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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI V. DURGA RAO, HON’BLE & SHRI G. MANJUNATHA, HON’BLE
आदेश / O R D E R 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.
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:
That all grounds etc. raised unto this second appeal before the authorities including the appellate authority and all materials relied by the appellant may be considered as part and parcel of this appeal and grounds.
ITA Nos.3242 & 3243/Chny/2016
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That the Ld. First Appellate Authority erred in not considering the contention of the appellant that a.o. grossly violated the principle of natural justice and totally failed to provide fair and reasonable opportunity and hence the impugned order may be set aside as invalid.
That the fact of the case is that during the year in subject, the appellant paid higher charges to each party not exceeding the limit provided under section 194 I of the IT. Act. All the expenses were clearly and fully accounted for and placed for verification. The assessing a.o. then, clearly verified all the transactions and materials furnished including hire charges and after verification he concluded that hire expenses were to be allowed as claimed and were in order, assessing total income at Rs.5,56,61,450/=. Revenue Audit party thereafter made a note that hire charges were to be disallowed u/s.40a(ia)of the Act as payment violated sec.194 I of the Act limit. But the a.o. who assessed clearly denied the charge inter alia stating that claim of hire charges of Rs.10,82,304/-, in dispute also, was in order. It is learnt further that response to remainder, the succeeding a.o. also verified the records etc., and succinctly reacted that there was no violation of payment limit u/s 194 I by the appellant and hence allowance were in order. Another successor to him, third in a row, this a.o. also called for records and objections and rejected the audit objection. So three authorities in a row of succession did find that the hire charges paid were never in violation of sec.194 I of the I.T. Act and audit objection has no fooling both on facts and law. But for a taken aback, the fourth officer in that row succumbed to the direction of implementing audit objection. All the factual and legal positions narrated before the Ld. First Appellate Authority went in the thin air unheard and hence this appeal.
That the Ld. First Appellate Authority erred in not considering the contention of the appellant that the Law was not properly adhered including in the concept of procedure, invoking of sec.148 of the Act. The list of incidents in the process of assessment is appended below:
a. ITR Filed on 20.03.2008 b. 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 Eco Media(P)Ltd. And Hon'ble ITAT Lucknow in case of Rupani Products and citations in 284 ITR 542 (Bom),287 ITR 494 (Bom), 264 ITR 566 SC).
iii) Since re-opening of assessment started subsequent to completion of assessment made u/s143(3) of the IT. Act, notice u/s.143(2) ought to have been issued which the a.o. fatally failed. The a.o. invoked both section 143(3) and section 147 of the LT. Act, which is also null and void.
That the Ld. First Appellate Authority erred in not considering the contention of the appellant that when originally at all times including at the stage of 143(1) and also at scrutiny stage the a.o. clearly was convinced of fact and materials produced before
ITA Nos.3242 & 3243/Chny/2016
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him that the hire charges could not be brought to ambit of Sec.40a(ia) of the IT. Act, on a primary reason that no payment exceeded the limit. This stand was later ratified by the two succeeding officers including while making reply to margin notes to audit report. This is in line with the finding of this Hon'ble Tribunal in case of ACIT V JUBILEE POLT HOUSING LTD AND in case of CIT V. CHOLOMANDALAM INVESTMENT).
That the Ld. First Appellate Authority erred in not considering the contention of the appellant that Hon'ble Courts clearly held that audit objection would not constitute a reason for reopening. (Honb'le Apex Court in case of INDIAN AND EASTERN NEWS PAPER and Hon'ble Madras High Court in Apollo Hospitals Enterprises v ACIT, citation - 287 ITR 25 Mad).
That the Ld. First Appellate Authority erred in not considering the contention of the appellant that when the a.os. objected the audit query, then a.o. who have not passed scrutiny order and/or faced audit party could not be validly put to sanctify the report and such assessment is one without jurisdiction. This point is covered by the decisions of this Hon'ble Tribunal in case of MU 54 Usilampatti Primary Agri. Co-op. rural Development Bank Ltd., Hon'ble Mumbai ITAT in case of Sunil Gavaskar and by Hon'bie High Court of Gujarat in case of Raajraina Metal indusiries Lid.
That the Ld. First Appellate Authority erred in not considering the contention of the appellant that the order passing a.o. has not verified that his predecessors in office had clearly opined of non-applicability of sec.1941 of the Act.
That all the alternate grounds made herein are for argument 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.
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.
