2020 (9) TMI 456 - AT - Income Tax

Reopening of assessment - Validity of reasons to believe - assessment initiated by reason of a revenue audit objection - HELD THAT - Audit objection was toward short accounting of receipt, inferred on the basis of the TDS certificates, comparing the same with the books of account of the assessee. There is no dispute as to the nature of receipt, but only to the arithmetical accuracy of its accounts, doubted with reference to the TDS certificate/s, which stands duly clarified. It is, therefore, abundantly clear that the AO was satisfied with the assessee s reply (to the audit objection) as to there being no escapement of income, yet proceeded to issue notice u/s. 148(1), so that the same was only due to the non-acceptance of his reply by the audit party, i.e., at its insistence. It is the audit objection, as finally obtains, i.e., after having regard and giving effect to the AO s reply, that shall form part of the AO s reason to believe escapement of income to that extent, which is not so in the present case, and for which we have also perused the reasons recorded for the issue of notice u/s. 148(1), reproduced at para 2 (page 1) of the assessment order, forming part of the Tribunal s record. Why, a discrepancy in the assessee s accounts would result in a corresponding difference in its account with the party issuing the TDS certificate/s? We, accordingly, have, in the facts and circumstances of the case, little doubt that the assessment proceedings, though initiated by reason of a revenue audit objection, the same was not accepted by the AO inasmuch as he was not personally satisfied therewith. The terms of clause 10(c) of the Board circular clearly state of the revenue audit objection having been accepted by the Department. We are conscious that the words accepted by the Department , the import of which is surely wider, cannot be equated with the personal satisfaction of the AO issuing notice u/s. 148(1), in the absence of which, as found, as indeed in the instant case, the proceedings in Larsen Toubro Ltd . 2017 (3) TMI 1064 - SUPREME COURT were struck down. Therefore, even though, strictly speaking, the issue of notice itself signifies its acceptance by the Department, as canvassed by the ld. DR, it may be of no consequence as the reassessment proceedings itself do not, in view of our finding as to the lack of personal satisfaction of the AO, survive. The Revenue fails. Rectification u/s 254 - Interpretation of the relevant clause of the Board s circular issued u/s. 268A(1) r/w s. 268A(5) - HELD THAT - Rule of strict interpretation does not rule out applicability of reasonable construction to give effect to the purpose or intent of the provision ( Shree Sajjan Mills Ltd. v. CIT 1985 (10) TMI 2 - SUPREME COURT . We are again conscious that we have held clause 10(c) as not applicable even on the terms thereof even as notice u/s.148(1) was issued, implying acceptance of the audit objection by the Revenue Same was only on the basis of a finding of fact by us, based on uncontroverted evidence, that the audit objection was indeed not accepted, nor the reason/s for non-acceptance, as advanced by the Assessing Officer, controverted, so as to then say that the issue of notice u/s. 148(1) resulted due to his acceptance of the audit objection, and which was therefore held by us as on account of insistence of the audit party. We also noted that it was only due to proceedings arising by the very terms of the impugned order, restoring status ante , that new materials (viz. LAR) were admitted, allowing arguments involving contentious issues. We also noted that though the words has been accepted by the Department in cl. 10(c) carries a broader connotation, i.e., than that of the words accepted by the assessing authority , an assessment made in the absence of the personal satisfaction of the assessing authority would not survive.

Issues Involved:
1. Whether the Revenue's appeals were wrongly dismissed as withdrawn/not pressed due to the tax effect being below the threshold limit.
2. Whether the appeals were covered by the exception of revenue audit objections as per Clause 10(c) of Circular No. 3/2018.
3. Whether the Tribunal provided proper opportunity to the Revenue to raise objections during the hearing.
4. The admissibility of new materials in the proceedings under section 254(2) of the Income Tax Act, 1961.
5. The interpretation of Clause 10(c) of Circular No. 3/2018 in relation to audit objections.

Detailed Analysis:

1. Wrongful Dismissal of Appeals:
The Revenue claimed that its appeals were wrongly dismissed as withdrawn/not pressed because, although the tax effect was below the threshold limit of ?50 lacs as per Circular No. 17/2019, the cases were covered by the exception listed in Clause 10(c) of Circular No. 3/2018. The Tribunal noted that the appeals were dismissed en masse without specific opportunity for the Revenue to raise objections, violating the principles of natural justice. Therefore, the Tribunal found that the dismissal of appeals was not maintainable due to the lack of proper opportunity for the Revenue to be heard.

2. Exception of Revenue Audit Objections:
The Revenue argued that the appeals were covered by the exception in Clause 10(c) of Circular No. 3/2018, which pertains to cases with accepted revenue audit objections. The Tribunal examined the authorization memo dated 30/10/2018, which stated that the appeals were filed despite being low tax-effect cases due to the audit objections. However, the Tribunal found that in the case of MA No. 3/Jab/2020, the audit objection was not accepted by the Assessing Officer (AO), and therefore, Clause 10(c) did not apply. For MA Nos. 6 & 7/Jab/2020, the Tribunal concluded that there were no audit objections in these cases, and thus, they were not covered by Clause 10(c).

3. Opportunity to Raise Objections:
The Tribunal noted that the appeals were dismissed without proper opportunity for the Revenue to raise objections, which was a serious violation of the principles of natural justice. The Tribunal emphasized that a fair hearing demands adequate notice, and the short time frame in which the appeals were fixed did not allow for proper representation or objection by the Revenue. This lack of opportunity rendered the dismissal of the appeals legally infirm.

4. Admissibility of New Materials:
The Tribunal acknowledged that the proceedings under section 254(2) are limited to mistakes apparent from the record, precluding the admission of new materials. However, in this case, the Tribunal found that the Revenue's applications were admissible not only under section 254(2) but also based on the terms of the impugned order itself, which provided liberty to the parties to move the Tribunal in case of any error or omission. Therefore, the Tribunal allowed the consideration of new materials to ensure justice.

5. Interpretation of Clause 10(c):
The Tribunal deliberated on the interpretation of Clause 10(c) of Circular No. 3/2018, which states that cases with accepted revenue audit objections should be contested on merits. In the case of MA No. 3/Jab/2020, the Tribunal found that the AO was not personally satisfied with the audit objection, and therefore, the reassessment proceedings did not survive. For MA Nos. 6 & 7/Jab/2020, the Tribunal concluded that the appeals were not covered by Clause 10(c) as there were no audit objections in these cases. The Tribunal emphasized that the circular should be strictly construed, and only cases clearly covered by the exceptions should be excluded.

Conclusion:
The Tribunal allowed MA Nos. 4 & 5/Jab/2020, restoring the appeals for being heard on merits, and dismissed MA Nos. 3, 6, and 7/Jab/2020. The corresponding Cross Objections in the cases of MA Nos. 4 & 5/Jab/2020, if any, were also revived. The order was pronounced on September 07, 2020.

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