2024 (4) TMI 604 - HC - Income Tax

Reopening assessment beyond four years invalid when TDS deduction issue already examined during original scrutiny

Bangalore Turf Club Limited Versus Union Of India, Assistant Commissioner Of Income Tax Circle (1) (1) (2) Bengaluru

Karnataka HC held that reopening of assessment beyond four years was barred in law. The case involved disallowance under Section 40(a)(ia) for ... Reopening of assessment - reasons to believe - reopening beyond period of four years - disallowance u/s 40(a)(ia) - non deduction of tds on stake money paid by the petitioner to the horse owners u/s 194B or Section 194BB - as argued receipt on behalf of the horse - owners and the debits affected on their instructions disclosing that the financials are prepared from the primary accounts and without claiming any expenditure in the regard, thus there cannot be any allegation of failure to truly and fully disclose material facts - HELD THAT:- The second respondent, while deciding on the petitioner’s objections to the reasons offered to initiate re-assessment, has overlooked that the question of failure to deduct TDS for the amounts paid as Stake Money and the amounts deducted from the Stake Money on the instructions of the horse-owners to the credit of the horse-trainers and jockeys was examined after scrutiny of the petitioner’s book while considering disallowing these amounts under Section 40(a)(ia) of the IT Act. In the light of the above, this Court must opine that there was no failure on the petitioner’s part to disclose primary facts and the reasons for re-assessment are recorded arbitrarily without considering all the circumstances. Hence, the second question framed is answered in favour of the petitioner holding that the re-assessment that is initiated after four years on the ground that there is failure to disclose primary facts is barred in law. Decided in favour of assessee. Issues Involved:1. Validity of the Notice dated 29.03.2019 issued u/s 148 of the Income Tax Act.2. Validity of the Notice dated 31.05.2019 issued u/s 143(2) of the Income Tax Act.3. Validity of the second respondent's order dated 15.11.2019 rejecting the objections filed by the petitioner.4. Validity of the consequential Notice dated 15.11.2019 issued u/s 142(1) of the Income Tax Act.Summary of Judgment:Issue 1: Validity of the Notice dated 29.03.2019 issued u/s 148 of the Income Tax ActThe petitioner argued that the notice dated 29.03.2019 was issued without assigning any reason and just before the expiry of the limitation period. The reasons for reopening were provided only on 06.06.2019, which is beyond the six-year limitation period prescribed u/s 149(1)(b). The court referred to the Delhi High Court's decision in *Haryana Acrylic Manufacturing Co. v. Commissioner of Income* and the Andhra Pradesh High Court's decision in *GVK Gautami Power Ltd. v. Asst. CIT (OSD)*. The court concluded that the reasons for re-assessment must be recorded before issuing the notice, but they do not need to be communicated within the limitation period. The court found that the reasons were recorded before issuing the notice, thus the notice dated 29.03.2019 was valid.Issue 2: Validity of the Notice dated 31.05.2019 issued u/s 143(2) of the Income Tax ActThe petitioner received the notice dated 31.05.2019 directing them to produce documents and appear before the second respondent. The court examined whether the reasons for reopening the assessment were valid and found that the reasons for reopening were based on scrutiny proceedings for the Assessment Year 2016-17. The court concluded that the reasons recorded for reopening were arbitrary and did not consider all circumstances, thus invalidating the notice dated 31.05.2019.Issue 3: Validity of the second respondent's order dated 15.11.2019 rejecting the objections filed by the petitionerThe petitioner filed detailed objections to the reasons for reopening the assessment, which were rejected by the second respondent on 15.11.2019. The court found that the second respondent overlooked the fact that the petitioner had disclosed all primary facts during the original assessment proceedings. The court concluded that the second respondent's order dated 15.11.2019 was invalid as it was based on arbitrary reasons for reopening the assessment.Issue 4: Validity of the consequential Notice dated 15.11.2019 issued u/s 142(1) of the Income Tax ActThe consequential notice dated 15.11.2019 was issued calling upon the petitioner to furnish certain documents and information. Since the court found the reasons for reopening the assessment to be arbitrary and the notices issued u/s 148 and 143(2) to be invalid, the consequential notice dated 15.11.2019 was also quashed.Order:The petition is allowed, and the following are quashed:- Notice dated 29.03.2019 in No. ITBA/A/COM/F/17/2018-19/1015536697(1) [Annexure-G].- Notice dated 31.05.2019 in ITBA/AST/S/143(2) 3/2019-20/1016195141(1) [Annexure-J].- The second respondent's order dated 15.11.2019 in No. ITBA/AST/F/17/20.19-20/1020516969(1) [Annexure-M].- The consequential Notice dated 15.11.2019 in No. ITBA/AST/F/142/2019-20/1020525585(1) [Annexure-N].