2020 (2) TMI 326 - HC - Income Tax

Court quashes assessment re-opening based on TDS failure, emphasizing strict construction of section 147 Proviso.

The court held that the re-opening of assessment proceedings under section 147 of the Income Tax Act, 1961 against the petitioner, based on the failure to ... Reopening of assessment u/s 147 - “failure of disclosure” of not effecting the TDS - HELD THAT:- The Proviso going by its text and context needs to be construed strictly since the re-opening of an assessment is a power of an extraordinary nature vide ITO vs. MEWALAL DWARKAPRASAD [1989 (2) TMI 4 - SUPREME COURT] The text of the reasons nowhere states that there is failure on the part of the petitioner to disclose the alleged non-deduction of TDS; what is stated is that the petitioner had failed to deduct the TDS; the Proviso employs the expression “by reason of the failure on the part of the assessee … to disclose fully and truly all material facts”; the expression implies some guilt in mind howsoever little it may be, attributable to the assessee; in other words, a failure to deduct the TDS per se does not fit into the said expression as rightly contended by the counsel for the petitioner. Writ petition is allowed; a Writ of Certiorari issues quashing the impugned notice and proceedings and consequently the re-opening of assessment of the income of the petitioner for the Assessment Year 2010-11 is interdicted. Issues:Re-opening of assessment u/s.147 of the Income Tax Act, 1961 based on failure to make Tax Deduction at Source during the Financial Year 2009-10.Analysis:The judgment addresses the unsustainability of the re-opening of assessment proceedings by the respondents against the petitioner, an Income Tax Assessee, under section 147 of the Income Tax Act, 1961. The court emphasizes that the Proviso to section 147, which allows for re-opening of assessment, must be strictly construed, as re-opening assessment is an extraordinary power. The court cites the case law of ITO vs. MEWALAL DWARKAPRASAD to support this interpretation. The Proviso mandates that re-opening can only occur if there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The judgment highlights the importance of the language used in the Proviso and the need for some element of guilt on the part of the assessee for non-disclosure.The court scrutinizes the reasons provided by the respondents for re-opening the assessment, which primarily revolve around the failure of the petitioner to deduct Tax Deduction at Source (TDS). However, the court notes that the reasons do not explicitly state a failure on the part of the petitioner to disclose the alleged non-deduction of TDS. The court refers to a Division Bench of the Bombay High Court in HINDUSTAN LEVER LTD. vs. R.B. WADKAR to emphasize that the reasons recorded by the Assessing Officer must explicitly mention the failure of the assessee to disclose all material facts necessary for assessment. The judgment asserts that the reasons should be clear, unambiguous, and reflect the mind of the Assessing Officer, which was found lacking in this case.Furthermore, the court dismisses the Revenue's argument that the reasons need not be reproduced in the notice objectively, citing the case law of I.P.PATEL & CO. vs. DEPUTY COMMISSIONER OF INCOME TAX. The court distinguishes the present case from the cited decision, stating that there was insufficient material to form an opinion on the failure to disclose in the current scenario. The court rejects the suggestion of remanding the matter for fresh consideration, citing the principle that the validity of an order must be judged based on the reasons mentioned initially and cannot be supplemented by fresh reasons later.In conclusion, the court allows the writ petition, issuing a Writ of Certiorari to quash the impugned notice and proceedings, thereby halting the re-opening of the petitioner's assessment for the Assessment Year 2010-11. The judgment does not award any costs in this matter.