Country Club Hospita... v. Income Tax Officers ..., Income Tax Appellate Tribunal, Judgment, Law, casemine.com

Citation Codes

Equivalent Citations

citation codes

Case Number

ITA 548/Hyd/2021

Attorney(S)

Acts

FINANCE ACT 2012
SECTION 147 INCOME TAX ACT
sub-section (3) of section 143 or this section
u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 ; in short "the Act. 1.1
sub-section (2) of section 148.
Notices u/s 143(2) of IT Act
u/s 143(3) of IT Act 5
sub-section (1) of section 142 or section 148
u/s 143(3) o the Act

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Smart Summary

Factual and Procedural Background

The assessee, Country Club Hospitality & Holidays Ltd., filed its return of income for Assessment Year (AY) 2012-13 on 26-09-2012 declaring income of Rs. 3,39,39,691 under normal provisions and book profit under section 115JB. The case was selected for scrutiny under CASS and an assessment under section 143(3) was completed on 30-03-2015 determining total income of Rs. 3,91,58,967.

Subsequently, the Assessing Officer (AO) issued a notice under section 148 dated 22-03-2019 proposing reopening on the basis that the assessee had deducted PF, ESI and TDS from employees but had neither deposited the amounts into government accounts nor issued challans; the balance sheet showed amounts for PF, ESI and TDS payable totaling Rs. 2,32,16,784. The AO disallowed such amounts under section 43B as amounts remitted beyond the due date were treated as not allowable, holding that income to that extent had escaped assessment.

The assessee filed a return on 22-04-2019 and responded to notices under section 143(2) but did not furnish the evidence for remittance before the due date. The AO confirmed disallowances and the CIT(A) upheld the disallowances, finding no evidence that payments were made before the due date of filing the return. The assessee appealed to the ITAT (ITA No. 548/H/2021).

The assessee's appeal to the ITAT was filed 20 days late; a condonation petition was filed and the ITAT condoned the delay relying on Collector Land Acquisition v. Mst. Katiji (1987 AIR 1353 SC) and University of Delhi v. Union of India (Civil Appeal Nos. 9488 & 9489/2019 dated 17-12-2019). The ITAT heard the appeal on merits and ultimately quashed the reopening/assessment under sections 148/147 after examining the reasons recorded by the AO and the materials on record.

Legal Issues Presented

Whether the delay of 20 days in filing the appeal before the ITAT should be condoned.
Whether the reopening of assessment under section 147 (by issuance of notice under section 148) was valid in view of the proviso to section 147 limiting reopening beyond four years unless income has escaped assessment by reason of failure to disclose fully and truly all material facts.
Whether the AO had sufficient, new and tangible material to justify reopening the assessment and whether the additions/disallowances under section 43B for belated payments of PF, ESI and TDS were sustainable.

Arguments of the Parties

Appellant's (Assessee's) Arguments

The appeal was delayed due to misplacement of appeal papers by a staff member; condonation was sought and supported by authorities cited to justify condonation.
The AO erroneously reopened the assessment under section 147 because the original assessment under section 143(3) involved full scrutiny and verification of line items; no new information was available to justify reopening.
The AO relied on information that was already available during original assessment proceedings and made additions without tangible material; there was no failure by the assessee to "fully and truly" disclose material facts.
The AO failed to record the precise words "fully and truly" in the reasons recorded, and thus the statutory requirement for reopening beyond four years was not satisfied.
The reopening was beyond four years; reliance was placed on authorities (MSEB Holding Co. Ltd.; GB Bros. & Konda Rajagopala Chetty Beedi Factory (P) Ltd.; Tns India Pvt. Ltd.) to support the contention that reopening was impermissible.
Consequently, the order passed under section 143(3) read with section 147 should be quashed.

