment could be invoked provided the AssessingOfficer had reason to believe that any income chargeable.to tax had escaped assessment. It is further submittedthat the assessment as re-opened on the Dasis of surveyconducted under Section 133A of tne Act for Assessment Year 2006-07 and the finding recorded by the tribunal is.contrary to the reasons recorded by the AssessingOfficer. It Is also submitted that even if a detailed|scrutiny is conducted, the power of Assessing Officer to.issue notice under Section 14/7 of the Act Is not takenaway and tangible material need not be in the form of.documentary evidence only. It is also submitted thatorder of the tribunal is contrary to law laid down bySupreme Court. In Support of aforesaid submissions,reliance has been placed on decisions in|"KALYANJIMAVJI & CO. VS. COMMISSIONEROF INCOME-TAX',(1976) 102 ITR 287 (SC), ‘INDIAN & EASTERNNEWSPAPER SOCIETY VS. COMMISSIONER OFINCOME-TAX,(1979)2.TAXMAN.197(SC),A.L.A.FIRM VS. COMMISSIONER OF INCOME-TAX,(1991)55TAXMAN49/7(SC),"ASSISTANTCOMMISSIONER|OFINCOME-TAXVS.RAJESHJHAVERI STOCK BROKERS (P.) LTD., (2007) 161TAXMAN 316 (SC), NEW DELHI TELEVISION LTD.| VS. DEPUTY COMMISSIONER OF INCOME-TAX ,(2020) 116 TAXMANN.COM 151 (SC). 6.|On the other hand, learned counsel for theassessee submitted that there was no tangible material|before the Assessing Officer to initiate the proceedingUnder Section 147 of the Act and the reasons recordedby the Assessing Officer do not disclose any tangiblematerial in possession of the Assessing Officer on thebasis of which he could form a reason to believe that.income had escaped assessment. It is submitted that aninference cannot be a tangible material leading to areason to believe that income has escaped assessment.It is further submitted that in the original order ofassessment, the Assessing Officer has formed an opinionand the proceeding for re-assessment have been.initiated only on the basis of change of opinion. InSupport of aforesaid submissions, reliance has beenplaced on decisions‘CALCUTTA DISCOUNT CO. LTD.|VS. ITO, (1961) 41 ITR 191 (SC) CIT VS. KELVINATOR OF INDIA LTD.', (2002) 123 TAXMAN433 (DELHI) (FB), ‘CIT VS. KELVINATOR OF INDIALTD.', (2010) 187 TAXMAN 312 (SC), ‘NYK LINE(INDIA) LTD. VS. DCIT’, (2012) 28 TAXMANN.COM229 (BOM. ), ‘CIT VS. USHA INTERNATIONAL LTD.(,(2012) 25 TAXMANN.COM 200 (DELHI) (FB) AND"'ACITVS.MARICO|LTD.,(2020)TI17TAXMANN.COM 244 (SC). JWe have considered the rival submissionsmade on both sides and have perused the record. TheSupreme Court In)KALYANJI MAVJI & CO. supra heldas under: “13. On a combined review of the Gecisions|of this Court the following tests and principles|wouldapply todetermine theapplicability.of Section 34(1)(b) to the following categories of|CaSes; "(1) Where the information is as to the true and|correct state of the law derived from relevant|judicial decisions; (2) Where in the original assessment the income liable to tax has escaped assessment due to.oversight, inadvertence or a mistake committed|by the Income Tax Officer. This ts obviously|based on the principle that the tax- payer wouldnot be allowed to take advantage of an oversight|or mistake committed by the taxing autnority; (3) Where the information is derived from an)external source of any kind. Such externalsource would include discovery of new and|important matters or knowledge of fresh facts|which were not present at the time of the|original assessment;| (4) Where the information may be obtained even from the record of the original assessment from an investigation of the materials on the record, or the facts disclosed thereby or from other.enguiry or research into facts or law." If these.conditions are satisfied then the [Income TaxOfficer would have complete Jurisdiction § treopen the original assessment. It is obvious|that where theIncome Tax Officer gets no.subsequent information, but merely proceeds toreopen the original assessment witnout any.fresh facts or materials or without any enquiry|into the materials which form part of the original assessment,|Section34(1)(b)wouldhave|floapplication." If these conditions are satisfied then the Income-TaxOfficer would have complete jurisdiction to reopen the|Original assessment. It is obvious that where tne Income-Tax|Officer gets no subsequent information, but merely proceeds|to reopen the original assessment without any fresh facts or materials or without any enquiry into the materials which|form part of the original assessment, Section 34(1)(b) wouldNave no application. 