Incorrect calculation by AO Is Not 'Failure On Part Of Taxpayer To Disclose Material Fact', For Initiating Reopening: Ahmedabad ITAT
The Ahmedabad ITAT ruled that mathematical incorrectness by AO cannot be said to be failure on the part of the assessee to disclose any material fact, so as to initiate reopening of assessment. The Bench of Annapurna Gupta (Accountant Member) and Siddhartha Nautiyal (Judicial Member) observed that “as rightly pointed out by the counsel for the assessee, escapement of income as per...
The Ahmedabad ITAT ruled that mathematical incorrectness by AO cannot be said to be failure on the part of the assessee to disclose any material fact, so as to initiate reopening of assessment.
The Bench of Annapurna Gupta (Accountant Member) and Siddhartha Nautiyal (Judicial Member) observed that “as rightly pointed out by the counsel for the assessee, escapement of income as per the AO was attributable to the incorrect calculation of bad and doubtful debts. The facts, for the said purpose, of the amount of special reserve claimed by the assessee was admittedly on record, and even as per the AO itself, this incorrect calculation of the provision for bad and doubtful debts was material fact not disclosed by the assessee”. (Para 13)
As per the brief facts of the case, the assessee company challenged the action of the I-T Authorities in reopening of assessment beyond period of four years from end of the relevant assessment year ignoring fact that there is no failure on part of appellant to disclose fully and truly all material facts. The assessee pointed out that the reopening was resorted to for the reason that the assessee's claim for provision for bad and doubtful debts under section 36(1)(viia) of the Act was found to have not been computed correctly. He pointed out that the reasons revealed that the AO had become aware of the same on perusal of the assessment records.
As per the AO, the assessee had computed deduction u/s 36(1)(viia) of the Act without reducing the reserves created as per section 36(1)(viii) of the Act and thus had claimed excess deduction u/s 36(1)(viia) of the Act to the tune of Rs.7,70,265/-.
The Bench accepted the contentions of the counsel for the assessee that the AO in the present case had reopened the case of the assessee under section 147 of the Act without fulfilling the mandatory conditions stated in law for the said purpose.
The fact that in the present case, reopening was resorted to beyond four years, and the assessment under section 143(3) of the Act stood framed is also not disputed, added the Bench.
The Bench found that the reasons recorded by AO do not reveal any such failure on the part of the assessee, and noted that the reopening was resorted to in the present case, noting incorrect calculation of claim for provision for bad and doubtful debts of the assessee under section 36(1)(vii) of the Act.
As per section 36(1)(vii), the Bench illustrated that the assessee is entitled to claim 4% of its total income as provision for bad and doubtful debts, and the total income is to be net of special reserve created under section 36(1)(viii) of the Act, which the assessee had claimed not net while calculating its provision for bad and doubtful debts.
The Bench therefore observed that mandatory condition for assuming jurisdiction to frame assessment under section 147 of the Act in the present case of failure on the part of the assessee to disclose material facts was, not present.
Hence, the ITAT allowed the appeal of assessee and concluded that jurisdiction assumed by the AO therefore for framing assessment under section 147 of the Act, was not in accordance with law.
Counsel for Appellant/ Assessee: Bandish Soparkar
Counsel for Respondent/ Revenue: Sanjay Jain
Case Title: Mehsana Urban Co-op. Bank Ltd. verses ACIT
Case Number: ITA No.144, 145 and 146/AHD/2023