2019 (1) TMI 287 - AT - Income Tax

Initiation of re-assessment proceedings - provision on account of NPA; provision on account of overdue interest; and deduction on account of loss on Government Securities claimed by the assessee in its Profit and loss account - Held that - Once there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, there can be no reassessment after a period of four years from the end of the relevant assessment year. On this score also, the initiation of re-assessment proceedings cannot be validated. We, therefore, hold that the re-assessment was not properly initiated. As such, all the proceedings flowing from such illegal initiation of re-assessment proceedings are liable to be and are hereby set-aside. Thus, there is no need to discuss the other additions made by the AO/CIT(A) on merits. Equally, the fresh claim made by the assessee in the return filed in response to the notice u/s 148 is also held to be not tenable as the very initiation of reassessment is not legally valid. Addition of Entry fees and Nominal membership fee to the Reserve Funds without routing it through the Profit and loss account - AO treated these amounts as chargeable to tax - Held that - CIT(A) confirmed the addition by observing that such amounts was received by the assessee from the persons who became members of the society. In the absence of any material coming from the side of the assessee supporting the claim for treating such amounts as not chargeable to tax, we uphold the impugned order to this extent. Addition on account of provision of overdue interest - Held that - We find that though there is a reference to disallowance of provision for overdue interest of ₹ 1.97 crore on pages 3 and 5 of the impugned order but there is no elaborate discussion on the merits of such ground. Under these circumstances, we set-aside the impugned order to this extent and remit the matter to the file of ld. CIT(A) for passing a speaking order on this issue. Addition u/s 43B - Held that - In view of the fact that the addition has been deleted by the ld. CIT(A), the assessee has erroneously presumed that this disallowance was confirmed in the first appeal. This ground is dismissed as having become infructuous. Reopening of assessment - Held that - It is observed that the assessee furnished a return in response to notice u/s.148 at total income of ₹ 5.55 crore as against the originally filed return with an income of ₹ 6.59 crore. The decision taken by the authorities below in not accepting the lower income in the re-assessment is in accordance with the judgment of Hon ble Supreme Court in the case of CIT Vs. Sun Engineering Works Pvt. Ltd.(1992 (9) TMI 1 - SUPREME COURT). It goes without saying that the re-assessment is carried out for the benefit of the Revenue and not the assessee. In such re-assessment proceedings, the assessee cannot raise fresh independent claims having the effect of reducing the income already declared.

Issues Involved:
1. Initiation of re-assessment proceedings for A.Y. 2004-05.
2. Addition of ?4,74,230/- for A.Y. 2006-07.
3. Addition of ?1,97,08,972/- on account of provision of overdue interest for A.Y. 2007-08.
4. Confirmation of addition of ?1,71,616/- and ?12,03,619/- for A.Y. 2008-09.
5. Ignoring the return filed under section 147 and not adopting the income as per the return filed under section 147 for A.Y. 2010-11.

Detailed Analysis:

1. Initiation of Re-assessment Proceedings for A.Y. 2004-05:
The original assessment was completed under section 143(3) of the Income Tax Act, 1961, accepting the loss returned by the assessee at ?10.53 crore. A notice under section 148 was issued on 28-03-2011 for reasons including wrong provision for overdue interest, wrong provision on account of NPA, and loss on Government Securities claimed in the profit and loss account. The assessee objected to the initiation of re-assessment proceedings, but the objections were dismissed by the AO. The Tribunal found that the original assessment was completed under section 143(3) and the reasons for re-assessment were non-existent as the AO did not make any addition for two of the three reasons and the addition made was deleted in the first appeal. The Tribunal held that the initiation of reassessment was bad in law and set aside the proceedings. Additionally, the notice under section 148 was issued beyond the stipulated period of four years from the end of the relevant assessment year without any failure on the part of the assessee to disclose fully and truly all material facts. Thus, the initiation of re-assessment proceedings was invalid.

2. Addition of ?4,74,230/- for A.Y. 2006-07:
The assessee credited Entry fees and Nominal membership fees to the Reserve Funds without routing them through the Profit and Loss account. The AO treated these amounts as chargeable to tax, and the CIT(A) confirmed the addition. In the absence of any material supporting the assessee's claim, the Tribunal upheld the impugned order, confirming the addition.

3. Addition of ?1,97,08,972/- on Account of Provision of Overdue Interest for A.Y. 2007-08:
The assessee made a provision for overdue interest at ?1.97 crore, which was disallowed by the AO. The Tribunal noted that there was no elaborate discussion on the merits of such ground in the impugned order. Therefore, the matter was remitted to the file of the CIT(A) for passing a speaking order on this issue.

4. Confirmation of Addition of ?1,71,616/- and ?12,03,619/- for A.Y. 2008-09:
The AO made a disallowance of ?1,71,616/- on the ground that the amount was paid after the due date of filing the return of income. The CIT(A) deleted the addition, and the Tribunal dismissed the ground as infructuous. The AO also disallowed ?12,03,619/- out of the claimed deduction of ?48,50,619/- for interest rebate on loans of the bank, as only ?36.47 lakhs was actually given. The CIT(A) deleted the disallowance, and the Tribunal dismissed the ground as infructuous.

5. Ignoring the Return Filed Under Section 147 and Not Adopting the Income as Per the Return Filed Under Section 147 for A.Y. 2010-11:
The assessee filed a return declaring total income of ?6,59,94,758/-, which was accepted under section 143(1) and a refund was granted. Later, the AO observed that the assessee claimed excessive deduction under section 36(1)(viia) and issued a notice under section 148. The assessee filed a return declaring total income of ?5,55,78,080/- in response to the notice. The AO completed the assessment at the originally returned income of ?6.59 crore, ignoring the lower income offered in response to the notice under section 148. The CIT(A) confirmed the decision of the AO. The Tribunal upheld the impugned order, stating that re-assessment is carried out for the benefit of the Revenue and not the assessee, and fresh independent claims reducing the income already declared cannot be raised in re-assessment proceedings.

Conclusion:
The appeals for A.Y. 2004-05 and 2007-08 were allowed in favor of the assessee, while the appeals for A.Y. 2006-07 and 2010-11 were dismissed. The appeal for A.Y. 2008-09 was dismissed as infructuous.

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