Addala Chanti, Hyderabad vs Assessee

This is an appeal filed by the assessee directed against the

order of the CIT (A)-II Hyderabad dated 29.02.2012 passed for

A.Y 2003-04 u/s 143(3) r.w.s. 147 of the I.T. Act, 1961.

2. The appeal is time barred by 25 days. The petition for

condonation of delay states that the Accountant had left the

employment abruptly and later another person was appointed in

his place. The new Accountant noticed the order of CIT (A) and

filed appeal before ITAT after delay of 25 days. We accept the

explanation of the ld Counsel for the assessee and condone the

delay of 25 days and admit the appeal.

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ITA No.871 of 2012 Addala Chanti Hyderabad

3. Brief facts of the case are that the assessee is engaged in

the production of films under the name and style of M/s Friendly

Movies and filed its return of income for A.Y 2003-04 on

28.11.2013 declaring total income of Rs.14,05,680. The return

was processed u/s 143(1) on 18.3.2004. Subsequently it was

noticed by the AO that assessee claimed depreciation on vehicles

and interest on vehicle loans as expenditure in the computation

sheet as under:

Depreciation on vehicles Rs.2,35,645 Interest on vehicle loans (Quails) Rs. 68,566 Interest on vehicle loans (Lancer) Rs. 48,219 Total Rs.3,52,430

4. AO held that these amounts have not been reflected in the

balance sheet and profit and loss account. In the absence of any

claim in the P&L a/c, expenditure is not allowable through

computation. Hence the assessment was reopened u/s 147 of

the Act and notice u/s 147 was issued on 29.06.2009. In

response to the above, assessee filed a letter dated 20.08.2009

stating that the return filed on 28.11.2003 may be treated as

return filed in response to notice u/s 148 of the I.T. Act. The

assessment was completed determining the total income at

Rs.17,58,110.

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5. In the meanwhile, the ld CIT passed order u/s 263 of the

I.T. Act on 18.01.2011. The ld CIT held as follows:

"4.9 Now let me consider the issue of scope of assessment u/s 143(3) r.w.s. 147. The AR may contend that the assessment was reopened only for the purpose of bringing to tax the inadmissibles on account of interest and depreciation on vehicles and hence the AO limited himself to the same issue. I have considered this argument also. Once the assessment is validly reopened, the entire assessment is open before the AO for examination and verification. To the extent there are several other issues on which there is escapement of tax, the AO is fully empowered to examine the same and to bring to tax such sums, no doubt he cannot make any roving enquiries, but he cannot absolve himself of the duty to atleast examine the books of accounts, examine the issue which are patent and obvious, such as diversion of funds for personal usage, non filing of form 52A, confirmation of new loans, non disclosure of income from lease receipts, meager house hold expenditure etc. No doubt he cannot change his opinion or disturb the issues already settled in the original assessment. However, upon examination, it is seen that there is no original assessment in this case. The return was merely processed accepting the returnof income. Thus, it was incumbent on AO to examine the issues which were never been subjected to examination, once the assessment was open. This is exactly the reason why in section 147, we find the words "and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently, in the course of the proceedings under this section". The AO is to examine carefully any bring to tax the whole income which escaped assessment.

4.10 There was no original assessment in this case. Hence, reopening is fully valid. The reasons recorded for reopening of assessment are given as enclosures in page No.4 (order sheet-2). The note clearly states that the expenditure not debited in the P&L a/c, and depreciation on assets not shown in the balance sheet of the concern, were wrongly claimed. Once the case is reopened validly the entire assessment is

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before the AO for proper verification and action to be taken as per law. The Courts cannot go into the sufficiency of the reasons but can look into the link between the material on record and formation of belief for reopening of the assessment. CIT vs. Janardah Dwarakadas 290 ITR 1 (Mumbai), since no original assessment was completed there is ample scope to reopen the case. This is because of the vide powers given after 01.04.1989. Reliance is placed on:

(a) Rakesh Agarwal vs. ACIT (87 Taxmann 306) (Del.)

