ACIT,NCC7(1), CHENNAI vs. M/S PRABHA ENGINEERS, CHENNAI

आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by Revenue for Assessment Year (AY) 2010-11 arises out of the order of learned Commissioner of Income Tax (Appeals)-7, Chennai [CIT(A)] dated 13-02-2020 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s.143(3) r/w s. 147 of the Act on 28-12-2018. The grounds taken by the Revenue read as under: 1. The order of the CIT(A) is contrary to law, facts and circumstances of the case. 2. The learned CIT(A) erred in holding the holding the order of re-assessment u/s 143(3) r.w.s 147 is void ab initio.

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As is evident, the revenue is aggrieved by quashing of reassessment proceedings on legal grounds as well as deletion of disallowance u/s 40(a)(ia) on merits. 2. The Registry has noted delay of 206 days in the appeal, the condonation of which has been sought by the Revenue on the ground that the delay occurred due to lockdown situation arising out of Covid- 19 Pandemic. Considering the same, the delay is condoned and the appeal is admitted for adjudication on merits. Having heard rival submissions, our adjudication would be as under. 3. The assessee being resident firm was subjected to reassessment proceedings vide notice u/s 148 dated 31.03.2017. The assessee filed return of income on 20.04.2017. Apparently, the assessee demanded reasons for reopening vide its letter dated 05.04.2017 (this fact is recorded in para 8.2 of the impugned order). However, no reasons were supplied to the assessee. The original return of income was already scrutinized u/s 143(3) on 07.12.2012. The reason for reopening was that the assessee claimed deduction u/s 80IA(4) but it did not file mandatory Form 10CCB and therefore, an opinion was formed by Ld. AO that the assessee would not be eligible for said deduction. It was also noted that the assessee paid factoring charges and bill discounting charges to Can Bank Factors Ltd. which would

ITA No.944/Chny/2020 - 3 - constitute interest for the purpose of Tax deduction at source (TDS) u/s 194A. Since no tax was deducted at source, disallowance of Rs.161.43 Lacs was made u/s 40(a)(ia). Certain other disallowances were also made in the assessment order which are not the subject matter of revenue’s appeal before us. 4. The assessee assailed the validity of proceedings on the ground that the reasons for reopening were not supplied to the assessee which was contrary to the decision of Hon’ble Supreme Court in GKN Driveshafts (India) Ltd. V/s ITO (259 ITR 19). Such a failure would render the assessment nullity as held by Hon’ble Karnataka High Court in PCIT V/s V. Ramaiah (103 Taxmann.com 201). The Special Leave Petition (SLP) against this decision stood dismissed by Hon’ble Supreme Court which is reported at 262 Taxman 16. Similar was stated to be the decision of Hon’ble Bombay High Court in CIT V/s Videsh Sanchar Nigam Ltd. (340 ITR 66) as well as the decision of Hon’ble High Court of Delhi in PCIT V/s Jagat Talkies Distributors (398 ITR 13). Considering the same, Ld. CIT(A) held the order to be illegal, invalid and void ab initio. The finding that the reasons were not supplied to the assessee despite his specific notice was rendered after perusal of case records. It was observed in para 8.3 of the impugned order that there was no evidence to indicate that AO had communicated the reasons for reopening to the assessee. There was no entry in the order sheet noting regarding furnishing of reasons recorded for reopening of the assessment. 5. At the same time, Ld. CIT(A) proceeded on merits and held that non filing of audit report along with return of income would not deprive the assessee from claiming the benefit of deduction u/s 80-IA(4) as

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held in various judicial pronouncements. The disallowance u/s 40(a)(ia) was deleted by following the decision of Hon’ble High Court of Delhi in PCIT V/s M.Sons Gems N Jewellery Pvt. Ltd. (239 Taxman 530) wherein it was held that such charges could not be considered as interest for the purpose of Sec.194A. Similar was the view of Hon’ble Calcutta High Court in CIT V/s MKJ Enterprises Ltd. (228 Taxman 61). Aggrieved, the revenue is in further appeal before us. Our findings and Adjudication 6. Before us, the factual position that the reasons recorded for reopening the reassessment proceedings were never communicated to the assessee, remain undisturbed before us. There is nothing in the orders of lower authorities which would establish that such reasons were ever supplied to the assessee. In such a case, the assessment proceedings would be rendered nullity as held by Hon’ble Karnataka High Court in PCIT V/s V. Ramaiah (103 Taxmann.com 201). The Special Leave Petition (SLP) against this decision stood dismissed by Hon’ble Supreme Court which is reported at 262 Taxman 16. The Hon’ble High Court of Karnataka, considering the decision of Hon’ble High Court of Madras in Home Finders Housing Ltd. V/s ITO (93 Taxmann.com 371) (as cited by Ld. Sr.DR), found the same to be distinguishable as under: - 8. The decision relied upon by the learned counsel for the Revenue is distinguishable on facts. The order which was to be passed by assessing authority as preliminary objection of assessee, once the assessee has raised the objection to such reassessment proceedings, the meeting of such objections in the main reassessment order, could be procedural aspect of the matter, but the recording of the reasons before the initiation of the reassessment proceedings and communication thereof to the assessee is sine qua non, as held by Hon'ble Supreme Court and that goes to the root of the matter and confers or deprives the assessing authority of the jurisdiction to undertake such reassessment proceedings, as the case may be.

ITA No.944/Chny/2020 - 5 - 9. In the present case, admittedly, such reasons were not supplied to the assessee during the contemporary period before going ahead with the reassessment proceedings. Therefore, the Tribunal in our opinion was perfectly justified in quashing such reassessment order We find that the decision of Hon’ble High Court of Madras in Home Finders Housing Ltd. V/s ITO (93 Taxmann.com 371) deal with a situation wherein the objections raised by the assessee were not disposed-off by the revenue. Under these circumstances, the matter was remanded back by Hon’ble Court to the file of Ld. AO. It was noted by Hon’ble Court in para-18 that the disposal of the objections was a procedural requirement to appraise the assessee of the actual grounds which made the AO to arrive at a prima facie satisfaction that there was escape of income warranting reopening the assessment proceedings. The same is not the case here. Therefore, the ratio of this decision, in our considered opinion, does not apply to the facts of present case. Consequently, the impugned order could not be faulted with in that regard. 7. Since Ld. CIT(A) has adjudicated the issue on merits of disallowance u/s 40(a)(ia) and a ground has been raised by the revenue in that regard, we would dispose-off the same. The adjudication of Ld. CIT(A) follows binding judicial precedent of Hon’ble High Court of Delhi in PCIT V/s M. Sons Gems N Jewellery Pvt. Ltd. (239 Taxman 530) wherein it was held that such charges could not be considered as interest for the purpose of Sec.194A. Similar was the view of Hon’ble Calcutta High Court in CIT V/s MKJ Enterprises Ltd. (228 Taxman 61). No contrary decision has been placed on record and therefore, the adjudication to that extent, could also not be faulted with.

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Order pronounced on 18th August, 2022.

Sd/- Sd/- (SONJOY SARMA) (MANOJ KUMAR AGGARWAL) �ाियक सद4 /JUDICIAL MEMBER लेखा सद4 / ACCOUNTANT MEMBER चे*ई / Chennai; िदनांक / Dated : 18-08-2022 EDN/- आदेश की Uितिलिप अ/ेिषत/Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� (अपील)/CIT(A) 4. आयकर आयु�/CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF