2017 (2) TMI 1107 - AT - Income Tax

Reopening of assessment - sanction received from the Commissioner - reasons for the notice under section 154 relied upon - Held that - The first aspect is the date on which the reasons were recorded, which is given in the copy of reasons filed on record, which is dated 04-09-2014, for which the sanction was received from the Administrative Commissioner on 11-08-2014. As is the requirement under section 151 of the Act, the reasons ought to be recorded first for reopening the assessment and thereafter the sanction is to be received from the Commissioner and on receipt of such sanction the notice is to be issued u/s 148. The same has not been followed in this case. The said initiation of reassessment proceedings is incorrect as the same is without the sanction of Administrative Commissioner and hence cannot be upheld. The second aspect is for issuing the said notice under section 148 of the Act. The satisfaction of the Assessing Officer that there is escapement of income in the hands of the assessee is of the Assessing Officer himself and not of any other party as pointed out in the paras hereinabove. The basis for recording the reasons for reopening the assessment is the audit objection raised in the case of assessee. The Assessing Officer while passing assessment order dated 23-03-2015 categorically admits that however consequent upon audit objections by the internal audit party vide their audit query dated 02-02-2012, the case was reopened u/s 148 after obtaining prior approval of the Commissioner of Income-tax-II, Nashik. where the initiation of reassessment proceedings are on the basis of audit objection and not on the basis of independent satisfaction of Assessing Officer and hence not valid, is the issue before us. The reassessment proceedings initiated in the case are without any jurisdiction as the Assessing Officer had no occasion to believe that there was escapement of income in the hands of the assessee and hence no merit in recording of reasons for reopening the assessment under section 147 and issue of notice under section 148 of the Act and thereafter completion of assessment under section 143(3) r.w.s.147 of the Act. Hon ble High Court of Calcutta in the case of Berger Paints India Ltd. Vs. ACIT 2009 (8) TMI 557 - CALCUTTA HIGH COURT on such issue held that where the reasons quoted for reopening the assessment were practically the same as the reasons for the notice under section 154 of the Act for rectification of the alleged mistakes and where rectification notice had been dropped by the same Assessing Officer, he could not again start reassessment proceedings on the basis of same reasons. - Decided in favour of assessee.

Summary

Issues Involved:

1. Disallowance under section 40(a)(ia) of the Income-tax Act, 1961.
2. Nature of payments made to drivers and applicability of section 194C.
3. Disallowance under section 40A(3) of the Income-tax Act, 1961.
4. Validity of reassessment proceedings under section 147/148 of the Income-tax Act, 1961.
5. Consideration of judicial precedents by CIT(A).

Issue-wise Detailed Analysis:

1. Disallowance under section 40(a)(ia):

The assessee contested the disallowance/addition of ?5,72,768/- made under section 40(a)(ia) for freight charges paid to drivers. The CIT(A) upheld this disallowance, but the assessee argued these payments were not contractual under section 194C, hence no TDS was required.

2. Nature of Payments and Applicability of Section 194C:

The assessee argued that the payments to drivers were not contractual payments subject to TDS under section 194C. The CIT(A) did not appreciate this argument, leading to the confirmation of the disallowance.

3. Disallowance under section 40A(3):

The assessee also contested the disallowance of ?7,93,559/- under section 40A(3) for cash payments exceeding ?20,000/-. The CIT(A) confirmed this disallowance, which the assessee argued was a review of the original assessment order.

4. Validity of Reassessment Proceedings:

The primary issue was the validity of the notice issued under section 148. The assessee argued that the reassessment proceedings were based on an audit objection, not an independent satisfaction of the Assessing Officer. The Tribunal found that the reasons for reopening were recorded after obtaining the sanction from the Commissioner, which was not in accordance with the law. The Tribunal held that the reassessment proceedings initiated on the basis of audit objections were invalid, as the Assessing Officer did not form an independent belief of income escapement.

5. Consideration of Judicial Precedents:

The assessee argued that the CIT(A) failed to consider binding judicial precedents. The Tribunal noted that the CIT(A) dismissed these precedents without specific reasons, merely stating they were not applicable to the facts of the case.

Conclusion:

The Tribunal quashed the reassessment proceedings under section 147/148 due to the invalid initiation based on audit objections and lack of independent satisfaction by the Assessing Officer. Consequently, the assessment order passed under section 143(3) read with section 147 was also quashed. The grounds of appeal on the merits of the additions were dismissed as the reassessment itself was invalid. The appeal of the assessee was allowed.