(b) Srikrishna Pvt. Ltd vs. ITO (221 ITR 538)(S.C)

(c) Ram Prasad vs. ITO (82 Taxmann 199) (All.)

(d) ACIT vs. VXL India Ltd (247 ITR 820) (S.C)

(e) Praful Chunnilal Patil vs. CIT (236 ITR 832)(Guj.)

(f) DCIT vs. Murrah Live Stock Agency (2004) (91 ITD 98) (Patna TM).

4.11 In so far as no original assessment was done but the return was merely processed, in my opinion, the AO has validly reopened the assessment and to the extent it was validly reopened, the entire assessment was open before him. So, he ought to have examine all the issues. Once the AO failed to examine even the primary issues (no roving), there is prejudice and error caused to the revenue and accordingly there is necessity for the CIT as supervisory authority is bound to take necessary action. The review assessment is done under the Board's guidelines and the CIT is to follow such guidelines.

4.12 On account of the above facts and also in view of the above case laws it is my considered opinion that the assessment deserves to be set aside such that after proper verification, the AO completes the assessment on all the issues pointed out in my notice including the audit objection. The assessment is completed by the AO vide order dated 19.03.2010 is hereby set aside and the AO is directed to verify all the issues and to reframe the assessment".

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ITA No.871 of 2012 Addala Chanti Hyderabad

6. The assessee filed appeal against the order dated

19.03.2009 passed by the DCIT, Circle 13(1) Hyderabad u/s 143

r.w.s 147 of the Act for the A.Y 2003-04 determining the total

income at Rs.17,58,110. The CIT (A) while adjudicating the

appeal held as follows:

"However, it is gathered that the Commissioner of Income Tax-I Hyderabad, vide his order u/s 263 of I.T. Act, 1961 dated 18.1.2011, has set aside the assessment with a direction to complete the assessment after verification of all the issues raised by him in the order. Since the assessment order under appeal has been set aside, there is no case for adjudication and the appellant's AR has concurred with this view. Accordingly, the appeal is dismissed".

7. Aggrieved, assessee is in appeal before us. The ld Counsel

for the assessee submitted that the CIT ought to have decided

the appeal on merits without considering the order u/s 263 of

the I.T. Act. The ld Counsel also pointed out that the CIT (A)

while passing an order u/s 263 has no jurisdiction to discuss

about the issue of notice u/s 147 and that the CIT (A) should

have pointed out this error in the order of the CIT u/s 263 and

further should have decided the issue of reopening in his order

dated 29.02.2012 instead of referring to the CIT u/s 263 and

following the same.

8. We heard both the parties. We are of the opinion that:

• The CIT should have pointed out that the Commissioner have no jurisdiction or was not

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required under law to discuss about the reopening proceedings.

• The CIT (A) should have decided the issue of reopening and the issues on merits.

• The CIT (A) erred in holding that the assessment order under appeal having been set aside by the CIT and therefore, the appeal need not be adjudicated and is to be accordingly dismissed.

9. Hence, we set aside the issue to the file of the CIT (A) with a

direction to adjudicate on the issue of reopening and also on the

merits of the case.

10. In the result, appeal filed by the assessee is allowed for

statistical purposes.

Order pronounced in the Open Court on 18th March, 2015.

Sd/- Sd/- (P.M. Jagtap) (Asha Vijayaraghavan) Accountant Member Judicial Member

Hyderabad, dated 18th March, 2015.

Vnodan/sps Copy to:

1. Shri S. Rama Rao, Advocate, Flat No.102, Shriya's Elegance, H.No.3-6-643, Street No.9, Himayatnagar, Hyderabad 500029

2. The Dy. CIT, Central Circle 13(1) Hyderabad

3. The CIT(A) -II Hyderabad

4. The CIT - I Hyderabad

5. The DR, ITAT, Hyderabad

6. Guard File

By Order

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