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

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 facts in the original return. The issue regarding TDS on External Development Charges was judicially settled in favor of the revenue after the original assessment under section 143(3) was completed. The circular relied upon by the AO for reopening lacked retrospective effect and could not override judicial interpretation or bind the AO retrospectively. Consequently, the reopening under section 147 was held to be an illegal exercise of jurisdiction, being barred by the proviso to section 147. The appeal of the assessee was allowed.

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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.

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