By Ajay R. Singh
Advocate
4. Pr. CIT vs. M/s Bharathi Constructions Pr. CIT vs. M/s URC Construction (P) Ltd. [Tax Case (Appeal) Nos. 772 to 774 of 2017;
Date of order: 11th September, 2020] (Madras High Court)
[Income Tax Appellate Tribunal, ‘C’ Bench,
Chennai, dated 20th April, 2017 made in ITA Nos. 1871/Mds/2016,
2759/Mds/2016 and 1870/Mds/2016; A.Ys. 2007-2008 and 2008-2009]
Reassessment – Reopening beyond four years
– Original assessment 143(3) – TDS not deducted – Auditor responsibility vis-a-vis
audit report – failure on the part of the assessee to disclose fully and truly
all material facts necessary for assessment
The Revenue stated
that there was failure on the part of the assessee to disclose truly and fully
the machine hire charges on which TDS u/s 194-I was required to be done by the
assessee company which utilised the plants and equipment of the contractors
during the construction works carried out by it; therefore on such payment of
rent made by the assessee to such contractors for use of such plant and
equipment, TDS u/s 194-I was required to be done by the assessee. In the absence
of the same, the amounts in question paid to the contractors were liable to be
added back as income of the assessee u/s 40(a)(ia). An audit objection was also
raised for those A.Ys. by the Audit Team of the Department and in the
subsequent A.Ys. 2010-11 and 2011-12, the assessee himself deducted tax at
source on such machine hire charges u/s 194-I and deposited the same; in the
year 2015, the Assessing Authority had ‘reason to believe’ that for A.Ys.
2007-2008 and 2008-2009 it was liable to reopen and reassessment was required
to be done for those A.Ys.
The appeals
preferred by the assessee were dismissed by the CIT(Appeals) but in the appeal
before the Tribunal the assessee succeeded when it held that reassessment was
bad in law as the notice u/s 147/148 was issued after the expiry of four years
after the relevant assessment year and there was no failure on the part of the
assessee; therefore, the extended period of limitation cannot be invoked by the
Authority concerned and the reassessment order was set aside.
The assessee
submitted that during the course of the original assessment proceedings itself
it had made true and full disclosure of the tax deducted and amount paid by it
to various contractors vide letter dated 7th December, 2009,
filed before the Deputy Commissioner of Income Tax, Circle-I, Erode through the
Chartered Accountant M. Chinnayan & Associates, and in reply to the Deputy
Commissioner of Income Tax for the Audit Objection, the said Chartered Accountant,
vide its communication for the A.Y. 2007-2008, it was contended before
the Assessing Authority that such amounts paid to the contractors did not
amount to payment of rentals as there was no lease agreement, and therefore
section 194-I could not apply to such payments. He further submitted that the
Assessing Authority had disallowed a part of the said amounts towards machine
hire charges u/s 40a(ia) and the Tax Deducted at Source during the course of
the original assessment proceedings itself and therefore there was no reason
for the Assessing Authority to reopen the original assessment order on a mere
‘change of opinion’ subsequently in the year 2015 and the reassessment
proceedings could not be undertaken. In particular, attention was drawn to the
order sheet entry drawn on 30th December, 2009 passed by the Deputy
Commissioner, the Assessing Authority.
The Court held that
no substantial question of law arises in the present appeal filed by the
Revenue as the law is well settled in this regard and unless, as a matter of
fact, the Revenue Authority can establish a failure on the part of the assessee
to truly and fully disclose the relevant materials during the course of the
original assessment proceedings, the reassessment proceedings, on mere change
of opinion, cannot be initiated, much less beyond the period of four years
after the expiry of the assessment years in terms of the first proviso
to section 147 of the Act.
In the present
case, the machine hire charges paid by the assessee to various contractors or
sub-contractors were fully disclosed not only in the Books of Accounts and
Audit Reports furnished by the Tax Auditor, but by way of replies to the notice
issued by the Assessing Authority, particularly vide letter dated 7th
December, 2009 of the assessee during the course of the original assessment
proceedings, and it was also contended while replying to the audit objection
that the payments, having been made as machine hire charges, do not amount to
rentals and thereby do not attract section 194-I. But despite that the
Assessing Authority appears to have made additions to the extent of Rs.
44,45,185 in A.Y. 2007-2008 u/s 40(a)(ia) in case of one of the assessees,
viz., URC Construction (Private) Limited.
The facts in both the assessees’ cases are said to be almost similar and
they were represented by the same Chartered Accountant, M/s Chinnayan &
Associates, Erode.
Thus, there is no
failure on the part of the assessee to truly and fully disclose the relevant
materials before the Assessing Authority during the course of the original
assessment proceedings. Therefore, the extended period of limitation beyond
four years after the end of the relevant assessment years cannot be invoked for
the reassessment proceedings under sections 147/148 in view of the first proviso
to section 147.
However, the Court
disagreed with the observations made by the Tribunal in paragraph 11 of its
order to the extent where the Tribunal has stated that if there is negligence
or omission on the part of the auditor to disclose correct facts in the Audit
Report prepared u/s 44AB, the assessee cannot be faulted.
The Court opined
that even if the relevant facts are not placed before the auditors by the
assessee himself, they may qualify their Audit Report u/s 44AB. If the
Auditor’s Report does not specifically disclose any relevant facts, or if there
is any omission or non-disclosure, it has to be attributed to the assessee only
rather than to the Auditor. The observations made in paragraph 11 of the
order are not sustainable though they do not affect the conclusion that has
been arrived at on the basis of the other facts placed, that there was really a
disclosure of full and complete facts by the assessee before the Assessing
Authority during the course of the original assessment proceedings itself u/s
143(3); and therefore, even if anything is not highlighted in the Audit Report,
the assessee has shown that this aspect, viz., non-deduction of TDS on the
machine hire charges attracting section 194-I was very much discussed by the
Assessing Authority during the original assessment proceedings.
Therefore, on a
mere change of opinion, the Assessing Authority could not have invoked the
reassessment proceedings u/s 147/148 beyond the period of four years after the
end of the relevant A.Ys.
Thus, the appeals filed by the Revenue were dismissed.
