2020 (9) TMI 1133 - HC - Income Tax

Validity of reopening of assessment - reassessment initiated after four years - whether no fresh material on record for such reassessment proceedings? - addition 40(a)(ia) as non deduction of TDS on Machine Hire Charges - HELD THAT - In our opinion, even if the relevant facts are not placed before the Auditors by the Assessee himself, they may qualify their Audit Report under Section 44AB - If the Auditor's Report does not specifically disclose any relevant facts, or if there is any omission or non-disclosure, it has to be attributed to the Assessee only rather than to the Auditor. There are no facts placed before us like this that the Assessee had disclosed the relevant facts, but, still the Auditor failed to disclose the same in his Audit Report. Even if anything is not highlighted in the Audit Report, the Assessee has shown that this aspect viz., non-deduction of TDS on the Machine Hire Charges attracting Section 194-I of the Act was very much discussed by the Assessing Authority during the original Assessment proceedings. There was really a disclosure of full and complete facts by the Assessee before the Assessing Authority during the course of Original Assessment Proceedings itself under Section 143(3) - Thus on mere change of opinion, the Assessing Authority could not have invoked the reassessment proceedings under Section 147/148 - Decided in favour of assessee.

Summary

Issues Involved:
1. Quashing of reassessment orders under Section 143(3) read with Section 147 of the Income Tax Act.
2. Consideration of Explanation 1 and Explanation 2(c) to Section 147 regarding the failure to disclose fully and truly all material facts necessary for assessment.
3. Whether the assessee furnished all necessary details during the original assessment.

Detailed Analysis:

Issue 1: Quashing of Reassessment Orders
The primary issue was whether the Income Tax Appellate Tribunal (ITAT) was correct in law in quashing the reassessment orders made under Section 143(3) read with Section 147 of the Income Tax Act. The reassessment was initiated after four years without fresh material on record. The Tribunal decided in favor of the Assessees, holding that the Assessing Authority was not entitled to invoke the proviso to Section 147 of the Act and reopen the assessment on the ground of failure on the part of the Assessee to truly and fully disclose the relevant materials before the original Assessing Authority.

Issue 2: Consideration of Explanation 1 and Explanation 2(c) to Section 147
The Tribunal also considered whether the reassessment orders were valid without considering Explanation 1 and Explanation 2(c) to Section 147. The Tribunal found that the Assessees had furnished all necessary details before the Assessing Officer during the original assessment proceedings. The Tribunal held that the mere omission of the auditor to mention certain items in the audit report prepared under Section 44AB of the Act could not be a reason to say that there was negligence on the part of the Assessee. Therefore, the reassessment was barred by limitation and could not stand in the eye of law.

Issue 3: Disclosure of Necessary Details
The Tribunal examined whether the Assessee had furnished all necessary details during the original assessment. It was found that the Assessee had provided comprehensive details, including TDS certificates, opening stock, gross receipts from contractors, details of purchase, list of shareholders, and other relevant documents. The Tribunal concluded that the Assessee had made true and full disclosure of all material facts necessary for assessment. The Tribunal emphasized that any failure on the part of the auditor to record the lapses committed by the Assessee could not be blamed on the Assessee.

Conclusion:
The High Court upheld the Tribunal's decision, stating that no substantial question of law arises in the present Appeal filed by the Revenue. The Court noted that unless the Revenue Authority can establish a failure on the part of the Assessee to truly and fully disclose the relevant materials during the original assessment proceedings, reassessment proceedings on mere change of opinion cannot be initiated, especially beyond the period of four years after the expiry of the Assessment Years, as per the first Proviso to Section 147 of the Act.

The Court also clarified that if the relevant facts are not placed before the auditors by the Assessee, it may qualify their Audit Report under Section 44AB of the Act. However, in this case, the Assessee had disclosed all relevant facts, and the reassessment proceedings initiated beyond the period of four years were not justified. Consequently, the Appeals filed by the Revenue were dismissed, with no order as to costs.