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Facts
The assessee filed an appeal against an order passed by the NFAC. The core issue was the validity of reassessment proceedings initiated under Section 147 of the Income Tax Act, which the assessee argued were barred by limitation and initiated without proper justification.
Held
The Tribunal held that the reassessment proceedings initiated under Section 147 were bad in law because the Assessing Officer (AO) failed to record reasons indicating the assessee's failure to disclose material facts, which is a prerequisite for initiation after four years.
Key Issues
Whether the reassessment proceedings under Section 147 were validly initiated after expiry of four years without recording reasons of assessee's failure to disclose material facts.
Sections Cited
147, 143(3), 148, 40(a)(i), 139, 142(1)
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Income Tax Appellate Tribunal, ‘A’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER WASEEM AHMED, ACCOUNTANT MEMBER:
1. This is an appeal filed by the assessee against the order passed by the NFAC, Delhi dated 19/10/2023 in 250/2023-24/1057218027(1) for the assessment year 2015-16.
The assessee in ground No. 2 has challenged validity of the assessment framed us/ 147 r.w.s. 143(3) of the Act on account of barred by limitation.
At the outset, the ld. Counsel for the assessee submitted that the proceedings in the instant case has been initiated u/s 147 of the Act beyond 4 years but without recording the facts that there was violation on the part of the assessee to disclose all material facts truly. As per the ld. AR there was a assessment u/s 143(3) of Act dated 26/12/2017 and, therefore, the AO before initiating the proceedings u/s 147 of the Act has to satisfy himself that there was failure on the part of the assessee to disclosed all materials facts truly. In the absence of such recording, the initiation of proceedings u/s 147 of the Act is bad in law and liable to be quashed.
The ld. AR in support of his contention relied on the order of ITAT in its own case for the assessment year 2013-14 and 2014-15 in and 1114/Bang/2023 vide order dated 13/12/2024.
4.1 On the other hand, the ld. DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the partes and perused the materials available on record. Admittedly, in the present case 4 years expired on 31/03/2020 for the assessment year in dispute. There was a scrutiny u/s 143(3) of the Act dated 26/02/2017. The notice u/s 148 of the Act was issued on 31/03/2021. The period of 4 years lapsed 31/03/2020, whereas the notice u/s 148 of the Act was issued on .
Page 3 of 6 31/03/2021 after 1 year. The proviso to sec. 147 of the Act mandates that where the assessment has been framed u/s 143(3) of the Act proceedings u/s 147 of the Act can be initiated after 4 years provided that there was violation on the part of the assessee to disclose all material facts truly. However, on perusal of the reasons recorded placed at page 338 of the paper books, we find that in the reasons recorded by the AO that there was no mentioned about the violation on the part of the assessee to disclose all material facts truly. Thus, the question arises whether initiation of the proceedings u/s 147 of the Act are valid in the given facts and circumstances. This question has been answered by the ITAT in its own case Supra wherein it was held as under:-
“19. We have carefully considered the rival contentions and perused the orders of ld. lower authorities. The facts clearly show that a notice u/s. 148 was issued for AY 2013-14 on 26.8.2021 and reasons were recorded on the same date which are as under:- “2. Brief details of information collected / received by the AO: The ITO, International Taxation, ward-1(1), Bangalore has forwarded the information vide letter in F.No. AAFCA2502B/ITO W-1(1)/Intl. Taxn./2019-20 dated 20.03.2020 as per which the assessee company has outsourced certain services to global service providers being non - resident entities. The assessee has made payments under the head AMC & Maintenance charges which is in the nature of fee for technical charges.
1. Analysis of information collected/ received: It is seen from the P&L account that the assessee has debited maintenance charges. The International Taxation officer has forwarded the information that the assessee has made payments of Rs. 49,17,872/- during the assessment year 2013-14 to nonresident service providers/vendors on account of AMC & Maintenance charges without making TDS. Since these payments are in the nature of fee for technical services, section 40(a)(i) is applicable in this case.
1. Findings of the AO: It is seen from the order u/s. 143(3) dated 24.03.2016 that no addition has been made on this issue. Therefore 1 have reason to believe that income of Rs. 49,17,872/- has escaped assessment for the assessment year 2013-14. The provisions of section 147 are applicable to the facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment.
Basis of forming reason to believe and details of escapement of income: The International Taxation officer has forwarded the information that the assessee has made payments of Rs. 49,17,872/- during the assessment year 2013-14 to non-resident service providers/vendors on account of AMC & Maintenance .
