2013 (11) TMI 305 - AT - Income Tax

Appeal on Assessment Reopening Partially Allowed for Statutory Review. Remittance to CIT(A) for Fresh Consideration.

The department's appeal regarding the validity of reopening the assessment under Section 147 of the Income Tax Act was partly allowed for statistical ... Reopening of assessment u/s 147 - Change of opinion or tangible documents - Held that:- The AO cannot reopen the assessment by re-appreciating or re-appraising the same set of facts and materials which were considered at the time of original assessment. If the AO while completing the original assessment proceedings has considered the agreement between the assessee and M/s Suresh Productions with regard to the assignment of rights of the film 'Nee Premakai' and has completed the assessment after considering the same, the same material cannot form the basis for reopening the assessment as it will amount to change of opinion - Following decision of CIT vs. Usha International Limited [2012 (9) TMI 767 - DELHI HIGH COURT] and CIT Vs. Kelvinator India Ltd. [2010 (1) TMI 11 - SUPREME COURT OF INDIA], matter remanded back to CIT(A) for re-examination of the facts and issues. Issues Involved:1. Validity of reopening the assessment under Section 147 of the Income Tax Act.2. Merits of the disallowance of Rs.1.5 crores claimed as expenditure by the assessee.Issue-wise Detailed Analysis:1. Validity of Reopening the Assessment Under Section 147:The department reopened the assessment on the grounds that the assessee had claimed an expenditure of Rs.2.25 crores for acquiring film rights, of which only Rs.75 lakhs was actually paid during the year. The Assessing Officer (AO) believed that the remaining Rs.1.5 crores, which was to be paid in future installments, had been wrongly claimed as an expenditure, leading to income escaping assessment.The CIT (A) held that the reopening was based on a mere change of opinion since the same set of facts and the agreement were considered during the original assessment. The CIT (A) noted that the AO had previously called for details regarding the transaction and the agreement during the original assessment, and thus, reopening the assessment on the same basis was not permissible.The department argued that the AO had not expressed any opinion on the allowability of the expenditure during the original assessment, and hence, the reopening could not be considered a change of opinion. They cited the decision of the Hon'ble Delhi High Court in Consolidated Photo & Finewest Ltd. Vs. ACIT (281 ITR 394) and the Hon'ble Supreme Court in Phoolchand Bajranglal vs. ITO (203 ITR 456), which support reopening based on material available on record if the original assessment order is silent on a particular aspect.The assessee countered that the AO had indeed examined the transaction and agreement during the original assessment, as evidenced by a letter dated 17-11-2005 submitted to the AO. The assessee argued that reopening on the same set of facts amounted to a mere change of opinion, citing the Hon'ble Supreme Court in CIT vs. Kelvinator of India Limited (320 ITR 561) and the Hon'ble Delhi High Court (FB) in CIT vs. Usha International Limited (348 ITR 485).The Tribunal noted that the CIT (A) needed to verify whether the letter dated 17-11-2005 and the agreement were actually submitted to the AO during the original assessment and whether the AO had acknowledged them. If these documents were indeed considered, it would imply that the AO had formed an opinion, and reopening the assessment would amount to a change of opinion. The Tribunal remitted the issue back to the CIT (A) for verification and fresh consideration.2. Merits of the Disallowance:The AO disallowed the expenditure of Rs.1.5 crores, reasoning that the liability for this amount had not accrued in the assessment year under consideration as per the agreement's clauses. The AO believed that the liability arose only to the extent of the installment amounts due on future dates.The assessee contended that under the mercantile system of accounting, the entire liability of Rs.2.25 crores accrued on the date of the agreement, and the payment in installments did not absolve this liability. The assessee cited decisions from the Hon'ble Supreme Court in CIT vs. Bilahari Investment Pvt. Ltd. (299 ITR 1) and the Hon'ble A.P. High Court in CIT vs. Margadarshi Chit Fund Pvt. Ltd. (155 ITR 442) to support their claim.The CIT (A) agreed with the assessee, interpreting Rule 9B of the Income-tax Rules and relevant case law to conclude that the entire amount agreed to be paid should be allowed as an expenditure. The CIT (A) deleted the addition made by the AO.Since the Tribunal remitted the issue of the validity of reopening the assessment back to the CIT (A), it refrained from adjudicating on the merits of the disallowance at this stage. The CIT (A) was directed to first decide on the legal issue of reopening and then, if necessary, address the merits of the addition.Conclusion:The appeal filed by the department was partly allowed for statistical purposes. The matter was remitted back to the CIT (A) for fresh consideration on the validity of reopening the assessment. The CIT (A) was instructed to verify whether the AO had considered the agreement and the letter during the original assessment and then decide the issue accordingly. If the reopening was found valid, the CIT (A) would then address the merits of the disallowance.Order pronounced in the open Court on 24-05-2013.