That the Ld. First Appellate Authority erred in not considering the contention of the appellant that even the a.o. had access to letter of appellant that clearly went to show that it had already provided showing that no payment exceeded the limit, but still he passed the order without having no lawful reason to belief (Hon'ble Apex Court in case of Kelvinator of India Ltd.,) to be set aside as invalid.
That the Ld. First Appellate Authority erred in not considering the contention of the appellant that as the a.o. never provided the materials he relied to assesee, the entire proceedings ought to have been set aside as invalid. Per order of the Hon'ble Calcutta High Court in case of Debashis Moulik v ACIT, in W.P. No.1174 of 2013, even all the materials called for not furnished, still the a.o. could not validly invoke sec.147 and reopen the assessment.
That the Ld. First Appellate Authority erred in not considering the contention of the appellant that alternatively, without admitting, even otherwise, if any amount is to be disallowed only the amount payable at the end of the financial year alone could be disallowed and not otherwise.
ITA Nos.3242 & 3243/Chny/2016 :: 4 ::
That the ld. First Appellate Authority erred in not considering the contention of the appellant that act of a.o. is nothing but change of opinion as at the time of scrutiny assessment hire charge expense was gone in detail by him and all details of party wise payment and as such change of opinion would not vest the a.o. with the authority to reopen assessment validly (ITAT, KOLKATA in case of Reliable Transport Agency v ACIT, in ITA 1066/2010).
That the Ld. First Appellate Authority erred in not considering the contention of the appellant that the Revenue has not able to materially defend before the Ld. First Appellate Authority against the contentions made by the appellant including that never ever before the a.o. who made assessment, all predecessors in office denied but categorically admitted the true and full disclosure of the appellant including on the point of non-application of sections194l r/w 40a(ia) of the Income Tax Act, and hence the entire order passed by the Ld. First Appellate Authority may be set aside as non- maintainable, ipso-facto and ipso-jurie invalid and assessment order passed without jurisdiction granting all and other reliefs as may be deemed just and necessary allowing the appeal in full.
That the Ld. First Appellate Authority erred in not considering the contention of the appellant 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.
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 more than one ruling favoring appellant by other Courts, then the benefit should be given to the appellant.
That for all reasons herein, among others that may be urged at the time of hearing, it is prayed that this Hon'ble Court may be pleased to allow the appeal in full granting all and other relief as may be deemed fit and necessary.
At the outset, appeals filed by the assessee for the AYs 2007-08 &
2008-09 are time barred by 18 days, for which, petition for condonation of
delay has been filed. The Ld.AR for the assessee referring to petition filed
by the assessee submitted that Chairman of the company was fell sick
during the period, when order passed by the Ld.CIT(A) is received by the
company. Because of ill-health, he could not attend the office work. Thus,
ITA Nos.3242 & 3243/Chny/2016 :: 5 ::
for the above reason, there is a delay of 18 days in filing of these appeals.
However, such delay is neither intentional nor to derive any undue benefit,
but purely for the reasons beyond control of the assessee. Therefore, delay
may be condoned in the interest of advancement of substantial justice.
3.1 The Ld.DR fairly agreed that the Bench may take appropriate decision
to condone the delay.
3.2 We have heard both the sides and considered the petition filed by the
assessee for condoning the delay in filing of these appeals for both the
assessment years. Having considered reasons given by the assessee for
not filing the appeals within the time prescribed under the Act, we find that
the reasons given by the assessee does come under reasonable cause as
provided under the Act and thus, the delay in filing of these appeals for
both the assessment years, are condoned and appeals filed by the assessee
are admitted for adjudication.
The brief facts of the case are that the assessee company is engaged
in the business of civil engineering construction contract, had filed its return
of income for the AY 2007-08 on 20.03.2008, admiting total income of
Rs.5,56,61,450/- and for the AY 2008-09, the return of income has been
filed on 28.09.2008 declaring total income of Rs.6,48,46,900/-. The
assessments for the AYs 2007-08 & 2008-09, have been completed
u/s.143(3) of the Act, on 23.12.2009 and 30.03.2010, respectively and
assessed total income at Rs.6,11,59,470/- and Rs.6,48,46,900/-
ITA Nos.3242 & 3243/Chny/2016 :: 6 ::
respectively. Subsequently, assessments for both the AYs have been re-
opened u/s.147 of the Act, 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.194I 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.194I of the Act, the
assessee has failed to deduct TDS u/s.194I 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/-.
