2016 (1) TMI 1108 - HC - Income Tax

Court dismisses Revenue's appeals against ITAT's order on assessment reopening for AY 2005-06 and AY 2004-05.

Commissioner of Income Tax-2 Versus Central Warehousing Corporation Ltd.

The High Court dismissed the Revenue's appeals against the ITAT's order regarding the reopening of assessments for AY 2005-06 and AY 2004-05. The Court ... Reopening of assessment - Held that:- As far as AY 2005-06 is concerned, it is sought to be urged is that while framing the original assessment, the Assessing Officer (AO) had inadvertently failed to notice that accrued income of the Assessee from the disposal of stocks in the bonded warehouse had escaped assessment. As noticed by the ITAT, the original assessment was framed under Section 143(3) of the Act and a specific query was raised by the AO to the effect: 'why income from bonded warehouse be not accounted for on accrual basis?' and had been clarified by the Assessee in writing. In objecting to the re-opening of the assessment the Assessee pointed out: 'As a matter of fact, the assessing officer had called (for) certain clarifications and the assessee had furnished the required clarifications, where-after this issue was dropped by him.' The Court concurs with the ITAT that the re-opening of the assessment by the AO for AY 2005-06 was based on a change of opinion and, therefore, impermissible in law. As pointed out by the learned counsel for the Assessee, and as noted by the Commissioner of Income Tax (Appeals) in the order dated 15th October, 2012 for the AY 2004-05, in the original assessment order dated 29th December 2006 under Section 143 (3), the AO had 'elaborately discussed Section 14A of the Income tax Act and disallowed a sum of ₹ 1,59,03,771. A questionnaire was also issued by the AO vide questionnaire dated 19.9.2006 specifically asking a query why the proportionate administrative and management expenses incurred for earning the exempted income should not be disallowed under section 14A. The assessee Corporation had replied the questionnaire vide letter dated 3.10.2006 which was taken into account and the AO had proceeded to proportionately disallowed a sum of ₹ 1,59,03,771/- under Section 14A.' Further, the said addition was challenged before the CIT(A) who by order dated 28th December 2007 gave relief of Rs.l,54,03,771. In the circumstances, the conclusion reached by the CIT (A) that the AO was by seeking to reopen the assessment for AY 2004-05, reviewing his earlier order, cannot be faulted. Issues:1. Reopening of assessment for AY 2005-06 based on accrued income from disposal of stocks.2. Reopening of assessment for AY 2004-05 due to claimed exemption and management expenses deduction.Issue 1 - Reopening of assessment for AY 2005-06:The High Court considered the appeal by the Revenue against the ITAT's order regarding the reopening of assessment for AY 2005-06. The Court noted that the original assessment was framed under Section 143(3) of the Act, and the Assessing Officer (AO) had raised a specific query regarding the income from bonded warehouse. The Assessee had provided clarifications in response to the query. The Court agreed with the ITAT that the reopening of assessment was impermissible as it was based on a change of opinion by the AO, and the relevant material had been disclosed during the initial assessment.Issue 2 - Reopening of assessment for AY 2004-05:Regarding the reopening of assessment for AY 2004-05, the AO sought to reopen the assessment based on the Assessee's claimed exemption and the deduction of management expenses. The AO contended that there was under-assessment of income due to the incorrect deduction of management expenses, resulting in a short levy of tax. However, it was highlighted that in the original assessment order, the AO had already discussed Section 14A of the Income Tax Act and disallowed a specific sum under that section. The CIT(A) had also provided relief in this regard. The Court agreed with the CIT(A) that the AO was essentially reviewing his earlier order by seeking to reopen the assessment for AY 2004-05. Consequently, the Court found no substantial question of law and dismissed the appeals.In conclusion, the High Court dismissed the appeals by the Revenue against the ITAT's order regarding the reopening of assessments for AY 2005-06 and AY 2004-05. The Court held that the reopening of assessments was impermissible in the case of AY 2005-06 due to a change of opinion by the AO and in the case of AY 2004-05, the AO was essentially reviewing his earlier order. The Court found no substantial question of law in either case and therefore dismissed the appeals.