Service Tax Disallowed u/s 43B from Existing Tax Audit Report Without Fresh Material: ITAT quashes Erroneous Reassessment by AO [Read Order]

The Indore bench of Income Tax Appellate Tribunal (ITAT) quashed the reassessment by the Assessing Officer (AO), holding that no new facts surfaced regarding the Service Tax disallowance under Section 43B of the Income Tax Act, 1961, as these facts were already fully disclosed and were available on the record of the department in the Tax Audit Report.

The assessee, Ring Construction Co., a partnership firm, filed its return of income for AY 2015-16 under Section 139 declaring a total income of Rs. 16,14,780/-, which was assessed by the AO by way of scrutiny assessment under Section 143(3) at a total income of Rs. 16,54,080/- after making an addition of Rs. 39,299/- on account of the difference in turnover.

Subsequently, the AO reopened the assessment under Section 147. Finally, the AO completed re-opened assessment re-determining total income at Rs. 26,77,719/- after making total additions/disallowances of Rs. 10,62,939/- consisting of two items, namely (a) disallowance of Rs. 2,30,781/- under Section 36(1)(va) on account of non-payment of PF/ESI contributions by due date and (b)disallowance of Rs. 8,32,158/- under Section 43B on account of non-payment of service tax by due date.

The assessee relied on the case CIT Vs. Kelvinator of India Ltd. (2002) 123 Taxman 433 (Delhi) for elaborating on the arguments. The assessee quoted the Hon’ble Delhi High Court as,

“22. We are unable to agree with the submission of Mr. Jolly to the effect that the impugned order of reassessment cannot be faulted, as the same was based on information derived from the tax audit report. The tax audit report has already been submitted by the assessee. It is one thing to say that the Assessing Officer had received information from an audit report which was not before the ITO, but it is another thing to say that such information can be derived by the material which had been supplied by the assessee himself.”

The assessee also submitted that the above decision of the Delhi High Court has been subsequently upheld by the Supreme Court in CIT Vs. Kelvinator of India Ltd. (2010), the assessee argued that the facts of the assessee’s case were very much identical to the facts of Kelvinator’s case in as much as (i) the original assessment was finalised by way of scrutiny under Section 143(3) in both cases, (ii)subsequently the AO re-opened assessment under Section 147 within a period of four years by picking the items of disallowances from “tax audit report” which was already available with AO in original assessment, and (iii) there was no‘fresh’ or ‘new’ material available for re-opening of assessment.

The tribunal observed that, in the present case of assessee, the original assessment was finalised by AO under Section 143(3) and subsequently the case has been reopened under Section 147 within four years taking into account the reporting made by auditors in the tax audit report.

It was a fact that the tax audit report was very much available with the AO during the original assessment and also except for such a tax audit report, there was no other material, fresh or new with the AO for initiating the proceeding of re-assessment.

A two-member bench of Paresh M. Joshi ( judicial member) and B.M. Biyani (accountant member) concluded that these facts of the assessee’s case are identical to the case of Kelvinator decided by the Delhi High Court in favour of the assessee and against the revenue.

The decision of the Delhi High Court has been subsequently approved by the Supreme Court also and held that in the present case, the proceedings of re-assessment done by AO under Section 147 is not valid and not maintainable. Hence, quashed the proceedings initiated and the order of re-assessment passed thereon by AO.

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