Tribunal dismisses validity challenge, finds reopening invalid due to non-compliance

The Tribunal dismissed the grounds challenging the validity of the reopening of assessment under Section 147/148, citing clerical errors and proper supply of reasons. However, the Tribunal found the reopening invalid due to non-compliance with the proviso to Section 147 regarding the time limit and lack of fresh material. The Tribunal also dismissed the allegations of change of opinion and failure to dispose of preliminary objections. Ultimately, the Tribunal allowed the deduction under Section 35AD, resulting in the appeal being treated as allowed with mixed outcomes for the assessee.

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Issues involved:
1. Validity of reopening of assessment under Section 147/148 of the Income Tax Act, 1961.
2. Compliance with the proviso to Section 147.
3. Allegation of change of opinion under Section 147.
4. Requirement of fresh tangible material for reopening assessment.
5. Failure to dispose of preliminary objections.
6. Addition of Rs. 20,98,92,952/- under Section 35AD.

Issue-wise Detailed Analysis:

Ground No. 1: Validity of Reopening of Assessment under Section 147/148

4. The assessee contested the validity of the reopening of the assessment by the Assessing Officer (A.O.) under Section 147 read with Section 148, alleging that the reasons to believe were recorded for the assessment year 2014-15, not for 2010-11. The assessee also claimed that the reasons were not supplied.

5. The Tribunal found that the A.O. had indeed recorded the reasons for the assessment year 2010-11, and the mention of 2014-15 was a clerical error. The reasons were duly supplied to the assessee, as evidenced by the documents and order sheet entries.

6. Consequently, Ground No. 1 was dismissed.

Ground No. 2: Compliance with the Proviso to Section 147

7. The assessee argued that the reopening was invalid as it occurred after four years from the end of the relevant assessment year, and there was no failure on the part of the assessee to disclose all material facts fully and truly.

8. The Tribunal noted that the assessment year in question was 2010-11, initially assessed under Section 143(3), and the notice under Section 148 was issued on 28.10.2015, beyond the four-year limit.

9. The A.O. had reopened the assessment based on a reappraisal of existing material, without any new information, and there was no allegation of the assessee failing to disclose material facts. Thus, the reopening was deemed invalid under the first proviso to Section 147.

10. Ground No. 2 was allowed, and the reopening and consequential assessment were quashed.

Ground Nos. 3 & 4: Allegation of Change of Opinion and Requirement of Fresh Tangible Material

9. The assessee contended that the reopening was based on a change of opinion and lacked fresh tangible material.

10. The Tribunal referred to its earlier decision in the assessee's case for subsequent assessment years, where it was held that the A.O. had new information during subsequent assessments, justifying the reopening.

11. Therefore, Ground Nos. 3 & 4 were dismissed, following the precedent.

Ground No. 5: Failure to Dispose of Preliminary Objections

11. The assessee claimed that the A.O. failed to dispose of one of the preliminary objections before making the assessment.

12. The Tribunal found that the A.O. had duly considered and addressed the preliminary objection No. 6 in the order dated 17.2.2016.

13. Consequently, Ground No. 5 was dismissed.

Ground No. 6: Addition of Rs. 20,98,92,952/- under Section 35AD

14. The A.O. disallowed the deduction claimed under Section 35AD, stating that the assessee had an existing business of warehousing and did not commence the business during the year under consideration.

15. Both parties agreed that the issue was covered in favor of the assessee by an earlier ITAT decision, which interpreted Section 35AD as allowing deduction for capital expenditure incurred wholly and exclusively for specified business, irrespective of the commencement date.

16. The Tribunal reiterated its earlier decision, allowing the deduction under Section 35AD.

Conclusion:

16. The appeal was treated as allowed, with the legal grounds relating to reopening decided against the assessee but the grounds on merits regarding the allowability of the deduction under Section 35AD decided in favor of the assessee.

Order Pronounced:

The order was pronounced in the Open Court on 01.07.2019.

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