Page 4 of 6 charges without making TDS. Since these payments are in the nature of fee for technical services, section 40(a)(i) is applicable in this case. In a light of the information received from International Taxation officer and correlation of the same with records of M/s Eurofins Advinus Ltd. ( Formerly known as Advinus Therapeutics Ltd), for A.Y.-2013-14, the undersigned has reason to believe that an amount of Rs. 49,17,872 /- paid to non-resident service providers/vendors on account of AMC & Maintenance charges without making TDS is wilful of act of the assessee in order to reduce its taxable income. In light of the same undersigned has reason to believe that an amount to tune of Rs. Rs. 49,17,872 /- has escaped assessment within meaning of section 147 of Income-tax Act.”
According to the provisions of section 147 of the Act, if the AO has reason to believe that income chargeable to tax has escaped assessment for any assessment year, subject to the provisions of section 148 to 153, he has every right to assess or reassess such income and also any other income which has escaped assessment and comes to his notice during the reassessment proceedings. However, there is one fetter to his right, i.e., if any action has to be taken after the expiry of four years from the end of the relevant assessment year, he could make the reassessment order assessing such income, only if the income chargeable to tax has escaped assessment for such assessment year by reason of failure on the part of assessee:- (i) to make a return u/s. 139; (ii) to make a return in response to a notice u/s. 142(1); (iii) to make a return u/s. 148; or (iv) to disclose fully and truly all material facts necessary for his assessment for that assessment year.
Therefore, in the case of reassessment proceedings initiated after the expiry of four years, the AO can assume jurisdiction for reassessment only after the above conditions are satisfied. Satisfaction of the above conditions are required to be mentioned in the reasons recorded for reassessment only because it is where he gets a power to reassess the income. Thus, apparently, it is mandatory that such statement of facts are required to be mentioned in the reasons recorded itself, because reasons have to be read as they are recorded by the AO, without any substitution or deletion and any inference.
Thus, if notice u/s. 148 is to be issued after expiry of four years, the assessee should have failed to disclose material facts and the ld. AO should have alleged and based his reasons to believe on that fact of non-disclosure by the assessee. If the AO does not state or allege that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the said assessment year, any other authority cannot infer or improve up on such reasons so recorded, therefore absence of such necessary jurisdictional facts mentioned in reasons, such reopening of the assessment cannot be upheld. The Hon’ble Karnataka High Court in the case of CIT v. Canara Bank, 155 taxmann.com 289 has categorically held so in para 16 of that order. Such is the view expressed by Hon’ble Bombay High Court also.
Merely because the AO has mentioned that non-disallowance of payment to non-resident without deduction of tax at source is a wilful act of assessee in order to reduce its taxable income is also an allegation that assessee has failed to disclose fully and truly all material facts, we do not find any reason to .
Page 5 of 6 compare these findings of the AO for allegation of failure on the part of assessee for disclosure. Therefore, on this solitary ground, we quash the reassessment order passed by the ld. AO.
An argument is raised by the learned authorised representative that when the dispute is settled for a particular assessment year involving same point in VSV 2020, the learned assessing officer could not have reopened the assessment on the same issue. Firstly, you like to state that in this case originally additions were made for non-deduction of tax at source with respect to the payment made to the resident Indian, whereas the issue involved in the reopening of the assessment is with respect to payment made to the non-resident. According to provisions of section 5 of VSV 2020 Act on matters stated in the application for settlement of disputes are covered therein. In this case, the matter settled in the VSV Act and the matter for which reopening is made are two different issues and therefore there is no infirmity in the action of the learned assessing officer in not considering that the matter settled in VSV 2020 is the same as involved in the reopening. The judicial precedents cited before us are in fact related to section 263 of the income tax act, but those decisions have quashed the revisionary proceedings only for the reasons not the matter settled in that scheme and the matter for which the revisionary proceedings are initiated are same. Therefore, we dismiss this argument of the learned authorised representative.
Accordingly, ground no. 2 relating to reopening of the assessment is allowed as indicated above.
In view of our decision on ground no.2, all other grounds of appeal
become infructuous and hence dismissed. \
27. In the result, the appeal for AY 2013-14 is partly allowed.
5.1 The facts of the case on hand are identical to the facts of the case discussed above, therefore, respectfully following the order of the co- ordinate Bench in the own case of the assessee, we hold that the initiation of the proceeding u/s 147 of the Act in the case on hand is bad in law. Hence, ground of appeal of the assessee is hereby allowed.
5.2 Since the assessee succeeds on technical ground, we do not find any reason to adjudicate the issue raised by the assessee on merit. As such Ld. AR at the time of hearing submitted that if the assessee succeeds on technical ground, the issues raised on merit was not required to be adjudicated. Accordingly, we dismiss other gourd of appeal raised by the assessee as infructuous.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in court on 12th day of March, 2025