Respondent's (Revenue's) Arguments

The lower authorities correctly disallowed amounts under PF and ESI as the assessee did not deposit them into government accounts within the time frames stipulated in the respective statutes and failed to produce proof of payments before the due date of filing the return.
The AO had tangible material in the form of an investigation report and information from DDIT (Investigation) units, which formed the basis for reopening; therefore the reopening was not a mere change of opinion.
Accordingly, the reassessment and disallowances were justified.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Collector Land Acquisition v. Mst. Katiji & Ors, 1987 AIR 1353 (SC)	Principle that delay supported by cogent reasons deserves condonation in order to secure substantial justice.	The ITAT relied on this precedent to condone the 20-day delay in filing the appeal before the Tribunal.
University of Delhi v. Union of India, Civil Appeal Nos. 9488 & 9489/2019 (17-12-2019)	Authority supporting condonation of delay where cogent reasons exist to further substantial justice.	The ITAT relied on this authority together with Collector v. Katiji to condone the delay in filing the appeal.
MSEB Holding Co. Ltd., [2020] 113 taxmann.com 163 (SC)	Cited by the assessee in support of the proposition limiting reopening beyond four years (as relied upon by the appellant).	The precedent was cited by the assessee; the Court recorded that the assessee relied on it, but the ITAT's reasoning turned on the sufficiency of the reasons recorded under section 147 rather than expressly applying this precedent.
GB Bros. & Konda Rajagopala Chetty Beedi Factory (P) Ltd., [2003] 132 Taxman 737 (AP)	Cited by the assessee to support the contention against reopening beyond four years.	The precedent was relied on by the assessee; the ITAT noted the reliance but based its decision on the inadequacy of the reasons recorded and other factual matters in the record.
Tns India Pvt. Ltd., ITA No. 515/Hyd/2015	Cited by the assessee as precedent relevant to the law on reopening assessments beyond four years.	The ITAT recorded that the assessee cited this decision; the Tribunal's conclusion rested on its analysis of the reasons recorded and the absence of new tangible material rather than an express application of this specific precedent.

Court's Reasoning and Analysis

The Tribunal proceeded in two principal stages: (A) condonation of delay and (B) merits determination regarding reopening and disallowances.

A. Delay Condonation: The Tribunal found the 20-day delay in filing the appeal before ITAT to be explained by an affidavit stating misplacement of appeal papers by a staff member. Relying on Collector v. Katiji and University of Delhi v. Union of India, the Tribunal held that such delay, if supported by cogent reasons, deserves to be condoned to secure substantial justice; accordingly, the delay was condoned and the appeal admitted for adjudication on merits.

B. Merits — Reopening under section 147 and disallowances under section 43B:

The AO's recorded reasons stated that information received from DDIT (Investigation) units and enquiries revealed that the assessee had deducted PF, ESI and TDS but had not deposited those amounts to government accounts nor issued challans; the balance sheet showed "short term provisions" including PF, ESI and TDS payable totaling Rs. 2,32,16,784. The AO concluded these amounts were remitted beyond the due date and therefore not allowable under section 43B, and that income to that extent had escaped assessment.
The Tribunal examined the statutory language of section 147, particularly the proviso which precludes action after four years unless any income has escaped assessment "by reason of the failure on the part of the assessee ... to disclose fully and truly all material facts necessary for his assessment." The Tribunal observed that the AO's reasons recorded did not use the phrase "fully and truly" and thus did not meet the statutory threshold required to reopen an assessment beyond four years.
The Tribunal also found no new tangible material beyond what was available during the original section 143(3) scrutiny; it noted the assessor who recorded reasons (Ward‑1(3)) differed from the officer who framed the original assessment (ITO, Ward‑1(2)), and that the AO who framed the assessment had not applied his mind properly before reopening the case. The reasons recorded were therefore found to be insufficient and impeachable.
On these bases — absence of the statutory "fully and truly" language, lack of new or tangible material not previously available, and procedural defects in reasons/authority — the Tribunal concluded that issuance of notice under section 148 and the consequential assessment under section 147 were unsustainable.
Because the reassessment itself was quashed, the Tribunal held that the additions made pursuant to that reassessment did not survive.

Holding and Implications

Holding: The Tribunal allowed the appeal of the assessee and quashed the reassessment. The core ruling may be summarized as:

The assessment framed under section 143(3) read with section 147 (following notice under section 148) is quashed; the appeal is allowed.

Implications:

Direct effect: The notice under section 148 and the assessment made under section 147/143(3) for AY 2012-13 were held to be unsustainable and were quashed. As the reassessment was quashed, the disallowances/additions made pursuant to that reassessment (in respect of PF, ESI and TDS totaling Rs. 2,32,16,784) do not survive.
Scope: The Tribunal's decision was grounded on the record-specific findings: the AO did not record the required statutory language ("fully and truly"), no new tangible material was shown to justify reopening beyond four years, and procedural issues concerning who recorded reasons and who framed the assessment undermined the AO's satisfaction. The opinion does not purport to lay down a novel or broader precedent beyond its application to the facts of this case.