8.A Full Bencn of tnis Court In"DELL INDIA PVT.LTD. Vs. JOINT COMMISSIONER OF INCOME-TAX,BANGALORE’ (2021) 123 TAXMANN.COM 468 (KAR)dealt with the question whetner reason to believe in thecontext of Section 147 of the Income Tax Act can be based|on mere change of opinion of the Assessing Officer andanswered the reference as follows: ‘17. Thus, wnat is neld by the Apex Court is that|when a power under Section 147 is to be exercised,concept of change of opinion must be treated as aninbuilt test to check abuse of power of tne Assessing 8.A Full Bencn of tnis Court In"DELL INDIA PVT.LTD. Vs. JOINT COMMISSIONER OF INCOME-TAX,BANGALORE’ (2021) 123 TAXMANN.COM 468 (KAR)dealt with the question whetner reason to believe in thecontext of Section 147 of the Income Tax Act can be based|on mere change of opinion of the Assessing Officer andanswered the reference as follows: ‘17. Thus, wnat is neld by the Apex Court is that|when a power under Section 147 is to be exercised,concept of change of opinion must be treated as aninbuilt test to check abuse of power of tne Assessing Officer. Further, it is held that after 1st April 1989,the Assessing Officer has power to reopen provided|there is a tangible material to come to _ thconclusion tnat there is escapement of income fromassessment. The Apex Court held that mere changeof opinion on consideration of the same material isno ground to invoke Section 147 of the said Act. 19. Therefore, in the light of law laid down in thecase of M/s. Indian and Eastern Newspaper Society(supra), the first question will have to be answeredin the negative by nolding that the decision in tne|case of Rinku Chakraborthy does not lay downcorrect position law to the extent to which it follows.what its held in clause (2) of paragraph 13 of thedecision of the Apex Court in the case of KalyanjiMavji and Company (supra). Tne second question|will have to be answered in the affirmative. In view|of the consistent decisions of the Apex Court holding.that “reason to believe in the context of Section|14/7 of the Income Tax cannot De Dased on merechange of opinion of tne Assessing Officer, the third|question will nave to be answered in tne negative.In fact, in view of settied law, framing of question|No.3 was not werranted at all.” QOThe Assessing Officer has recorded thefollowing reasons for re-opening the assessment. The assessee filed return of Income for|theAssessment.Year2005-06Of)31.10.7005|declaringaf)Income.ofRs.28,94,18,182/-. Assessment in this casewas completed under Section 143(3) on31.12.2008 determining a total income of.Rs.31,04,68,388/-. In this case a survey under Section|133A was conducted on 5.11.7009 andduring the course of survey, along with other.issues, expenses debited to the p & L a/cwere verified and It was found thet the'assessee has incurred nuge expenses in thenatureofInfoTrekking.and|Delivery|schedule wnicn Is paid to a foreign companynamely M/s Soutn Elegant Limited, HongKong as per the Service Agreement enteredinto between the assessee company and M/s_South Elgant Limited dated 01.07.2002.