Re-Assessment Notice Issued After Four Years of Relevant AY: ITAT quashes Order u/s 147 [Read Order]

The Income Tax Appellate Tribunal (ITAT), Chennai Bench, has recently, in an appeal filed before it, on finding that the re-assessment notice was issued after four years of the relevant AY, quashed an order passed under Section 147 of the Income Tax Act. The aforesaid observation was made by the Chennai ITAT, when an appeal was filed before it by the assessee, as directed against the order passed by the Commissioner of Income-tax (Appeals), Chennai, dated 19.08.2020, pertaining to the assessment year 2011-12. The grounds of the assessee’s appeal being that, the AO in his order, has failed to take note of the limitation under Section 149 in the instant case, as the notice for the reassessment proceedings was issued on 13/09/2017, which is beyond four years from the end of the assessment year when the original assessment order was passed under Section 143(3), the brief facts of the case were that, the assessee had filed his return of income for the assessment year 2011-12 on 16.09.2011, declaring a loss of Rs. 1,10,97,021/-. Thereafter, the assessee’s case was selected for scrutiny and assessment was completed under Section 143(3) of the Income Tax Act, 1961, on 20.03. 2014. The case then subsequently reopened for the reasons recorded and notice under Section 148 of the Income Tax Act was issued on 13.09.2017. During the course of assessment proceedings, the AO noticed that the assessee had earned dividend income of Rs. 31,96,000/-, which was claimed as exemption under Section 10(34) of the Income Tax Act, and a disallowance was made, of the expenditure under Section 14A to the tune of Rs. 92,276/- only. Subsequently, the AO, after considering the relevant facts, completed the assessment under Section 143(3) r.w.s. 147 of the Act, on 17.09.2018, and determined the total income of Rs. 94,22,580/- by making addition towards disallowance of expenditure under Section 14A of the Act for Rs. 1,96,83,560/-, and disallowance of interest on car loans for Rs. 84,984/-. The assessee carried the matter in appeal before the first appellant authority, but could not succeed, as the CIT(A), for the reasons stated in their appellant order dated 19.08.2020, dismissed the appeal filed by the assessee. And it is being aggrieved by the CIT(A)’s order, that the assessee is, presently in appeal before the Tribunal. Hearing the opposing contentions of both the sides as submitted by Shri. Y. Sridhar, CA, on behalf of the assessee, and by Shri. AR V Sreenivasan, the Addl. CIT, on behalf of the Revenue, and thereby perusing the materials available on record, the ITAT observed: “We have heard both the parties, perused materials available on record and gone through orders of the authorities below. It is an admitted fact that the original assessment has been completed u/s. 143(3) of the Act on 20.03.2014. It is also an admitted fact that notice u/s. 148 of the Act dated 13.09.2017 is beyond four years from the end of the relevant assessment year. Thus, proviso to section 147 of the Act would come into operation, and as per said proviso, where the assessment under sub section (3) of section 143 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 disclose fully and truly all material facts necessary for his assessment for that assessment year.” “In light of above proviso to section 147 of the Act, if you examine the case of the assessee, in the original assessment proceedings, the AO had issued notice u/s. 143(2) of the Act on 24.05.2018 with a specific question of 14A disallowance, for which the assessee has filed computation of disallowance u/s. 14A r.w.r. 8D of the I.T. Rules, 1962. From the above, it is very clear that there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. Since, the notice u/s. 148 of the Act dated 13.09.2017 is beyond four years from the end of the relevant assessment year, and further there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for that assessment year, in our considered view notice issued u/s. 148 of the Act, is bad in law and liable to be quashed. This legal proposition is supported by the decision of Hon’ble Madras High Court in the case of City Union Bank Ltd vs ACIT”, the ITAT Panel of Mahavir Singh, the Vice President, and Manjunatha G, the Accountant Member, added. Thus, the Chennai ITAT held: “In this view of the matter and by considering facts of this case, and also by following the decision of Hon’ble High Court of Madras in the case of City Union Bank Ltd vs ACIT, we are of the considered view that re-opening of assessment u/s. 147 of the Act and consequent notice issued u/s. 148 dated 13.09.2017 is bad in law and liable to be quashed and thus we quash re-assessment order passed by the AO u/s. 143(3) r.w.s. 147 of the Act dated 17.09.2018. In the result, appeal filed by the assessee is allowed.” Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates