2016 (1) TMI 85 - HC - Income Tax

Tribunal Invalidates Reassessment under Income Tax Act: Need for Tangible Material and CBDT Circular

PR. Commissioner of Income Tax-Vadodara-1 Versus Gujarat State Fertilizer & Chemicals Ltd.

The Tribunal held that the reassessment for the assessment year 2006-2007 under section 147 of the Income Tax Act was invalid. The Assessing Officer's ... Reopening of assessment - Held that:- Assessing Officer had pressed in service two elements for issuing notice for reopening. First was with respect to the disallowance of expenditure under section 14A of the Act. Such issue was examined by the Assessing Officer in the original order of assessment and made suitable disallowances. The Tribunal therefore, correctly held that any reconsideration of the issue would only amount to change of opinion. With respect to the second element namely, of non addition of FBT benefit tax while considering the book profit for the purpose of section 115JB of the Act, the Tribunal noted that the CBDT in the circular dated 29.8.2005 clarified that FBT is an allowable deduction for computation of book profit under section 115JB of the Act. That being the position, the Tribunal was correct in holding that the reopening was invalid. - Decided in favour of assessee Issues:Validity of reopening assessment under section 147 of the Income Tax Act, 1961 based on disallowance under section 14A and non-addition of Fringe Benefit Tax (FBT) to book profit for computing tax under section 115JB.Analysis:1. The main issue in this case pertains to the validity of reopening the assessment for the assessment year 2006-2007 under section 147 of the Income Tax Act, 1961. The Assessing Officer had issued a notice for reopening based on two grounds: disallowance under section 14A and non-addition of FBT to book profit for tax computation under section 115JB.2. The reasons recorded by the Assessing Officer for reopening highlighted discrepancies in the original assessment, specifically related to the disallowance of expenses under section 14A and non-addition of FBT to book profit. The Tribunal observed that the Assessing Officer had already considered and made suitable disallowances under section 14A during the original assessment. Therefore, revisiting this issue would amount to a change of opinion, which is impermissible.3. Regarding the non-addition of FBT to book profit, the Tribunal noted that the CBDT had clarified in a circular that FBT is an allowable deduction for computing book profit under section 115JB. As the Assessing Officer did not provide any new material to demonstrate the withdrawal of this circular, the Tribunal held that the non-addition of FBT did not result in income escapement, making the reopening invalid.4. The Tribunal emphasized that even within the four-year period for reopening assessments, the Assessing Officer must have tangible material to believe that income has escaped assessment. Merely disagreeing with the assessee's interpretation of the law or the facts disclosed during the original assessment does not warrant reopening, especially when the Assessing Officer had already formed an opinion on the issues in question.5. Ultimately, the Tribunal concluded that the reopening of the assessment was not permissible under the law due to the reasons discussed above. As a result, the Tribunal set aside the reopening of the assessment order and dismissed the tax appeals, stating that no question of law arose from the case.In summary, the judgment focused on the principles of reopening assessments under section 147 of the Income Tax Act, emphasizing the importance of tangible material to support the belief of income escapement. The Tribunal ruled that revisiting issues already considered and forming an opinion during the original assessment amounts to a change of opinion, rendering the reopening invalid. Furthermore, the Tribunal highlighted the significance of established circulars in tax computations to determine the validity of reopening assessments based on non-addition of certain components like FBT to book profit calculations.