Case Law Details
ITO Vs G. Tex Inc (ITAT Bangalore)
In a landmark ruling, the Income Tax Appellate Tribunal (ITAT) Bangalore, in the case of the Income Tax Officer (ITO) Vs G. Tex Inc, has underscored a critical principle of tax law concerning the reassessment proceedings under Section 147 of the Income Tax Act, 1961. This decision, dated December 12, 2023, emanates from an appeal by the revenue against the order of the National Faceless Appeal Centre (NFAC) for the assessment year 2010-11, which quashed the reassessment order on the grounds of it being initiated beyond the four-year statutory limit without the necessary prerequisite of the assessee’s failure to fully and truly disclose all material facts necessary for assessment.
Background of the Case: The core of the dispute lies in the reopening of the assessment by the revenue under Section 148 of the Income Tax Act, initiated on June 3, 2015, for the assessment year 2010-11, beyond the four-year period from the end of the relevant assessment year. The basis for the reopening was the alleged failure of the assessee, G. Tex Inc, to deduct Tax Deducted at Source (TDS) under Section 195(1) on an overseas commission amounting to Rs.5,80,52,487, leading to a proposed disallowance under Section 40(a)(i) of the Act. The NFAC, in its wisdom, deemed the reassessment proceedings initiated by the revenue as invalid, primarily due to the absence of any assertion by the assessing officer (AO) regarding the assessee’s failure to disclose fully and truly all material facts necessary for the assessment for the said year.
Legal Analysis: The ITAT meticulously analyzed the legal framework surrounding the reassessment proceedings under Section 147, particularly focusing on the first proviso which restricts the reopening of assessments beyond four years from the end of the relevant assessment year unless there’s a failure on the part of the assessee to fully disclose all material facts necessary for the assessment. The Tribunal found that the AO had not alleged any such failure in the reasons recorded for reopening the assessment. It was noted that the primary reason for the reassessment was the non-deduction of TDS on an overseas commission, information that was already available to the AO during the original assessment proceedings under Section 143(3) concluded on March 13, 2013.
Conclusion and Implications: The ITAT upheld the NFAC’s decision, affirming that the reassessment proceedings were invalid due to the lack of allegations against the assessee regarding the non-disclosure of material facts. This ruling emphasizes the importance of the statutory limit of four years for reopening assessments and protects taxpayers from undue reassessment proceedings initiated based on the AO’s change of opinion or oversight in reviewing documents already available during the original assessment. It reinforces the principle that reassessment cannot be used as a tool to rectify the AO’s failure to consider all relevant materials unless there is a clear failure of disclosure on part of the assessee. This decision is a significant one, ensuring fairness and certainty in the administration of tax laws, and safeguarding the rights of taxpayers against retrospective scrutiny beyond the statutorily prescribed period.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal by revenue is directed against order of NFAC for the assessment year 2010-11 dated 29.8.2023 passed u/s 250 of the Income-tax Act,1961 [‘the Act’ for short]. The revenue has raised following grounds:
1. “On the facts and circumstances of the case, the ld. CIT(A) erred in allowing the appeal of the assessee without adjudicating the case on merits by questioning the initiation of the proceedings u/s 148 of the Income Tax Act, 1961, the initiation of the proceedings u/s 148 in the case of the assessee cannot be treated as bad in law based on the Explanation 1 to Section 147 of the Income Tax Act 1961 which read as under:
“Explanation 1 – Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.”
2. On the facts and circumstances of the case, decision of the ld. CIT(A) stating that “reopening beyond the period of four years of completion of assessment u/s 143(3) without allegation regarding non-disclosure of fully and true material facts is bad in law.”
The initiation of the proceeding of u/s 147 of the Act is within the law as per the provision of cluse (b) of the section 149(1) “if four year, but not more than six years, have elapsed for the end of the relevant assessment year unless the income chargeable to the tax which has escaped assessment amounts to or is likely to amount to 1 lakh rupee or more for that year.”
As the proceeding u/s 147 of the Act has been initiated in this case vide issue of notice u/s 148 dated 03.06.2015 which is beyond the period of 4 years but less than 6 years from the end of relevant assessment year i.e. AY 2010-11.
3. On the fats and circumstances of the case, the CIT(A) erred in allowing the appeal of assessee, as the assessee never contested the reopening of the case during the initiation of the proceedings by issue of notice u/s 148 in his case even though opportunity was given to the assessee.”
2. The crux of the above grounds of the department is that NFAC quashed the assessment order passed u/s 143(3) w.s. 148 of the Act holding that the reopening is bad in law, which has been passed after 4 years from the end of assessment year in which the original assessment order has been passed u/ 143(3) of the Act.
