2022 (7) TMI 168 - AT - Income Tax

Reopening of assessment u/s 147 - eligible Reasons for belief that income has escaped assessment - As alleged assessee had not furnished relevant documents and evidences during the assessment proceedings, therefore disallowed undisclosed work in progress and added to the total income of the assessee - Also addition on account of short accounted of contract income and interest income - HELD THAT - The settled position of law is that if an assessment for any year has been completed u/s 143(3) or u/s 147, then no action shall be taken u/s 147 after the expiry of four years from the end of relevant assessment year unless income chargeable tax has escaped assessment by reason of the failure on the part of the assessee. We have examined the original assessment order framed by assessing officer under section 143(3) of the Act and note that there is no allegation that the assessee has failed to disclose fully and truly, all material facts necessary for assessment. We note that there is change in opinion as the assessee has disclosed all the material facts in its return of income, and submitted WIP details, Interest details, TDS details, contract income, interest income, Balance Sheet along with annexures, and other evidences as required by the assessing officer and the Assessing Officer had considered the same while completing the original assessment u/s 143(3) of the Act dated 07.12.2011. We note that in the assessee s case in the reasons supplied to the assessee, there is no whisper, what to speak of any allegation, that the assessee had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. See KANTIBHAI DHARAMSHIBHAI NAROLA VERSUS THE ASSISTANT COMMISSIONER OF INCOME TAX, WARD 3 (2) (4) 2021 (2) TMI 102 - GUJARAT HIGH COURT as held held that there cannot be any action under Section 147 of the Act after the expiry of a period of four years from the end of the relevant assessment year until and unless the income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make disclosure of all the material facts truly and fully necessary for assessment. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period, as explained above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. Therefore, based on these facts and circumstances, we do not find any infirmity in the order of ld CIT(A), hence we confirm and approve the findings of ld CIT(A) and dismiss the grounds raised by the Revenue.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income Tax Act.
2. Deletion of addition of Rs. 1,00,00,000/- related to undisclosed work in progress (WIP).
3. Deletion of addition of Rs. 22,71,231/- related to contract income and interest income not shown by the assessee.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147 of the Income Tax Act:

The Revenue challenged the decision of the CIT(A) to quash the reassessment proceedings initiated by the Assessing Officer (AO) under Section 147 of the Income Tax Act. The CIT(A) had observed that no new tangible material was available on record and that the reopening of the assessment was merely based on a change of opinion. The AO had initially reopened the assessment on the grounds that the assessee had declared undisclosed income of Rs. 1,05,00,000/- during survey proceedings but had shown a net undisclosed income of only Rs. 5,00,000/- in the profit and loss account, leading to a perceived under-assessment of Rs. 1,00,00,000/-.

The Tribunal noted that during the original assessment proceedings, the AO had specifically queried the debit of undisclosed WIP, and the assessee had provided a response. The Tribunal emphasized that the reassessment was initiated after four years from the end of the relevant assessment year, and as per the first proviso to Section 147, reassessment should not be initiated if the assessee had disclosed all material facts fully and truly during the original assessment proceedings. The Tribunal found no evidence that the assessee had failed to disclose material facts and concluded that the reassessment was based on a change of opinion, rendering it invalid.

2. Deletion of Addition of Rs. 1,00,00,000/- Related to Undisclosed Work in Progress (WIP):

The AO had added Rs. 1,00,00,000/- to the total income of the assessee, disallowing the amount shown as undisclosed WIP. The CIT(A) deleted this addition, observing that the accounting treatment of showing the amount in WIP was in accordance with accounting principles. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had disclosed the WIP details during the original assessment proceedings and that the reassessment was based on a change of opinion without any new tangible material.

3. Deletion of Addition of Rs. 22,71,231/- Related to Contract Income and Interest Income Not Shown by the Assessee:

The AO had made an addition of Rs. 22,71,231/- on account of contract income and interest income that was allegedly not shown by the assessee. The CIT(A) deleted this addition, noting that the assessee had provided a reconciliation statement during the appellate proceedings and had shown net interest income after debiting interest expenditure. The Tribunal agreed with the CIT(A)'s findings, emphasizing that the assessee had disclosed all relevant details during the original assessment proceedings and that the reassessment was unjustified.

Conclusion:

The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s decision to quash the reassessment proceedings and delete the additions related to undisclosed WIP and contract and interest income. The Tribunal emphasized that the reassessment was based on a change of opinion without any new tangible material and that the assessee had fully and truly disclosed all material facts during the original assessment proceedings.