2016 (4) TMI 510 - AT - Income Tax

Appeal dismissed as reassessment was invalid for being based on a change of opinion.

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that the reopening of assessment was invalid due to being based on a change of ... Reopening of assessment - deviation from the method of valuation prescribed u/s 145A are duly given in Annexure “D” to tax audit report u/s 44AB - Held that:- The tax audit report u/s 44AB of the Act is an important piece of evidence and is a statutory document u/s 44AB of the Act, which is filed before the A.O. along with the return of income from where the A.O. seeks all the prescribed information which is vital and necessary for framing the assessment. It cannot by any stretch of imagination be said that the A.O. has not gone through the tax audit report while framing assessment u/s 143(3) of the Act and in fact the A.O.is duty bound to go through the same before framing the assessment. The said information was also duly declared and disclosed in the computation of income filed with the Revenue Authorities. The Revenue is seeking reopening of the assessment based on the information received from the revenue audit team. Thus, as per section 147/148 of the Act change of opinion is not permitted as the AO while framing the original assessment u/s 143(3) of the Act vide orders dated 09-03-2008 has duly applied his mind to the issues as detailed above and is now re-opening the assessment merely on the basis of information received from revenue audit team while there is no independent application of mind by the AO before re-opening the assessment which is not permissible and more-so when the AO has passed scrutiny assessment u/s 143(3) of the Act in original assessment and four years have elapsed from the end of the assessment year when the assessment was reopened vide notice u/s 148 of the Act dated 28-03-2012 and the reasons were recorded on 26-03-2012 , and there is no failure on the part of the assessee company to truly and fully disclose all material information in the return of income filed with the revenue and during the course of original assessment proceedings u/s 143(2) of the Act read with Section 143(3) of the Act. Reopening u/s 147 of the Act in the instant case cannot be held to be valid as per the provisions of the Act and the same is liable to be quashed. The CIT(A) has passed a well reasoned detailed order in which we find no infirmity and we uphold the same. Thus addition made by the A.O. vide re-assessment orders dated 23-01-2013 passed u/s 143(3) read with Section 147 of the Act cannot be sustained and the order dated 20-5-2013 of the CIT(A) is upheld and the order dated 23-01-2013 passed u/s 143(3) of the Act read with Section 147 of the Act of the AO is hereby quashed. Since , we have adjudicated the legal issue regarding reopening of assessment u/s 147/148 of the Act and the same is held to be illegal and bad in law and we have already quash the same as detailed above, we are refraining from deciding the issues on merit as the same has become purely academic and infructuous. - Decided in favour of assessee. Issues Involved:1. Reopening of assessment under Section 147 of the Income Tax Act.2. Inclusion of Modvat credit in closing stock under Section 145A.3. Rebate on non-payment of sales tax deferral installments and its treatment under Section 41(1) read with Section 43B.Issue-wise Detailed Analysis:1. Reopening of Assessment under Section 147 of the Income Tax Act:The core issue was whether the reopening of the assessment by the Assessing Officer (AO) under Section 147 was justified. The AO issued a notice under Section 148 after the expiry of four years from the end of the relevant assessment year, based on the belief that income chargeable to tax had escaped assessment. The CIT(A) and Tribunal both noted that the AO formed this belief based on material already available on record during the original assessment proceedings. The CIT(A) emphasized that for reopening, the AO should have fresh material indicating that income escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The Tribunal upheld the CIT(A)'s decision, concluding that the reopening was based on a change of opinion and not on any new material, making the reopening invalid.2. Inclusion of Modvat Credit in Closing Stock under Section 145A:The AO contended that the assessee did not include Modvat credit in the closing stock as required under Section 145A, which led to under-assessment of income. The assessee argued that it had disclosed all details regarding Modvat in the tax audit report and the computation of income. The CIT(A) found that the AO had all the necessary details during the original assessment and had formed an opinion. The Tribunal agreed with the CIT(A), noting that the details were part of the tax audit report and computation of income filed with the return, indicating full disclosure by the assessee. Therefore, the Tribunal held that the AO's action was merely a change of opinion, which is not permissible for reopening the assessment.3. Rebate on Non-payment of Sales Tax Deferral Installments:The AO added back Rs. 10,72,897 to the assessee's income, considering it as cessation of liability under Section 41(1) read with Section 43B. The assessee argued that the amount was a capital receipt due to the prepayment of sales tax deferral installments under a scheme by the Maharashtra Government, and hence, not taxable. The CIT(A) sided with the assessee, noting that the AO had all the relevant details during the original assessment. The Tribunal upheld the CIT(A)'s decision, emphasizing that the rebate was disclosed in the computation of income and the tax audit report. The Tribunal concluded that the AO's reopening of the assessment based on this issue was also a change of opinion.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that the reopening of assessment was invalid due to it being based on a change of opinion rather than new material. The Tribunal quashed the reassessment order, noting that the assessee had fully and truly disclosed all material facts during the original assessment proceedings.