I-T - It's true that assessee has furnished information on EDC receipts but if AO FAILS to examine same, it cannot be argued during Sec 147 proceedings that assessee has provided information not only FULLY but also TRULY: HC
By TIOL News Service
CHANDIGARH, MAY 02, 2018: THE issue is - Whether when the assessee has furnished all informations on EDC receipts in its return but if the AO fails to examine or raise any query about the same, it can be argued during Sec 147 proceedings that the assessee has provided information not only FULLY but also TRULY. NO is the verdict.
Facts of the case:
The assessee is a state development authority of Punjab. It had filed its return for relevant AY. The assessee had received certain External Development Charges (EDC) from land developers and real estate builders during the relevant year. The EDC were received from those land developers who had sought approval from the assessee to develop a Residential or Commercial Zones. The EDC was supposed be used by the assessee for executing External Development Works and other related jobs outside the land of the Land Developer who had paid the EDC. The EDCs were not brought to the ambit of tax by the assessee but were instead shown as a liability in its Balance Sheet under the head "Other Liabilities".
The assessment was completed u/s 143(3) of Act. The effect of the EDC upon the assessee's income was not referred in the assessment order. Subsequently AO noted from records that receipt and expenditure of the EDC amount was a regular, routine and re-occurring phenomenon. Thus the receipt of EDC was attributable to its regular business and was clearly revenue in nature. The assessee was required to show receipts of EDC in P&L a/c and debit the expenses incurred on account of the same. The net amount received should be brought to the ambit of tax. However, the assessee had failed to do so. This failure on the part of the assessee had led to escapement of taxable income. Thus AO resorted to re-assessment and the assessee filed objections against the same. The Revenue disposed of the objections. It was held that re-opening of the assessment was not based on a change of opinion and that the proceedings were valid.
High Court held that,
++ section 147 requires the assessee to declare the material not merely fully but also "truly". These requirements were not met either in the return or in the answer to the query relating to EDC. A questionnaire was indeed issued during the assessment proceedings. There was, however, no specific question with regard to EDC. Moreover from a perusal of the order sheet of the AO it is evident that after the filing of the reply to the questionnaire, details were asked only regarding administrative expenses incurred office-wise, installments received of houses and details of houses and their costs, as to why CPF contribution may not be disallowed. This itself shows that there was no discussion or application of mind by the A.O. on the issue of EDC;
++ this is not a case where any inference had been drawn by the A.O. regarding EDC. The case would have been different if the A.O. during the course of assessment had raised a query with regard to the EDC. The assessee would have produced the material relating to it and thereafter the A.O. would have either accepted the contentions or rejected them. In such circumstances, the primary facts would have been before the A.O. It would have been for him to probe further, if so required. This is not the situation in this case. Hence, the reopening cannot be said to be without jurisdiction;
++ the assessee cannot absolve itself of its responsibility to fully and truly disclose the material to the authorities. Merely because EDC was mentioned in the balance sheet and in the reply to the questionnaire it would not render the AO powerless to re-open the case. There was material even outside the record with the Assessing Officer which requires consideration. There are detailed provisions regarding the EDC. The Act deals with the liabilities to pay EDC. It also deals with the nature of the charge. The statutory agreements to be entered into and declarations to be filed with the authorities also referred to the payment of the EDC. EDC has been the subject matter of litigation before this Court. None of this was before the Assessing Officer in the assessment proceedings. Thus apart from the material on record, there was other tangible material that was not considered during the assessment proceedings;
++ there is no question in the facts of the present case of the re-opening being on account of a change of opinion. The issue of change of opinion could only arise if the issue had been dealt with or the material with regard to EDC was there before the AO at the time of framing the assessment. As is apparent from the record, the issue was not considered at the time of assessment. There was no occasion for the AO to make further inquiry with regard to EDC;
++ there cannot be any quarrel with the proposition that the assessee has no control over the framing of an assessment order. There can be cases where after discussion the A.O. may be satisfied on the issue and does not find it appropriate to discuss the same in the assessment order. This is not the case here. The assessee had failed to establish that there was any discussion or adjudication on the said issue.
(See 2018-TIOL-818-HC-P&H-IT)
