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TMI Blog2022 (6) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... iso to Sec.147 of the Act, come into operation and thus, we are of the considered view that notice issued by the AO u/s.148 of the Act, and consequent assessment proceedings u/s.147 of the Act, are bad in law and thus, re-assessment orders passed by the AO for the AYs 2007-08 2008- 09 are quashed. - Decided in favour of assessee. - ITA Nos.3242 & 3243/Chny/2016 - - - Dated:- 31-5-2022 - Shri V. Durga Rao, Hon ble Judicial Member And Shri G. Manjunatha, Hon ble Accountant Member For the Appellant : Mr.B.Parthasarathy, Adv. For the Respondent : Ms.M.S.Deeptha, JCIT ORDER PER G. MANJUNATHA, ACCOUNTANT MEMBER: These two appeals filed by the assessee are directed against the order of the Commissioner of Income Tax (Appeals)-3, Coimbatore, even dated 24.08.2016 and pertains to assessment years 2007-08 2008-09. 2. The assessee has, more or less, raised common grounds of appeal for both the assessment years. Therefore, for the sake of brevity, grounds of appeal for the AY 2007-08, are re-produced as under: 1. That all grounds etc. raised unto this second appeal before the authorities including the appellate authority and all materials relied by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 143(1) made on 13.02.2009 c. 143(3) r/s.264 completed on 30.10.2012 d. 148 notice issued on 28.03.2014 e. Re-opened asst. order made on (143(3) r/w 148) 11.03.2015 i) Assessment for asst. year 2007-08. Sec.143(3) completed accepting the non liability of TDS. This was approved by all incumbent to the office till the a.o. who passed sec.148 order. This was a case borne out of audit objection. No new material. Only change of opinion. Hence re-opening of asst. u/s.148 not valid by virtue of the concept of limitation, no valid cause for reopening, change of opinion, audit objection shall not be a reason to re-open. ii) Since there was no income escaping from assessment, and nothing was so declared by a.o., limitation of only four years time would apply. Even in such position, since no reason validly was recorded by a.o., before initiation, the reopening itself is void-ab-initio as struck by the concept of limitation (Hon'ble High Court of Madras in case of Ec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ument only and without conceding. That the Ld. First Appellate Authority erred in not considering the contention of the appellant that the a.o. went wrong in invoking sec.40a(ia) of the Act as even for argument and without admitting that if at all sec.194I has a role to play even then sec.40a(ia) of the Act could not be invoked for such non-compliance. 10. That the Ld. First Appellate Authority erred in not considering the contention of the appellant that a.o. was miserably led by surmise and prejudge mode as he invoked irrelevant rulings. The contention of the appellant before the a.o. and Ld. First Appellate Authority went unconsidered that the appellant had provided all informations, particulars, including whenever called for during scrutiny and declared full and true income including under return of income. Hence, per decision of this jurisdictional Hon'ble Tribunal in case of ACIT, Chennai v Jubliee Plot Housing Pvt. Ltd. In ITA 1625/2012, the entire proceedings including the impugned order may be set aside as invalid and non-est. 11. That the Ld. First Appellate Authority erred in not considering the contention of the appellant that even the a.o. had access t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant that even only for argument, not admitting, that TDS was due to have been deducted, then the TDS were to be deducted only on the closing payable balance by the appellant and not otherwise as held in by this Hon'bie Jurisdictional Tribunal in case of ACIT, Chennai v Eskay Designs in ITA.No.1951/2012 and ITO, Madurai v Theekathir Press in ITA 2076/2012, and on this score also the proceedings are bad in law. 17. That the Ld. First Appellate Authority erred in not considering the contention of the appellant that the Revenue should have followed the regulation fixed by the Department of Audit and the Authorities grossly failed to observe the merit directly upheld and recommended by Hon'ble Justice(retd.) R.V.Easwar committee in its draft report on simplification of Income Tax Act. Equally bad in law by the lower authorities is that an audit report could not become a valid reason for reopening when scrutiny was completed considering the same point. Further ld.CIT A erred grossly in dismissing the appeal on a score, against the ruling of various Courts, that when negative decision to appellant came in by any non-jurisdictional High Court as of then already there exist m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, for the reasons recorded, as per which, income chargeable to tax, had been escaped assessments on account of failure to deduct TDS on hire charges u/s.194 I of the Act, and further, disallowance of expenses u/s.40(a)(ia) of the Act. In response to notice issued u/s.148 of the Act, the assessee had filed its return of income for the AY 2007-08 on 28.04.2014 declaring total income of Rs.4,60,95,130/-. Similarly, the assessee had filed its return of income in response to notice issued u/s.148 of the Act, for the AY 2008-09, on 19.06.2015 and declared total income of Rs.6,48,46,900/-. The cases have been taken up for scrutiny and during the course of assessment proceedings, the AO was of the opinion that although, the assessee had paid hire charges on machinery plant in excess of prescribed limit for deduction of TDS u/s.194 I of the Act, the assessee has failed to deduct TDS u/s.194 I of the Act, and consequently, payments made without deduction of tax at source, cannot be allowed as deduction u/s.40(a)(ia) of the Act, and thus, disallowed hire charges paid for the AY 2007-08, amounting to Rs.10,81,604/- and for the AY 2008-09 amounting to Rs.44,22,389/-. 5. Being aggriev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .40(a)(ia) of the Act, for failure to deduct TDS u/s.194 I of the Act, the Ld.CIT(A) rejected the arguments of the assessee and sustained additions made by the AO. