2016 (5) TMI 546 - AT - Income Tax

Invalid reassessment under Section 147 of Income Tax Act; appeal dismissed, CIT(A)'s order upheld.

The Tribunal concluded that the reassessment proceedings under Section 147 of the Income Tax Act were invalid as they were based on a mere change of ... Reopening of assessment - whether CIT(A) erred in holding that the proceeding u/s.147 as bad in law in spite of the fact that the set off of carried forward losses are not in existence as per section 72 of the Act for A.Y.1999-2000? - Held that:- The cojoint reading of all the documents goes to show that the assessee has disclosed fully and truly all material facts necessary for assessment, for that assessment year and as per the documents it is only the unabsorbed depreciation which has been adjusted out. Even otherwise as per settled position of law the reopening of an assessment u/s 147 has serious ramifications because the AO is empowered to reassess income even in respect of issues not set out in the notice. Therefore, if the power to rectify an order u/s 154(1) is adequate to meet a mistake or error in the order of assessment, the AO must take recourse to that power as opposed to the wider power to reopen the assessment. If the error can be rectified u/s 154, it would be arbitrary for the AO to reopen the entire assessment u/s 147. Further, the error in the order was not attributable to a fault or omission on the part of the assessee and the assessee cannot be penalized for a fault of the AO; Secondly when one or more modes of assessment or remedies are available to the taxing Authority, the Authority must adopt that remedy which causes least prejudice to the assessee. - Decides against revenue Issues Involved:1. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961.2. Alleged failure of the assessee to disclose fully and truly all material facts necessary for assessment.Issue-Wise Detailed Analysis:1. Validity of Reassessment Proceedings under Section 147 of the Income Tax Act, 1961:The primary issue in this case is whether the reassessment proceedings initiated under Section 147 are valid. The revenue contended that the reassessment was justified as the assessee had sold its business assets and discontinued the business, leading to the non-existence of carried forward losses as per Section 72 for the assessment year 1999-2000. The revenue argued that this resulted in an underassessment of Rs. 3,75,67,477/-.Conversely, the assessee argued that the reassessment was a mere change of opinion since there was no failure or omission on their part to disclose material facts. The assessee relied on the Supreme Court's decision in Kelvinator India Limited and the Bombay High Court's decision in Hindustan Unilever Ltd., asserting that reassessment based on a change of opinion is void ab initio.The Tribunal, after hearing both parties, concluded that the reassessment was indeed invalid. It cited various judicial pronouncements, including the Delhi High Court's full bench decision in CIT Vs. Kelvinator of India Ltd., which held that an order passed without application of mind does not confer jurisdiction to reopen proceedings. The Supreme Court's affirmation of this decision emphasized that the power to reopen must be based on 'tangible material' and not on a mere change of opinion.The Tribunal also referenced the Bombay High Court's decisions in Asian Paints Ltd. vs. Dy. CIT and Cartini India Ltd. vs. Addl. CIT, which reiterated that reopening based on the same set of facts without new material constitutes a change of opinion and is impermissible under Section 147.2. Alleged Failure of the Assessee to Disclose Fully and Truly All Material Facts Necessary for Assessment:The Tribunal examined whether the assessee had failed to disclose all material facts necessary for assessment. It noted that the first proviso of Section 147 stipulates that reassessment after four years from the end of the relevant assessment year is not permissible unless there is a failure on the part of the assessee to disclose fully and truly all material facts.The Tribunal found no evidence of such failure. The assessee had disclosed all relevant facts during the original assessment, and the reassessment was based on the same material facts. The Tribunal referenced several decisions, including those of the Bombay High Court in Jashan Textiles Mills P. Ltd. vs. DCIT and German Remedies Ltd. vs. DCIT, which held that reassessment beyond four years requires a failure to disclose material facts, which was not evident in this case.The Tribunal also cited the case of Cholamandalam Investment and Finance Co. Limited, where the Madras High Court held that reassessment after four years is invalid if the assessee had disclosed all primary facts. Additionally, it referred to the Supreme Court's decisions, including Calcutta Discount Co. Ltd. v. ITO and Phool Chand Bajrang Lal v. ITO, which emphasized that reassessment requires new and important material facts, not merely a change of opinion.In conclusion, the Tribunal upheld the CIT(A)'s findings that the reassessment proceedings were invalid as they were based on a mere change of opinion without any new tangible material. The appeal of the revenue was dismissed.Order:The appeal of the revenue is dismissed. The reassessment proceedings under Section 147 are held to be invalid, and the CIT(A)'s order is upheld.