2020 (1) TMI 823 - AT - Income Tax

Reopening of assessment u/s 147 - purported infringement of section 194C of the Act ostensibly on review of existing records - reopening after four years - HELD THAT - We find that the action u/s 147 was sought to be taken in respect of assessment completed u/s 143(3) earlier after expiry of four years from the end of relevant assessment year alleging escapement of income from taxation. Therefore, the action of the AO is also required to be tested on the touchstone of embargo placed by the first proviso to section 147 of the Act. We do not find anything on record to show as to what material facts remained to be disclosed by the assessee in the original assessment proceedings. Significantly, the re-assessment order passed under s.147 of the Act also does not portray any concern of the AO on this aspect. Ostensibly, in the absence of an express allegation as a starting point, the conditions stipulated under first proviso under s.147 are not complied with. In this event, where embargo placed by the first proviso could not be overcome, the legitimacy of notice issued under the provisions of section 147 of the Act is vitiated. It is also the categorical case of assessee that TDS obligations under s.194C of the Act were duly met and challans for payments were also placed before lower authorities. The entire reassessment proceedings, thus, is without jurisdiction and liable to annulled. The consequent re-assessment order is also therefore liable to be struck down and cancelled as bad in law. Objection on behalf of the Revenue that challenge to jurisdiction u/s 147 has been raised for the first time before the Tribunal - It is well settled that the question of lack of jurisdiction is pure question of law capable of being adjudged on be basis of material on record. There is no estoppel available to the Revenue on the ground that assessee did not raise the question of jurisdiction before the lower authorities. Estoppel cannot give jurisdiction over a matter which is otherwise lacking. If an authority is found to have no jurisdiction to invoke reopening of a completed assessment, the consent or waiver can never give the jurisdiction to the authority concerned. Such view has been expressed J. S. Parker 1973 (2) TMI 25 - BOMBAY HIGH COURT P. V. Doshi vs. CIT 1977 (8) TMI 29 - GUJARAT HIGH COURT Issuance of notice under s.147/148 of the Act is void ab initio and accordingly reassessment order is without jurisdiction and therefore illegal - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the order passed by the Commissioner of Income Tax (Appeals).
2. Validity of the reopening of the assessment under section 147/148 of the Income Tax Act, 1961.
3. Compliance with TDS provisions under section 194C and its impact on disallowance under section 40(a)(ia).
4. Alleged failure to disclose material facts fully and truly during the original assessment.

Issue-wise Detailed Analysis:

1. Legality of the Order Passed by the Commissioner of Income Tax (Appeals):
The appellant contended that the order of the Commissioner of Income Tax (Appeals) was illegal, excessive, and beyond the facts and circumstances of the case. The appellant argued that the CIT(A) disallowed the appeal based on the introduction of new evidence, which was actually produced before the Assessing Officer during the original assessment. The appellant further argued that the CIT(A) ignored the fact that TDS was duly deducted and paid, and focused on technical issues rather than the merits of the case.

2. Validity of the Reopening of the Assessment under Section 147/148 of the Income Tax Act, 1961:
The appellant challenged the action of the AO on both merits and the point of unlawful usurpation of jurisdiction under section 147. The appellant argued that the AO wrongly assumed jurisdiction for reassessment by issuing a notice under section 148 without fulfilling the ingredients of section 147/148. The appellant highlighted that the original assessment for AY 2010-11 was completed under section 143(3), and the notice for reassessment was issued after four years from the end of the relevant AY. The appellant contended that the AO did not meet the additional conditions imposed under the first proviso to section 147, and the reopening was based on a mere change of opinion on the same issue, which is not permissible in law.

3. Compliance with TDS Provisions under Section 194C and its Impact on Disallowance under Section 40(a)(ia):
The appellant argued that the requirements of Chapter XVII towards vicarious liability were duly complied with, and the provisions of Section 40(a)(ia) for disallowance of expenses were not attracted. The appellant pointed out that the original assessment was made after proper inquiry on the deductibility of TDS under section 194C and other provisions of the Act. The appellant also referred to the reasons recorded by the AO and contended that there was no allegation that the assessee failed to disclose any material fact fully and truly at the time of the original assessment.

4. Alleged Failure to Disclose Material Facts Fully and Truly During the Original Assessment:
The tribunal observed that the AO did not reference the earlier assessment made under section 143(3) in the reasons recorded for reopening. There was no allegation that the assessee failed to disclose material facts fully and truly. The tribunal noted that the AO's action was based on a mere review of existing facts, which is not permissible in law. The tribunal emphasized that the reopening of a completed assessment under section 143(3) is not permissible on a mere change of opinion. The tribunal found that the conditions stipulated under the first proviso to section 147 were not complied with, and the action of the AO was arbitrary and mechanical.

Conclusion:
The tribunal concluded that the reassessment proceedings were without jurisdiction and liable to be annulled. The consequent reassessment order was struck down and canceled as bad in law. The tribunal also addressed the objection raised by the Revenue regarding the challenge to jurisdiction being raised for the first time before the Tribunal, stating that the question of lack of jurisdiction is a pure question of law capable of being adjudged based on material on record. The appeal of the assessee was allowed.