2021 (10) TMI 1143 - AT - Income Tax

Validity of reopening of assessment u/s 147 - Period of limitation - notice issued beyond 4 years - taxability of goodwill as credited to the accounts of retiring partners - HELD THAT - AO has power to reassess if he has reason to believe that any income chargeable to tax escaped assessment but however, the proviso limits that power that no action shall be taken after expiry of four years from the relevant assessment year, which means to say that if the AO has reason to believe that any income chargeable to tax as escaped assessment, the notice should be issued within four years from the end of said assessment year. Therefore, in our opinion proviso to section 147 of the Act is meant to limit the scope of provision u/s. 147 of the Act, going by this, it is safe to say that the proviso to section 147 of the Act is a qualifying proviso and it only seeks to limit the main provision in section 147 of the Act with stipulation or condition. In the present case, we already discussed the same in the aforementioned paragraphs that the AO should have issued notice u/s. 148 of the Act on or before 31-03-2013 whereas the notice issued was on 23-04-2014. Further, we also discussed that all the relevant details regarding the admission of new partners and also retiring partners were fully disclosed in the audit report in Form No. 3CD, and payment of goodwill thereon Thereby, we find no infirmity in the order of CIT(A) and it is justified - Decided against revenue.

Summary

Issues Involved:
1. Legality of the reopening of assessment.
2. Disclosure of relevant facts by the assessee.
3. Validity of the reassessment proceedings.

Detailed Analysis:

1. Legality of the Reopening of Assessment:
The appellant-Revenue challenged the action of the Commissioner of Income-tax (Appeals) [CIT(A)] in declaring the reopening of assessment as bad under law. The original assessment was completed under section 143(3) of the Income Tax Act, 1961, and subsequently reopened by the Assessing Officer (AO) under section 147 of the Act. The reopening was based on the AO's belief that income had escaped assessment due to non-disclosure of certain material facts by the assessee. However, the CIT(A) quashed the reassessment, stating that there was no failure on the part of the assessee to disclose fully and truly all material facts during the original assessment proceedings.

2. Disclosure of Relevant Facts by the Assessee:
The Revenue argued that the assessee did not disclose the retirement of three partners and the payment of goodwill in its return of income, balance sheet, or audit report. However, the assessee contended that all relevant details, including the names of new partners and changes in profit-sharing ratios, were disclosed in Form No. 3CD, balance sheet, and profit and loss account, which were part of the return of income. The Tribunal found that the assessee had indeed disclosed all relevant information regarding the admission of new partners, retirement of old partners, and payment of goodwill in the documents submitted during the original assessment proceedings.

3. Validity of the Reassessment Proceedings:
The Tribunal examined whether the reassessment was justified under section 147 of the Act, which allows reopening of assessment if the AO has reason to believe that income has escaped assessment. However, the first proviso to section 147 stipulates that no action shall be taken after four years from the end of the relevant assessment year unless the income escaped assessment due to the assessee's failure to disclose fully and truly all material facts. In this case, the notice under section 148 was issued beyond the four-year period. The Tribunal held that since the assessee had disclosed all relevant details fully and truly, the reassessment proceedings were not justified. The Tribunal also noted that the AO's reliance on subsequent verification of facts under section 263 in another partner's case did not override the limitation period stipulated in the proviso to section 147.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, stating that the reassessment proceedings were invalid as they were initiated beyond the permissible period and there was no failure on the part of the assessee to disclose material facts. The appeal by the Revenue was dismissed, and the order pronounced in the open court on 20th October 2021.