2017 (2) TMI 1528 - AT - Income Tax

Tribunal Invalidates Reassessment, Renders Proceedings Void Ab Initio

The Tribunal deemed the reassessment proceedings under Section 147 invalid due to the absence of necessary conditions being fulfilled. As a result, the ... Reopening of assessment u/s 147 - notice after expiry of four years from the end of the relevant assessment years - HELD THAT:- As per section 147, if the AO has reason to believe that any income chargeable to tax has escaped assessment he may assess or re-assess such income 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 provided that where an assessment under sub section (3) of section 143 or section 147 has been made for the relevant assessment year, no action shall be taken u/s 147 after expiry of four years from the end of the relevant assessment years unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return u/s 139 or in response to notice issued u/s 142 (1) or section 148 or to disclose fully and truly all material facts necessary for his assessment for the assessment year. We noticed that in the present case the AO has not pointed out any failure on the part of the assessee in making disclosure fully and truly all material facts necessary for the assessment, which is a condition precedent for exercising jurisdiction u/s 147 of the Act. From the contents of the reasons recorded aforesaid it cannot be inferred that there was any failure on the part of the assessee in disclosing full and true material facts necessary for his assessment for the assessment year under consideration. Hence, we find merit in the contention of the assessee that since there is no failure on the part of the assessee in disclosing all material facts fully and truly, the reopening is bad in law. We, therefore, hold that the action of reopening in this case is not in accordance with the expressed provisions of the Act. AO has not followed the law laid down by the Hon’ble Supreme Court in GKN Driveshaft India Ltd. [2002 (11) TMI 7 - SUPREME COURT] the reassessment order cannot be passed without passing speaking order on objection filed by the assessee - We notice that the assessee after receiving copy of reasons recorded filed return of income as well as objection of initiation of reassessment proceeding vide letter dated 25.04.2013. But the AO without passing any speaking order on objection filed by the assessee, proceeded further and passed order u/s 143 (3) r.w.s. 147 of the Act. So it is apparent that the AO has not followed the law laid down by the Hon’ble Supreme Court in the aforesaid case. Subjective satisfaction of the AO to the effect that any taxable income has escape assessment - In Indian and Eastern Newspaper Society [1979 (8) TMI 1 - SUPREME COURT] the Hon’ble Supreme Court has held that audit objection cannot be the basis for reopening of assessment. In view of the facts and circumstances of the case and the law laid down by the Hon’ble Supreme Court and various High Courts, it can be concluded that in the present case the AO has exercised the jurisdiction u/s 147 without his own satisfaction, which is the condition precedent for initiating proceeding u/s 147 if the Act. We agree with the Ld. Counsel for the assessee that the proceedings u/s 148 cannot be initiated to review the earlier opinion. It is well settled law that when deduction u/s 80 IB (10) was allowed in original assessment after considering all the facts the same cannot be withdrawn by invoking section 147 of the Act. In this case, the AO had allowed the deduction in question in original assessment after considering all the facts and details submitted by the assessee. Fees paid to Chitnis Vaithy & Co is concerned we notice that the assessee vide letter 18.03.2014 submitted the certificate dated 18.01.2001 issued by the said company TDS Ledger Account, Bank Payment voucher etc. to prove that the said company had provided solicitor for the project of the assessee company, it cannot be said that no tax has been deducted at source. As regards payment made to M. R. Patil Consulting Engineering Ltd. there is merit in the assessee’s contention of the Ld. counsel that expenditure is allowable in the current year as the assessee has been following the project completion method and since it was allowed in the earlier year the AO cannot change his stand by exercising powers u/s 147 of the Act. As per the settled law assessment cannot be reopened only because of change of the opinion. Thus we hold that the reassessment proceedings u/s 147 initiated in this case is bad in law. - Decided in favour of assessee. Issues Involved:1. Validity of re-opening of assessment under Section 147 after four years.2. Requirement of passing a speaking order on objections filed by the assessee.3. Legitimacy of reassessment based on audit objections.4. Allowability of deductions under Section 80IB(10).5. Disallowance of payments under Section 40(a)(ia) due to non-deduction of TDS.Detailed Analysis:1. Validity of Re-opening of Assessment under Section 147 after Four Years:The assessee argued that re-opening the assessment under Section 147 after four years is invalid as they had disclosed all particulars fully and truly. The Tribunal agreed, noting that the Assessing Officer (AO) did not point out any failure on the part of the assessee in disclosing material facts necessary for the assessment. The Tribunal emphasized that for re-opening after four years, there must be a failure by the assessee to disclose fully and truly all material facts. Since the AO did not demonstrate such failure, the re-opening was deemed invalid.2. Requirement of Passing a Speaking Order on Objections Filed by the Assessee:The assessee contended that the AO failed to pass a speaking order on the objections filed against the initiation of reassessment proceedings, violating the Supreme Court's ruling in GKN Driveshaft (India) Ltd. vs. ITO. The Tribunal found merit in this argument, noting that the AO proceeded with the reassessment without addressing the objections, thus not adhering to the legal requirement.3. Legitimacy of Reassessment Based on Audit Objections:The assessee argued that reassessment proceedings cannot be initiated based solely on audit objections. The Tribunal supported this view, referencing the Supreme Court's decisions in Adani Exports vs. Dy. CIT and Indian and Eastern Newspaper Society vs. CIT, which held that audit objections alone do not justify reopening an assessment. The Tribunal concluded that the AO lacked the subjective satisfaction required for initiating reassessment proceedings under Section 147.4. Allowability of Deductions under Section 80IB(10):The AO had disallowed the deduction claimed under Section 80IB(10), arguing that the assessee did not meet certain conditions, such as ownership of the land and obtaining an occupancy certificate. The Tribunal noted that the deduction was initially allowed after considering all facts during the original assessment. It held that reassessment cannot be used to review an earlier opinion, especially when the deduction was granted after thorough scrutiny.5. Disallowance of Payments under Section 40(a)(ia) Due to Non-deduction of TDS:The AO disallowed payments made to Chitnis Vaithy & Co. and M.R. Patil Consulting under Section 40(a)(ia) due to non-deduction of TDS. The Tribunal found that the assessee had provided sufficient evidence, such as TDS certificates and payment vouchers, to prove that TDS was deducted. It also noted that the expenditure related to M.R. Patil Consulting was allowable in the current year as the assessee followed the project completion method. The Tribunal concluded that the AO's disallowance was unjustified.Conclusion:The Tribunal held that the reassessment proceedings under Section 147 were invalid as they were initiated without the necessary conditions being met. Consequently, the entire proceedings were declared void ab initio, rendering the CIT(A)'s order infructuous. The appeal filed by the revenue was dismissed as infructuous, and the cross-objection filed by the assessee was allowed.