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Country Club Hospitality & Holidays Limited , Hyderabad v. Income Tax Officers ,Ward -1(2), Hyderabad

IN THE INCOME TAX APPELLATE TRIBUNAL

HYDERABAD BENCHES "B": HYDERABAD

(THROUGH VIRTUAL CONFERENCE)

BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER

AND

SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER

ITA No. 548/H/2021 Assessment Year: 2012-13
Country Club Hospitality & Holidays Ltd., Hyderabad. PAN – AAACC 8276 B	Vs.	Income-tax Officer, Ward – 1(2), Hyderabad.
(Appellant)		(Respondent)
Assessee by:	Shri P. Murali Mohan Rao
Revenue by:	Shri Rohit Mujumdar
Date of hearing:	08/02/2022
Date of pronouncement:	17/02/2022

O R D E R

PER L.P. SAHU, A.M.:

This appeal filed by the Assessee is directed against CIT(A), National Faceless Appeal Centre (NFAC), Delhi's order dated 08/10/2021 for AY 2012-13 involving

proceedings u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 ; in short "the Act.

1.1 We notice at the outset that assessee's instant appeal suffers from 20 days delay in filing before the ITAT. In this connection, the assessee has filed a petition for condonation along with an affidavit, wherein, inter-alia, it was stated that the appeal papers were misplaced by one of its staff, which caused the impugned delay in filing the appeal belatedly. We rely on Case law Collector Land Acquisition Vs. Mst. Katiji & Ors, 1987 AIR 1353 (SC) and University of Delhi Vs. Union of India, Civil Appeal No. 9488 & 9489/2019 dated 17 December, 2019, hold that such a delay; supported by cogent reasons, deserves to be condoned so as to make way for the cause of substantial justice. We accordingly hold that assessee's impugned delay in filing this appeal is neither intentional nor deliberate but due to the circumstances beyond its control. The same stands condoned. Case is now taken up for adjudication on merits.

2. The assessee has raised 12 grounds of appeal and the sum and substance of which is against the action of the AO in reopening the assessment u/s 147 of the Act and making the disallowance u/s 43B towards PF, ESI and TDS, which were confirmed by the CIT(A). The grounds raised by the assessee are as under:

Space left intentionally

3. The assessee also filed an application dated 04/02/2022 to admit the following additional grounds:

3.1 After hearing the ld. AR, we admit the above grounds.

4. Briefly the facts of the case are that the assessee M/s country Club Hospitality & Holidays Limited, filed its Return of Income for the Asst.Year 2012-13 on 26-09-2012 declaring income at Rs. 3,39,39,691/- under normal provisions and book profit of Rs. 25,76,68,660/- under the provisions of section 115JB. The case was selected under scrutiny through CASS and assessment u/s 143(3) of IT Act

was completed on 30.03.2015 assessing income at Rs. 3,91,58,967/-.

4.1 Subsequently, the AO noticed that the assessee deducted TDS, PF and ESI from employees but neither deposited it to the Government account nor issued TDS challan to the employees concerned. Further, the AO noticed that in note-9 of the balance sheet, the assessee had shown an amount of Rs.55,85,791/- as PF payable, Rs.24,11,672/- as ESI payable and Rs. 2,32,16,784/- as TDS payable totaling to Rs.2,32,16,784/- on the basis of information from DDIT, Calcutta & Hyderabad. According to the AO, the remittances of PF, ESI and TDS, into Government account beyond due date of filing of return of income is not allowable expenditure under the provisions of section 43B of IT Act, and, therefore, income to this extent had escaped assessment. He, therefore, reopened the assessment by issuing a notice u/s 148 of IT Act dated 22.03.2019. In response, the assessee company had filed return of income on 22-04-2019 declaring income at Rs.3,39,39,690/-. Subsequently, Notices u/s 143(2) of IT Act dated 09.11.2019 & 22.11.2019 respectively were issued to the assessee calling for the details of expenses towards PF payable, ESI payable, TOS payable and also short term provisions shown at Rs.30,32,19,026/-. However, the assessee could not furnish evidence for the payment of PF, ESI and TDS payable to the tune of Rs.2,32,

16,784/-. The AO, accordingly disallowed the amounts under the heads PF, ESI and TDS u/s 43B of the Act.

5. Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A) and filed elaborate written submissions along with case law, which were extracted by the CIT(A) in his order at pages 4 to 10. After considering the submissions of the assessee, the CIT(A) upheld the disallowances made by the AO by holding that the assessee did not furnish any evidence to prove that the amounts towards PF, ESI and TDS were paid before the due date of filing of return of income.

6. Aggrieved by the order of the CIT(A), the assessee is in appeal before the ITAT.

7. Before us, the ld. AR of the assessee reiterated the submissions made before the lower authorities and submitted that the AO has erroneously reopened the case of the assessee u/s 147 of the Act as the then AO in course of original assessment proceedings had instigated scrutiny wherein he verified every aspect of line items of financials. He further submitted that the AO reopened the assessment only based on the information already available during the course of original assessment proceedings u/s 143(3) o the Act and no evidence was available with the AO with respect to the addition made by him and simply made the additions

based on the information available in 14393) proceedings towards belated payments of PF & ESI. He contended that the AO reopened the assessment without any tangible material on hand and without satisfying himself as to the escapement of income and, thus, the basic requirement of satisfaction of the AO for reopening the assessment is missed in this case. He further submitted that the case of the assessee has been reopened re-opened beyond 4 years and the case. He submitted that the case was scrutinized u/s 143(3) and the assessee had fully and truly disclosed all the material facts before the AO for completing the assessment. He submitted that even the AO has not recorded the words "fully and truly" in the reasons recorded for reopening the assessment. He, therefore, submitted that the order passed u/s 143(3) rws 147 may be quashed.

7.1 The ld. AR also submitted that the AO made reopening of the assessment beyond 4 years. For this, he relied on the following cases:

1. MSEB Holding Co. Ltd., [2020] 113 taxmann.com

163(SC)

2. GB Bros. & Konda Rajagopala Chetty Beedi Factory

(P) Ltd., [2003] 132 Taxman 737 (AP)

3. Tns India Pvt. Ltd., ITA No. 515/Hyd/2015.

8. The ld. DR, on the other hand, relied on the orders of lower authorities and submitted that the lower authorities have rightly disallowed the amounts under PF & ESI as the

assessee did not deposit into Govt. Accounts within the time frame stipulated in the respective Acts. He submitted that the assessee failed to furnish the proof of payments made before the due date of filing of return of income. Further, the ld. DR submitted that there was tangible material available with the AO in the form of investigation report mentioned in the reasons record. He, therefore, submitted that there is no change of opinion as argued by the ld. AR of the assessee.

9. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. In this connection, we refer to the provisions of section 147, which read as under:

"Income escaping assessment.

147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year)

Provided that where an assessment under sub-section

(3) of section 143 or this section 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 make a return under section 139 or in response to a notice issued under sub-section

(1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:

Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year:

Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.

Explanation 1.—Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :—

(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax;

(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed

excessive loss, deduction, allowance or relief in the return ;

(ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E;

(i) income chargeable to tax has been underassessed; or

(ii) such income has been assessed at too low a rate; or

(iii) such income has been made the subject of excessive relief under this Act; or

(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;

(ca) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income-tax authority, under sub-section (2) of section 133C, it is noticed by the Assessing Officer that the income of the assessee exceeds the maximum amount not chargeable to tax, or as the case may be, the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;

(d) where a person is found to have any asset (including financial interest in any entity) located outside India.

Explanation 3.—For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that

the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. Explanation 4.—For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012."

8.1 The AO has recorded the reasons for reopening the assessment which are as under:

The assessee-company, M/s Country Club India Pvt Ltd engaged in the business of entertaining & hospitality, filed its return of income for the AY2012-13 on 26-09- 2012 admitting an income of Rs.3,39,39,691/- under normal provisions and book profit of Rs.25,76,68,660/- u/s115JB. The case was selected for scrutiny under CASS and assessment was completed u/s/143(3) on 30- 03-3015 by determining total income of Rs.3,91,58,970/- under normal provisions.

Subsequently, as per the information received from OOIT{lnv) ,Unit 1(3), Kolkatta and also V basing on the enquiries conducted, it is found that assessee had deducted TOS and PF from the employees but neither deposited it to the Government Account nor issued TOS challan to the employee concerned. it also issued bogus TOS certificates. By this modus operandi assessee- company makes huge loss to the revenue.