Being aggrieved by the assessment orders, the assessee preferred
both the appeals before the Ld.CIT(A). Before the Ld.CIT(A), the assessee
had challenged the re-opening of assessments on the ground that when the
assessment has been re-opened beyond the period of four years from the
end of the relevant assessment years, then, there should be an allegation
ITA Nos.3242 & 3243/Chny/2016 :: 7 ::
from the AO that there is a failure on the part of the assessee to disclose
fully and truly all material facts necessary for that assessments. In these
cases, the AO has re-opened the assessments after recording reasons.
Further, on perusal of such reasons, there is no allegation from the AO that
there is a failure on the part of the assessee to disclose fully and truly all
material facts necessary for that assessments. Therefore, on the basis of
very same materials without any allegation, re-opening of assessment is
bad in law and liable to be quashed. The assessee had also challenged
additions made by the AO towards disallowance of hire charges
u/s.40(a)(ia) of the Act, for non-deduction of TDS u/s.194I of the Act, and
submitted that hire charges paid by the assessee to each party during the
financial year relevant to the AYs 2007-08 & 2008-09, does not exceed a
sum of Rs.1,20,000/- per annum, which is specified amount, for which,
provisions of Sec. u/s.194I of the Act, is applicable. The assessee has filed
all details and proved that hire charges paid, does not come u/s.194I of
the Act, and consequently, the same cannot be disallowed u/s.40(a)(ia) of
the Act. The AO without considering relevant facts simply made additions.
The Ld.CIT(A) after considering relevant submissions of the assessee
and also taken note of certain judicial precedents held that the re-opening
of assessment u/s.147 of the Act, for both the AYs is valid, because, the
AO has formed a reasonable belief of escapement of income on the basis
of fresh material, which came to his possession subsequent to completion
of original assessment proceedings u/s.143(3) of the Act. Therefore, the
ITA Nos.3242 & 3243/Chny/2016 :: 8 ::
arguments of the assessee that there is no allegation of failure on the part
of the assessee to disclose fully and truly all material facts necessary for
that assessments, does not arise and thus, he was of the opinion that there
is no merit in arguments of the assessee challenging re-opening of
assessments. As regards additions made towards hire charges
u/s.40(a)(ia) of the Act, for failure to deduct TDS u/s.194I 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.
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
regard, he relied upon the decision of ITAT Chennai Benches in the case of
ITA Nos.3242 & 3243/Chny/2016 :: 9 ::
N.Ramalingam & Co. v. ACIT in ITA No.1249/Mds/2016 dated 30.01.2018
and also the decision of the ITAT Chennai Benches in the case of M/s.URC
Construction (P) Ltd. v. ACIT in ITA No.2759/Mds/2016 dated 20.01.2017.
The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A),
submitted that the AO has formed reasonable belief of escapement of
income on the basis of materials, which suggest escapement of income and
thus, there is no merit in the arguments of the assessee that re-opening of
assessments are bad in law. He further submitted that at the time of issue
of notice, the AO has to make a reasonable belief of escapement of income.
However, he does not require to prove escapement of income. In both the
cases, there is sufficient materials to form reasonable belief of escapement
of income and thus, the re-opening of assessments are valid in law and
hence, the orders of the Ld.CIT(A) should be upheld.
We have heard both the parties, perused the materials available on
record and gone through orders of the authorities below. The AO had re-
opened assessments for the AYs 2007-08 & 2008-09, on the basis of
reasons recorded for re-opening of assessment, as per which, income
chargeable to tax had been escaped assessment on account of payments
made towards hire charges without deduction of TDS u/s.194I of the Act.
The sole basis for the AO to form reasonable belief of escapement of income
is Tax Audit Report filed by the assessee. According to the AO, the Tax
Auditor is required to report non-compliance of TDS provisions of Chapter
XVIIB of the Act, in Form No.3CD, Column No.27(b). The AO was of the
ITA Nos.3242 & 3243/Chny/2016 :: 10 ::
opinion that although, Tax Auditor reported certain omissions and
commissions in respect of TDS provisions, but he has omitted to report
non-deduction of TDS on payment made for machinery hire charges in
excess of prescribed limits. From the reasons recorded by the AO for re-
opening of assessments for both the assessment years, what we could
notice is that the basis for re-opening of assessments by the AO is, Tax
Audit Report filed by the assessee along with return of income filed for the
relevant assessment years. Further, said Tax Audit Report was very much
available with the AO, when the assessments for both the assessment years
had been completed u/s.143(3) of the Act. 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.