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeals before us. 7. The Ld.AR for the assessee submitted that the Ld.CIT(A) erred in rejecting the legal ground taken by the assessee challenging re-opening of assessments for both the assessment years, even though, the assessee has demonstrated with evidences that there is no allegation from the AO on failure on the part of the assessee to disclose fully and truly all material facts necessary for that assessments and such being the cases, when the assessments have been re-opened beyond four years from the end of the relevant assessment years, the AO should bring on record certain materials and alleged that there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for that assessments. In both the cases, the AO has re-opened the assessments on the basis of reasons recorded, as per which, there is no allegation from the AO on disclosure and thus, the assessments cannot be re-opened u/s.147 of the Act. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, from the reasons recorded for re-opening of assessment for both the assessment years, it is abundantly clear that the basis for the AO to form reasonable belief of escapement of income is, Tax Audit Report filed by the assessee along with return of income, which is very much available with the AO, when he had completed original assessment proceedings u/s.143(3) of the Act. Therefore, we are of the considered view that there is no fresh tangible material in the possession of the AO which came into his knowledge, subsequent to completion of original assessment proceedings u/s.143(3) of the Act, which is the basis for re-opening of assessments u/s.147 of the Act. In other words, the AO had formed reasonable belief of escapement of income on the basis of very same materials which was part of his assessment records, when he had completed original assessment proceedings u/s.143(3) of the Act. 10. In light of above factual back ground, if you examine legal provisions contained in Sec.147 of the Act, one has to understand whether the reopening of assessment by the AO is valid or not. The provisions of Sec.147 deals with re-opening of assessment. The proviso to Sec.147 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o ₹ 4,89,06,168/-. As the assessee had failed to deduct TDS on such payments, the expenses are bound to be disallowed u/s. 40(a)(ia) of Income-tax Act. Also it is seen in the Form 3CD, against item No.27 (b) the auditor was required to report the details of non-compliance with the TDS provision in Chapter XVII B of the I.T. Act. The Auditor has quantified only certain items of non-compliance and omitted to mention the other items such as Machinery Hire Charges paid in excess of the prescribed limits. This failure on the part of the assessee resulted in under assessment of income. I have therefore, reason to believe that income chargeable to tax has escaped assessment within the meaning of Section 147 of the Income-tax Act, due to failure on the part of the assessee to disclose fully and truly all the material facts necessary for the Asst. Year 2007-08 . Similar reasons have been recorded by the Assessing Officer in the case of other assessee, M/s.Bharathi Constructions, also. 8. From the above it appears that the allegation against the assessees is non-deduction of tax at the time of payment. A copy of the assessment order passed under Section 143(3) of the Act in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of preparing the audit report. 11. Preparation of audit report is the exclusive function of auditor, therefore, if at all there was any negligence and omission to disclose correct fact in the report prepared under Section 44AB of the Act, this Tribunal is of the considered opinion that the assessee cannot be found fault. If the assessee suppresses any material either before the auditor or before the Assessing Officer, then we may say there was negligence on the part of the assessee. In this case, the Assessing Officer himself called upon the entire details of gross receipts, TDS certificates, details of opening stock, work in progress, payment of wages, payment of interest, payment of vehicle hire and machinery charges, copy of sales tax order, etc. Therefore, when the assessee has furnished all the details which are required in completing assessments, this Tribunal is of the considered opinion that mere omission of auditor to mention certain items in the audit report prepared under Section 44AB of the Act, that alone cannot be a reason to say that there was negligence on the part of the assessee. This Tribunal is of the considered opinion that when the assessees furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , can produce all the relevant material before the auditor for the purpose of preparing the audit report. 11. Preparation of audit report is the exclusive function of auditor, therefore, if at all there was any negligence and omission to disclose correct fact in the report prepared under Section 44AB of the Act, this Tribunal is of the considered opinion that the assessee cannot be found fault If the assessee suppresses any material either before the auditor or before the Assessing Officer, then we may say there was negligence on the part of the assessee. In this case, the Assessing Officer himself called upon the entire details of gross receipts, TDS certificates details of opening stock, work in progress, payment of wages, payment of interest, payment of vehicle hire and machinery charges, copy of sales tax order, etc. Therefore, when the assessee has furnished all the details which are required in completing assessments, this Tribunal is of the considered opinion that mere omission of auditor to mention certain items in the audit report prepared under Section 44AB of the Act that alone cannot be a reason to say that there was negligence on the part of the assessee. This Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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