2023 (7) TMI 1032 - AT - Income Tax

Reopening of assessment u/s 147 - reasons to believe - tangible material which came to the possession of AO to initiate reassessment - HELD THAT - We find that the AO has mentioned that they have reasons to believe that the income has escaped assessment on account of failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment within the meaning of proviso to Section 147 This observation of the AO is repellently against the facts on record. AO has made reference of audit report and notes to accounts in reasons recorded which is the assessee s own audit report, which has been filed with the return of income before the revenue authorities. There is no new tangible material with the AO after four years that the assessee company has escaped assessment. Thus, there is no whisper in the reasons recorded, of any tangible material which came to the possession of the Assessing Officer subsequent to the issue of the intimation - no hesitation to hold that the case has been re- opened bereft of the conditions prescribed u/s 148 - assessment u/s 148 is void ab initio. Decided in favour of assessee.

Issues:
1. Validity of reassessment proceedings under section 148 of the Income Tax Act.
2. Disallowance of rebate and discounts claimed by the assessee.
3. Disallowance of expenditure in foreign currency on know-how and professional charges.
4. Disallowance of additional depreciation on plant and machinery.
5. Reduction of disallowance on account of 'know-how' and professional charges.
6. Deletion of disallowance on account of 'prior period expenditure.'
7. Deletion of addition under section 41(1) of the Act.

Detailed Analysis:
1. The first issue pertains to the validity of reassessment proceedings initiated under section 148 of the Income Tax Act. The assessee contended that the reasons recorded for issuing the notice under section 148 were contrary to the facts and did not establish any allegation of income escaping assessment due to failure to disclose material facts. The Appellate Tribunal found that the assessment was completed under section 143(3) without any new tangible material emerging subsequently. The Tribunal held that the reassessment was void ab initio as it did not meet the conditions prescribed under section 148, resulting in the appeal of the assessee being allowed and that of the Revenue being dismissed.

2. The second issue involves the disallowance of an amount claimed by the assessee on account of rebate and discounts. The CIT(A) confirmed the disallowance, stating that the cash discount and quantity rebate were misunderstood as the same by the assessee. The Tribunal analyzed the evidence brought on record by the assessee to differentiate between cash discount and quantity rebate, noting that they were accounted for separately in the books of accounts. Ultimately, the Tribunal held that the disallowance was unjustified, and the appeal of the assessee was allowed.

3. The third issue concerns the disallowance of expenditure in foreign currency on know-how and professional charges. The CIT(A) confirmed the disallowance without providing cogent findings. However, the Tribunal observed that the CIT(A) erred in confirming the disallowance without proper justification. The Tribunal held that the disallowance was not supported by sufficient reasoning, leading to the appeal of the assessee being allowed.

4. The fourth issue relates to the disallowance of additional depreciation claimed by the assessee on plant and machinery. The AO disallowed the claim despite the assessee being eligible for it under the provisions of the Act. The Tribunal found that the additional depreciation should not have been disallowed as the assessee met the criteria for claiming it. Consequently, the disallowance was deemed unjustified, and the appeal of the assessee was allowed.

5. The fifth issue involves the reduction of disallowance on account of 'know-how' and professional charges. The Tribunal analyzed the facts and circumstances, noting that the assessee failed to discharge its initial onus to prove the nature of expenses. The Tribunal upheld the reduction of disallowance, considering the evidence presented and the opportunities provided to the assessee during the assessment proceedings.

6. The sixth issue pertains to the deletion of disallowance on account of 'prior period expenditure.' The CIT(A) deleted the disallowance without sufficient material evidence to establish the crystallization of the liability during the relevant year. The Tribunal found that the deletion of disallowance was unjustified, as the liability to incur the expenditure was not adequately proven by the assessee, leading to the appeal of the Revenue being dismissed.

7. The seventh issue concerns the deletion of addition under section 41(1) of the Act. The CIT(A) deleted the addition without fulfilling the conditions laid down under Rule 46A of the Income Tax Rules, 1962. The Tribunal found that the deletion of the addition was based on self-serving claims and documents filed by the assessee without meeting the necessary conditions. Consequently, the appeal of the Revenue was dismissed.

← Previous Next →