2024 (7) TMI 634 - AT - Income Tax

Validity of reopening of assessment - regular scrutiny assessment was completed u/s. 143(3) - almost at the fag end of sixth year from the end of the relevant assessment year notice for reopening issued - assessee has shown amount under the head sundry creditors which was pending since November, 2006 payable towards purchase of transferable development rights - HELD THAT - Mere writing of this phrase failure on the part of the assessee to disclose fully and truly all material facts for the purpose of assessment used in the proviso does not give any jurisdiction to the AO, albeit, ld. AO has to demonstrate as to what was the failure on the part of the assessee to disclose fully and truly all material facts. Here in this case, assessee has duly disclosed details of sundry creditors before the ld. AO and only because the amount was payable for last six years that does not mean that there is cessation of liability which can be taxed. In such a case where is the failure on the part of the assessee to disclose the facts. Simply because, ld. AO has presumed in the reasons that, since more than 6 years have been lapsed therefore, it is a deemed cessation of liability which is incorrect in law and on facts, because till assessee recognizes such debt it cannot be treated as cessation of liability. Secondly, in so far as recording of the sales, assessee has given the details before the ld. AO, as how the sales have been recorded in the books and also has given specific explanation during the course of original assessment proceedings. Thus there was a full disclosure made by the assessee and explanation which has been accepted by the ld. AO. Once that is so, then how the presumption can be drawn to draw another inference by the ld. AO without any material information contrary to the explanation given by the assessee. Thus on this point also there is no failure on the part of the assessee to disclose fully and truly material facts. Loss on cancellation of sales - explanation was there on the record and also explained before the ld. AO and ld. CIT(A), then we fail to understand what was the failure on the part of the assessee to disclose the facts. Ld. AO has tried to draw his own inference in the reasons and tried to justify it without actual finding what was the failure on the part of the assessee to disclose fully and truly material facts. Accordingly, we hold that the reasons recorded by the ld. AO do not give jurisdiction to reopen the case beyond the period of four years from the end of the relevant assessment year. Accordingly, the entire reopening is hereby quashed and consequently the entire re-assessment proceedings as well as order passed by the ld. AO is held to be without jurisdiction and is hereby quashed. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Validity of reopening of assessment under Section 147.
2. Addition of Rs. 1,93,90,770/- under Section 41(1) for cessation of liability.
3. Disallowance of Rs. 3,54,46,840/- on account of loss on cancellation of sales.

Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147:

The assessee challenged the reopening of the assessment under Section 147, arguing that the original assessment was completed under Section 143(3) and the reopening was done beyond the period of four years from the end of the relevant assessment year. The assessee contended that all material facts necessary for the assessment were fully and truly disclosed during the original assessment proceedings. The Tribunal observed that the reopening was based on the same records that were scrutinized during the original assessment, without any new tangible material. The Tribunal held that the Assessing Officer (AO) failed to establish any failure on the part of the assessee to disclose material facts. Consequently, the Tribunal quashed the reopening and the reassessment proceedings as being without jurisdiction.

2. Addition of Rs. 1,93,90,770/- under Section 41(1) for Cessation of Liability:

The AO added Rs. 1,93,90,770/- to the assessee’s income, treating it as cessation of liability under Section 41(1) since the amount was pending for more than six years. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition, stating that the assessee had disclosed the details of sundry creditors during the original assessment proceedings and the AO had accepted the explanation. The Tribunal upheld the CIT(A)’s decision, noting that the mere lapse of time does not constitute cessation of liability and there was no failure on the part of the assessee to disclose material facts.

3. Disallowance of Rs. 3,54,46,840/- on Account of Loss on Cancellation of Sales:

The AO disallowed Rs. 3,54,46,840/- claimed by the assessee as a loss on cancellation of sales, arguing that the actual sales were not reflected in the books of accounts. The CIT(A) upheld this disallowance. The assessee contended that the loss was due to the difference between the sale consideration and the stamp duty valuation, which was explained during the original assessment proceedings. The Tribunal found that the assessee had provided detailed explanations and documents regarding the loss on cancellation of sales during the original assessment, and there was no failure to disclose material facts. Therefore, the Tribunal quashed the disallowance.

Conclusion:

The Tribunal allowed the assessee’s appeal and dismissed the Revenue’s appeal, holding that the reopening of the assessment under Section 147 was invalid due to the absence of any failure on the part of the assessee to disclose fully and truly all material facts. Consequently, the entire reassessment proceedings and the additions made by the AO were quashed.