CIT vs Amitronics (P) Ltd.

V.G. Sabhahit, J.—These appeals are filed by the Revenue being aggrieved by the order passed by the Income Tax Appellate Tribunal in ITA Nos. 299 to 302/Bang/2003 pertaining to the assessment years 1992-93, 1993-94, 1994-95 and 1995-96 in respect of the same assessee wherein the appeals filed by the assessee have been allowed in part. The material facts leading up to these appeals are as under:

The assessee M/s. Amitronics Private Limited is in the business of production of two products viz., (1) Glass Stems and (2) M.F. Glass Rods, which are used in the manufacture of Television sets. This is a total income-tech product and the assessee company is a technical company headed by Mr. Ramesh Kumar Jhunjhunwala, an Electrical Engineer with over 25 years experience in this line and connected glass industry. The production facility of the assessee company is based in Bangalore, Most of the raw materials are imported and only a small percentage is purchased in the domestic market and the bulk of the production is sold in India and there are marginal exports. The assessee is having high profit margin business and he filed returns for the assessment years 1992-93, 1993-94, 1994-95 and 1995-96. However, the Assessing Officer having been satisfied with the genuineness of expenses incurred towards sales commission paid to M/s. Transhed Electronics Private Limited for the assessment years 1992-93 to 1995-96, issued notice and thereafter the representatives of the assessee were heard. The search was conducted on the allegation that M/s. Transhed Electronics Private Limited is a paper entity created to book false sale commission expenses of M/s. Amitronics, the assessee company and its sister concern, M/s. Amitronics Private Limited, which are allegedly facilitated by Chartered Accountant Mr. Alok Kumar Agarwal and on the basis of the facts discovered, the assessments of the assessee company were re-opened u/s 147. Notice u/s 148 was issued on 11-12-1996 which was served upon the assessee company on 13-12-1996. By that time, regular returns had been filed by the assessee as assessments were completed. The assessee company did not comply with the notice under Section-148 and instead filed letter on 16-1-1997 stating that the regular returns filed for the said years may be treated as compliance to the notice. The regular assessments for 1992-93, 1993-94 arid 1994-95 were scrutiny assessments and for 1995-96 was a summary assessment. The Assessing Officer disallowed the explanation given by the assessee towards sales commission and passed reassessment order on 19-1-1996. Being aggrieved by the same, the assessee preferred appeals before the Commissioner of income tax (Appeals), Bangalore in ITA Nos. 161 to 164/99-2000 and the Appellate Authority by an order dated 16-1-2003 held that the re-opening of the assessment was justified and it was within the limitation prescribed and confirmed the orders passed by the Assessing Officer dismissed the appeals. Being aggrieved by the same, the Assessee preferred ITA Nos. 299 to 302/Bang/2003 before the Income Tax Appellate Tribunal and ITAT, Bangalore Bench by the impugned order held that payment of commission is genuine for the services rendered and hence allowable as such and deleted the disallowance of commission for all the four years. However, held that charging of interest under Sections 234B and 234C are cons consequential in nature and accordingly allowed the appeals in part by an order dated 7-4-2006. Being aggrieved, these appeals are filed by the Revenue.

These appeals are admitted on 11-3-2010 to consider the following substantial questions of law.

(a) Whether the reopening of the assessment is based on a mere change of opinion and not for sufficient ground ?

(b) Whether the reopening of the assessment was barred by limitation ?

(c) Whether the commission paid to M/s. Transhed Electronic Limited would be a business expense or not ?

We have heard the learned counsel appearing for the appellant and the learned counsel for the respondents and perused the above stated substantial questions of law.

Learned counsel appearing for the appellant submitted that in view of the provisions of Section 147, the order of assessment for the assessment years 1992-93, 1993-94, 1994-95 and 1995-96 is sought to be re-opened by issuing notice on 11-12-1996 after recording the satisfaction of the Assessing Officer. It is submitted with reference to the original records which are made available to this Court for perusal that the notice was issued on 11-12-1996 within four years after the conclusion of the assessment year 1992-93 which is the earliest assessment year and therefore the power has been exercised within four years and is during the period of limitation. It is further submitted that the Assessing Officer has recorded his satisfaction before issuing notice based upon the material on record and it is not based upon the change of opinion as contended and therefore the same is also justified. The material on record would further show that in view of the statement of Chartered Accountant and the Director whose statements have been recorded during enquiry, the commission paid to M/s. Transhed Electronic Limited would be the business expenditure and the Tribunal was not justified in disallowing the petition and granting benefit to the assessee.

