2023 (2) TMI 152 - AT - Income Tax

Reopening of assessment u/s 147 - reassessment after expiry of four years from the end of the relevant assessment year - cash payment in violation of section 40A(3) - HELD THAT - Assessing Officer had no fresh tangible material in his possession while reopening the assessment under Section 147 of the Act. Apparently, revisiting the material available on record at the time of completion of original assessment, the Assessing Officer has initiated proceedings under Section 147 of the Act. Though, in the reasons recorded, the Assessing Officer has made a bald allegation regarding failure of the assessee in disclosing truly and correctly all material facts, however, there is no substance in such allegation. In course of original assessment proceedings, the Assessing Officer had specifically enquired into the details of payments made to Monad University and rent. In reply to the query raised, the assessee had furnished its reply vide letter dated 30.01.2017. Thus, it is evident, in course of the original assessment proceedings the Assessing Officer did make inquiry regarding the cash payment and took a conscious decision that no violation to section 40A(3) of the Act was made. That being the factual position emerging on record, in my view, the proceeding initiated under Section 147 of the Act is on a mere change of opinion, hence, amounts to review of the earlier assessment order. Conditions enshrined in proviso to section 147 of the Act, applicable to the impugned assessment year, are not satisfied. - Decided in favour of assessee.

Issues:
1. Validity of reopening of assessment under Section 147 of the Act.
2. Application of proviso to section 147 regarding disclosure of material facts.
3. Alleged violation of section 40A(3) in assessment proceedings.

Issue 1: Validity of reopening of assessment under Section 147 of the Act

The appeal was filed against the order passed by the National Face Centre (NFC), Delhi for the assessment year 2015-16. The grounds raised by the assessee challenged the validity of the income escaped assessment proceedings initiated under section 147. The Assessing Officer reopened the assessment under Section 147 based on cash payments made by the assessee, leading to the addition of Rs.2,12,000 under Section 40A(3) of the Act. The assessee contended that the reopening was invalid as there was no failure on their part to disclose all material facts necessary for assessment. The Tribunal analyzed the reasons recorded for reopening and observed that the Assessing Officer lacked tangible material and proceeded based on a relook at the original assessment proceedings. The Tribunal held that the conditions of the proviso to section 147 were not fulfilled, rendering the reopening invalid. The Tribunal quashed the assessment order and set aside the Commissioner (Appeals) decision.

Issue 2: Application of proviso to section 147 regarding disclosure of material facts

The Tribunal noted that the original assessment was completed under Section 143(3) before the reopening under Section 147, which occurred after four years from the end of the relevant assessment year. As per the proviso to section 147, no reopening can occur unless there is a failure to disclose fully and truly all material facts. The Tribunal found that the Assessing Officer lacked fresh tangible material and initiated proceedings under Section 147 based on a revisit of existing records. The Tribunal concluded that the reopening was a mere change of opinion and did not establish any failure on the part of the assessee to disclose necessary facts. Citing relevant case law, the Tribunal held that the reopening was invalid due to non-compliance with the proviso to section 147.

Issue 3: Alleged violation of section 40A(3) in assessment proceedings

During the assessment proceedings, the Assessing Officer added Rs.2,12,000 to the assessee's income under Section 40A(3) for cash payments made. The assessee contended that the disallowance under Section 40A(3) was unwarranted as the payments were not high value and did not involve tax evasion. The Tribunal, after invalidating the reopening of assessment, did not delve into the merits of the disallowance under Section 40A(3, as the grounds raised on merits became academic. Consequently, the appeal was allowed based on the invalidity of the reopening of assessment under Section 147.

This detailed analysis of the legal judgment from the Appellate Tribunal ITAT DELHI highlights the issues raised by the assessee, the arguments presented, and the Tribunal's decision regarding the validity of the reopening of assessment and the application of relevant legal provisions.

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