DCIT Vs IOT Anwesha Engineering and Projects Ltd. (ITAT Ahmedabad)
ITAT Ahmedabad held that initiation of reassessment proceedings under Section 148 of the Income Tax Act on the same issue/ claim which was already decided and accepted during the course of regular assessment, without bringing any new material facts on records, is not valid as per law.
Facts- The assessee company is engaged in the business of fabrication and erection, e-filed its return of income through electronic media declaring total income Rs. 2,67,91,420/-, which was initially processed u/s. 143(3) of the Act dated 29.11.2011. The assessment was finalized upon determining the total income at Rs. 2,69,50,080/- and subsequently revised at Rs. 2,67,91,420/- on 03.10.2013 in terms of the appeal order passed by the CIT(A) on 02.08.2013.
Subsequently, the assessment proceeding u/s. 147 of the Act was initiated upon taking approval from the CIT and notice dated 27.02.2015 u/s. 148 of the Income Tax Act was served upon the assessee on 03.03.2015.
Notably, the assessee claimed expenses to the extent of Rs.1,27,92,992/- on account of duties and taxes out of which a sum of Rs.62,92,692/- pertained to claim of expenses on account of VAT payment. In fact, the assessee paid VAT of Rs.5,31,615/- by 31.03.2008. The balance amount remained unpaid and shown as outstanding liability as on 31.03.2008 and neither the said amount of Rs.57,61,077 was paid before the due date of filing of return. Show cause notice u/s. 142(1) of the Act, therefore, was issued to the assessee to show as to why disallowance of Rs. 57,61,077/- may not be made in view of provisions of Section 43B of the Income Tax Act. Not being satisfied, AO added the impugned amount u/s. 143(3) r.w.s. 144C(3).
Notably, the assessment was completed u/s. 143(3) of the Act on 29.11.2011. The prescribed period for reopening u/s. 148 of the Act within the period of 4 years from the end of assessment year expires on 31.03.2013. However, a notice u/s. 148 of the Act was issued on 27.02.2015 culminating into the order of addition.
Conclusion- Held that as the precondition for initiation of proceeding under Section 147 of the Income Tax Act by recording reasons of income, escaping assessment was not reflecting from the said order of reopening due to the failure on the part of the assessee, the same was not found to be sustainable and hence liable to set aside. Neither any allegation has been labelled against the assessee by the AO while reopening assessment under Section 148 of the Act in failing to disclose fully or truly all material facts necessary for assessment which admittedly goes against such reopening of assessment by the department.
Held that when the material facts were truly and fully discussed at the time of original assessment, initiation of proceedings to reopen on the same set of facts held to be invalid. We further find from the records that during original assessment the Ld. AO asked for the details of duties and taxes and again initiated re-assessment proceeding on the very same issue without bringing any new material facts on records.
Once, upon considering the documents, the claim of the assessee decided and accepted by not making any addition during the course of regular assessment issuing notice under Section 148 of the Act on the same issue by successor AO amongst to assumption of revisionary power which is not valid as per law.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The instant two appeals filed by the Revenue are directed against the order dated 13.02.2020 passed by the Ld. Commissioner of Income Tax (Appeals)-1, Vadodara (in short ‘CIT(A)’) & order dated 14.06.2022 passed by the National Faceless Appeal Centre (NFAC), Delhi, arising out of the orders dated 27.10.2015 passed by the ACIT, Circle-1(1)(2), Baroda & 06.12.2019 passed by the DCIT, Circle-1(1)(1), Vadodara under Section 143(3) r.w.s. 147 & 144 r.w.s. 147 of the Act for Assessment Years 2008-09 & 2012-13, respectively.
2. Since both the appeals filed by the same assessee these are heard analogously and are being disposed of by a common order for the sake of convenience.
3. Amongst other grounds, the Revenue has taken ground of quashing the order passed by the Ld. AO on the ground of maintainability of re-assessment proceeding initiated under Section 148 of the Act by the Ld. CIT(A) on the count of change of opinion. Since this relates to the very maintainability of the entire proceeding initiated under Section 148 of the Act, we have decided to proceed with the matter to deal with this ground at the very threshold.
ITA No.386/Ahd/2020 – A.Y. 2008-09
4. The appeal preferred by the Revenue for A.Y. 2008-09 is barred by limitation for 60 days due to administrative reason, particularly, movement of the file in the department, as was the argument advanced by the Ld. DR, which has not been controverted by the Ld. AR with all his fairness. Hence, the delay is condoned.
5. We have heard the rival submissions made by the respective parties and we have also perused the relevant materials available on record.
