2021 (1) TMI 536 - AT - Income Tax

Reopening of assessment - addition u/s 40(a)(ia) for non deduction of TDS - HELD THAT - Assessee disclosed all the primary facts with regard to deduction claimed on account of interest paid on loans at the original assessment stage and is considered by the AO also at original assessment stage, therefore, there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for that assessment. Assessee also filed return of income originally on dated 30.09.2008 u/s 139 of the Act and four years have expired from the relevant assessment order, therefore, first proviso to section 147 would apply in favour of the assessee and no assessment could have been reopened in such circumstances against the assessee. Reasons recorded u/s 148 clearly show that assessment already framed u/s 143(3) has been reopened because of omission on the part of the AO to make addition in the original assessment order. Hon ble Delhi High Court in the case of Techman Buildwell 2014 (2) TMI 1169 - DELHI HIGH COURT held that AO s omission sole basis of initiating proceedings u/s 148 of the Act, notice not valid. At the original assessment stage AO considered the issue of claim of deduction on account of interest to the banks and others and as such, on mere change of opinion AO could not have reopened the assessment. Thus, the omission of the AO to make disallowance of the full interest now is not permissible in law. Appeal of assessee is allowed.

Summary

Issues:
Reopening of assessment under section 147 for failure to deduct tax at source and disallowance of interest paid on loans.

Analysis:
1. The appeal was against the order of Ld. CIT(A) for AY 2008-09. The AO disallowed a sum claimed as interest paid on loans due to lack of clear bifurcation provided by the assessee. Subsequently, proceedings under section 147 were initiated, and notice u/s 148 was issued. The AO disallowed the interest paid for failure to deduct tax at source under section 40(a)(ia) of the Act. The Ld. CIT(A) confirmed the addition but directed a reduction in the disallowed amount.

2. The reasons for reopening the assessment included the failure to debit interest payment in the profit and loss account, leading to incomplete audit. The AO believed that the interest claimed as a deduction required TDS deduction, resulting in under-assessment of income. The reassessment was based on the omission to disallow the full interest amount initially. The assessee contended that all facts were disclosed during the original assessment, and no failure existed, thus challenging the validity of the reassessment under section 147.

3. The Tribunal emphasized that the validity of reassessment hinges on the reasons recorded. Since the AO had already considered and partially disallowed the interest amount in the original assessment, reopening the assessment solely for the omitted disallowance was deemed impermissible. Citing relevant case laws, the Tribunal held that the reassessment to correct an earlier assessment error is not valid unless there was a failure to fully and truly disclose all material facts necessary for assessment.

4. Referring to legal precedents, the Tribunal concluded that the AO's omission was not a valid ground for initiating proceedings under section 148. As the assessee had disclosed all primary facts during the original assessment, and the reassessment was merely based on a change of opinion, the reassessment was deemed unjustified. Consequently, the Tribunal set aside the orders of the lower authorities and quashed the reopening of the assessment, leading to the deletion of all additions.

5. Ultimately, the appeal of the assessee was allowed, and the Tribunal pronounced the order in open court on 14.01.2021, emphasizing the impermissibility of reassessment based solely on an AO's omission without a failure on the part of the assessee to disclose material facts fully and truly.