2017 (8) TMI 1435 - HC - Income Tax

Reopening of assessment - disallowance u/s 40(a)(ia) - Held that - We do not see any failure on the part of the assessee to disclose truly and fully all material facts. The payments were part of the return filed by the assessee. If the Assessing Officer desired to disallow any part of such payments on the ground that the deduction of tax at source was not carried out, it was open for him to do so after hearing the assessee. We do not see any reason to interfere in the Tribunal s order declaring the process of reopening of assessment as illegal. In that view of the matter, we have not examined the correctness of the discussion of the Tribunal in the impugned order pertaining to the validity of the additions made by the Assessing Officer under Section 40(a)(ia) of the Act. We may examine the same in appropriate proceedings if the situation so arises. Appeal dismissed.

Summary

Issues:
1. Validity of reopening of assessment beyond the prescribed time limit.
2. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961.

Analysis:

Issue 1: Validity of reopening of assessment beyond the prescribed time limit
The appeals in question arose from a common background involving the same assessee. The Revenue challenged the judgment of the Income Tax Appellate Tribunal dated 29.07.2016. The primary issue raised was whether the Appellate Tribunal erred in quashing the re-assessment order passed under section 143(3) read with section 147 of the Income Tax Act, 1961, on the grounds of a mere change of opinion. The Tribunal had reversed the validity of the reopening of assessment beyond the four-year period from the end of the relevant assessment year. The Court, after examining the records, found that the assessee had disclosed all material facts, and the payments in question were part of the return filed. The Court held that if the Assessing Officer wanted to disallow any part of such payments due to non-deduction of tax at source, he should have done so after hearing the assessee. Consequently, the Court dismissed the tax appeals, upholding the Tribunal's order declaring the reopening of assessment as illegal.

Issue 2: Disallowance under section 40(a)(ia) of the Income Tax Act, 1961
The second issue concerned the disallowance under section 40(a)(ia) of the Act amounting to ?1,67,09,358, including ?40,05,358, which was confirmed by the CIT(A). The Tribunal, however, deleted this disallowance. The Revenue questioned the deletion, emphasizing that the confirmed disallowance was related to the variance between the amounts shown by the assessee and the IRCTC in their books of accounts. The Court did not delve into the correctness of the Tribunal's discussion on the additions made by the Assessing Officer under section 40(a)(ia) of the Act, as the reopening of assessment was deemed illegal. The Court mentioned that it might examine this issue in appropriate proceedings if the need arises. Therefore, the Court dismissed the tax appeals without further scrutinizing the disallowance under section 40(a)(ia) of the Income Tax Act, 1961.

In conclusion, the Gujarat High Court, through the judgment delivered by Mr. Akil Kureshi and Mr. Biren Vaishnav JJ., upheld the Tribunal's decision to quash the re-assessment order due to an illegal reopening of assessment beyond the prescribed time limit. The Court also refrained from reviewing the disallowance under section 40(a)(ia) of the Act, leaving it open for examination in future proceedings if necessary.