2021 (6) TMI 134 - AT - Income Tax

Reopening of assessment u/s 147 - reassessment after the expiry of four years - payments without deduction of tax at source and deduction of the alleged contingent liability towards interest - HELD THAT - Reopening in the realm of the assessee making payments without deduction of tax at source and the last portion is about the assessee claiming deduction of provision towards interest which was contingent in nature. The factum of such three payments and non deduction of tax at source from them and further claiming deduction of the alleged contingent liability towards interest were patent on the face of the return and the accompanying documents. The reasons recorded by the AO cannot be brought within the purview of the failure of the assessee to disclose fully and truly all material facts necessary for his assessment as, obviously, the relevant items were properly disclosed at the time of filing the return of income. Having not drawn any adverse inference against such items in the original assessment, the AO was debarred by the first proviso to invoke section 147 on the basis of the same material which was fully and truly disclosed by the assessee and was available at the time of original assessment. In view of the above factual panorama, we uphold the action of the ld. CIT(A) in quashing the initiation of the reassessment on this legal issue. Reassessment was prompted because of the TDS survey at the assessee s premises - An order u/s.201(1)/(1A) was passed treating the assessee in default on account of failure to deduct tax at source from Discount to stockiest, Payment of bonus and Payment of interest. The first appeal against that order was rendered in favour of the assessee. In the second appeal preferred by the Revenue, the Tribunal has accorded its imprimatur on the view point of the ld. CIT(A) deleting all the three disallowances made u/s.40(a)(ia) of the Act. When the order u/s.201(1)/(1A), forming bedrock of the additions made in the reassessment order, has itself been quashed, there remains no raison d etre whatsoever to sustain the additions on merits as well.

Summary

Issues:
1. Validity of initiation of re-assessment.
2. Deletion of additions on merits.

Issue 1: Validity of initiation of re-assessment
The first issue raised was regarding the validity of the initiation of re-assessment. The case involved the assessee filing an original return declaring total income, followed by an assessment determining a higher total income. Subsequently, a survey revealed non-deduction of tax at source on various payments, leading to a reassessment. The Assessing Officer (AO) recorded reasons for reassessment based on the survey findings. The AO believed that income had escaped assessment due to non-deduction of tax on certain payments. However, the Tribunal found that the reasons recorded did not indicate a failure on the part of the assessee to disclose material facts necessary for assessment. As the relevant items were disclosed during the original assessment, the AO could not rely on the same material for reassessment. Therefore, the Tribunal upheld the quashing of the reassessment initiation by the CIT(A).

Issue 2: Deletion of additions on merits
The second issue pertained to the deletion of additions on merits. The reassessment was triggered by a TDS survey at the assessee's premises, resulting in orders treating the assessee in default for non-deduction of tax at source. However, the first appeal against these orders favored the assessee. Subsequently, in the second appeal, the Tribunal upheld the deletion of all three disallowances made under section 40(a)(ia) of the Act. Since the basis of the additions in the reassessment order was quashed, the Tribunal found no justification to sustain the additions on merits. Consequently, the Tribunal upheld the impugned order in its entirety, leading to the dismissal of the appeal.

In conclusion, the Tribunal dismissed the appeal, emphasizing the quashing of the reassessment initiation and the deletion of additions on merits. The judgment highlighted the importance of disclosing material facts for assessment and the impact of prior legal decisions on subsequent proceedings.