2022 (6) TMI 636 - AT - Income Tax

Reopening of assessment u/s 147 - eligibility of reasons to believe - TDS u/s 194I - non-deduction of TDS on payment made for machinery hire charges in excess of prescribed limits - HELD THAT - In this view of the matter and by following the decision of M/s.URC Construction (P) Ltd. 2017 (4) TMI 1142 - ITAT CHENNAI , we are of the considered view that, re-opening of assessments for the AYs 2007-08 2008-09, are bad in law and liable to be quashed, because, reasons recorded by the AO does not discernable that there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for that assessments. Further, from the reasons, it is abundantly clear that the sole basis for the AO to form reasonable belief of escapement of income is, Tax Audit Report filed by the assessee along with return of income, which was very much available with the AO, when he had completed assessment proceedings u/s.143(3) of the Act. Therefore, we are of the considered view that under these facts and circumstances of the case, proviso to Sec.147 of the Act, come into operation and thus, we are of the considered view that notice issued by the AO u/s.148 of the Act, and consequent assessment proceedings u/s.147 of the Act, are bad in law and thus, re-assessment orders passed by the AO for the AYs 2007-08 2008- 09 are quashed. - Decided in favour of assessee.

Issues Involved:
1. Violation of the principle of natural justice.
2. Reopening of assessment under Section 147 of the Income Tax Act.
3. Disallowance of hire charges under Section 40(a)(ia) for non-deduction of TDS under Section 194I.
4. Validity of reopening based on audit objections.
5. Allegation of non-disclosure of material facts necessary for assessment.

Issue-wise Detailed Analysis:

1. Violation of the Principle of Natural Justice:
The appellant contended that the Assessing Officer (AO) grossly violated the principle of natural justice by not providing a fair and reasonable opportunity to present their case. This contention was not considered by the First Appellate Authority, leading to the appeal.

2. Reopening of Assessment under Section 147:
The appellant challenged the reopening of assessments for AYs 2007-08 and 2008-09, arguing that the reopening was based on audit objections and not on any fresh material. The assessments were reopened beyond the four-year limit without any new material, which constitutes a change of opinion. The appellant cited several judicial precedents to argue that reopening based on audit objections is invalid. The Tribunal agreed with the appellant, stating that the reopening was based on the Tax Audit Report, which was already available during the original assessment. Therefore, the reopening was held to be invalid.

3. Disallowance of Hire Charges under Section 40(a)(ia) for Non-deduction of TDS under Section 194I:
The AO disallowed hire charges paid by the appellant, citing non-deduction of TDS under Section 194I. The appellant argued that the payments did not exceed the prescribed limit for TDS deduction. The Tribunal noted that the AO had reopened the assessments based on the same Tax Audit Report available during the original assessment, which did not indicate any failure to deduct TDS. Consequently, the disallowance of hire charges was found to be unjustified.

4. Validity of Reopening Based on Audit Objections:
The appellant argued that audit objections cannot be a valid reason for reopening assessments, citing various judicial precedents. The Tribunal agreed, stating that the AO had no fresh tangible material to justify the reopening. The reopening was based solely on the Tax Audit Report, which was already part of the assessment records. Therefore, the reopening was held to be invalid.

5. Allegation of Non-disclosure of Material Facts Necessary for Assessment:
The appellant contended that there was no allegation from the AO regarding failure to disclose material facts necessary for the assessment. The Tribunal found that the reasons recorded for reopening did not include any such allegation. Therefore, the reopening was held to be invalid as it did not meet the requirements under the proviso to Section 147.

Conclusion:
The Tribunal concluded that the reopening of assessments for AYs 2007-08 and 2008-09 was invalid due to the absence of fresh material and the lack of any allegation of non-disclosure of material facts. The appeals filed by the appellant were allowed, and the reassessment orders were quashed. The Tribunal emphasized that reopening based on audit objections and the same material available during the original assessment constitutes a change of opinion, which is not permissible under the law.

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