2017 (3) TMI 143 - AT - Income Tax

Tribunal invalidates reassessment based on change of opinion, allows Superannuation Fund deduction.

The Tribunal held that the reassessment proceedings were invalid as they were based on a mere change of opinion without new tangible material, annulling ... Reopening of assessment - Prior period expenditure - disallowance contribution to superannuation fund - Held that:- As seen the question whether contribution to superannuation fund ought to be disallowed or not has already been gone into by the AO while concluding the original assessment proceedings. The Tax Audit Report which was referred to by the AO in the reasons recorded before issuing notice u/s 148 was very much available when the original assessment proceedings were concluded. As appears that on the very same material which was available when the original assessment proceedings u/s 143(3) of the Act were completed, the AO has sought to reopen the assessment proceedings u/s 148 of the Act merely on the basis of change of opinion. There was no tangible materials coming into the possession of the AO after conclusion of the assessment proceedings u/s 143(3) of the Act on the basis of which he formed a belief regarding escapement of income chargeable to tax. AO has come to a different conclusion on the material already available on record while concluding the assessment proceedings u/s 143(3) of the Act and merely on the change of opinion on the same set of facts. Such action of the AO has been held to be illegal and not valid in law by the decisions referred to by the assessee before CIT(A). We, therefore, hold that the initiation of proceedings u/s 147 of the Act was not valid and therefore order of reassessment has to be annulled and is accordingly annulled. We are of the view that the contribution cannot be considered as prior period expenses in view of the specific provision of section 36(1)(iv) r.w.s. 43B and deduction on the basis of payment is permissible in law. We are of the view that order of CIT(A) in this regard does not call for any interference. - Decided against revenue Issues Involved:1. Validity of reassessment proceedings initiated under Section 147 of the Income Tax Act.2. Allowability of deduction for contribution to the Superannuation Fund under Section 36(1)(iv) and Section 43B of the Income Tax Act.Detailed Analysis:1. Validity of Reassessment Proceedings Initiated Under Section 147:The primary issue was whether the reassessment proceedings initiated by the Assessing Officer (AO) under Section 147 of the Income Tax Act were valid. The AO issued a notice under Section 148, believing that income chargeable to tax had escaped assessment due to the assessee's claim of Rs. 36,41,496/- as a contribution to a Superannuation Fund, which he considered inadmissible.The assessee argued that this issue had already been examined during the original assessment proceedings under Section 143(3) and that the reassessment was based on a mere change of opinion, which is not permissible under the law. The assessee cited the Delhi High Court's decision in CIT vs Kelvinator of India Ltd. and the CBDT Circular No.549, which clarified that a change of opinion cannot justify reopening a completed assessment.The Tribunal agreed with the assessee, noting that the AO had no new tangible material to justify the reassessment. The Tribunal held that the AO's action was based on the same material available during the original assessment and constituted a change of opinion, making the reassessment proceedings invalid. Consequently, the reassessment order was annulled.2. Allowability of Deduction for Contribution to the Superannuation Fund:On the merits of the addition made by the AO, the issue was whether the contribution of Rs. 36,41,496/- to the Superannuation Fund was allowable as a deduction under Section 36(1)(iv) and Section 43B of the Income Tax Act.The AO disallowed the deduction, arguing that the contribution related to periods before April 1, 2002, and that the Superannuation Fund was not approved at the time of payment. The assessee contended that the fund was approved with effect from March 6, 2003, and the payment was made on March 10, 2003, thus qualifying for deduction under Section 36(1)(iv) and Section 43B, which allow deductions based on actual payment within the relevant financial year or before the due date for filing the return.The CIT(A) and the Tribunal both found merit in the assessee's argument. The Tribunal noted that Section 36(1)(iv) allows deductions for contributions to an approved superannuation fund, and Section 43B mandates that such deductions are allowed on an actual payment basis. Since the fund was approved effective from March 6, 2003, and the payment was made on March 10, 2003, the contribution was allowable as a deduction. The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO.Conclusion:The Tribunal dismissed the revenue's appeal and allowed the assessee's cross-objection, holding that the reassessment proceedings were invalid and the contribution to the Superannuation Fund was allowable as a deduction under the relevant provisions of the Income Tax Act.Order pronounced in the Court on 01.03.2017.