Reassessment Invalid Due to Lack of Material Disclosure: ITAT Quashes AO’s Order [Read Order]

The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) quashed the Assessing Officer (AO)’s reassessment order for, ruling it invalid due to the absence of material disclosure.

Eurofins Peenya Resources,appellant-assessee, formerly Advinus Therapeutics Ltd., filed its income tax return on November 29, 2023, reporting a loss of ₹30.68 crore. After scrutiny, the assessed loss was revised to ₹8.16 crore under Section 143(3) of the Act.

The case was later reopened under Section 147, and a notice was issued on March 31, 2021. The reassessment was based on information that the assessee had paid ₹49.17 lakh to a non-resident service provider in AY 2013-14 for an annual maintenance contract without deducting tax at source. The AO treated this as fees for technical services and disallowed the amount under Section 40(a)(i), considering it an attempt to reduce taxable income.

The assessee argued that tax deduction under Section 195 was not required as the recipient had no business connection in India, and the payment was not taxable under the Double Taxation Avoidance Agreement (DTAA). However, the AO rejected this claim and disallowed ₹14.17 lakh in the reassessment order dated March 29, 2022.

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The Commissioner of Income Tax(Appeals)[CIT(A)] upheld the reassessment and disallowance, dismissing the appeal. The matter was then brought before the tribunal.

The assessee's counsel, argued that the reassessment was invalid as the issue was settled under the Vivad Se Vishwas (VSV)Act, 2020. He contended that it was based on a borrowed opinion and a change of opinion since the assessing officer had already examined the matter. He also noted that the reassessment was initiated beyond four years without alleging any failure by the assessee to disclose material facts, making it legally unsustainable. Citing High Court rulings, he urged that the reassessment be quashed.

The revenue counsel argued that the VSV Act settled only Annual Maintenance Contract(AMC) payments to domestic parties, not payments to a non-resident, making reassessment valid. He stated that the issue was not examined earlier, so it was not a change of opinion, and the recorded reasons justified reassessment. The assessee’s counsel reiterated that the Gujarat High Court rulings applied and restated prior arguments.

Read More:No Failure to Disclose Material Facts: Bombay HC quashes Income Tax Reassessment Proceedings

The two member bench comprising Prashant Maharishi(Vice President) and Prakash Chand Yadav(Judicial Member) reviewed the arguments and the lower authorities' orders. It found that a notice under Section 148 was issued for the 2013-14 assessment year on August 26, 2021.

The notice was based on information that the assessee had made payments of ₹49,17,872 to non-resident service providers for AMC and maintenance charges without deducting Tax Deducted at Source(TDS). The AO considered these payments to be fees for technical services, making them subject to disallowance under Section 40(a)(i) of the Act.

The appellate tribunal noted that for reassessment after four years, the AO must show that the taxpayer failed to disclose material facts necessary for the assessment. However, the AO did not mention such a failure in the recorded reasons for reopening. Citing rulings from the Karnataka and Bombay High Courts, the tribunal ruled that the reassessment was invalid because the required disclosure was not stated.

The tribunal also rejected the argument that the issue was already settled under the Vivad Se Vishwas (VSV) scheme. It clarified that the original dispute was about payments to residents, while the reassessment concerned payments to non-residents, so the VSV settlement did not apply.

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In conclusion, the tribunal quashed the reassessment order, allowed the ground challenging its reopening, and the appeal filed by the assessee was partly allowed.

To Read the full text of the Order CLICK HERE

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