👍👍👍👍👍Reassessment beyond four years is invalid if no failure to disclosure by Assessee during original assessment

Clipped from: https://taxguru.in/income-tax/reassessment-years-invalid-failure-disclosure-assessee-original-assessment.html

S. Ramamirtham Vs ITO (ITAT Chennai)

It is an admitted fact that the original assessment has been completed u/s. 143(3) of the Act on 20.03.2014. It is also an admitted fact that notice u/s. 148 of the Act dated 13.09.2017 is beyond four years from the end of the relevant assessment year. Thus, proviso to section 147 of the Act would come into operation, and as per said proviso, where the assessment under sub section (3) of section 143 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 disclose fully and truly all material facts necessary for his assessment for that assessment year. In light of above proviso to section 147 of the Act, if you examine the case of the assessee, in the original assessment proceedings, the AO had issued notice u/s. 143(2) of the Act on 24.05.2018 with a specific question of 14A disallowance, for which the assessee has filed computation of disallowance u/s. 14A r.w.r. 8D of the I.T. Rules, 1962. From the above, it is very clear that there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. Since, the notice u/s. 148 of the Act dated 13.09.2017 is beyond four years from the end of the relevant assessment year, and further there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for that assessment year, in our considered view notice issued u/s. 148 of the Act, is bad in law and liable to be quashed.

n this view of the matter and by considering facts of this case, and also by following the decision of Hon’ble High Court of Madras in the case of City Union Bank Ltd vs ACIT, we are of the considered view that re-opening of assessment u/s. 147 of the Act and consequent notice issued u/s. 148 dated 13.09.2017 is bad in law and liable to be quashed and thus we quash re-assessment order passed by the AO u/s. 143(3) r.w.s. 147 of the Act dated 17.09.2018.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income-tax (Appeals)-3, Chennai, dated 19.08.2020 and pertains to assessment year 2011-12.

2. The assessee has raised the following grounds of appeal:

“1. The order of the ld. CIT (A) confirming the Assessment Order is contrary to facts and circumstances of the case.

2. The ld. CIT (A) failed to appreciate that when all primary materials and documents were made available before the Id. AO along with disallowance calculation us/ 14A, if not satisfied, it is for him to apply Rule 8D and appropriately determine the amount of expenditure filed for the purpose of disallowance and if he had failed to do so, he could not furnish it as a reason for reopening a concluded assessment.

3. The ld. CIT (A) failed to appreciate that Section 147 confers the power to Id. AO to re-assess and not the power to review.

4. Further, the ld. AO order failed to take note of the limitation u/s 149 in the instant case as the notice for the reassessment proceedings was issued on 13/09/2017, which is beyond four years from the end of the assessment year when the original assessment order was passed u/s 143(3).

5.For the above reasons and other reasons adduced at the time of hearing, the additions may kindly be deleted and justice be rendered.”

3. The brief facts of the case are that, the assessee has filed his return of income for the assessment year 2011-12 on 16.09.2011, declaring loss of Rs. 1,10,97,021/-. The case was selected for scrutiny and assessment has been completed u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) on 20.03.2014. The case has been subsequently re­opened for the reasons recorded and notice u/s. 148 of the Act was issued on 13.09.2017. During the course of assessment proceedings, the AO noticed that the assessee has earned dividend income of Rs. 31,96,000/-, which was claimed as exemption u/s. 10(34) of the Act. However, made disallowance of expenditure u/s. 14A to the tune of Rs. 92,276/- only. Therefore, the AO, after considering relevant facts completed assessment u/s. 143(3) r.w.s. 147 of the Act on 17.09.2018, and determined total income of Rs. 94,22,580/- by making addition towards disallowance of expenditure u/s. 14A of the Act for Rs. 1,96,83,560/-, and disallowance of interest on car loans for Rs. 84,984/-. The assessee carried the matter in appeal before the first appellant authority, but could not succeed. The ld. CIT(A), for the reasons stated in their appellant order dated 19.08.2020, dismissed appeal filed by the assessee. Being aggrieved by the CIT(A) order, the assessee is in appeal before us.

