2024 (5) TMI 434 - AT - Income Tax

Validity of reopening of assessment - reasons recorded that the escapement is due to a failure to disclose true and accurate particulars of income - notice after expiry of 4 years - eligibility of reasons to believe - discrepancies were noticed during audit with respect to the return of Income filed by the assessee in respect of non-deduction of TDS on interest payment, non-inclusion of accrued interest on NSC and not following percentage completion method of arriving income/loss as per Accounting Standard AS-7. HELD THAT - We do not find that there is any finding recorded to the effect that assessee failed to disclose fully and truly all material facts necessary for relevant assessment year. There is no allegation by ld. AO while recording the reason that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, which result in reopening of assessment. Disallowance u/s 40(a)(i) as assessee not deducted TDS - A.R. submitted before us that all these details were made available to the AO at the time of completion of original assessment u/s 143(3) of the Act on 23.12.2009 and after considering all information furnished at the time of original assessment, the ld. AO passed the said original assessment order on 23.12.2009. Now he is relooking the same records with him to issue a notice u/s 148 of the Act. If there is a failure on the part of ld. AO to consider the various documents filed by the assessee at the time of original assessment u/s 143(3) of the Act, he cannot revisit these documents after the expiry of 4 years from the end of relevant assessment years as there was no failure on the part of assessee to disclose all material facts necessary for the purpose of assessment, since there was no allegation by the ld. AO while recording the reasons for reopening of assessment to the effect that the assessee has failed to disclose fully and truly all material facts necessary for its assessment for this assessment year. In such circumstances, we are not in agreement with the ld. D.R. that the assessment is validly reopened vide notice - Accordingly, we quash the reassessment order framed in this case on this primary issue. As such, there should be disallowance u/s 40(a)(i) of the Act. Thus, in our opinion, there was a ground by assessee before ld. CIT(A) with regard to validity of reopening of assessment u/s 148 - NFAC considered all and observed that reopening of the assessment in this case is after 4 years from the end of the relevant assessment year without any allegation that there is a failure on the part of the assessee to disclose all material facts truly and correctly before ld. AO. Hence, ld. NFAC correctly quashed the assessment order. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the reassessment proceedings under section 147/148 of the Income Tax Act.
2. Disallowance under section 40(a)(ia) of the Act.
3. Disallowance of interest paid to banks and financial institutions.
4. Non-inclusion of accrued interest on NSC.
5. Application of percentage completion method as per AS-7.

Summary:

Validity of the Reassessment Proceedings:
The primary issue was the validity of the reassessment proceedings initiated under section 147/148 of the Income Tax Act. The assessee argued that the notice issued under section 148 was bad in law as it was based on audit objections and did not constitute "reasons to believe." The Tribunal noted that the original assessment was completed under section 143(3) and the notice for reopening was issued after four years without any allegation that the assessee failed to disclose fully and truly all material facts. Citing the first proviso to section 147 and relevant case laws, the Tribunal quashed the reassessment order, stating that the reopening was invalid as there was no failure on the part of the assessee to disclose material facts.

Disallowance under Section 40(a)(ia):
The assessee contested the disallowance of Rs. 1,85,36,371/- under section 40(a)(ia) for non-deduction of TDS on interest payments. The Tribunal observed that the amounts payable as of the end of the financial year were NIL and relied on the Special Bench of the ITAT in Merlyn Shipping and Transports and the Allahabad High Court in Vector Shipping Services to conclude that disallowance under section 40(a)(ia) applies only to amounts payable as of the end of the previous year.

Disallowance of Interest Paid to Banks and Financial Institutions:
The assessee argued that the interest paid to banks (Rs. 57,54,004/-) and financial institutions (Rs. 1,27,82,367/-) was cumulative interest of earlier years and was claimed upon project completion. The Tribunal noted that this was affirmed by the assessing officer in the remand report and no disallowance was required. Additionally, the financial institutions had offered the interest received on a mercantile basis, and the assessee should not be subject to disallowance under section 40(a)(ia).

Non-inclusion of Accrued Interest on NSC:
The Tribunal briefly mentioned that the reason for reopening included the non-inclusion of accrued interest on NSC amounting to Rs. 40,000/-. However, this issue was not elaborated upon in the final judgment due to the quashing of the reassessment order.

Application of Percentage Completion Method as per AS-7:
The Tribunal discussed the assessee's method of revenue recognition for its projects, "Panjos Stadia" and "Panjos Serene," on a completed contract basis. The assessing officer had adopted the percentage completion method as per AS-7, which the assessee contested. The Tribunal noted that the preliminary structural work was in progress and substantial costs were not incurred, thus supporting the assessee's method.

Conclusion:
The Tribunal quashed the reassessment order due to the invalidity of the reopening proceedings and refrained from addressing other grounds raised by the assessee. The appeal was allowed in favor of the assessee.

Order Pronounced:
The order was pronounced in the open court on 17th Jan, 2024.