2019 (7) TMI 1218 - AT - Income Tax

Rectification & Reopening Proceedings Found Unsustainable; Assessment Deemed Flawed

The Tribunal held that the initiation of rectification proceedings under Section 154 and the simultaneous reopening proceedings under Sections 147/148 on ... Reopening of assessment u/s 147/148 - failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment - notice issued u/s 154 issued on same issue on which no order whatsoever has been passed - HELD THAT:- Undisputedly, originally assessment in this case was framed u/s 143 (3) of the Act. It is also not in dispute that AO has initially issued a notice u/s 154/155 of the Act, available at pages 1 & 2 of the paper book, but when assessment record was perused in the open court, there is neither any order sheet nor final order, if any, passed consequent upon the notice issued u/s 154. Relying on DAMODAR H. SHAH VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX [2000 (6) TMI 27 - GUJARAT HIGH COURT] and BERGER PAINTS INDIA LTD. [2009 (8) TMI 557 - CALCUTTA HIGH COURT], we are of the considered view that initiation of rectification proceedings u/s 154 by the AO and simultaneously initiating the reopening of assessment proceedings u/s 147/148 of the Act on the same reasons, particularly when there is no failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment, are not sustainable in the eyes of law and as such consequent assessment framed u/s 143 (3)/148 of the Act is liable to be quashed. - Decided in favour of assessee Issues Involved:1. Jurisdiction and legality of invoking Section 147 and consequential proceedings under Sections 147/144.2. Validity of proceedings under Sections 147/148 given prior initiation under Section 154/155.3. Disallowance of salary paid to partners.4. Disallowance of notional interest on investment in HSIIDC Plot.5. Disallowance of notional interest on the opening balance of investment in HSIIDC Plot.6. Addition of freight and cartage expenses due to non-deduction of TDS.7. Addition of cartage inward expenses due to non-deduction of TDS.Detailed Analysis:1. Jurisdiction and Legality of Invoking Section 147:The Objector challenged the assessment order dated 26.12.2012, asserting that invoking Section 147 and the consequential proceedings under Sections 147/144 were without jurisdiction, illegal, and unsustainable both in law and on merits. The Tribunal analyzed the facts and found that the original assessment was framed under Section 143(3) on 13.12.2007. The Assessing Officer (AO) later noticed discrepancies, such as the salary paid to partners not mentioned in the partnership deed and interest on investment in an HSIDC plot that was not allowable. The AO issued a notice under Section 148 after recording reasons, which mirrored the reasons in the notice issued under Section 154.2. Validity of Proceedings under Sections 147/148 Given Prior Initiation under Section 154/155:The Tribunal noted that the AO had initially issued a notice under Section 154/155 but did not pass any final order on it. The Tribunal found that the reasons recorded for reopening the assessment under Section 148 were identical to those in the notice under Section 154. This indicated no failure on the part of the assessee to disclose fully and truly all necessary facts. The Tribunal concluded that reopening the assessment amounted to a change of opinion, which is not permissible.3. Disallowance of Salary Paid to Partners:The AO disallowed the salary of Rs. 1,92,000 paid to partners, as it was not mentioned in the partnership deed dated 01.04.2004. The Tribunal found that this issue was part of the reasons for reopening the assessment and was addressed similarly under Sections 154 and 148.4. Disallowance of Notional Interest on Investment in HSIIDC Plot:The AO disallowed notional interest of Rs. 2,85,360 on the investment in the HSIDC plot, as the asset was not put to use. The Tribunal again noted that this was part of the reasons for reopening the assessment and was addressed similarly under Sections 154 and 148.5. Disallowance of Notional Interest on the Opening Balance of Investment in HSIIDC Plot:The Tribunal did not specifically address this issue separately, as it was part of the broader issue of notional interest disallowance on the HSIDC plot investment.6. Addition of Freight and Cartage Expenses Due to Non-Deduction of TDS:The AO added Rs. 1,66,426 for freight and cartage expenses due to non-deduction of TDS. The Tribunal found that this issue was part of the reasons for reopening the assessment and was addressed similarly under Sections 154 and 148.7. Addition of Cartage Inward Expenses Due to Non-Deduction of TDS:The AO added Rs. 1,76,121 for cartage inward expenses due to non-deduction of TDS. The Tribunal found that this issue was part of the reasons for reopening the assessment and was addressed similarly under Sections 154 and 148.Conclusion:The Tribunal concluded that the initiation of rectification proceedings under Section 154 and the simultaneous initiation of reopening proceedings under Sections 147/148 on the same reasons were not sustainable. The Tribunal quashed the assessment framed under Sections 143(3)/148, as the proceedings under Sections 147/148 were held to be without jurisdiction and bad in law. Consequently, the cross objections filed by the assessee were allowed.