Mistake On Part Of AO Resulting In Under Assessment Of Income No Ground To Re-Open Assessment U/S 147 Of Income Tax Act: Delhi HC
Kapil Dhyani
11 Nov 2024 10:30 AM IST
The Delhi High Court has made it clear that once scrutiny assessment is held under Section 143 of the Income Tax Act but due to a mistake of the Assessing Officer there is under assessment of income, reopening assessment under Section 147 of the Income Tax Act, 1961 is not permissible. “...AO specifically records in the reasons that it was a 'mistake' which resulted in under...
The Delhi High Court has made it clear that once scrutiny assessment is held under Section 143 of the Income Tax Act but due to a mistake of the Assessing Officer there is under assessment of income, reopening assessment under Section 147 of the Income Tax Act, 1961 is not permissible.
“...AO specifically records in the reasons that it was a 'mistake' which resulted in under assessment of the income…It is, therefore, manifest that AO has not attributed the alleged escapement of income to any failure on the part of petitioner but to a mistake and lack of verification on its own part. Petitioner cannot be allowed to suffer because of lapse of the AO.,” a division bench of Justices Yashwant Varma and Ravinder Dudeja observed.
As per factual matrix of the case, notice to reopen the assessment was issued to Discovery Communications India. This was after scrutiny assessment of the return filed by the company in respect of the same Assessment Year.
Petitioner contended that there was no fresh tangible material on the basis of which the assessment framed under Section 143(3) could be reopened.
Standing Counsel appearing for the Revenue on the other hand submitted that petitioner had debited an amount of Rs. 2.01 crore on account of Discovery Appreciation Plan (DAP) paid to the employees during AY 2011-12, which was over and above the normal salary and allowances. This issue was not examined during the assessment proceedings under Section 143(3) on account of its ambiguous nature.
At the outset, the High Court observed that escapement of income by itself is not a sufficient ground for reopening the assessment in a case covered by 1st proviso to Section 147 of the Act unless and until there is failure on the part of the assessee to have disclosed, fully and truly, facts necessary for assessment.
The provisio states that where an assessment under Section 143(3) has been made, no action shall be taken after the expiry of 4 years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment by reason of the failure on part of the assessee.
High Court said,
“...the reasons must lead to the clear and direct inference that there was a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment…if the AO did not apply his mind and committed a lapse, there is no reason why the assessee should be made to suffer the consequences of that lapse.”
It added that even if AO's argument about a mistake in allowing DAP expenditure is accepted, the appropriate remedy for the Revenue would be to income Section 263 (Revision of orders prejudicial to revenue).
Accordingly, it allowed the plea and quashed the reassessment notice.
Appearance: Advocates Mayank Nagi and Sandeep Yadav for Petitioner; Sr. Standing Counsel Shlok Chandra with Jr. Standing Counsel Madhavi Shukla and Priya Sarkar and Advocate Sudarshan Roy for Revenue
Case title: Discovery Communications India v. Addl. Commissioner Of Income Tax, Special Range - 3, New Delhi
Case no.: W.P.(C) 13225/2018
