2025 (8) TMI 51 - AT - Income Tax

Reopening Assessments Beyond Six Years Invalid If All Facts Disclosed, Section 147 Proviso Applies

Sterling Infrastructure Private Limited Versus ACIT, Central Circle-15, Delhi

The ITAT Delhi held that the reopening of the assessment beyond the six-year limitation period was invalid as the assessee had disclosed all relevant ... Validity of reopening of assessment - period of limitation - Notice u/s 148 as issued to the appellant at the end of 6th year - Assessee has paid External Development Charges (EDC) to HUDA without deducting TDS HELD THAT:- There was nothing on the part of assessee which was lacking in disclosure in the return of income of assessment concluded u/s 143(3) of the Act as it was only subsequently, the issue about deductibility of TDS was judicially settled in favour of revenue and at the same time the Circular relied by ld. AO for reopening certainly doesn’t have retrospective effect as it is settled law that CBDT circulars are binding on the department but cannot override judicial interpretation or cannot be applied retrospectively to completed assessments. Reliance for this can be placed on Suchitra Components Ltd.[2007 (1) TMI 4 - SUPREME COURT] and SIL Investments Ltd. [2010 (5) TMI 68 - HIGH COURT OF DELHI]. So reopening is not only bad being illegal exercise of jurisdiction u/s 147 of the Act being hit by Proviso to section 147 of the Act it is also bad for applying retrospectively a Circular which had no force of law binding on the AO for examining the issue in original assessment concluded u/s 143(3) of the Act, because same was not in place when assessment was conducted. Assessee appeal allowed. ISSUES: Whether reassessment proceedings under Section 147 of the Income Tax Act, 1961 can be initiated beyond four years from the end of the relevant assessment year without any new or fresh material.Whether payment of External Development Charges (EDC) to a State Development Authority without deduction of Tax Deducted at Source (TDS) under Section 194C of the Act is liable to TDS.Whether the proviso to Section 147 of the Act bars reopening of assessment where there is no failure to disclose fully and truly all material facts.Whether Circulars or Office Memoranda issued by CBDT can be applied retrospectively to completed assessments to justify reopening.Whether the assessee can be held as an 'assessee in default' under Section 201(1) of the Act for non-deduction of TDS on EDC payments to a State Development Authority.Whether principles of natural justice were violated by not providing opportunity to the assessee to submit written submissions during appellate proceedings. RULINGS / HOLDINGS: The reassessment proceedings initiated beyond four years from the end of the assessment year without any new or fresh material are impermissible and constitute a 'mere change of opinion,' which is not allowed in law.Payments of External Development Charges (EDC) to the State Development Authority without deduction of TDS are exempt from TDS obligations under Section 196 of the Act, as such payments are effectively made to the State Government.The proviso to Section 147 prohibits reopening of assessment unless there is failure to disclose fully and truly all material facts, which was not the case here; hence, reassessment is invalid.CBDT Circulars and Office Memoranda, including the one dated 23.12.2017, cannot override judicial interpretation or be applied retrospectively to assessments already completed.The assessee is not an 'assessee in default' under Section 201(1) because the payment was made to a State Development Authority and was exempt from TDS deduction obligations.The appellate order confirming the addition without allowing the assessee time for written submissions violates the principles of natural justice. RATIONALE: The Court applied the statutory provisions of Sections 143(3), 147, 148, 194C, 196, and 201(1) of the Income Tax Act, 1961, and the proviso to Section 147 restricting reassessment beyond four years without failure to disclose material facts.Precedents such as CIT Vs Kelvinator of India Ltd. established that reassessment cannot be based on mere change of opinion.CBDT Circulars are binding on the department but cannot override judicial rulings or be applied retrospectively, as held in Suchitra Components Ltd. Vs CCE and CIT Vs SIL Investments Ltd.Judicial decisions in DLF Homes Panchkula (P) Ltd. and BPTP Ltd. confirmed the illegality of reassessment in similar circumstances, with Supreme Court dismissing Special Leave Petitions, reinforcing the binding nature of these rulings.The Court emphasized that payments to State Development Authorities are effectively payments to the State Government, invoking Section 196 exemption from TDS obligations.The principle of natural justice requires providing reasonable opportunity to the assessee to make submissions, which was not observed in the appellate proceedings.