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2013 (11) TMI 161 - AT - Income TaxIncome Escapement u/s 147 - Whether the First Appellate Authority was justified to hold that the initiation of proceeding u/s. 147 of the IT Act was totally bad in law - Where the AO had sufficient reason to believe that income chargeable to tax had escaped assessment - The particular word has reason to believe plays an important role in reopening the assessment u/s.147 of the I.T.Act - Once the reasons were duly recorded and the same were not arbitrary and irrational, the jurisdiction was validly assumed by the Assessing Officer and Court cannot look into the adequacy or sufficiency of reasons - as held by the Apex Court in the case of Raymond Wollen Mills Ltd Vrs. ITO 1997 (12) TMI 12 - SUPREME Court - Weather the CIT(A) erred as in the amended provision of section 147 of the I.T.Act,1961 w.e.f. A/Y 1989-90 had not put any restrictions on the AO so as to exclude the application of reopening of any completed assessment proceeding even if made u/s.143(3). Also in the instant case since no opinion was ever formed, question of changing of such opinion does not arise at all in the proceeding u/s. 147 of the I.T.Act, 1961 - Held that - The order of the learned CIT(A) insofar as after considering the legal issue with respect to validity of reassessment u/s.147 he had also considered the deletion of the amount brought on record by the Assessing Officer in the reassessment proceedings when the Assessing Officer has categorically given a finding that the amount of expenditure were incurred for transportation carriage expenses of Rs.33,86,803 and hire charges Rs.42,33,728 which were to be disallowed u/s.40(a)(ia) as no TDS has been deducted u/s.194C. He added the same to the income which was assessed by him u/s.143(3). It was clear that the Assessing Officer brought on record material which was not escapement of income but was opinion based in the disallowance u/s.40(a)(ia) when the non-deduction of tax as directed to him u/s.263 was to be followed by the learned Assessing Officer insofar as the material available to the Assessing Officer was not income having escaped assessment but non-deduction of tax at source u/s.194C. The learned DR before us has submitted the case laws relating to the computation of income under the provisions of Section 147/148 when the original reason to believe of income having escaped assessment need not necessarily be brought to tax in the reassessment proceedings when other parameter were available to the Assessing Officer to compute an income on the issue of notice u/s.147/148.The learned Counsel for the assessee has submitted various case laws which directly relate to the finding that the transportation expenses and hire charges are not to be disallowed unless the provisions of Section 194C has not been complied with. No material has been brought on record by the Assessing Officer as can be perused in his order as to how these expenses can be disallowed without bringing on record the violation of the provisions of Section 194C, we are of the considered view that the learned CIT(A) has rightly considered the case of the assessee appellant before it following the decision of Hon ble jurisdictional High Court that the assessment records do not relate to such finding for assuming jurisdiction u/s.147. In this view of the matter, we are of the considered view that there is no infirmity in the order of the learned CIT(A). We uphold the same and dismiss the appeal of the Revenue.
Issues Involved:
1. Validity of the initiation of proceedings under Section 147 of the Income Tax Act. 2. Applicability of the judgment of the Hon'ble High Court of Orissa in the case of M/s. B.C. Nayak v. CIT. 3. Disallowance under Section 40(a)(ia) of the Income Tax Act for non-deduction of TDS on transportation charges. Detailed Analysis: 1. Validity of the initiation of proceedings under Section 147 of the Income Tax Act: The Revenue questioned whether the initiation of proceedings under Section 147 was justified. The Assessing Officer (AO) must have "reason to believe" that income chargeable to tax has escaped assessment. The conditions for reopening an assessment under Section 147 include: - The AO must record the reasons for taking action. - These reasons must have a live link with the formation of the belief. - The AO must have reason to believe that any income chargeable to tax has escaped assessment. - No action under Section 147 can be initiated after four years from the end of the relevant assessment year unless the taxpayer failed to disclose fully and truly all material facts necessary for assessment. The Hon'ble Apex Court in Raymond Wollen Mills Ltd. v. ITO emphasized that the sufficiency of the material is not to be considered at the stage of reopening. The court cannot strike down the reopening if there is prima facie material for the AO to believe that income has escaped assessment. 2. Applicability of the judgment of the Hon'ble High Court of Orissa in the case of M/s. B.C. Nayak v. CIT: The CIT(A) relied on the judgment of the Hon'ble High Court of Orissa in M/s. B.C. Nayak v. CIT, which held that reassessment proceedings cannot be initiated on the basis of a change of opinion. The AO must have tangible material to conclude that there is an escapement of income. The AO in the original assessment under Section 143(3) had examined the books of accounts and other details. The reassessment was initiated without any new material, which constitutes a change of opinion. The reassessment proceedings were thus invalid as per the principles laid down in CIT v. Kelvinator of India Ltd. and other relevant case laws. 3. Disallowance under Section 40(a)(ia) of the Income Tax Act for non-deduction of TDS on transportation charges: The AO disallowed Rs. 33,86,803 under Section 40(a)(ia) for non-deduction of TDS on transportation charges. However, the CIT(A) found that the AO did not bring any new material on record to justify the disallowance. The CIT(A) concluded that the disallowance should not be made unless the provisions of Section 194C were violated. The ITAT upheld the CIT(A)'s decision, noting that the AO failed to demonstrate how the expenses could be disallowed without proving a violation of Section 194C. The reassessment was based on an opinion rather than new material, making it invalid. Conclusion: The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s order. The reassessment proceedings under Section 147 were deemed invalid due to the absence of new material and the initiation based on a change of opinion. The disallowance under Section 40(a)(ia) was also invalid as the AO did not establish a violation of Section 194C.
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