2019 (4) TMI 1102 - AT - Income Tax

Reassessment u/s. 147 - retention money receipts form part of gross receipt but excluded in computation - allegation of double deduction - proceedings initiated after the end of four years from the end of relevant assessment year - rectification u/s 154 - HELD THAT - Assessee has declared in the gross receipts of his business the sums which were claimed as retention money and income which did not accrue to the Assessee. Therefore, the contention of the revenue which is based on observations in the order of the AO that the Assessee did not include the retention money in the gross receipts and therefore the Assessee is claiming double deduction, is contrary to facts and not supported by any material on record. On the contrary the Assessee has demonstrated before us that the gross receipts declared in the profit and loss account includes the sum claimed as retention money which was not offered to tax on account of its alleged non-accrual. Therefore, the argument of the DR that there was failure on the part of the Assessee to fully and truly disclose all material facts relevant for assessment of his income for the relevant Assessment year is without merit. Consequently, the proviso to Sec.147 of the Act is applicable in the present case. Since there was no failure on the part of the Assessee as is contemplated by the proviso to Sec.147 of the Act and since the Assessment u/s.147 is sought to be made after the period contemplated under the proviso to Sec.147 of the Act, we hold that the initiation of the reassessment is bad in law and the order of reassessment is therefore annulled. - Decided in favour of assessee.

Summary

Issues:
Validity of initiation of proceedings u/s. 147 of the Income-Tax Act, 1961

Analysis:
The appellant, an individual conducting business as an electrical contractor, challenged the initiation of proceedings u/s. 147 of the Income-Tax Act, 1961. The appellant filed a return of income for AY 2008-09, declaring a total income and deducting retention money retained by contractors. The AO accepted the income after disallowing certain expenses. Subsequently, the AO issued a notice u/s. 154, adding the retention money to the total income. The CIT(A) canceled this order, stating that debatable issues cannot be rectified under section 154. The AO then issued a notice u/s. 147, claiming that the retention money should have been offered to tax. The AO argued that under the mercantile system of accounting, the retention money was taxable as revenue receipts for AY 2008-09. The CIT(A) confirmed the AO's order, addressing legal issues regarding the validity of reassessment proceedings. The appellate tribunal analyzed the disclosure of material facts by the appellant and concluded that the reopening of assessment was not valid, annulling the order of assessment.

The appellant demonstrated that the gross receipts declared in the profit and loss account included the retention money not offered to tax due to alleged non-accrual. The tribunal found no failure on the appellant's part to disclose all material facts, annulling the reassessment order. As the assessment order was annulled, other issues of merit were deemed unnecessary for consideration. Consequently, the appeal by the appellant was allowed on February 6, 2019.