2017 (5) TMI 1043 - AT - Income Tax

Reopening of assessment - non-issuance of notice u/s.143(2) before completion of assessment - addition u/s 36 - Held that - AO is within this jurisdiction to initiate the provisions of the section 143(3) of the Act only on satisfying the first condition noted above and failure to take steps u/s.143(3) of the Ace will not render the AO powerless to initiate the re-assessment proceedings. See CIT Vs. Rajesh Jhaveri Stock Brokers P. Ltd in 2007 (5) TMI 197 - SUPREME Court wherein held that the Assessing Officer had jurisdiction to issue notice under section 148 for bringing to tax income escaping assessment in an intimation under section 143(1)(a) on the ground that the claim for bad debts by the assessee was not acceptable as the conditions for allowance specified in section 36(1)(vii) and (2) were not fulfilled. Accordingly re-opening is valid in law. Regarding nonissue of notice u/s.143(2) of the Act where was no return filed by the assessee in response to notice u/s.148 of the Act and the return was not pending for assessment there is no question of issuing of notice u/s.143(2) of the Act. Being so we are of the opinion that the nonissue of notice u/s.143(2) of the Act does not make the assessment bad in law. - Decided in favour of revenue Disallowance of advertisement expenses - Held that - Similar issue came for consideration before this Tribunal in assessee s own case for assessment year 2012-13 wherein held that the expenditure incurred on advertisement being a revenue expenditure was allowable in full Disallowance u/s.40(a)(ia)- non-deduction of TDS on interest paid bythe assessee on the loan availed from the MBFC - Held that - Similar issue came for consideration before the Hon ble supreme Court in M/s.Palam Gas Agencies Vs. CIT 2017 (5) TMI 242 - SUPREME COURT wherein held that the provisions of the section 40(a)(ia) is applicable to both paid and payable. Hence we allow the ground taken by the Revenue.

Summary

Issues Involved:
Reopening of assessment and non-issuance of notice u/s.143(2) of the Act.
Disallowance of advertisement expenses.
Disallowance u/s.40(a)(ia) of the Act for non-deduction of TDS on interest paid.

Reopening of Assessment and Non-issuance of Notice u/s.143(2) of the Act:
The case involved the appeal against the reopening of assessment and the non-issuance of notice u/s.143(2) of the Act. The AO reopened the assessment after noticing discrepancies in the company's expenses and statutory dues, leading to the issuance of a notice u/s.148. The assessee did not file a return in response to this notice. The Tribunal held that the AO had the jurisdiction to reopen the assessment under section 147, even if the original assessment was processed u/s.143(1) of the Act. The Tribunal referred to a Supreme Court judgment to support the validity of the reopening. Additionally, the Tribunal ruled that the non-issuance of notice u/s.143(2) did not invalidate the assessment, as there was no return filed by the assessee in response to the notice u/s.148. Therefore, the ground regarding reopening of assessment and non-issuance of notice u/s.143(2) by the Revenue was allowed.

Disallowance of Advertisement Expenses:
The next common ground in the appeals was the disallowance of advertisement expenses by the AO. The AO treated the expenses as deferred revenue expenditure, amortizing it over five years. However, the assessee contended that the expenses were revenue expenditure. The Tribunal cited a previous order in the assessee's own case, where it was held that advertisement expenses incurred for the purpose of carrying on the business should be considered revenue expenditure. Relying on this precedent, the Tribunal decided in favor of the assessee, dismissing the Revenue's appeal on this ground.

Disallowance u/s.40(a)(ia) of the Act for Non-deduction of TDS:
The final issue in some of the appeals concerned the disallowance u/s.40(a)(ia) of the Act for non-deduction of TDS on interest paid by the assessee. The Tribunal referenced a Supreme Court case to affirm that the provisions of section 40(a)(ia) applied to both paid and payable amounts. Consequently, the Tribunal allowed the ground taken by the Revenue on this matter.

In conclusion, the Tribunal partly allowed the appeals of the Revenue on various grounds, including the disallowance of advertisement expenses and non-deduction of TDS on interest paid. The order was pronounced on 11th May 2017 in Chennai.