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Facts
The assessee, Panjos Builders P. Ltd., filed a return of income for assessment year 2007-08 declaring a loss. The original assessment was completed under section 143(3). Subsequently, a notice under section 148 was issued for reopening the assessment after more than 4 years, citing discrepancies in TDS on interest payments and accounting methods. The assessee argued that the reopening was invalid as there was no failure to disclose material facts.
Held
The Tribunal held that the reopening of assessment after four years was not valid as there was no allegation of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Tribunal relied on the proviso to Section 147 of the Act and cited case laws supporting this view.
Key Issues
Validity of reopening of assessment after the expiry of four years from the end of the relevant assessment year without any allegation of failure to disclose material facts.
Sections Cited
40(a)(ia), 147, 148, 250, 143(3), 234A, 234B, 234C
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Income Tax Appellate Tribunal, “C’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI
Date of Hearing : 13.12.2023 Date of Pronouncement : 17.01.2024 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
This appeal by assessee is directed against order of NFAC for the assessment year 2007-08 dated 26.3.2022 passed u/s 250 of the Income Tax, 1961 (in short “The Act”). The assessee has raised following grounds of appeal: The order passed by the Commissioner of Income Tax (Appeals), NFAC, Delhi, passed under section 250 of the Income Tax Act, 1961 (hereafter "the Act") is in so far as it is against the appellant is opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The appellant denies itself liable to be assessed at Rs.1,62,87,723/- against the returned loss of Rs(-)22,52,648/- for the impugned assessment year 2007-08 on the facts and circumstances of the case.
3. The learned CIT(A) was not justified in confirming the disallowance of Rs.1,85,36,371/- under section 4o(a)(ia) of the Act, on the facts and circumstances of the case.
Panjos Builders P. Ltd., Bangalore Page 2 of 10 4. Disallowance of 57,57,004/- a) The learned CIT(A) failed to appreciate that the interest paid of Rs. 57,54,004/- to banks ought not to have been disallowed, since there was no requirement to make TDS on interest payments to banks, on the facts and circumstances of the case. b) The learned CIT(A) failed to appreciate that the interest paid of Rs. 57,54,004/-to banks, was the cumulative interest of the earlier years and was claimed as an expenditure upon completion of the project, which has been affirmed by the assessing officer in the remand report, and no disallowance was required to be sustained, on the facts and circumstances of the case.
Disallowance of Rs. 1,27,82,367/- a) The learned CIT(A) failed to appreciate that the interest paid of Rs. 1,27,82,367/- to financial institutions, was the cumulative interest of the earlier years and was claimed as an expenditure upon completion of the project, which has been affirmed by the assessing officer in the remand report, and no disallowance was required to be sustained, on the facts and circumstances of the case.
b) Without prejudice, the financial institutions have offered the interest received on a mercantile basis, in their individual hands in the respective years and no disallowance was warranted in the hands of the appellant, on the facts and circumstances of the case. c) Without further prejudice the appellant ought not to have been subject to the provisions of section 40(a)(ia) of the Act, as it has not been held to be an assessee in default under section 201(1) of the Act.
6. The appellant craves leave to add, alter, modify, delete, or substitute any or all of the grounds.
7. In view of the above and other grounds that may be taken at the time of the hearing the appeal, the appellant prays that the appeal be allowed in the interest of justice and equity.
2. The assessee has raised following additional grounds of appeal: 8. Legal ground on reopening: a) The notice issued under section 148 of the Act is bad in law. b) The reopening under section 147 of the Act is based on audit objection which do not constitute reasons to believe as required under section 147 of the Act on the facts and circumstances of the case.
Panjos Builders P. Ltd., Bangalore Page 3 of 10 c) There is no allegation in the reasons recorded that the escapement is due to a failure to disclose true and accurate particulars of income, on the facts and circumstances of the case. d) The reasons recorded by the learned assessing officer does not constitute 'reasons to believe' which is sine quo non for initiating the reassessment proceedings and the reasons recorded at best would constitute 'reasons to suspect' on the facts and circumstances of the case. e) The reassessment proceedings are made on the issues which is already accepted and concluded in the scrutiny assessment, thus, the reassessment proceedings initiated without any fresh tangible material is invalid in the eyes of law on the facts and circumstances of the case. f) The order of reassessment passed U/s 148 is on a mere change of opinion and is impermissible, on the facts and circumstances of the case.
The appellant denies the liability to pay interest under section 234A, 234B and 234C of the Act in view of the fact that there is no liability to additional tax as determined by the learned assessing officer. Without prejudice the rate, period and on what quantum the interest has been levied are not in accordance with law and further are not discernible from the order and hence deserves to be cancelled on the facts and circumstances of the case.
The Appellant craves leave to add, alter, amend, substitute, change and delete any of the grounds of appeal
11. For the above and other grounds that may be urged at the time of hearing of the appeal, the Appellant prays that the appeal may be allowed and justice rendered.”
2.1 The assessee has filed a petition for admission of additional grounds.
We have heard the both the parties on admission of additional grounds. In our opinion, all the facts are already on record and there is no necessity of investigation of any fresh facts for the purpose of adjudication of above ground. Accordingly, by placing reliance on the judgement of Hon’ble Supreme Court in the case of NTPC Vs. CIT 229 ITR 383 (SC) we inclined to admit the additional grounds for the purpose of adjudication as there was no investigation of any fresh facts otherwise on record and the action of the assessee is bonafide.
Panjos Builders P. Ltd., Bangalore Page 4 of 10 4. First, we will deal with the additional ground no.(c) which reads as follows: c) “There is no allegation in the reasons recorded that the escapement is due to a failure to disclose true and accurate particulars of income, on the facts and circumstances of the case.”
4.1 Facts of the issue are that the assessee filed a Return of Income for the assessment year 2007-08 on 8th May 2008 declaring a loss of Rs.22,51,648/-. Assessment u/s 143(3) of the Act was completed in this case on 23.12.2009 accepting the return of income filed by the assessee. Subsequently discrepancies were noticed during audit with respect to the return of Income filed by the assessee in respect of non-deduction of TDS on interest payment, non-inclusion of accrued interest on NSC and not following percentage completion method of arriving income/loss as per Accounting Standard AS-7. The Assessing authority issued and served a notice u/s 148 of the Act. The reason recorded by the AO for issuing notice u/s 148 is as under.
Interest paid to financial institutions to the extent of Rs.1,85,36,371/- needs to be disallowed u/s 40(a)(ia} as the assessee has not deducted any TDS
The value of work completed in respect of the project "Panjos Stadia" as on 31si March 207 is Rs.207,74,635/- Adopting the percentage completion method as per AS-7 the gross profit works out to Rs.37,39,434/- @ 18% 4.2 It was submitted by the assessee during assessment proceedings as follows: 1. Interest paid to Financial institutions of Rs.185,36,371/- Panjos Builders has debited a sum of Rs.1,85,36,371/- as interest paid to banks and financial institutions. The break-up of interest is given below
Panjos Builders P. Ltd., Bangalore Page 5 of 10
Particulars Amount (Rs.) Banks 5,754,004 LIC Housing Finance Limited 11,094,147 Vehicle hire purchase Rs.1,688,220 Total 18,536,371 4.3 The ld. A.R. submitted that the amounts payable as at the end of 31st March 2007 in respect of LIC Housing Finance Limited and Vehicle hire purchase were Rs.NIL. Disallowance u/s 40{a)(ia) can be made only in cases where amounts were payable as at the end of the previous year and not on amounts already paid. He relied on the Special Bench of the ITAT in Merlyn Shipping and Transports 16(ITR)(Trib) 1 (Vizag) and on the Allahabad High Court in Vector Shipping Services.
Value of work completed in respect of project "Panjos Stadia " and "Panjos Serene:
4.4 The ld. A.R. submitted that Panjos Builders Private Limited (company) during the assessment year 2007-08 recognised revenue in respect of its Project called Panjos Gardens on completed contract basis. This was due to the reason that the project was substantially complete during the year ended 31.3.2007 and all the flats were also registered during that period. All costs incurred upto the date of completion were carried forward as Work in Progress and was disclosed under Current assets in the Balance Sheet of the Company.
4.5 He submitted that during the year ended 31s March 2007, the company had also under taken projects titled Panjos Stadia and Panjos Serene. The Estimated Cost of the Project is Rs.893,42,631/- and Rs.768,15,566/-. The below mentioned table shows the Ratio of Costs incurred and estimated cost of construction.
Panjos Builders P. Ltd., Bangalore Page 6 of 10 Details Panjos Stadia Panjos Serene Cost incurred upto 31.3.2007 18557544 18559843 Estimated Construction value 89342631 76815566 Percentage 21% 24% 4.6 He submitted that during the year ended 31st March 2007, only the preliminary structural work such as laying of columns and footings were in progress and no substantial costs were incurred in respect of the Project Panjos Stadia. In respect of the Project Panjos Serene - laying of foundation was completed and structural work was commenced.
4.7 He submitted that para 21 of AS-7 states that When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract should be recognized as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date.
4.8 He further submitted that Para 31 also states that When the outcome of the construction contract cannot be estimated reliably: (a) revenue should be recognized only to the extent of contract costs incurred of which recovery is probable; and (b) contract costs should be recognized as an expense in the period in which they are incurred.
4.9 Now the contention of the ld. A.R. on the above ground is that in this case, originally assessment has been completed for the assessment year 2007-98 on 23.12.2009 u/s 143(3) of the Act. Notice u/s 148 of the Act for reopening of the assessment was issued to the assessee on 14.2.2014. The reason recorded for reopening of assessment is as follows: a) The interest paid to financial institutions to the tune of Rs.1,85,36,371/- needs to be disallowed u/s 40(a)(ia) as the assessee has not deducted any TDS.
Panjos Builders P. Ltd., Bangalore Page 7 of 10 b) Interest on National Savings Certificate (NSC) on a sum of Rs.40,000/- not offered for taxation. c) The value of work completed in respect of the project ‘Panjos Stadia” as on 31.3.2007 is Rs.2,07,74,635/-, adopting the percentage completion method as per AS-7 the gross profit at 18% as per 3CD report works out to Rs.37,39,434/-. As per revised AS-7 since 01.04.2003 it is mandatory for the assessee company to declare profit as per AS-7 on percentage completion method. 4.10 According to the ld. A.R., the notice for reopening of assessment has been given after lapse of 4 years from the end of the assessment year 2007-08. As such, in view of the first proviso to section 147 of the Act, reopening is bad in law and to be quashed as there was no allegation that there was failure on the part of assessee to disclose fully and truly all material facts necessary for the purpose of assessment. For this purpose, he relied on the following judgements: a) Calcutta Discount Co. Ltd. (1961) 41 ITR 191 (SC) b) Parashuram Pottery Works Co. Ltd. (1977) 106 ITR 1 (SC). c) Maruti Suzuki India Ltd. (2013) 215 taxman 495 (Del HC). d) CIT Vs Mysore Cements (2013) 355 ITR 136 (Kar) 5. On the other hand, ld. D.R. submitted that the ld. AO has recorded that assessee has not duly deducted the TDS u/s 40(a)(ia) of the Act. As such, he reopened the assessment by validly issuing notice u/s 148 of the Act. Same to be upheld.
We have heard the rival submissions and perused the materials available on record. We have carefully gone through the reasons recorded by ld. AO u/s 147 of the Act, which has been reproduced in the earlier para of this order. In this case, originally assessment has been completed u/s 143(3) of the Act on 23.12.2009
Panjos Builders P. Ltd., Bangalore Page 8 of 10 and thereafter notice u/s 148 of the Act has been issued to the assessee on 14.02.2014. The first proviso to section 147 of the Act, which is very relevant is reproduced herein below:
“Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.”
6.1 The contention of the ld. A.R. is that when the original assessment was completed u/s 143(3) of the Act, thereafter notice u/s 148 of the Act for reopening of assessment cannot be given after expiry of 4 years from the end of relevant assessment years unless any income chargeable to tax has escaped assessment for this assessment year and the reason of the failure on the part of the assessee to make a return u/s 139 of the Act or in response to notice u/s 142(1) or 148 of the Act or to disclose fully and truly all material facts necessary for its assessment, for this assessment year. 6.2 We have carefully gone through the reason recorded for reopening of assessment as reproduced above. We do not find that there is any finding recorded to the effect that assessee failed to disclose fully and truly all material facts necessary for relevant assessment year. There is no allegation by ld. AO while recording the reason that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, which result in reopening of assessment. The allegation by the ld. AO is that the assessee not deducted TDS, as such there should be disallowance u/s 40(a)(i) of the Act. The ld. A.R. submitted before us that all these details were made available to the ld. AO at the time of completion of original assessment u/s Panjos Builders P. Ltd., Bangalore Page 9 of 10 143(3) of the Act on 23.12.2009 and after considering all information furnished at the time of original assessment, the ld. AO passed the said original assessment order on 23.12.2009. Now he is relooking the same records with him to issue a notice u/s 148 of the Act. If there is a failure on the part of ld. AO to consider the various documents filed by the assessee at the time of original assessment u/s 143(3) of the Act, he cannot revisit these documents after the expiry of 4 years from the end of relevant assessment years as there was no failure on the part of assessee to disclose all material facts necessary for the purpose of assessment, since there was no allegation by the ld. AO while recording the reasons for reopening of assessment to the effect that the assessee has failed to disclose fully and truly all material facts necessary for its assessment for this assessment year. In such circumstances, we are not in agreement with the ld. D.R. that the assessment is validly reopened vide notice dated 14.02.2014. This view of ours is supported by various case laws cited by the assessee, which was reproduced in earlier paras. Accordingly, we quash the reassessment order framed in this case on this primary issue. As such, there should be disallowance u/s 40(a)(i) of the Act. 6.3 Thus, in our opinion, there was a ground by assessee before ld. CIT(A) with regard to validity of reopening of assessment u/s 148 of the Act. The ld. NFAC considered the entire facts and circumstances of the case and observed that reopening of the assessment in this case is after 4 years from the end of the relevant assessment year without any allegation that there is a failure on the part of the assessee to disclose all material facts truly and correctly before ld. AO. Hence, ld. NFAC quashed the assessment order. We do not find any infirmity in the order of the ld. NFAC and the same is confirmed.
Panjos Builders P. Ltd., Bangalore Page 10 of 10 6.4 Accordingly, we quash the assessment order and since we quashed the assessment order, we refrain from going into the other grounds raised by the assessee.
In the result, appeal of the assessee is allowed. Order pronounced in the open court on 17th Jan, 2024