Revenue's appeal dismissed for reopening beyond four years under section 147 without material facts failure

ITAT Chennai dismissed Revenue's appeal against CIT(A)'s order cancelling reopening beyond four years under section 147, finding no failure by assessee to disclose material facts during original assessment under section 143(3). The tribunal upheld CIT(A)'s enhancement power regarding section 36(1)(viia) deduction, confirming that deduction for bad debts cannot exceed provisions made in books of accounts, following Punjab & Haryana HC and Karnataka HC precedents. ITAT validated notice under section 143(2) as within limitation and upheld reopening validity where income escaped assessment due to excess deduction claims. However, tribunal allowed assessee's appeal on section 154 rectification, holding the issue was debatable and beyond scope of mistake apparent from record.

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Issues Involved:
1. Limitation and Condonation of Delay
2. Validity of Reopening under Section 147
3. Enhancement of Assessment by CIT(A)
4. Deduction under Section 36(1)(viia)
5. Validity of Notice under Section 143(2)
6. Validity of Reopening of Assessment
7. Addition of Non-Statutory Reserve
8. Rectification under Section 154

Summary:

1. Limitation and Condonation of Delay:
The Revenue's appeal was barred by limitation by 37 days due to the pandemic. The Hon'ble Supreme Court had directed that delays during the period from 15.03.2020 to 14.03.2021 be condoned. Respectfully following this, the delay was condoned and the appeal was admitted.

2. Validity of Reopening under Section 147:
The CIT(A) quashed the reopening initiated under Section 147 read with Section 148, as the Revenue could not establish the assessee's failure to fully and truly disclose material facts. The Tribunal upheld this decision, noting that the reasons recorded by the AO did not indicate how and why there was an escapement of income, thus making the reopening unsustainable.

3. Enhancement of Assessment by CIT(A):
The CIT(A) enhanced the assessment under Section 251(2) by restricting the deduction under Section 36(1)(viia) to the amount of provision for bad and doubtful debts made in the books of accounts. The Tribunal confirmed this enhancement, stating that the CIT(A)'s powers are co-terminus with that of the AO and can enhance the income if the assessment order is found wanting.

4. Deduction under Section 36(1)(viia):
The Tribunal held that the deduction under Section 36(1)(viia) cannot exceed the provision made for bad and doubtful debts in the books of accounts. This decision was consistent with the precedent set by the Hon'ble Punjab & Haryana High Court in State Bank of Patiala vs. CIT and the Hon'ble Karnataka High Court in CIT vs. Syndicate Bank.

5. Validity of Notice under Section 143(2):
The Tribunal dismissed the assessee's contention that the notice under Section 143(2) was barred by limitation. The notice was issued within the permissible period after the assessee requested the return filed earlier to be treated as the return in response to the notice under Section 148.

6. Validity of Reopening of Assessment:
For the assessment years 2009-10, 2010-11, and 2011-12, the Tribunal upheld the validity of reopening under Section 147 within four years, noting that there was an error in the computation of the deduction under Section 36(1)(viia) and that the reopening was not based on a mere change of opinion.

7. Addition of Non-Statutory Reserve:
The CIT(A) upheld the addition towards the creation of a non-statutory reserve, as the assessee had agreed to the addition before the AO. The Tribunal dismissed this issue as it was not adjudicated by the CIT(A) and the assessee had agreed to the addition.

8. Rectification under Section 154:
The Tribunal allowed the assessee's appeal, holding that the issue of restricting the claim of deduction under Section 36(1)(viia) to the amount of provision made in the books of accounts is highly debatable and cannot be rectified under Section 154. The rectification order was thus set aside.

Conclusion:
The appeal filed by the Revenue was dismissed. The appeals filed by the assessee in ITA Nos. 2645/CHNY/2019, 854, 855, 856, 857 & 858/CHNY/2020 were dismissed, and the appeal in ITA No. 3154/CHNY/2019 was allowed.

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