By Ajay R. Singh, Advocate and CA Rohit Shah
1. Disallowance of employees contribution to Provident Fund based on the statement made in the Tax Audit Report while processing the return under section 143(1) of the Act – Not permissible:
Facts:
Assessee remitted the employees contribution to Provident Fund beyond the due date prescribed under the Provident Fund Act, but had duly remitted the same before the due date of filing the return of income under section 139(1) of the Act. This fact of remittance made by the assessee with delay had been reported by the Tax Auditor in the Tax Audit Report. In the said Report Tax Auditor had mentioned the due date for remittance of Provident Fund as per the Provident Fund Act and the actual date of payment made by the assessee.
Ld. CPC Bangalore had taken up this data from tax audit report and sought to disallow the same while processing the return under section 143(1) of the Act, apparently by applying the provisions of section 143(1)(a)(iv) of the Act.
Held:
From the provisions of section 143(1)(a)(iv) of the Act, it is very clear that the said clause (iv) would come into operation when the Tax Auditor had suggested for a disallowance of expense or increase in income, but the same had not been carried out by the assessee while filing the return of income. In the instant case tax auditor had not stated to disallow Employees Contribution to Provident Fund wherever it is remitted beyond the due date under the respective Act. Hence, it is merely recording of facts and a mere statement made by the Tax Auditor in his audit report.
The ld. ITAT after reffering the decision in case of Checkmate Services Pvt Ltd vs CIT reported in 143 taxmann.com 178 (SC) dated 12/10/2022 allowed the appeal of the assessee and observed that:- The scheme of present section 143(1) does not involve a unilateral exercise. The very fact that an opportunity of the assessee being provided with an intimation of ‘such adjustments’ [as opposed under sec 143(1)], in writing or by electronic mode, and “the response received from the assessee, if any” to be “considered before making any adjustment” makes the process of making adjustments under section 143(1), under the pre legal position, an interactive and cerebral process. The Assessing Officer-CPC has used a standard reason to the effect that “As there has been no response/the response given is not acceptable, the adjustment(s) as mentioned below are being made to the total income as per provisions of section 143(l)(a)”, and has not even struck off the portion inapplicable. A quasi-judicial order, as a rejection of the objections against the proposed adjustments under section 143(1) inherently is, can hardly meet any judicial approval when it is devoid of the cogent and specific reasons, and when it is in a standard template text format with clear indications that there has not been any application of mind as even the inapplicable portion template text.
2. Reopening on the basis of information received from DDIT – Penny stock – Assessee regular investor – Holding scrip since last two years – SEBI order do not implicate assessee or his broker – Non application of mind by AO – Making roving enquiry not permissible:
Facts:
The assessee is an individual having income from House Property, Income from business, Income from capital gains and Income from other sources. The assessee is a regular investor in the share market since 2007. In the return of income filed on 12/09/2012 for A.Y. 2012-13, the assessee claimed long term capital gain exemption of Rs.3,00,809/- on sale of shares. The Ld.AO reopened the assessment after recording reasons wherein it was pointed out that he had received information from DDIT, Investigation Wing, Mumbai wherein Gemstone Investment Ltd scrip dealt with by the assessee was treated as a penny stock and assessee being one of the beneficiaries of exempt capital gain, income of the assessee had escaped assessment for which assessment was sought to be reopened
Held:
Neither the assessee’s name nor the share broker through whom assessee transacted was even mentioned in the list of parties as beneficiaries. The said SEBI order clearly indicates the list of parties who were involved in price manipulation by way of artificial rigging of prices. No doubt, this scrip of Gemstone Investments Ltd may be a penny stock. But, still, the assessee cannot be faulted for each and every transaction carried out in the said scrip treating the said transaction as tainted transaction. From the perusal of the Income Tax return and computation of total income of the assessee, it was noticed that assessee had made investments in various companies over the period of years. It is not that assessee had merely invested in Gemstone Investments Ltd (which is considered as a penny stock) and made gains in the form of exempt long term capital gains thereon. Moreover, the assessee had merely got an appreciation of 4.5 times on the sale price which, is a normal return expected by any legitimate investor in the share market. The Investigation Wing had only mentioned that the Ld.AO is advised to consider and examine all other relevant details and carry out his own independent enquiry and take necessary action as per law in respect of sale of shares of Gemstone Investments Ltd made by the assessee. The said information nowhere gives any mandate / authority to the Ld.AO to enable him to form a belief that income of the assessee had indeed escaped assessment. It is not in dispute that other than the said letter received from Investigation Wing and SEBI’s order, the Ld.AO did not have any information or material which would enable him to form a belief that income of the assessee had escaped assessment warranting reopening. Hence, reopening has been made by the Ld.AO to make fishing and roving enquiries which, is not permissible in law.
Mamta Lalit Jain v. ITO, Ward-1(2), Kalyan [ITA No. 1626/Mum/2022; dt 8/12/2022 ; Bench : SMC; A.Y.: 2012-13]