3. Facts of the issue are that the assessee has filed a return of income for the assessment year 2010-11 on 30.9.2010 declaring total income of Nil. The assessment was completed u/s 143(3) of the Ct on 13.3.2022. On further verification of the profit & loss account as on 31.3.2010, which is already on record found that a sum of Rs.5,80,52,487/- was debited as overseas commission on which TDS as per section 195(1) of the Act was not made by the assessee. Therefore, to disallow this expenditure u/s 40(a)(i) of the Act assessment was reopened u/s 148 of the Act vide notice dated 3.6.2015 by recording the reasons for reopening as below:
3.1 Consequently, the assessment has been made by ld. AO by disallowing the above payment of Rs.5,80,52,487/- while framing above impugned reassessment order. Against this assessee went in appeal before NFAC by raising below mentioned grounds:
1. “For that the order of the ITO in reopening of the Assessment u/s 148 & disallowing overseas commission amounting to Rs.5,80,52,487/- u/s 40(a)(i).
2. For such other grounds that may be urged at the time of hearing and it is prayed that kindly may allow the appeal in the interest of justice and equity. ”
3.2NFAC while adjudicating the appeal before it on the issue of reopening quashed the assessment by observing as follows:
“6. I have gone through the statement of facts, ground of appeal, Remand report of the AO and submissions and comments on remand report of the appellant.
In its submission the appellant has challenged the validity of initiation of proceeding u/s 148 of the Act on the ground that during course of assessment proceedings u/s 143(3) the assessing officer after perusing the records and books of accounts maintained by the appellant, had found the claim of appellant genuine and accordingly granted the deduction as claimed by the appellant. Since all the details are available to the AO while finalizing the assessment proceedings u/s 143(3) and he has accepted the claim made by the appellant after due verification. Now initiation of proceedings u/s 148 of the Act without having any new facts/evidence is nothing but change of opinion from the audit objection and hence liable to be quashed. The appellant has relied on several case laws in support of its case.
The brief fact of the case that the return of income for AY 2010-11 on 30.9.2010 declaring total income at Rs. Nil. Assessment proceeding u/s 14393) of the Act finalized in this case on 13.2.2013 accepting return income as assessed income. Subsequently case was reopened and notice u/s 148 of the Act was issued on 3.6.2015 after recording the reason, meaning thereby it was issued after expiry of four years from the end of relevant assessment year.
As per the section 149(1) of the Act, no notice u/s 148 shall be issued for the relevant assessment year,——–
(a) If four years have elapsed from the end of the relevant AY, unless the case falls under cluse b or c.
(b) If four years, but not more than six years, have elapsed for the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to 1 lakh rupees or more for that year.
Further, first proviso to section 147 of the Act says that where an assessment under subsection 3 of subsection 143 of this section has made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of relevant assessment year unless any income chargeable to tax has escaped assessment for such assessment years by the reason of the failure on the part of the assessee to make a return u/s 139 or in response to notice u/s 142(1) or under section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.
On perusal of satisfaction recorded to reopen the case there was no mention of the fact that there was failure on the part of appellant to disclose fully and truly all material facts necessary for his assessment despite the fact that the case was reopened after expiry of four years from the end of the relevant assessment year i.e. 2010-11 and as per first proviso to section 147 no action shall be taken under this section after the expiry of four years from the end of relevant assessment year unless any income chargeable to tax has escaped assessment for such assessment years by the reason of the failure on the part of the assessee to make a return u/s 139 or in response to notice u/s 142(1) or under section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.
Further, it is noticed that the basic material based on which the satisfaction was drawn is profit and loss account as on 31.3.2010 which was very much available to the assessing officer while finalizing assessment order u/s 143(3) and which was duly verified by the AO. Therefore, it cannot be said that there is any failure on the part of the appellant to disclose fully and truly all material facts necessary for his assessment. Accordingly, it is concluded that reopening of assessment is bad in law in as much as it is merely based on change in opinion. Similar view has been taken Shi C.M. Mahadeva Vs. CIT in ITA No.795 of 2009 High Court of Karnataka. In recent judgement in the case of Gokaldas Exports Vs. DCIT ITA No.1062/BANG/2004 dated 31.3.2023, Hon’ble ITAT Bangalore has held that reopening beyond the period of four yeas of completion of assessment u/s 143(3) without allegation regarding non disclosure of fully and true material facts is bad in law.
In view of the fact and legal position the reopening of the assessment in this case is treated as invalid and void-ab-initio. Since, the proceeding has been held as invalid the case is not adjudicated on merit.
7. In results, the appeal is allowed.”
Against this revenue is in appeal before us.
4. The D.R. submitted that the NFAC has exceeded the jurisdiction by adjudicating the issues which are not before it. Hence, the issue may be remitted back to the file of NFAC to redecide the issue after calling remand report from the ld. AO.
4.1 He submitted that this ground was not before the NFAC, as such, they exceeded the jurisdiction.
5. The ld. A.R. submitted that the notice issued under section 148 of the Act dated 03.06.2015 for the AY 2010-11. The notice for reopening the assessment under section 147 rws 148 of the Act was issued for reopening the assessment after a period of four years from the end of the Assessment Year 2010-11 and the first proviso to section 147 of the Act will be applicable on the facts and circumstances of the case and the said proviso is extracted here for ease of reference:
“Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year”.
5.1 She submitted that the reasons recorded for issue of notice under section 148 of the Act as stated by the learned Income Tax Officer, has no allegation in the reasons recorded that the assessee has failed to disclose fully and truly all material facts or any allegations of failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148. Consequently, when the necessary conditions for invoking the provisions of section 147 of the Act have not been met, the assumption of jurisdiction under section 147 of the Act is bad in law on the facts and circumstances of the case.
a) She placed reliance on the decision of this Tribunal in the case of M/s. Gokaldas Exports v. DCIT, Circle- 11(2), Bengaluru in ITA No. 1062/Bang/2004 dated 03.2023
b) She also placed reliance on the decision of the Hon’ble Madras High Court in Fenner (India) v. DCIT (2000) 241 ITR 672 (Madras).
c) She also placed reliance on the following decisions
i. CIT, Bangalore Chaitanya Properties Pvt. Ltd. (2016) 67 taxmann.com 201 (Karn)
ii. CIT v. Motor Industries Co. Ltd. in ITA No. 220 of 2009 dated 12.2014 (Karn.)
iii. CIT Fibres and Fabrics International Pvt. Ltd. in ITA NO. 310 fo 2015 dated 22.09.2015 (Karn.)
iv. Sitara Diamond Ltd. v. DCIT (2012) 345 ITR 91 (Bom)
v. CIT Ankit C Maheshwari (2014) 366 ITR 146 (Gujarat)
vi. Dr. Wilmar Schwabe India Pvt. Ltd. v. ACIT (2023) 152 taxmann.com 428 (Delhi)
5.2 In view of the above submissions, the ld. A.R. submitted that the learned Assessing Officer has erred in assuming jurisdiction under section 147 w.s. 148 of the Act and consequently all subsequent proceedings including the assessment order passed are bad in law on the facts and circumstances of the case.
6. We have heard the rival submissions and perused the materials available on record. We have carefully gone through the reasons recorded by ld. AO u/s 147 of the Act, which has been reproduced in the earlier para of this order. In this case, originally assessment has been completed u/s 143(3) of the Act on 13.2.2013 and thereafter notice u/s 148 of the Act has been issued to the assessee on 3.6.2015. The first proviso to section 147 of the Act, which is very relevant is reproduced herein below:
“Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.”
6.1 The contention of the A.R. is that when the original assessment was completed u/s 143(3) of the Act, thereafter notice u/s 148 of the Act for reopening of assessment cannot be given after expiry of 4 years from the end of relevant assessment years unless any income chargeable to tax has escaped assessment for this assessment year and the reason of the failure on the part of the assessee to make a return u/s 139 of the Act or in response to notice u/s 142(1) or 148 of the Act or to disclose fully and truly all material facts necessary for its assessment, for this assessment year.
6.2 We have carefully gone through the reason recorded for reopening of assessment as reproduced above. We do not find that there is any finding recorded to the effect that assessee failed to disclose fully and truly all material facts necessary for relevant assessment year. There is no allegation by ld. AO while recording the reason that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, which result in reopening of assessment. The only allegation by the ld. AO is that the assessee not deducted TDS u/s 195(1) of the Act as such there should be disallowance u/s 40(a)(i) of the Act. The ld. A.R. submitted before us that all these details were made available to the ld. AO at the time of completion of original assessment u/s 143(3) of the Act on 13.2.2013 and after considering all information furnished at the time of original assessment, the ld. AO passed the said original assessment order on 13.2.2013. Now he is relooking the same records with him to issue a notice u/s 148 of the Act. If there is a failure on the part of ld. AO to consider the various documents filed by the assessee at the time of original assessment u/s 143(3) of the Act, he cannot revisit these documents after the expiry of 4 years from the end of relevant assessment years as there was no failure on the part of assessee to disclose all material facts necessary for the purpose of assessment, since there was no allegation by the ld. AO while recording the reasons for reopening of assessment to the effect that the assessee has failed to disclose fully and truly all material facts necessary for its assessment for this assessment year. In such circumstances, we are not in agreement with the ld. D.R. that the assessment is validly reopened vide notice dated 3.6.2015. This view of ours is supported by various case laws cited by the assessee, which was reproduced in earlier paras. Accordingly, we quash the reassessment order framed in this case on this primary issue. As such, there should be disallowance u/s 40(a)(i) of the Act.
AO cannot revisit Assessment to correct his failure to consider various documents filed
6.3 Further, there was a ground by assessee before ld. CIT(A) with regard to validity of reopening of assessment u/s 148 of the Act. The NFAC considered the entire facts and circumstances of the case and observed that reopening of the assessment in this case is after 4 years from the end of the relevant assessment year without any allegation that there is a failure on the part of the assessee to disclose all material facts truly and correctly before ld. AO. Hence, ld. NFAC has quashed the assessment order. We do not find any infirmity in the order of the ld. NFAC and the same is confirmed.
7. In the result, appeal of the revenue is dismissed.
Order pronounced in the open court on 12th Dec, 2023.
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