2016 (10) TMI 685 - AT - Income Tax

Reopening of assessment - Additions u/s 40(a)(ia) for non deduction of TDS - contention of the assessee-company that there was no fresh information which enabled the AO to form opinion that income escaped assessment cannot be accepted, as information had come to the knowledge of AO that the provisions of section 10(23G) were omitted w.e.f. 1/4/2007 during the course of subsequent assessment proceedings - Held that - Hon ble Supreme Court in the case of Ess Kay Engineering P.Ltd. vs. CIT (1997 (7) TMI 114 - SUPREME Court ), Phool Chand Bajrang Law & another vs. CIT (1993 (7) TMI 1 - SUPREME Court ) held that information obtained in subsequent assessment proceedings could lead to a belief that income chargeable to tax has escaped assessment even though the transaction in question had been examined during the course of original assessment proceedings. Reliance placed by the learned counsel for assessee-company on the decision in the case of Kelvinator of India Ltd., (2010 (1) TMI 11 - SUPREME COURT OF INDIA ) is misplaced, as there is no opinion formed in the original assessment proceedings on the issue of claim of examination of tax free interest u/s 10(23G) of the Act. Therefore, we hold that initiation of re-assessment proceedings u/s 147 is valid in law. Additions u/s 40(a)(ia) for non deduction of TDS - provision for royalty, fees for technical service etc - reversal of provision for contractor and professional fee etc. - claim of the assessee-company that these amounts were disallowed u/s 40a(ia) suo motu for non-deduction of tax at source - Held that - In the year under consider consideration, the very provision created was reversed and therefore the same should be allowed as a deduction. There is no quarrel on this proposition but the claim can be allowed only on satisfying the AO that the provision was reversed out of amount disallowed earlier. The CIT(A) has recorded a categorical finding that the assessee has failed to link provision reversed with the amount of provision originally created and disallowed. The CIT(A) also observed that the assesseecompany had expressed its helplessness to establish the link between original provision and reversal provision during the year under consideration. In the circumstances, the CIT(A) has confirmed the addition. Even before us, assessee-company had not made any attempt to prove nexus between amount of provision created which was disallowed in earlier years and the amount of provision reversed during the year under consideration. The onus of proving the claim always lies with the assessee. As in the case of CIT vs. Imperial Chemical Industries (India) Ltd., (1969 (2) TMI 15 - SUPREME Court )has unequivocally held that burden of providing that the claim is allowable lies on the assessee. Discharge of burden has to be effective and meaningful and not to cover up the book entries and paper work. In view of failure by the assessee-company to prove nexus between amount disallowed suo motu, provisions of section 40a(ia) and the amount reversed during the year under consideration, we have no option but to confirm the action of the AO making the addition on the same. - Decided against assessee.

Summary

Issues:
1. Validity of re-assessment proceedings under section 147 of the Income-tax Act, 1961.
2. Disallowance of deduction claimed on account of reversal of provisions.
3. Initiation of penalty proceedings under section 271(1)(c) of the Act.

Validity of Re-assessment Proceedings:
The appeal challenged the re-assessment proceedings under section 147, contending that the claim of exemption of interest income was disclosed in the original return, and there was no fresh information to suggest income escaping assessment. The CIT(A) upheld the re-assessment, stating that there was no opinion formed by the AO during the original assessment. The Tribunal held that the re-assessment was valid as new information about omitted provisions came to light during subsequent assessments, citing legal precedents. The contention of a change of opinion was rejected, and the initiation of re-assessment proceedings was deemed lawful.

Disallowance of Deduction on Reversal of Provisions:
The CIT(A) disallowed deductions claimed on reversal of provisions for royalty, fees, technical services, etc., and provisions for contractors, professional fees, rent, etc. The Tribunal noted that the provisions were disallowed for non-deduction of tax at source under section 40a(ia). The assessee failed to establish a link between the provision originally created and the provision reversed, as confirmed by the CIT(A). Despite the assessee's argument, the Tribunal emphasized the burden of proof on the assessee to substantiate claims. Citing legal precedent, the Tribunal upheld the CIT(A)'s decision to disallow the deductions due to the lack of evidence linking the provisions.

Initiation of Penalty Proceedings:
The appeal also raised concerns about the initiation of penalty proceedings under section 271(1)(c) of the Act. The CIT(A) was criticized for not directing the AO to drop the penalty initiation when there was no concealment of income or inaccurate particulars. However, the Tribunal did not provide a separate analysis on this issue in the judgment.

In conclusion, the Tribunal dismissed the appeal filed by the assessee, upholding the validity of re-assessment proceedings and confirming the disallowance of deductions on the reversal of provisions. The judgment emphasized the importance of establishing a clear link between disallowed provisions and reversed amounts to support deduction claims.