2016 (12) TMI 1491 - AT - Income Tax

Validity of reopening of assessment - Held that - Since the reopening of the assessment u/s 147 of the Act was solely based on the objection of audit para, therefore the reassessment proceedings are not valid. The assessment framed u/s 147 is null & void. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of reassessment proceedings initiated under Section 147 of the Income Tax Act.
2. Disallowance of ?3,60,000/- under Section 40(a)(ia) for non-deduction of tax at source.
3. Addition of ?1,903/- representing the difference between the amount received from the insurance company and the written down value of the asset.

Detailed Analysis:

Issue 1: Validity of Reassessment Proceedings Initiated Under Section 147

The assessee challenged the reassessment proceedings initiated under Section 147, asserting that they were solely based on an audit para. The original assessment was completed under Section 143(3) on 25-10-2010 with a determined income of ?5,07,380/-. The case was reopened within four years, and the reassessed income was determined at ?8,71,150/-.

The assessee contended that the reassessment was invalid as it was based on the audit party's findings. However, the reassessment was upheld by the appellate authority, citing the Supreme Court's decision in CIT vs. P.V.S. Beedies (P) Ltd. (237 ITR 13), which allowed reopening based on factual errors pointed out by the audit party. The authority concluded that the AO was justified in reopening the case under Section 147, as the appellant had not deducted tax at source while making payments to a sub-contractor, which warranted an addition under Section 40(a)(ia).

However, the Tribunal found that the case was reopened solely based on the audit para without the AO's application of mind, rendering the reassessment proceedings invalid. The Tribunal referred to the decision in ACIT, Circle, Barmer Vs. Shri Nakhat Singh Bhati [49 Tax World 111 (Jodhpur)], which held that reassessment based solely on audit objections is not valid. Therefore, the reassessment proceedings were declared null and void, and the AO was directed to restore the income determined under Section 143(3) as the assessed income for the AY 2008-09.

Issue 2: Disallowance of ?3,60,000/- Under Section 40(a)(ia)

The assessee argued against the disallowance of ?3,60,000/- for non-deduction of tax at source, claiming that Form 15-I was furnished by the recipient, Shri Arihant Jain. However, the assessee failed to file Form 15-I with the prescribed authority within the stipulated time, violating the provisions of Section 40(a)(ia) and Rule 29D of the IT Rules.

The appellate authority noted that the assessee did not provide evidence to substantiate the claim that Form 15-I was produced before the AO during the original assessment. The Tribunal upheld the disallowance, emphasizing that the appellant did not comply with the requirements of Rule 29D, and thus, the AO was justified in making the disallowance under Section 40(a)(ia).

Issue 3: Addition of ?1,903/- Representing the Difference Between Insurance Amount and WDV

The assessee contested the addition of ?1,903/-, arguing that the amount received from the insurance company for a motorbike should be adjusted against the block of assets for depreciation purposes. The appellate authority rejected the claim due to the lack of details and evidence to verify the appellant's contentions.

The Tribunal, however, did not adjudicate this issue separately, as the reassessment proceedings were declared null and void, rendering this ground of appeal infructuous.

Conclusion:

The Tribunal allowed the appeal of the assessee, declaring the reassessment proceedings under Section 147 as null and void. Consequently, the issues related to disallowance under Section 40(a)(ia) and the addition of ?1,903/- became infructuous and did not require further adjudication. The AO was directed to restore the income determined under Section 143(3) as the assessed income for the AY 2008-09. The order was pronounced in the open court on 22/12/2016.