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Income Tax Appellate Tribunal, DELHI BENCHES “SMC-1”: DELHI
Before: SHRI BHAVNESH SAINI
This appeal by assessee has been directed against the order of Ld. CIT(Appeals)-Faridabad dated 28.12.2018 for AY 2008-09. 2. I have heard Ld. Representatives of both the parties and perused the material on record. 3. Briefly the facts of the case are that return declaring income of Rs. 1,33,780/- was filed by assessee on 30.09.2008.
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The assessment in this case was completed u/s 143(3) of the Act vide order dated 22.12.2010, determining the total income of the assessee at Rs. 2,32,870/-. It may be noted here that in para 5 the AO in this order noted that a sum of Rs. 11,13,955/- has been claimed on account of interest paid on loans raised from different banks. The AO asked the assessee to furnish bank/party wise details which was filed the AO noted that loan has also been raised for construction of house but no bifurcation of the loan could be given by the assessee. In absence of any clear bifurcation the assessee surrendered a sum of Rs. 50,000/- on the interest paid which was disallowed by the AO. Thereafter, proceeding u/s 147 of the Act were initiated after recording the reasons, notice u/s 148 was issued on dated 31.03.2015. The assessee submitted before AO the return filed originally may be treated as return filed in response to notice u/s 148 of the Act. The AO after giving opportunity of being heard to the assessee disallowed the interest paid by assessee amounting to Rs. 11,13,955/- for violation of provisions of section 40(a)(ia) of the Act for failure to deduct tax at source. The Ld. CIT(A) confirmed the addition but directed the AO to reduce the amount of Rs. 50,000/- which was also disallowed by the AO. The Ld. CIT(A) also dismissed the ground of appeal of the assessee, challenging the reopening of the assessment.
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Ld. Counsel for assessee referred to PB 33 which is the reason for reopening of the assessment. The same is reproduced as under: - 1. Name & Address of the Assessee : Sh. Hanish Singla Prop. M/s PHR Industries, B-205, Nehru Ground, NIT, Faridabad 2. Assessment Year : 2008-09 3. Previous Year : Ending on 31.03.2008 4. PAN : AGYPS9747A 5. Date of recording of reasons : 05-03-2015 Reason for issuing notice under section 148 of the I.T. Act, 1961: During the assessment proceedings, the assessee furnished required details/information alongwith books of accounts. Perusal of the ledger accounts revealed that the assessee had made payment of interest of Rs. 11,13,955/- in the statement of taxable income which was not debited in the profit and loss account. By not claiming expenditure through profit and loss account, it would be concluded all the business transactions were not audited by the Chartered Accountant resulting in incomplete audit. Since the complete audit was not conducted by the auditor assessee shall be treated in default for not conducting the audit for which he was liable to pay penalty of Rs. 1,00,000/- u/s 271B. Since the interest on borrowed capital amounting to Rs. 11,13,955/- was claimed as deduction through statement of taxable income, assessee was required to deduct TDS on such payment. As the payment was made out of books, assessee had not deducted TDS on such interest which needed to be disallowed u/s 40(a)(ia) of the Act. Omission resulted in under assessment of income of Rs. 11,13,955/-. In view of the above facts, I have reasons to believe that the assessee had an income of Rs. 11,13,955/- chargeable to tax which has escaped assessment for the AY 2008-09. To assess the income of Rs. 11,13,955/- and any other income which may come in notice during assessment proceedings u/s 147 permission may kindly be granted to issue notice u/s 148 of the Act to bring undisclosed income of Rs. 11,13,955/- to tax for the AY 2008-09. Sd/- (Parmod Pal Singh) Income-tax Officer, Ward-1(1), Faridabad
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Ld. Counsel for assessee submitted that all facts have been disclosed fully and truly for the purpose of assessment on which the AO examined the allowability of the interest claimed at Rs. 11,13,955/- in the original assessment order and disallowed Rs. 50,000/-. He has, therefore, submitted that since order has already been passed u/s 143(3) of the Act on the same issue and there is no failure on the part of the assessee, therefore, no proceedings u/s 147 could be initiated after four years and as such, liable to be quashed. 6. On the other hand, Ld. DR relied upon the orders of the authorities below and submitted that since the entire amount of Rs. 11,13,955/- shall have to be disallowed u/s 40(a)(ia) of the Act for non deduction of TDS, therefore, AO correctly reopened the assessment. 7. I have considered the rival submissions and perused the material on record. It is well settled law that validity of reassessment proceedings is to be determined on the basis of reasons recorded for reopening of the assessment. The reasons for reopening of the assessment are reproduced above in which AO has specifically mentioned that the entire interest of Rs. 11,13,955/- needed to be disallowed. This omission which resulted in under assessment of income of Rs. 11,13,955/-, therefore, he formed his opinion that income chargeable to tax to this amount has escaped assessment. It is an admitted fact that originally the AO passed the
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assessment u/s 143(3) of the Act dated 22.12.2010 and out of the impugned amount of Rs. 11,13,955/- disallowed Rs. 50,000/- only. Thus, assessee disclosed all the primary facts with regard to deduction claimed on account of interest paid on loans at the original assessment stage and is considered by the AO also at original assessment stage, therefore, there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for that assessment. The assessee also filed return of income originally on dated 30.09.2008 u/s 139 of the Act and four years have expired from the relevant assessment order, therefore, first proviso to section 147 would apply in favour of the assessee and no assessment could have been reopened in such circumstances against the assessee. Further, the reasons recorded u/s 148 clearly show that assessment already framed u/s 143(3) has been reopened because of omission on the part of the AO to make addition in the original assessment order. The Hon’ble Bombay High Court in the case of Titanor Components Ltd. Vs. ACIT 343 ITR 183 (Bom.) held that reassessment to correct error in assessment is not valid. It was further held as under: “Where a reassessment is sought to be made after four years the power conferred by section 147 of the Income-tax Act, 1961, does not provide a fresh opportunity to the Assessing Officer to correct an incorrect assessment made earlier unless the mistake in the assessment so made is the result of a failure of the assessee to fully and truly disclose all
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materials facts necessary for assessment. There is a difference between a wrong claim made by an assessee after disclosing all the true and material facts fully and truly. It is only in the latter case that the Assessing Officer would be entitled to proceed u/s 147. Held, allowing the petition, that the Assessing Officer had not recorded the failure on the part of the petitioner to fully and truly disclose all material facts necessary for the AY 1997-98. What was recorded was that the petitioner had wrongly claimed certain deductions which he was not entitled to. The reassessment proceedings initiated in the year 2004 were not valid.” 8. Hon’ble Delhi High Court in the case of Techman Buildwell 370 ITR 771 held that AO’s omission sole basis of initiating proceedings u/s 148 of the Act, notice not valid. 9. Considering the above discussion, it is clear that at the original assessment stage AO considered the issue of claim of deduction on account of interest to the banks and others and as such, on mere change of opinion AO could not have reopened the assessment. Thus, the omission of the AO to make disallowance of the full interest now is not permissible in law. 10. In the result, I set aside the orders of the authorities below and quashed the reopening of the assessment. Resultantly all additions stand deleted.
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In the result, the appeal of assessee is allowed. Order pronounced in the open Court on 14.01.2021.
Sd/- (BHAVNESH SAINI) JUDICIAL MEMBER Dated: 14.01.2021 *Kavita Arora
Copy to
The appellant 2. The respondent 3. CIT(A) concerned 4. CIT concerned 5. D.R. ITAT ‘SMC’ Bench, Delhi 6. Guard File.
// BY Order //
Assistant Registrar : ITAT Delhi Benches : Delhi.