2017 (6) TMI 285 - AT - Income Tax

Validity of reopening of assessment - disallowance/addition made u/s 40(a)(ia) - Held that - No action can be initiated under section 147 after the expiry of 4 years from the end of the relevant assessment year unless the income chargeable to tax has escaped assessment by reason for the failure on the part of the taxpayer to disclose fully and truly all material facts necessary for his assessment. Recently in the case of Bayer Material Science Pvt. Ltd. v. DCIT (2016 (3) TMI 179 - BOMBAY HIGH COURT) held that non-disposal of objections and providing the assessee with the recorded reasons towards the end of the limitation period and passing a reassessment order without dealing with the objections results in gross harassment to the assessee which the Pr. CIT should note and take remedial action. In the present appeal also, the Assessing Officer issued notice u/s 148 of the Act, one day before, expiry of extended period of six years. Thus, considering the ratio laid down in the aforementioned judicial pronouncement and the material facts, we allow the appeal of the assessee by holding that reopening of assessment was not valid, beyond four years, when the material facts were duly disclosed by the assessee and the tax deducted at source was deposited in the state exchequer before due date of filing of return. So far as, the deposit of tax deducted at source and invoking section 40(a)(ia) of the Act is concerned, we have made an elaborate discussion in the earlier paras of this order while disposing off the appeal of the for Assessment Year 2005-06 in favour of the assessee by holding that the amendment is retrospective in effect w.e.f. 01/04/2005. The Hon ble Calcutta High Court in the case of Virgin Creations 2011 (11) TMI 348 - CALCUTTA HIGH COURT held that the payment of TDS can be deposited in the state exchequer on or before the last date of filing of return u/s 139(1) of the Act for the relevant Assessment Year and the such deduction has to be allowed. No contrary facts were brought to our notice by the Revenue establishing that the deduction has been granted twice to the assessee. Mere claim/allegation is not enough and it has to be substantiated with facts. Therefore we find no infirmity in the conclusion of the Ld. Commissioner of Income Tax (Appeal), resultantly, the appeal of the Revenue is having no merit, therefore, dismissed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act, 1961 beyond four years.
2. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147 Beyond Four Years:

The primary issue raised by the assessee was the validity of the reopening of the assessment under Section 147 of the Income Tax Act, 1961, beyond a period of four years. The assessee argued that there was no failure on their part to make a full and true disclosure of material facts. The return was filed on 31/10/2005, and the assessment order under Section 143(3) was passed on 31/12/2007. The reopening was initiated on 31/03/2012, which is beyond the four-year period.

The Tribunal considered the rival submissions and the material on record. It was noted that the assessee had fully disclosed all material facts necessary for the assessment during the original proceedings. The Tribunal referred to several judicial precedents, including decisions from the Bombay High Court and the Supreme Court, which emphasized that reopening beyond four years is not permissible unless there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.

The Tribunal concluded that the reopening was invalid as it was based on a mere change of opinion and there was no new material that came to the possession of the Assessing Officer suggesting that income had escaped assessment. The reopening was beyond the limitation period of four years, and the material facts were fully disclosed by the assessee during the original assessment proceedings.

2. Disallowance under Section 40(a)(ia):

The second issue pertained to the disallowance made under Section 40(a)(ia) of the Act. The Revenue challenged the deletion of the disallowance by the First Appellate Authority. The disallowance was made on the grounds that the assessee had not paid the tax deducted at source (TDS) within the prescribed time.

The Tribunal noted that the assessee had deducted TDS and deposited it before the due date of filing the return. The Tribunal referred to various judicial pronouncements, including the decision of the Calcutta High Court in the case of Virgin Creations, which held that the amendment to Section 40(a)(ia) by the Finance Act, 2010, is retrospective and applies from 01/04/2005. The Tribunal also considered the decisions from the Delhi High Court and other High Courts, which supported the view that if TDS is deposited before the due date of filing the return, no disallowance under Section 40(a)(ia) is warranted.

The Tribunal concluded that the disallowance under Section 40(a)(ia) was not justified as the TDS was deposited before the due date of filing the return. The Tribunal upheld the decision of the First Appellate Authority in deleting the disallowance made by the Assessing Officer.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the reopening of the assessment under Section 147 was invalid as it was beyond the four-year period and based on a mere change of opinion without any new material. The Tribunal also dismissed the appeal of the Revenue, upholding the deletion of the disallowance under Section 40(a)(ia) as the TDS was deposited before the due date of filing the return.