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Income Tax Appellate Tribunal, “C” BENCH, CHENNAI
Before: SHRI DUVVURU RL REDDY & SHRI S. JAYARAMAN
आदेश /O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
The assessee filed this appeal against the order of Commissioner
of Income Tax (Appeals)-3, Coimbatore in ITA No. 28/2015-16 dated
22.01.2016 for assessment year 2012-13.
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M/s. N. Ramalingam & Co., the assessee, is a firm doing civil
engineering contract works. In the assessment year 2007-08, the assessment
was completed u/s. 143(3) dated 14.12.2009. Subsequently, this assessment
was re-opened u/s. 148 on 28.03.2014, after expiry of four years from the
end of the relevant assessment year for which the assessment was made u/s.
143(3), and the re-opened assessment was completed u/s. 143(3) r.w.s. 148
on 12.03.2015. Aggrieved against the order, the assessee filed an appeal
challenging the validity of re-opening the assessment etc., before the CIT(A)
and CIT(A) dismissed the appeal. Aggrieved against the CIT(A) order, the
assessee filed this appeal primarily challenging the validity of re-opening the
assessment.
The AR invited our attention to the copies of orders sheet entries
and to the relevant original assessment order passed u/s. 143(3) dated
14.12.2009 which is extracted as under:
“The assessee firm is doing civil engineering contract works. The details called for such as the assessment details of partners, copies of partner’s capital and current amount, interest on capital and remuneration to partners, details of gross receipts and its reconciliation with TDS certificates filed, details of TDS made on payment made to Sub-contractors, details of opening stock and closing work in progress, details of purchase of materials, details of wages, salary & bonus, interest, labour, welfare, rent, advertisement & general expenses have been furnished by the assessee. The other details of addition made to fixed assets alongwith copy of invoices, details of secured and unsecured loan availed, bills on hand, bank fixed deposits, list of sundry creditors have been furnished for perusal.
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During the course of assessment proceedings, the assessee was asked to furnish vouchers for expenses claimed and the same were verified. On verification, it is seen that the assessee has claimed lorry maintenance expenses of Rs. 37,92,773 which are partly supported by self vouchers and are not capable of verification. As the same appears to be excessive, 10% of such expenses amounting to Rs. 3,79,277 is disallowed.”
Thereafter, the AR invited our attention to the reasons recorded for
re-opening the assessment, which is extracted as under:
“The assessee is liable to deduct TDS u/s. 1941 for the payments exceeding Rs. 1,20,000/- in respect of payments towards machinery hire charges amounting to Rs. 2,50,06,123/-. 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 IT Act. The Auditor has stated ‘NIL’ in the said column. He has omitted to mention the 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 the failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment year 2007-08.”
The AR submitted that the assessee filed entire material which
were available before the AO. The AO after considering all the material filed
by the assessee including the issue on deduction of tax concluded the
assessment and determined the income, the relevant portion is already
extracted in para 3, supra. Referring to the above portion the AR submitted
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the Assessing Officer, in fact examined each and every aspect and thereafter
only concluded the assessment.
5.1 The AR submitted that after the expiry of four years from the end
of the relevant assessment year, the AO without any fresh or new
information, on the basis of material already available on the records, came to
a conclusion that the assessee has not deducted tax. The AR submitted that
there was no negligence on the part of the assessee in furnishing the relevant
material while completing the original assessment. Hence, the re-assessment
made by the Assessing Officer is nothing but change of opinion on the part of
Assessing Officer and hence pleaded that the assessment has to be quashed
as it is barred by limitation. On the other hand, the DR submitted that
although the Assessing Officer accepted the claim of the assessee in the
original assessment, although the AO has re-opened the assessment after the
expiry of four years from the end of the assessment year, as per the reasons
extracted above, it is clear that there is failure on the part of the assessee in
furnishing the necessary particulars which were required for completing the
assessment. Referring to Para 6.4 of the order of the CIT(A), the DR
submitted that the notice u/s. 148 is not barred by limitation when there is
clear failure on the part of the assessee to disclose fully and truly all the
material facts as required under first proviso to section 147. Explanation 1 to
section 147 which is relevant in this circumstance is extracted below:
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“Production before the Assessing Officer of account books or other evidence form which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.”
The AR sought our attention to this tribunal decision in the case of
M/s. URC Construction Pvt. Ltd., and M/s. Bharathi Constructions Ltd., in ITA
Nos. 2759, 2760 & 1870/Mds/2016 for assessment years 2008-09, 2012-13 &
2007-08 and ITA No. 1871/Mds/2016 for assessment year 2007-08 dated
20.04.2017 and relied on such order as the facts are similar.
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 `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
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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/sBharathi 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 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 sub-contract 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 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 `13,57,306 as income. Hence, the same is brought to tax. (Add: `13,57,306) The assessee has defaulted in TDS payments on audit fees and hire charges paid of `44,45,185. Hence the said sum of `44,45,185 is disallowed u/s. 40(a)(ia) of the Income-tax Act, 1961. (Add: `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. 10. 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
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Act. The assessee, at the best, 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 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.”
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 sub-
contractors 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-B, the auditor has reported as Nill. 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
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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 the result, the assessee’s appeal is allowed.
Order pronounced on Tuesday, the 30th day of January, 2018 at Chennai.
Sd/- Sd/- (एस जयरामन) (धु�वु आर.एल रे"डी) (S. JAYARAMAN) (DUVVURU RL REDDY) लेखा सद%य/Accountant Member $या�यक सद%य/JUDICIAL MEMBER
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