4. The Ld. Counsel for the assessee, submitted that the re- opening of assessment u/s. 147 of the Act, is bad in law and liable to be quashed because there is no failure on the part of the assessee, to disclose necessary facts for completion of assessment.  He further submitted that, the original assessment order has been completed u/s. 143(3) of the Act and assessment has been re-opened beyond four years from the end of the relevant assessment year. In this case, the assessment has been re-opened beyond four years, then there should be an allegation that there is a failure on the part of the assessee to disclose fully and truly all material facts. In this case, the AO has called for necessary details with regard to disallowance u/s. 14A by way of specific questionnaire issued u/s. 143(2) of the Act, for which the assessee has filed complete details including statement of computation of disallowance u/s. 14A of the Act. Therefore, it cannot be said that there is a failure on the part of the assessee. In this regard he relied upon the decision of Hon’ble Madras High Court in the case of City Union Bank vs ACIT [2020] 425 ITR 475 (mad).

5. The Ld. DR present for the revenue, referring to explanation (1) to section 147 of the Act submitted that, 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 foregoing proviso. Therefore, there is no merit in arguments of the assessee that re-opening of assessment is bad in law.

6. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. It is an admitted fact that the original assessment has been completed u/s. 143(3) of the Act on 20.03.2014. It is also an admitted fact that notice u/s. 148 of the Act dated 13.09.2017 is beyond four years from the end of the relevant assessment year. Thus, proviso to section 147 of the Act would come into operation, and as per said proviso, where the assessment under sub section (3) of section 143 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 disclose fully and truly all material facts necessary for his assessment for that assessment year. In light of above proviso to section 147 of the Act, if you examine the case of the assessee, in the original assessment proceedings, the AO had issued notice u/s. 143(2) of the Act on 24.05.2018 with a specific question of 14A disallowance, for which the assessee has filed computation of disallowance u/s. 14A r.w.r. 8D of the I.T. Rules, 1962. From the above, it is very clear that there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. Since, the notice u/s. 148 of the Act dated 13.09.2017 is beyond four years from the end of the relevant assessment year, and further there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for that assessment year, in our considered view notice issued u/s. 148 of the Act, is bad in law and liable to be quashed. This legal proposition is supported by the decision of Hon’ble Madras High Court in the case of City Union Bank Ltd vs ACIT (supra), where the Hon’ble High Court held as under:

“Held, allowing the petition, (i) that the assessee had demonstrated that the conditions precedent to the exercise of jurisdiction under section 147 did not exist and the Assistant Commissioner had therefore no jurisdiction to issue the notice in respect of the assessment year 2011-12 after the expiry of four years. When the issue touches on the jurisdiction of the authority, the exist ence of alternative remedy was no ground to deny relief to the assessee.

(ii) That there was no failure on the part of the assessee. On the other hand, there appeared to be a failure on the part of the Assessing Officer to make an appropriate determination of the amount of expenditure in terms of section 14A. The other reason cited by the authority was also not sufficient. It was beyond dispute that the census figures for the year 2011 were made available only a few years later. The assessee could not have looked into the future while submitting its return of income. The notice was not valid.”

7. In this view of the matter and by considering facts of this case, and also by following the decision of Hon’ble High Court of Madras in the case of City Union Bank Ltd vs ACIT, we are of the considered view that re-opening of assessment u/s. 147 of the Act and consequent notice issued u/s. 148 dated 13.09.2017 is bad in law and liable to be quashed and thus we quash re-assessment order passed by the AO u/s. 143(3) r.w.s. 147 of the Act dated 17.09.2018.

8. In the result, appeal filed by the assessee is allowed.

Order pronounced in the court on 29th March, 2023 at Chennai.

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