6. The brief facts leading to the case is this that the assessee company, engaged in the business of fabrication and erection, e-filed its return of income through electronic media declaring total income Rs.2,67,91,420/-, which was initially processed under Section 143(3) of the Act dated 29.11.2011. The assessment was finalized upon determining the total income at Rs.2,69,50,080/- and subsequently revised at Rs.2,67,91,420/- on 03.10.2013 in terms of the appeal order passed by the Ld. CIT(A)-1, Baroda on 02.08.2013. Subsequently, the assessment proceeding under Section 147 of the Act was initiated upon taking approval from the Ld. CIT-1, Baroda and notice dated 27.02.2015 under Section 148 of the Act was served upon the assessee on 03.03.2015. By and under the reply dated 04.06.2015, the assessee requested to treat the return filed under Section 139(1) of the Act as return filed against the notice issued under Section 148 of the Act. The assessee claimed expenses to the extent of Rs.1,27,92,992/- on account of duties and taxes out of which a sum of Rs.62,92,692/- pertained to claim of expenses on account of VAT payment. In fact, the assessee paid VAT of Rs.5,31,615/- by 31.03.2008. The balance amount remained unpaid and shown as outstanding liability as on 31.03.2008 and neither the said amount of Rs.57,61,077 was paid before the due date of filing of return. Show cause notice under Section 142(1) of the Act, therefore, was issued to the assessee to show as to why disallowance of Rs.57,61,077/- may not be made in view of provisions of Section 43B of the Act. The assessee submitted the following reply as under:
“In the above referred notice, your honour has asked to show cause as to why amount of Rs.57,61,077/ claimed as VAT expenditure should not be disallowed. In this regard, we would firstly like to bring to your kind attention that during the year under consideration we had debited VAT Tax expenses account by Rs.62,92,692/- out of which Rs.5,31,615/- was paid during the year. The remaining amount has been debited in VAT expense account as this was on account of VAT tax paid on various inputs purchases shown as current asset instead of debiting expense at that time. The amount was shown as input credit receivable on the bonafide belief that the said input on VAT on purchases would be available for set-off against future liability. Since, the said amount was shown as current asset, subsequently on discussion with the Sales-tax consultant, we came to know that the said input VAT credit would not be admissible to us and therefore we transferred the said amount to expenses. There is no question of non-payment of this VAT amount as the said amounts have already paid at the time of booking purchases.
Furthermore, as a routine accounting policy the Sales-tax expense for the year is transferred to Sales-tax payable account and is set-off against input credit available. We are herewith enclosing ledger copy of VAT/Sales-tax expense and VAT/Sales-tax payable for your kind reference
As it is well settled accounting rule, any VAT/Sales-tax paid on purchases (input credit) is usually shown as current asset if the same is eligible for set-off against future VAT/Sales-tax liability. The said input credit is availed against VAT/Sales-tax payable on sales. Furthermore where a set-off is not available or the VAT paid on purchases is not eligible as input credit, the same is definitely an expense of the assessee In the present case, the amount debited to Sales-tax expenses have been arrived after the above explained treatment of Sales-tax expense, Sales-tax payable and input credit receivable.
There is no anomaly in the present case, of the assessee company and the treatment of VAT/Sales tax and expenses claimed are in consonance with the prescribed accounting treatment and the ICAI Guidance notes and Income-tax provisions in this regard. The company has not deviated from the acceptable accounting methods. Therefore, the said claim must not be disallowed.”
7. Finally, the Ld. AO added the impugned amount of Rs.57,61,077/-under Section 143(3) r.w.s. 144C(3) of the Act. As per provision of Section 43B of the Act, the claim of unpaid expenses of VAT/Sales Tax of the impugned amount was found to be not allowable and addition was made. Such plea was also taken by the Ld. DR while making argument in favour of the Revenue and against the deletion of addition made by the Ld. CIT(A).
8. On the contrary, during the course of assessment proceedings, the additional ground was taken by the Ld. AR questioning very validity of reopening of assessment under Section 147 of the Act initiated beyond the period of 4 years from the end of relevant assessment year.
9. It is relevant to mention that for the year under consideration, the return was filed under Section on 30.09.2008. The assessment was completed under Section 143(3) of the Act on 29.11.2011. The prescribed period for reopening under Section 148 of the Act within the period of 4 years from the end of assessment year expires on 31.03.2013. However, a notice under Section 148 of the Act was issued on 27.02.2015 culminating into the order of addition. On the other hand, the law prescribes that in the event reopening under Section 147 of the Act is initiated one of the conditions that escapement of income has arisen due to the failure on the part of the appellant either to make a return or to disclose fully or truly all material facts necessary for the purpose of making assessment to be fulfilled. As the assessee already furnished return under Section 139 of the Act, the second condition of escapement of income due to failure on the part of the assessee is required to be established by the Revenue while reopening under Section 147 of the Act after 4 years from the end of the assessment year as contended by the assessee and also before us by the Ld. AR. On this aspect, before the First Appellate Authority, the assessee submitted as follows:
“Additional Ground 3 to 5: Reopening of proceedings under invalid exercise of powers u/s. 147.
1. The Appellant under Additional Grounds 3 to 5 vide letter dated 15-11-2016 most respectfully has challenged the action of learned AO in reopening the assessment u/s. 147 of the Act.
2. For appreciating the facts in a proper perspective the chronology of events is given hereunder:
