AO Failed to Record Reason for Escape of Income due to Non-disclosure of Materials Facts by Assessee u/s 147 of Income Tax Act: ITAT Quashes Re-Assessment [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) held that the Assessing Officer failed to record reason for occurance of escape of income due to failure on part of assessee to disclose all materials facts under Section 147 of Income Tax Act, 1961 and thus quashed the re-assessment order.

The assessee M/s. Nagpur Power & Industries Ltd filed its return of income for the Assessment Year (AY) 2009-10 declaring total income of Rs.22,32,43,573/-. The assessment under Section 143(1) of Income-tax Act was completed and total income was assessed at Rs.22, 48,18,740/-. Subsequently, the assessment was reopened under section 147 of the Income Tax Act after 4 years by issue of notice under Section 148 of the Income Tax Act and the same was served on the assessee.

Assessing Officer observed from the Profit and Loss account that foreign travel expenses of Rs.28,09,232/- was incurred by the assessee and assessee was asked to show cause why the foreign travel expenses of Rs.28,09,232/- be not disallowed.

Further the Assessing Officer observed from the Profit and Loss account that the assessee has debited an amount of Rs.7,34,375/-as advances written off. Accordingly, assessee was given a notice to show-cause as to why the same should not be disallowed.

In response the assessee submitted that the expenses were incurred in relation to the business of the assessee and gave detailed submissions relating to the trips made by the Directors of the company to London and New York. And stated that assessee was purchasing raw materials from various concerns and the amounts written off pertain to differences with the said parties which have been outstanding since long.

The AO without considereing the submission of the assessee disallowed deduction. Aggrieved, with the above order assessee preferred an appeal before Commissioner of Income-Tax (Appeals) [CIT (A)].

The CIT (A) with regard to disallowance made by the Assessing Officer on foreign travel expenses, it sustained the addition made by the Assessing Officer and with regard to disallowance of advance written off, CIT (A) has allowed the ground raised by the assessee.

Further aggrieved the assessee filed an appeal before the Tribunal and contended that at the time of the original assessment made under Section 143(3) of the Income Tax Act the appellant company had disclosed entire facts and reopening done under Section 147 of income Tax Act beyond period of 4 years without there being any failure on the part of the appellant company to disclose fully and truly all material facts is bad in law.

The Bench comprising of S. Rifaur Rahman, Accountant Member and Ms Kavitha Rajagopal,  Judicial Member observed that the original assessment under Section 143(3) of the Income Tax Act was completed and the assessee has filed all the relevant information before the then Assessing Officer, it is also fact on record that the issue involved is relating to A.Y.2009-10 but the case was reopened in 2016 clearly after four years.

The Tribunal held that according to Section 147 of income Tax Act the Assessing Officer has not brought on record how the escapement of income has occurred by reason of omission or failure on the part of the assessee to disclose fully or truly all material facts necessary of the assessment, therefore the reopening of assessment is bad in law.

Hence the assessment passed under Section 143(3) read with Section 147 of the Act is bad in law and it is quashed, and the appeal of the assessee is allowed.

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