Learned counsel appearing for the respondent submitted that the initiation of the re-assessment pertaining to the period 1992-93, 1993-94 is barred by time end further the opinion of the Assessing Officer for reopening assessment is based upon suspicion and not on any sufficient ground and therefore bad in law and all further proceedings stand vitiated. It is further submitted that though an opportunity was sought for cross-examination of the Chartered Accountant and Mr. Umesh Mhetre, the Director, no opportunity was given for cross-examination of the said witnesses to test the veracity of the statement given by them before the Assessing Officer and an opportunity may be granted after remanding the matter to the Assessing Officer and the contentions of the parties may be kept open.

We have given careful consideration to the contentions of the parties and the material on record. The material on record would clearly show that notice was issued on 11-12-1996 for re-opening the assessment for the years 1992-93 to 1995-96 after recording the satisfaction of the Assessing Officer, From the perusal of the reasons assigned by the Assessing Officer to re-open the assessment and also from the material which is available on record, we are satisfied that there are sufficient grounds for the Assessing Officer to re-open the assessment for the above said assessment years and accordingly, we answer 1st substantial question of law by holding that re-opening of the assessment is not based on mere change of opinion and is for sufficient grounds and accordingly, we answer the said substantial question of law in favour of the Revenue and against the assessee.

So far as the contention regarding the limitation is concerned, it is clear that the Assessing Officer having recorded reasonable opinion for reopening the assessment for the years 1992-1993 to 1995-1996 has issued notice on 11-12-1996 and wherefore, the said notice is issued is within four years in respect of all the assessment years 1992-1993 to 1995-1996. The contention of the learned counsel appearing for the respondent that the period from the date of issuance of notice should be taken for having exercised power of re-assessment cannot be accepted as it is well settled that the period to be reckoned for the purpose of limitation of four years is the date on which the notice was issued after recording satisfaction of the Assessing Officer and power of re-assessment was exercised and not the date of further enquiry. Accordingly, the second substantial question of law (b) is answered in favour of the revenue against the assessee by holding that reopening of the assessment is within time and was not barred by limitation.

So far as the substantial question of law (c) is concerned, it is clear that the orders passed by the Assessing Officer, appellate authority and the Tribunal are based upon the statement of the Chartered Accountant, who audited the account of M/s. Transhed Electronics Pvt. Limited and also submission of Umesh Mhatre, who has given statement as Director of M/s. Transhed Electronics Pvt. Limited. The original records would show that there was no opportunity for cross-examining the said statements given by the said persons and the same was denied and therefore, the authorities below were not at all justified in relying open the said statements, which were not subjected to cross-examination to test the veracity of the statements given by them before the Assessing Officer and the entire finding of the Courts below is based upon the submission of the said parties and other material on record. Therefore, the order based upon the said reasoning cannot at all be sustained and is liable to be set aside and the appellants should be given an opportunity to cross-examine the persons, whose statements are recorded during enquiry by the Assessing Officer and all the other contentions except the contentions which have been answered by this Court in this order are to be kept open to be urged before the Assessing Officer, Accordingly, the question as to whether the Commission paid to M/s. Transhed Electronics Pvt Limited would be a business expense or not has to be considered by the Assessing Officer after giving opportunity to the appellants to cross-examine the persons, who have given statements before the Assessing Officer and after hearing the assessee, Therefore, it is unnecessary to answer substantial question of law (c) at this stage and the said contention is kept open to be urged before the Assessing Officer. Accordingly, the appeals are allowed in part. The reopening of the assessment is upheld and it is also held that reopening of the assessment has commenced within the period of limitation. However, the finding of the authorities below on the merits of the case as to whether the commission paid to M/s. Transhed Electronics Pvt. Limited would be a business expense or not shall be decided by the Assessing Officer afresh after giving opportunity to the assessee to put forth all the contentions in accordance with law.

Accordingly, the appeals are disposed of.

Partly in favour of assessee.