2020 (1) TMI 1014 - AT - Income Tax

Tribunal Invalidates Reassessment, Assessee Prevails

Shri Ayush Murarilal Agarwal Versus The Income Tax Officer, Ward-1 (3) (1) Surat

The Tribunal ruled in favor of the assessee, quashing the reassessment under section 147/143(3) of the Income Tax Act. It held that the reassessment was ... Reopening of assessment u/s 147 - liability to deduct tax at source under section 194C on labour expenses - as per assessee reason is erroneous as the assessee being an individual was not liable to deduct tax at source, since the assessee was not covered under section 44AB in the preceding year, the Explain-L to section 194C of the Act was not applicable. HELD THAT:- While reopening of assessment the AO has considered current assessment year’s turnover to invoke provisions of section 194C which is not applicable as the assessee being individual. Hence, reasons were on wrong premises, which are not permitted under the statutes. Further, the AO has improved reasons for reopening of assessment during assessment proceeding, however, same is also not permissible. Further, the AO has erroneously considered total turnover including WIP which is not correct as turnover does not include WIP as held by Co-ordinate Bench of Kolkata Tribunal as discussed above. Further, the AO had no new tangible material, in his possession and relied on same assessment records which were already available with him and duly examined during scrutiny proceedings under section 143 (3) of the Act. Therefore, reopening of assessment on same material is not permissible as held by the Hon`ble Supreme Court in the case of ACIT v. ICICI Securities Primary Dealership Ltd. [2012 (8) TMI 754 - SC ORDER] wherein it was held that “where accounts had been furnished by assessee when called upon and thereafter, assessment was completed u/s.143(3), subsequently, on a mere re-look of said accounts earlier furnished by assessee it is not permissible under section 147 to reopen assessment of assessee on ground that income has escaped assessment”. In view of these facts and circumstances, we quash the reopening of assessment and allowed the grounds of appeal the assessee. Issues Involved:1. Validity of reassessment under section 147/143(3) of the Income Tax Act, 1961.2. Requirement of tangible material for issuing notice under section 148.3. Applicability of section 194C concerning TDS on labor expenses.4. Inclusion of Work-in-Progress (WIP) in turnover for section 44AB applicability.5. Reopening of assessment based on the same material as the original assessment.Detailed Analysis:1. Validity of Reassessment under Section 147/143(3):The appeal was directed against the order of the CIT(A) which upheld the reassessment under section 147/143(3). The assessee argued that the reassessment was invalid as it was based on erroneous reasons and without valid approval under section 151. The Tribunal admitted the additional ground of appeal, as it was a legal issue that did not require further inquiry.2. Requirement of Tangible Material for Issuing Notice under Section 148:The assessee contended that the notice under section 148 was issued without any fresh tangible material and was based on a re-evaluation of the same material available on record. The Tribunal noted that the reasons for reopening the assessment did not involve any new material and were merely a relook at the existing records. Citing the Supreme Court's decision in ACIT v. ICICI Securities Primary Dealership Ltd., the Tribunal held that reopening on the same material was not permissible.3. Applicability of Section 194C Concerning TDS on Labor Expenses:The AO had reopened the assessment on the grounds that the assessee failed to deduct TDS on labor expenses as required under section 194C. The Tribunal found this reasoning erroneous because the assessee, being an individual, was not liable to deduct TDS since his turnover in the preceding year did not exceed the threshold specified in section 44AB. The Tribunal referred to the Gujarat High Court's decision in Harshadbhai Naranbhai Bagadia v. ACIT, which supported the assessee's position.4. Inclusion of Work-in-Progress (WIP) in Turnover for Section 44AB Applicability:The AO included WIP in the turnover to determine the applicability of section 44AB. The Tribunal disagreed, citing the decision in ACIT v. B.K. Jhala & Associates, which held that WIP does not constitute turnover. The Tribunal concluded that the AO's inclusion of WIP in the turnover was incorrect and not permissible under the law.5. Reopening of Assessment Based on the Same Material as the Original Assessment:The Tribunal observed that during the original assessment, the AO had already examined all relevant facts, including the books of accounts and other records. The reopening of the assessment was based on the same material, which amounted to a change of opinion. The Tribunal referred to the Supreme Court's decision in CIT v. Kelvinator of India Ltd., which held that reopening on the same material is not justified.Conclusion:The Tribunal quashed the reopening of the assessment, holding that it was based on incorrect premises and without any new tangible material. Consequently, the Tribunal allowed the appeal of the assessee and did not address other grounds on merits. The order was pronounced under Rule 34(4) of the Income Tax Appellate Tribunal Rules, 1963.