|During tne course of post survey proceedingsstatement of the Managing Director of thecompany Shri Anupam Kotnarl was recorded andWasaskedTo substantiate this.agreement and payments made in pursuance|to this agreement and it is found that the.reply of the Managing Director to most of the.querieswereevasiveIn|nature andsurprisingly, to quote a few, he could notsubstantiate with whom from South Elegant.he had interacted or even to say where thisdeal was entered into and when. Surprisinglythis service agreement was cancelled on.26.10.2005 though it was made for a periodupto 2012 and the so called termination isdone again through a three line letter and.Nuge sum running into tens of crores rupeeshas been paid by the assessee companytowards termination fee. The genuineness of.this Info Trekking and Delivery scheduleexpenditure was not proved by the assesseeto the satisfaction of the Assessing Officerand even the assessee could not prove thelegality of this document as the document in.question was a plaint sheet of paper, neitherregistered nor notarized or either witnessedby any person or even does not have thename of the company could not prove beyonddoubtthenecessityOF|suchexpenditure and this kind of expenditure isunknown in this line of trade. Accordingly, in-the order passed under Section 143(3) forA.Y.2006-07 the expenses debited under thishead of Rs.10,68,71,384/- was disallowedand added to the returned Income. S/milarnature of expenditure has been debited bythe assessee company for the financial year2003-04, 2004-05 also. beyonddoubtthenecessityOF|suchexpenditure and this kind of expenditure isunknown in this line of trade. Accordingly, in-the order passed under Section 143(3) forA.Y.2006-07 the expenses debited under thishead of Rs.10,68,71,384/- was disallowedand added to the returned Income. S/milarnature of expenditure has been debited bythe assessee company for the financial year2003-04, 2004-05 also. On|verificationOF|recordsOf|theassessee for the A.Y.72005-06 it was foundthat similar expenses has been paid by theassessee in the name of commission - Salesamounting to Rs.16,93,91,84//- and these.commission payments have been paid to M/sSouth Elegant Limited, Hong Kong and M/sGryters of Netherland along with others. As—this issue was not examined in the originalassessment proceeding and has come to.light on account of survey under Section.133A, I have reason to believe that incomechargeable to tax has escaped assessment.within the meaning of Section 14/7 of theIncome-Tax Act, 1961 for the A. Y.2005-06 10. During the course of original assessment)proceeding, details pertaining to expenditure incurred bythe assessee towards sales commission were furnished.Thus, the assessee had furnished all primary facts beforethe Assessing Officer and the Assessing Officer on the.basis of facts available with him had passed an originalorder of assessment without making any disallowance of.theaforesaidexpenditure.There-assessment.proceeding are based on the Dasis of same informationwhich was available with the Assessing Officer at thetime of original order of assessment and inferences.drawn by the Assessing Officer on the same set of facts.cannot be said to be tangible material. It is alsonoteworthy tnat mere fact that expenses were nuge inthe opinion of the Assessing Officer cannot be a groundfor re-opening the assessment and necessity of incurringexpenditure cannot be gone into by the Assessing_Officer. 11. It is pertinent to mention that no material|was gathered in the survey proceeding to suggest thatexpenditure incurred towards sales commission is not anallowable expenditure and disallowance made in respectof the expenditure for the subsequent Assessment Year2006-07 cannot be a ground for re-opening the.assessment. The tribunal has therefore, rightly recordedthe findings of fact that there is no tangible material on.the pasis of whicn assessment for Assessment Year!2005-06 was re-opened and the assessment of theSubsequent Assessment Year is based on the inferencesdrawn from certain facts which cannot be construed as'tangible material. The reasons mentioned in the noticefor re-assessment are based on mere cnange of opinionand therefore, the re-opening of tne assessmentproceedingISNotpermissibleIn|thefactsand.circumstances of the case. The aforesaid finding cannot.be said to be perverse. For the aforementioned reasons,the substantial questions of law involved in this appeal ���������������������������������������������������������������� ������������������������������������������������������������������������������������������������ ����������� ��� ����������