2019 (9) TMI 491 - AT - Income Tax

Validity of the notice u/s. 148 - non disclosures of specific charge - non-disallowance u/s. 40A(3) - HELD THAT - The obligation on the assessee extends to furnishing the relevant primary facts and the inference to be drawn therefrom viz. as to admissibility or otherwise of a specific claim or allowance is to be by the Revenue authorities - CIT v. Burlop Dealers Ltd. 1971 (1) TMI 10 - SUPREME COURT . The impugned order completely fails to address this specific charge by the assessee. It could also be argued that the relevant account having been furnished on being called for during the original proceedings the same can only be regarded as having been examined thereat by the assessing authority who though chose not to make any disallowance u/s. 40A(3). Reference to the said account in the instant proceedings thus amounts to a review a change of opinion impermissible in law. The argument valid in principle would however require the assessee to show that it was show caused qua the impugned disallowance (u/s. 40A(3)) or otherwise queried in its respect in the original proceedings. And which has not been at any stage. The Revenue has thus not been able to show the assessee s failure to disclose the relevant facts only which would qualify its action for reopening as valid in law with on the contrary the assessee exhibiting otherwise. - Decided in favour of assessee.

Summary

Issues:
Validity of notice u/s. 148 of the Income Tax Act for reassessment.

Analysis:
The appeal was filed by the Assessee challenging the Order by the Commissioner of Income Tax (Appeals) dismissing the assessee's appeal contesting its assessment u/s. 143(3) r/w s. 147 of the Income Tax Act, 1961 for the Assessment Year 2010-11. The first challenge was regarding the validity of the notice u/s. 148 of the Act, which was argued as it could affect the other grounds impugning the assessment. The notice was issued based on the coal freight account revealing payments made in contravention of sec. 40A(3). The assessee contended that the notice issued after four years from the end of the relevant assessment year was invalid as there was no failure to disclose all material facts necessary for income computation. The CIT(A) held that the reasons recorded for reopening were valid, dismissing the appeal. The assessee appealed again, arguing that there was no failure to disclose relevant facts necessary for income computation, which is a condition for a valid notice u/s. 148(1).

The Tribunal noted that there was an escapement of income chargeable to tax due to non-disallowance u/s. 40A(3), validating the AO's reason to believe an escapement of income. However, for a valid notice u/s. 148(1) issued beyond four years from the relevant assessment year, there must be a failure to disclose all material facts necessary for income computation. The Tribunal found no allegation in the reasons recorded or the assessment order regarding such failure. The relevant account was furnished during the original assessment proceedings, and the AO's reliance on it for reassessment was akin to a review, impermissible in law without showing the assessee's failure to disclose relevant facts. The Tribunal held the reassessment proceedings invalid in law, as the assessee had not failed to disclose necessary facts, rendering other grounds raised by the assessee irrelevant. The appeal was allowed on the basis of the invalidity of the reassessment proceedings.

In conclusion, the Tribunal held that the initiation of the reassessment proceedings and the consequent reassessment were invalid in law due to the absence of the assessee's failure to disclose relevant facts necessary for income computation. The other grounds raised by the assessee were deemed irrelevant in light of the invalidity of the reassessment proceedings. The appeal was allowed, and the order was pronounced in open court on June 28, 2019.