ITA Nos.3242 & 3243/Chny/2016 :: 11 ::
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 re-
opening 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 the Act,
makes it clear that when the assessments have been made u/s.143(3) of
the Act, no action shall be taken under this section after expiry of four years
from the end of the relevant assessment years, unless any income
chargeable to tax has escaped for such assessment year by reason of failure
on the part of the assessee to disclose fully and truly all material facts
necessary for that assessment years. Therefore, from the combined reading
of provisions of Sec.147 of the Act, coupled with proviso provided therein,
when assessments have been re-opened after four years from the end of
the relevant assessment years, then, there should be an allegation from
the AO on disclosure of necessary information for the purpose of completion
of assessment proceedings. In both the cases, if you go through the
reasons recorded for re-opening of assessments for both the assessment
years, there is no iota of evidence from the reasons that there is an
allegation from the AO on the part of the assessee to disclose fully and truly
all material facts necessary for that assessment years. Therefore, we are
of the considered view that re-opening of assessments are certainly bad in
law and liable to be quashed.
The assessee has relied upon the decision of ITAT Chennai Benches
in the case of in M/s.URC Construction (P) Ltd. v. ACIT in ITA
ITA Nos.3242 & 3243/Chny/2016 :: 12 ::
No.2759/Mds/2016 dated 20.04.2017, wherein, the Tribunal had
considered an identical issue in light of identical reasons recorded by the
AO for re-opening of assessment on the issue of disallowance of hire
charges paid by the assessee u/s.40(a)(ia) of the Act, for failure to deduct
TDS u/s.194I of the Act. The Tribunal after considering relevant reasons
and also provisions of Sec.147 of the Act, held that the re-opening of
assessment is bad in law. The relevant findings of the Tribunal are as
under:
We have considered the rival submissions on either side and perused the relevant material available on record. A copy of the reasons recorded for reopening of the assessment in the case of the assessee, M/s.URC Construction (P) Ltd., is available at page 52 of the paper-book. For the purpose of convenience, the reasons recorded by the Assessing Officer is reproduced here under:- “The assessee is liable to deduct TDS u/s 194I for the payments exceeding Rs.1,20,000/- in respect of payments towards machinery hire charges amounting to `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.
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 the case of M/s URC Construction Pvt. Ltd. is available at page 68 of the paper-book. The Assessing Officer, after considering the facts that the assessee being civil contractors, asked the assessee to furnish list of shareholders, TDS certificate, details of opening stock, work in progress details, purchase details, details of subcontract payments, payment of wages, interest, etc. before the Assessing Officer. The Assessing Officer has also called upon the assessee to produce the details of secured loan availed from bank and other financial institutions. The Assessing Officer has also conducted enquiry through Inspector of Income-tax in order to ascertain genuineness of sundry creditors. After examining the material, the Assessing Officer observed as follows at page 2 of the
ITA Nos.3242 & 3243/Chny/2016 :: 13 ::
assessment order, copy of which is available at page 69 of the paper-book in the case of M/s URC Construction Pvt. Ltd.:-
“On a perusal of details filed, it is seen that the assessee has not included TDS receipts of Rs.13,57,306 as income. Hence, the same is brought to tax.
(Add: Rs.13,57,306)
The assessee has defaulted in TDS payments on audit fees and hire charges paid of Rs.44,45,185. Hence the said sum of Rs.44,45,185 is disallowed u/s. 40(a)(ia) of the Income-tax Act, 1961.
(Add: Rs.44,45,185)”
Therefore, it is obvious that the entire TDS certificates, opening stock, gross receipts from contractors, details of purchase, list of shareholders, copy of current account, copy of sales tax, general expenses claimed by the assessee, vehicle hire charges were available before the Assessing Officer.
Now the contention of the Revenue before this Tribunal is that the audit reports under Section 44AB of the Act do not disclose correct and full particulars. The assessees have furnished all the details before the Assessing Officer. The auditor, who prepared the report under Section 44AB of the Act, is expected to examine all the materials and record the same in the report prepared under Section 44AB of the Act. If the auditor fails to record the lapses committed by the assessee, the assessee cannot be blamed for the same. Auditor being expert in accountancy, he has to examine the material independently and prepare the report as required under Section 44AB of the Act. The assessee, at the best, can produce all the relevant material before the auditor for the purpose of preparing the audit report.
