Reopening quashed as AO not recorded reasons of assesse’s failure to disclose material facts fully and truly but notice u/s 148 was issued on change of opinion
ABCAUS Case Law Citation:
ABCAUS 3236 (2020) (01) ITAT
Important case law relied upon by the parties:
Sadbhav Engineering Ltd. vs. DCIT
CIT Vs. Elgi Finance Ltd., [(2006) 286 ITR 674 (Mad)],
Fenner (India) Ltd. vs DCIT (241 ITR 672)
In this case, appeal was filed by the assessee against the order of Commissioner of Income Tax (Appeals) in inter alia upholding notice issued u/s.148 of the Income Tax Act, 1961 (the Act) which was alleged being not in accordance with law and is liable to be quashed.
There is a survey operation in the case of the assessee. Before the Assessing Officer (AO), with respect to difference in the expenditure of labour charges claimed and as admitted before the survey team, the assessee submitted that he was uneducated and registers are maintained by his supervisors, therefore, as per the registers maintained by one of the Supervisor, total expenditure was in agreement.
The AO made an addition of the said difference u/s 143(3) r.w.s. 153C of the Act. Subsequently, the Assessing Officer issued a notice u/sec. 148 to the assessee for reopening the assessment on the ground that there is an escapement of income.
As per the reasons recorded, the AO stated that in the sworn statement in course of survey u/s 133A of the Act, the assessee was asked to reconcile but could not reconcile the difference and had admitted to have claimed excess expenditure in the return of income. The AO opined that assessee had inflated labour charges and therefore, he had have reasons to believe that income chargeable to tax in the hands of the assessee had escaped assessment within the meaning of section 147 of the Act.
The assessee challenged the reopening before the CIT(A) who simply upheld the reopening without considering the submissions made by the assessee and without considering the reasons recorded.
Before the Tribunal the assessee submitted that the notice issued by the Assessing Officer u/s 148 was beyond the period of four years and therefore the Assessing Officer had to establish that the assessee failed to disclose fully and truly all the material facts to complete the assessment and the reasons recorded, nowhere the Assessing Officer had stated that there is a failure on the part of the assessee.
The assessee further submitted that the reasons given by the Assessing Officer for reopening on account of payment made to the labour charges which had already been considered by the Assessing Officer u/s 143(3) r.w.s. 153C of the Act, therefore reopening of the assessment was change of opinion which is not permissible in accordance with law and submitted that notice issued may be quashed.
The Tribunal observed that in the reasons recorded, the Assessing Officer nowhere said that there was a failure on the part of the assessee not only that what was the new material came to the notice of the Assessing Officer for reopening beyond the four years was also not mentioned.
Reopening bad as AO not recorded reasons of assesses failure
The Tribunal opined that once the Assessing Officer want to reopen the assessment beyond the four years, he had to satisfy the conditions laid down by the proviso to section 147 of the Act.
The Tribunal stated that it was the duty of the Assessing Officer to establish that there is a failure on the part of the assessee to disclose fully and truly all material facts to complete the assessment, but nowhere the Assessing Officer had stated that there is a failure on the part of the assessee. That apart, nowhere in the reasons recorded what is the new material fact had come to the notice of the Assessing Officer in respect of escapement of income. The same aspect of difference of labour payments which has already been considered, the very same assessment if he wanted to reopen after four years which was not permissible in accordance with law.
The Tribunal observed that the Hon’ble High Court had held that for the purpose of invoking section 147 after the expiry of four years from the end of the relevant assessment year, the income chargeable to tax should have escaped assessment inter alia by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary to complete the assessment. In the assessment order, nowhere it is indicated that the assessments are sought to be reopened by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessments relevant to the assessment year, thus, initiation of the proceedings u/sec. 147 by issuing notice u/sec. 148 after expiry of four years from the end of the relevant assessment years is bad and cannot sustain.
It was further noted that Hon’ble High Court had held that as per proviso to section 147 is concerned, the law prescribes a period of four years to initiate reassessment proceedings, unless the income alleged to have escaped assessment was made out as a result of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. In the present case, the Assessing Officer had not made out there is a failure on the part of the assessee.
Again the Hon’ble High Court had also held that held that in order to reopen the assessment after expiry of four years from the end of the relevant assessment year, the Assessing Officer must necessarily record not only his reasonable belief that income has escaped assessment but also the default or failure committed by the assessee to disclose fully and truly all material facts. Issuance of notice u/sec. 148 after expiry of four years cannot be sustained as escapement of income, if any is not on account of any failure on the part of the assessee to disclose the material facts fully and truly.
The Tribunal noted that in the present case, no new material fact had been considered by the Assessing Officer, only on the basis of submissions earlier, the Assessing Officer sought to reopen the assessment. The Assessing Officer not recorded any reasons that there was a failure on the part of the assessee to disclose material facts fully and truly.
Following the judicial precedents, the Tribunal held that the notice issued by the Assessing Officer u/s 148 was beyond four years was not valid and therefore same is hereby quashed.
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