2023 (2) TMI 315 - AT - Income Tax

Reopening of assessment u/s 147 - Reopening beyond period of four years - assessee wrongly claimed deduction towards TDS and provision for N.P.A.which were required to be disallowed - HELD THAT - The original assessment in this case was completed u/s.143(3) and the notice u/s.148 was issued after a period of four years from the end of the relevant assessment year, namely, 2010-11. Proviso to section 147, at the material time, provides that when an assessment has been completed u/s.143(3) and the Assessing Officer seeks to reopen the assessment after a period of four years from the end of the relevant assessment year, it is incumbent upon the AO to first show that the income chargeable to tax had escaped assessment by reason of failure on the part of the assessee, inter alia, to disclose fully and truly all material facts necessary for assessment. The items of expenses, taken note of by the AO in the notice u/s.148, may lead to prima facie escapement of income, but such items cannot come within the ambit of section 147 after a period of four years from the end of the relevant assessment year. The assessee claimed the above two deductions ex facie the Profit and loss account, which got allowed by the AO in the assessment u/s.143(3). The inference of the AO that these two items did not qualify for deduction, does not fall within the realm of failure of the assessee to disclose fully and truly all material facts necessary for reassessment - we hold that the reassessment was wrongly initiated. The same is, therefore, quashed. Assessee appeal allowed.

Summary

Issues:
Initiation of reassessment proceedings

Analysis:
The appeal was against the order passed by the CIT(A) in relation to the assessment year 2010-11. The first grievance was against the initiation of the reassessment proceedings. The case involved the assessee declaring income and claiming deductions under section 80P(2) of the Act. The original assessment was completed under section 143(3), and later, a notice under section 148 was issued by the Assessing Officer after four years from the end of the relevant assessment year. The key issue was whether the income chargeable to tax had escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for assessment.

The Tribunal examined the reasons for reassessment, which included the assessee's claims for TDS deduction and provision for N.P.A. It was noted that both these items were disclosed in the Profit and Loss account and were not undisclosed in the return. The Tribunal held that the items claimed by the assessee were already considered in the original assessment under section 143(3) and were not a result of failure to disclose necessary facts. While the items may have led to a prima facie escapement of income, they did not fall within the scope of section 147 after the four-year period. Therefore, the reassessment was deemed wrongly initiated and subsequently quashed.

Due to the decision on the legal issue of reassessment initiation, the other grounds raised by the assessee on merits were considered infructuous and did not require further adjudication. Consequently, the appeal was allowed in favor of the assessee.