Legal Prerequisite for Reopening Beyond 4 years u/s 147 not Fulfilled: ITAT sets aside Reassessment Orders [Read Order]

The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has recently in an appeal filed before it, on finding that the legal prerequisite for reopening beyond 4 years under section 147 was not fulfilled, set aside the reassessment orders.

The aforesaid observation was made by the Ahmedabad ITAT, when appeals were filed by the Revenue, and Cross Appeals by the assessee, as against the order passed by the Commissioner of Income Tax(A), Gandhinagar, Ahmedabad of even dated 8.8.2019, passed under section 250(6) of the Income Tax Act, 1961, for the Assessment. Year 2011-12 and 2012-13.

The facts of the case were that a reopening of assessment had been resorted to by an order passed in terms of provision of section 147 of the Income Tax Act on an identical issue, wherein the addition so made by the AO had been challenged before the CIT(A) both on legal ground challenging validity of the assessment framed, as well as on merits of the additions made.

The CIT(A) while deleting the addition made on merits found no merit in the legal ground raised by the assessee. Against this order of the CIT(A), the Revenue filed appeal challenging deletion of addition on merits by the CIT(A), while the assessee had come in cross objection, raising legal ground before the Ahmedabad ITAT.

The ground of the assessee’s appeals being that there is no failure on the part of the appellant to disclose fully and truly the material facts necessary for the assessment year, the assessee thus submitted that the re-assessment notice under Section 147 which is issued beyond 4 years is bad in law and hence that the same is required to be quashed.

The counsels for the assessee, Shri Narendra D. Shah, CA, with Shri Parth S. Dadawala, CA, Shri SN Divatia, and Shri Samir Vora, the ARs, began their arguments by stating that the primary challenge to the assumption of jurisdiction in the present case by the AO to frame assessment under section 147 of the Income Tax Act, was that the reopening having been resorted to beyond four years from the end of the relevant assessment years in both the cases, which was in contravention to the very basic condition required by law for reopening the case beyond four years , as the assessee has not failed to disclose fully and truly of material facts necessary for that assessment year, as per first proviso to section 147 .

The counsel for the assessee pointed out that all the above information and facts as noted by the AO above, leading to his belief of escapement of income on account of claim of revenue expenditure incurred in excess of grant given by the Government, was gathered by the AO from the financial statement of the assessee itself, which fact is clearly evident from the reasons.

He also pointed out that none of the facts noted from the financial statement of the assessee by the AO has been found to be false or incorrect, and therefore that, the assessee clearly could not have said to have not disclosed fully and truly, all material facts relating to the claim of expenditure in its P&L account.

However, on the other hand, Shri Sudhendu Das, the CIT-DR, on behalf of the Revenue, relied on the finding of the CIT(A), as recorded in his order for the Assessment Year 2011-12.

Hearing the opposing contentions of both sides as well as perusing the materials available on record, the ITAT observed:

“The reasons reveal that the AO formed this belief on the basis of the facts disclosed by the assessee in its financial statements. He noted that the assessee being Government body and in the business of construction of infrastructure facilities like road etc. was being given government grants for meeting expenses, and these grants were treated by the assessee as its liability. All expenditure incurred by the assessee were adjusted against this liability. All these facts have been noted by the AO from the records placed before him. Further, the AO hasnoted that during the impugned year certain government grants were refunded to the Government, and accordingly, there was a shortfall in meeting expenditure of the assessee.”

“This shortfall, since could not be set off against the grants, was debited to the P&L account of the assessee. All these facts undeniably and as is evident from the reasons, have again been derived from the records of the assessee only. Therefore, as far as the claim of expenditure as revenue expenditure is concerned, there is no case of the AO that no material facts relating to the same has not been duly or truly disclosed”, the coram of T.R Senthil Kumar, the Judicial Member, and Annapurna Gupta, the Accountant Member, noted.

“In view of the above, it is clear that prerequisite laid down in law for reopening of the case beyond four years is not found to be fulfilled in the present case. The reopening by the AO therefore, we hold, in both the cases is without jurisdiction; the assessment orders, therefore, passed as a consequence are invalid and directed to be set aside”, the ITAT coram further added.

Thus, the Ahmedabad ITAT finally held:

“In view of the above, it is clear that prerequisite laid down in law for reopening of the case beyond four years is not found to be fulfilled in the present case. The reopening by the AO therefore, we hold, in both the cases is without jurisdiction; the assessment orders, therefore, passed as a consequence are invalid and directed to be set aside. In the result, appeals of the Revenue are dismissed and Cross objections of the assessee are allowed in above terms.”

To Read the full text of the Order CLICK HERE

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