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 furnished all the details, there was no negligence on the part of the assessees, hence, proviso to Section 147 of the Act would come into operation. In view of the above, the order passed by the Assessing Officer is barred by limitation. Therefore, it cannot stand in the eye of law. Accordingly, the orders of both the authorities below for all the three years are set aside and the appeals of the assessees stand allowed.
The assessee has also relied upon the decision of the ITAT Chennai
Benches in the case of N.Ramalingam & Co. v. ACIT in ITA
ITA Nos.3242 & 3243/Chny/2016 :: 14 ::
No.1249/Mds/2016 dated 30.01.2018, wherein, the Tribunal after
considering relevant reasons recorded by the AO for re-opening of
assessment and also by following the decision of ITAT Chennai Benches in
the case of M/s.URC Construction (P) Ltd. v. ACIT in ITA No.2759/Mds/2016
dated 20.04.2017, held that the re-opening of assessment is bad in law.
The relevant findings of the Tribunal are as under:
We heard the rival submissions and perused the relevant material. The relevant portion of the above cited cases are extracted as under;
"7, We have considered the rival submissions on either side and perused the relevant material available on record. A copy of the reasons recorded for reopening of the assessment in the case of the assessee, M/s.URC Construction (P) Ltd,, is available at page 52 of the paper-book, For the purpose of convenience, the reasons recorded by the Assessing Officer is reproduced hereunder-
"The assessee is liable to deduct TDS u/s 194I for the payments exceeding Rs.1,20,000/- in respect of payments towards machinery hire charges amounting to Rs.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 The assesses, at the best, can produce all the relevant material before the auditor for the purpose of preparing the audit report.
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
ITA Nos.3242 & 3243/Chny/2016 :: 15 ::
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 furnished all the details, there was no negligence on the part of the assessees, hence, proviso to Section 147 of the Ac! would come into operation. In view of the above, the order passed by the Assessing Officer is barred by limitation. Therefore, it cannot stand in the eye of law. Accordingly, the orders of both the authorities below for all the three years are set aside and the appeals of the assessees stand allowed." 8. Since, the facts and legal position in this assessee's case is almost similar, following the above decision, we hold that the Assessing Officer has clearly recorded a finding that the details of TDS made on payment to subcontractors were furnished by the assessee and after examining them he passed the original assessment order. Further, in this case, in Form 3CD, against Item No. 22(b), in respect of the details in non-compliance with TDS provisions of Chapter XVII-8, the auditor has reported as Nil. When the facts are so, for validly re-opening the assessment certainly there should be fresh or new material before the Officer. From the reasons recorded which is extracted above, it is clear that the Assessing Officer has not indicated any such material and hence the re-assessment made amounts to change of opinion barred by limitation and hence it cannot be upheld. The corresponding appeal grounds are allowed.
In this view of the matter and by following the decision of co-ordinate
Bench of the Tribunal in the case of N.Ramalingam & Co. v. ACIT in ITA
No.1249/Mds/2016 dated 30.01.2018 and also in the case of M/s.URC
Construction (P) Ltd. v. ACIT in ITA No.2759/Mds/2016 dated 20.01.2017,
we are of the considered view that, re-opening of assessments for the AYs
2007-08 & 2008-09, are bad in law and liable to be quashed, because,
reasons recorded by the AO does not discernable that there is a failure on
the part of the assessee to disclose fully and truly all material facts
necessary for that assessments. Further, from the reasons, it is abundantly
clear that the sole 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 was very much available with the AO, when he had
completed assessment proceedings u/s.143(3) of the Act. Therefore, we
are of the considered view that under these facts and circumstances of the
ITA Nos.3242 & 3243/Chny/2016 :: 16 ::
case, proviso 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.
In the result, the appeals filed by the assessee in ITA Nos.3242 &
3243/Chny/2016 are allowed.
Order pronounced on the 31st day of May, 2022, in Chennai.
Sd/- Sd/- (वी. दुगा� राव) (जी. मंजूनाथा) (G. MANJUNATHA) (V. DURGA RAO) लेखा सद�य/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER चे�ई/Chennai, �दनांक/Dated: 31st May, 2022. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 4. आयकर आयु�/CIT 2. ��यथ�/Respondent 5. िवभागीय �ितिनिध/DR 3. आयकर आयु� (अपील)/CIT(A) 6. गाड� फाईल/GF