2016 (5) TMI 624 - AT - Income Tax

Tribunal overturns reassessment due to change of opinion, no failure to disclose. Appeal allowed.

The Tribunal held that the reassessment was not justified as it was based on a change of opinion and retrospective amendments. The original assessment had ... Reopening of assessment under section 148 read with section 147 - failure to disclose full and true material facts - change of opinion doctrine - retrospective amendment not a ground to reopen after four years - requirement of application of mind by approving authority - computation of book profit under section 115JBFailure to disclose full and true material facts - No failure to disclose full and true material facts by the assessee at the time of filing the return sufficient to invoke the proviso to section 147 for reopening. - HELD THAT: - The AO completed scrutiny assessment under section 143(3) after consideration of profit & loss account, books of account, audited balance sheet, tax audit report and Form 29B. The reasons recorded merely stated that the assessee had not disclosed material facts and that tax under section 115JB was not charged, but did not explain how or what material facts were withheld. Following jurisprudence of the jurisdictional High Court, mere assertion of non-disclosure without explanation is insufficient where primary facts were on record and the AO had earlier applied his mind; hence the AO's reasons do not establish a failure to disclose necessary facts to justify reopening under the proviso to section 147. [Paras 11, 12]Reopening on the ground of failure to disclose was invalid; no such failure was made out.Retrospective amendment not a ground to reopen after four years - computation of book profit under section 115JB - Reassessment could not be validly reopened after the four year period merely because of a later retrospective amendment to the law affecting computation of book profit under section 115JB. - HELD THAT: - The AO reopened assessment after the four year period relying on retrospective amendments to section 115JB to make additions in computing book profit. Applying binding decisions of the High Court, the Tribunal held that an amendment brought into force retrospectively cannot, by itself, constitute a new material fact or a failure to disclose at the time of filing return so as to sustain reopening beyond four years. The adjustments invoked were based on the retrospective change in law and therefore could not justify reopening. [Paras 13, 15, 16, 18]Reopening premised on retrospective amendment to section 115JB was not permissible; reassessment invalid.Change of opinion doctrine - Assuming jurisdiction to reopen the assessment on the basis of a mere change of opinion was impermissible. - HELD THAT: - The assessee had specifically produced and explained the working of book profit during original scrutiny; the reassessment proceeded solely because the AO formed a different view later. Reliance on established authorities shows that re opening an assessment where the AO had earlier applied his mind and recorded acceptance cannot be sustained if the only basis is a change of opinion. The Tribunal found the AO's action amounted to such an impermissible change of opinion. [Paras 21]Reopening founded on mere change of opinion is bad in law and cannot be sustained.Requirement of application of mind by approving authority - Approval for reopening given by the Commissioner was vitiated for want of independent application of mind. - HELD THAT: - The Commissioner accorded approval in a mechanical manner, merely adopting the audit language without explaining why the proviso to section 147 was attracted. Following precedent, such mechanical approval-particularly where AO's reasons do not explain non disclosure-does not constitute bona fide application of mind required to validate issuance of notice after four years. Consequently the approval did not cure textual defects in the AO's reasons. [Paras 22]Approval for reopening is not sustainable for lack of application of mind; reopening therefore invalid.Final Conclusion: The appeal is allowed; the reassessment initiated after the four year period on the basis of retrospective amendment, mere change of opinion and without proof of failure to disclose was held invalid and the reopening set aside. Issues Involved:1. Jurisdiction under Section 148 of the Act.2. Reassessment under Section 147/143(3) based on change of opinion.3. Calculation of book profit under Section 115JB.4. Charging of interest under Sections 234B and 234D.5. Addition of fresh/additional grounds of appeal.Detailed Analysis:1. Jurisdiction under Section 148 of the Act:The assessee challenged the reopening of the assessment after four years based on material already on record, claiming it was merely due to a revenue audit objection. The Tribunal examined whether there was any failure on the part of the assessee to disclose full and true material facts at the time of the original assessment. It was noted that the assessee had provided all necessary documents, including the profit & loss account, books of account, audited balance sheet, tax audit report, and Form 29B. The Tribunal concluded that there was no failure to disclose material facts, and the reopening based on retrospective amendment was not justified.2. Reassessment under Section 147/143(3) based on change of opinion:The Tribunal addressed whether the assessment could be reopened after four years based on a change of opinion. The original assessment under Section 143(3) had already considered the relevant facts. The Tribunal cited the case of Madhukar Khosla vs. ACIT, emphasizing that reopening based on a mere change of opinion is not permissible. The Tribunal ruled that the AO's action was based on a change of opinion and thus invalid.3. Calculation of book profit under Section 115JB:The AO had recalculated the book profit by adding back provisions for diminution in the value of investment, loss under Section 10B, and provision for doubtful debts and advances. The Tribunal found that these adjustments were made based on retrospective amendments, which is not permissible for reopening the assessment after four years. The Tribunal held that the AO should have considered these aspects during the original assessment.4. Charging of interest under Sections 234B and 234D:The Tribunal also addressed the issue of charging interest under Sections 234B and 234D based on the recalculated book profit. Since the reassessment itself was found to be invalid, the Tribunal ruled that the charging of interest based on this reassessment was also unjustified.5. Addition of fresh/additional grounds of appeal:The Tribunal allowed the assessee to add fresh or additional grounds of appeal or modify existing ones, either before or at the time of the hearing of the appeal.Conclusion:The Tribunal concluded that the reopening of the assessment was not justified as it was based on a change of opinion and retrospective amendments. The original assessment had already considered all necessary facts, and there was no failure on the part of the assessee to disclose material facts. Consequently, the Tribunal allowed the appeal filed by the assessee, setting aside the reassessment and related adjustments.Order Pronounced:The order was pronounced in open court on the 22nd day of April, 2016.