2019 (6) TMI 1256 - AT - Income Tax

Reopening of assessment u/s 147 - notice issued after expiry of four years from end of the relevant assessment year - HELD THAT - Notice u/s 148 was issued after expiry of four years from end of the relevant assessment year. Notice was issued on 21.11.2014 whereas four years for the Asstt.Year 2009-10 will expire on 31.3.2014. Since scrutiny assessment was also there in this case, and in that situation, proviso appended to section 147 would come to the rescue of the assessee. The interdiction in the proviso appended to section 147 puts an embargo in the exercise of power at the end of the AO in cases where scrutiny assessment has taken place and four years have expired from the end of relevant assessment year. In such cases, the assessment cannot be reopened unless it its demonstrated that income has escaped assessment on account of failure on the part of the assessee to disclose all material facts fully and truly in respect of his assessable income. A perusal of the reasons would indicate that no such circumstances have been pressed by the AO. He has re-appreciated trial balance-sheet which is also available to him when original assessment order was passed. Therefore, reassessment is not sustainable. It deserves to be quashed. Accordingly, we quash the re-assessment order. Levy of penalty u/s 271(1)(c) - HELD THAT - Sub-clause (iii) of section 271(1)(c) provides mechanism for quantification of penalty. It contemplates that the assessee would be directed to pay a sum in addition to taxes, if any, payable by him, which shall not be less than , but which shall not exceed three times the amount of tax sought to be evaded by reason of concealment of income or furnishing of inaccurate particulars of income. The quantification of the penalty is depended upon the addition made to the income of the assessee. In the present case, since we have already quashed re-assessment order, the very basis for computation of such penalty has been extinguished. Therefore, no penalty is imposable on the assessee. It is cancelled and ground of appeal of the assessee is allowed.

Summary

Issues:
1. Reopening of assessment under section 148 of the Income Tax Act.
2. Validity of reassessment order under section 144 r.w.s. 147.
3. Imposition of penalty under section 271(1)(c) of the Act.

Reopening of Assessment:
The assessment order under section 143(3) assessed total income at Rs. NIL. The AO reopened the assessment due to the assessee's failure to disclose fully and truly all material facts necessary for assessment, specifically related to 'Monthly Maintenance Income' not shown in the P&L Account. The notice under section 148 was issued after four years from the end of the relevant assessment year, which, combined with the availability of the trial balance during the original assessment, rendered the reassessment unsustainable. The proviso appended to section 147 restricts the AO's power to reopen assessments beyond four years from the end of the relevant assessment year, especially in cases of scrutiny assessments. As the AO did not demonstrate any failure on the part of the assessee to disclose material facts, the reassessment order was quashed.

Validity of Reassessment Order:
The AO made an addition to the income of the assessee in the reassessment order, which formed the basis for the imposition of penalty under section 271(1)(c). However, since the reassessment order was quashed, the basis for computing the penalty was extinguished. The penalty under section 271(1)(c) is contingent upon the addition made to the income of the assessee, and in this case, with the reassessment order being quashed, no penalty could be imposed. Consequently, the penalty was cancelled, and the appeal of the assessee was allowed.

Imposition of Penalty:
Section 271(1)(c) provides for the quantification of penalty, which can be up to three times the amount of tax sought to be evaded due to concealment of income or furnishing inaccurate particulars. The penalty is linked to the addition made to the income of the assessee. As the reassessment order was quashed, the basis for computing the penalty was eliminated, leading to the cancellation of the penalty. The appeals of the assessee were allowed, and no penalty was imposed.

In conclusion, the Appellate Tribunal at Ahmedabad allowed both appeals of the assessee, quashing the reassessment order and cancelling the penalty under section 271(1)(c) due to the absence of a valid basis for the imposition of the penalty following the quashing of the reassessment.