2022 (7) TMI 481 - AT - Income Tax

Validity of reopening of assessment u/s 147 - Notice after a period of four years from the end of the relevant AY - TDS u/s 194C - Disallowance u/s. 40(a)(ia) for non deduction of tax at source - Freight charges paid - HELD THAT - We find from the order of the Ld. AO that the intimation was processed U/s. 143(1) of the Act and the case was selected for scrutiny under CASS. Subsequently, the assessment was completed U/s. 143(3) on 18/12/2007. The AO had issued a notice U/s. 148 on 20/09/2011 for the AY 2005-06. We find force in the Ld. AR's argument that since the assessment was completed U/s. 143(3) of the Act and no new material has been found by the Ld. AO warranting the reopening of assessment U/s. 147 and the assessee has disclosed fully and truly all the material facts before the Ld. AO. AO has scrutinized the tax audit report which proves that the assessee has not failed to disclose any material facts before the Assessing Officer. The Ld. AO erred in inferring non-deduction of tax mentioned in Form 3CD and has resorted to pass rectification order U/s. 154 of the Act which was later on quashed by the Hon'ble ITAT 2011 (4) TMI 1539 - ITAT VISAKHAPATNAM In the instant case, it is noticed that notice U/s. 148 of the Act was issued on 20/09/2011 for the AY 2005-06. The action of the AO while initiating the notice U/s. 148 of the Act after a period of four years from the end of the relevant AY 2005-06 which expired on 31/3/2009, should have examined the conditions provided U/s. 147 of the Act should have been satisfied for reopening of the proceedings to be valid. The Assessing Officer having verified the facts from Form 3CD as mentioned in the AO's order proves the contention of the Ld. AR that in the instant case, the assessee has disclosed fully and truly all the material facts in the course of original assessment proceedings before the AO. The Assessment Order also has not established that the assessee has not made disclosure of fully and truly all material facts. Since in the present case, the conditions stipulated u/s. 147 of the Act have not met, the reassessment proceedings could not be sustained. See M/S. SCHWING STETTER INDIA P. LTD. 2015 (6) TMI 497 - MADRAS HIGH COURT - Decided in favour of assessee.

Summary

Issues:
Disallowance of Rs. 3,58,789/- u/s. 40(a)(ia) for non-deduction of tax at source.

Analysis:
1. The appeal was filed against the order of the Ld. CIT(A) regarding the disallowance of Rs. 3,58,789/- towards freight charges paid without TDS deduction. The AO added this amount to the income of the assessee as per order U/s. 143(3) r.w.s. 147 and U/s. 250(6) of the Act for the AY 2005-06.
2. The primary issue revolved around the reopening of the assessment by the AO under section 147 of the Act. The AO issued the notice U/s. 148 without new material facts, leading to a challenge by the assessee. The Ld. AR contended that all material facts were disclosed during the original assessment under section 143(3), making the reopening invalid.
3. The core argument was the application of section 40(a)(ia) of the Act to disallow the amount due to non-deduction of tax at source. The Ld. AR argued that the provision applies only to payable amounts as of 31st March, not already paid during the year. The Ld. CIT(A) upheld the disallowance, citing the judgment of the Hon'ble Supreme Court in a relevant case.
4. The Tribunal analyzed the validity of the AO's actions, emphasizing the conditions under section 147 for reopening assessments after four years. It was observed that the AO failed to meet the requirements for reopening, as the assessee had fully disclosed all material facts during the original assessment proceedings.
5. Relying on the judgment of the Hon'ble Madras High Court in a specific case, the Tribunal set aside the Ld. CIT(A)'s order and quashed the reassessment proceedings under section 143(3) r.w.s. 147 of the Act. The appeal of the assessee was allowed, highlighting the importance of meeting statutory conditions for reopening assessments.

This detailed analysis addressed the issues surrounding the disallowance of expenses due to non-deduction of tax at source and the validity of reopening the assessment under section 147 of the Act, providing a comprehensive overview of the legal judgment.