Further, when financial statements submitted by the assessee were verified, it was seen that the assessee has shown an amount of Rs.30,32,19,076/- under the head 'short term provisions' in its Balance Sheet. When the break-up of schedule 9 (short term provisions) of the Balance Sheet was checked, an amount of Rs.55,85,79.1/-, 24,11,672/- & 1,52,19,321/- (Total

Rs.2,32,16,784/-) was shown as PF payable, ESI payable and TOS payable respectively. The remittances of PF, ESI & TOS amounting to Rs.2,32,16,784/- into the government account beyond the due date of furnishing of return of income is not an allowable expenditure u/s.43B of the Act. The same needs to be disallowed from the computation of income filed for AY2012-13 by M/s. Country Club India Ltd. It is also observed that assessee company has deducted PF, ESI and TOS payments from salaries and did not deposit into respective accounts/government accounts within the time frame stipulated in the respective acts and IT Act. Therefore, assessee has deliberately did not furnish /disclose all material facts.

in this case in 3CD report filed for the Asst. Year 2012- 13, it was mentioned that there was no outstanding PF, ESI, TOS payable to government. account. Similarly, financial account though indicates that short term provisions of Rs.30,32,19,026/-, breakup of the same was not available in schedules provided to balance sheet .As per the enquiries conducted by DDIT(lnv) Unit 1(3) .Hyderabad and also basing on information received that assessee company is indulging in practice of non-payment of 10S, PF, ESI collected from employees to government account revealed that short term provisions "Rs 30,32,19,026/-, " indicated by assessee includes PF ,ESI TDS payable of Rs 2,32,16,784. Assessee company inspite of providing sufficient opportunities could not produce evidence of remittance of above amounts before filing return of income which means taxable income to the extent of Rs.2,32,16,784/- has escaped assessment for the AY2012-13 by failure on part of assessee to disclose all material facts with respect to remittances of PF, ESI, TDS which are relevant for the asst year 2012-13.

In view of the above, the provisions of clause (a) of Explanation 2 of Section 147 of the IT Act are

applicable to the facts of the case and the assessment year under consideration is deemed to be a fit case where income chargeable to tax has escaped assessment. Submitted for necessary approval of Pr . Commissioner of Income tax -1 Hyderabad."

8.2 On perusal of the said reasons recorded, we find that the AO recorded that "taxable income to the extent of Rs. 2,32,16,784/- has escaped assessment for the AY 2012-13 by failure on the part of the assessee to disclose all material facts with respect to remittances of PF, ESI, TDS which are relevant for the AY 2012-13. Whereas the language used in section 147 is that "where an assessment under sub-section

(3) of section 143 or this section 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 make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year". The AO failed to record the words "fully and truly" all material facts necessary for assessment. Therefore, we are of the view that the AO has failed to record the reasons to the satisfaction of the section 147, under which, the assessment

was reopened. Further, as contended by the ld. AR that there is neither any new information available with the AO nor any new tangible material in hand other than the information already existing in original assessment and further, there was no failure on the part of the appellant company to fully and truly disclose the material facts necessary for the assessment.. The ld. DR has filed a paper book containing pages 1 to 26, in which, copy of reasons recorded has been placed at pages 1 to 3 and the approval from Pr. CIT is at page 4. We observe that the reasons recorded by the AO, Ward - 1 (3), whereas, assessment was framed by ITO, Ward - 1(2), Hyderabad. From the reasons recorded, we observe that nowhere it is mentioned that there was any incumbency. In the light of these observations, we are of the view that the AO, who has framed the assessment order has not applied his mind properly before reopening the case of the assessee u/s 147 of the Act Thus, there is no sufficient and impeachable reason for reopening the assessment u/s 147 of the Act. Therefore, in the facts and circumstances of the case the issuance of notice u/s 148 and consequently passing of assessment u/s 147 of the Act is unsustainable. Accordingly, we quash the assessment order passed by the AO u/s 143(3) read with section 147 of the Act. Since the assessment itself is quashed, additions made on such assessment do not survive.

9. In the result, appeal of the assessee is allowed in above terms.

Pronounced in the open court on 17^th February 2022.

Sd/- Sd/-

(S.S. GODARA) (L. P. SAHU)

JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated: 17^th February, 2022. kv

Copy to :

1	Country Club Hospitality & Holidays Ltd., C/o P. Murali & Co., CAs, 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad – 82
2	ITO Ward – 1(2), Hyderabad.
3	CIT(A), NFAC, Delhi
4	ITAT, DR, Hyderabad.
5	Guard File.

Country Club Hospita... v. Income Tax Officers ...