2018 (6) TMI 32 - AT - Income Tax

Tribunal overturns reassessment for lack of new evidence, inconsistency, and unjustified additions.

The Tribunal deemed the reassessment proceedings invalid as the Assessing Officer lacked new tangible material and deviated from the principle of ... Validity of re-opening of assessment u/s 148 - Income escaping assessment u/s 147 - assessee has shown the 'interest income' as 'business income' and claimed set off from carried forward business loss - Held that:- No tangible material was existing before the AO that could prove that interest income assessed as business income in earlier years should be taxed under the head income from other sources - in the absence of any valid reasons re-opening of assessment u/s 147 cannot be exercised - Decided in favor of assessee. Disallowance of provisions for doubtful debts in computing MAT u/s 115JB - Held that:- AO has no power to disturb the figures shown in the P & L a/c. prepared in accordance with Part II and III of the Schedule VI of the Companies Act - AO was unable to prove that provision were for unascertained liability - hence the disallowance must be deleted as followed in case of APOLLO TYRES LTD. VERSUS COMMISSIONER OF INCOME TAX [2002 (5) TMI 5 - SUPREME COURT] - no justification for issuing a notice u/s. 148 - Decided in favor of assessee. Issues Involved:1. Validity of reopening of assessment under section 148 of the Income Tax Act.2. Classification of interest income under the head 'Income from other sources' vs. 'Business income'.3. Addition of provision for doubtful debts in the computation of book profit under section 115JB of the Act.Detailed Analysis:1. Validity of Reopening of Assessment under Section 148:The assessee challenged the reopening of the assessment, which was originally processed under section 143(1) and later reopened under section 148 by the Assessing Officer (AO) on the grounds that taxable income had escaped assessment. The AO's reasons for reopening included the misclassification of interest income and the omission of provisions for doubtful debts in the book profit computation under section 115JB. The Tribunal found that the AO had previously assessed the interest income as business income in earlier years, and there were no new facts or changed circumstances to justify the reassessment. The Tribunal emphasized the principle of consistency, stating that without a logical basis, the AO could not deviate from the earlier assessments. Citing the case of International Tractors Ltd., it was held that the AO's action lacked tangible material to support the reopening, rendering the reassessment proceedings invalid.2. Classification of Interest Income:The AO classified the interest income as 'Income from other sources' instead of 'Business income,' leading to the reassessment. However, the Tribunal noted that in previous assessments, the interest income was consistently treated as business income. The Tribunal highlighted that a temporary lull in business activities should not be grounds for changing the classification of income. It was concluded that the AO's decision to reclassify the interest income without any new or distinguishing facts was unjustified. The Tribunal referred to the case of Rallis India Ltd., asserting that a mere change of opinion does not warrant reassessment unless supported by tangible material.3. Addition of Provision for Doubtful Debts under Section 115JB:The AO added the provision for doubtful debts to the book profit while computing income under section 115JB. The Tribunal referred to the Supreme Court's decision in Apollo Tyres Limited, which held that the AO cannot alter the figures in the profit and loss account prepared according to the Companies Act. The Tribunal found that the provision for doubtful debts was not an unascertained liability, and the amendment to section 115JB, effective from April 1, 2001, did not apply to the year under appeal. The Tribunal concluded that the AO's addition of the provision for doubtful debts to the book profit was unjustified and unsupported by the legislative framework at the time of the original assessment.Conclusion:The Tribunal held that the reassessment proceedings initiated by the AO were invalid due to the lack of new tangible material and the principle of consistency. The classification of interest income as 'Income from other sources' was unjustified, and the addition of the provision for doubtful debts to the book profit under section 115JB was incorrect. Consequently, the appeal filed by the assessee was allowed, and the reassessment order was reversed. The Tribunal emphasized that reassessment is a serious step that should not be taken lightly, as it unsettles a settled position.Order Pronouncement:The order was pronounced in the open court on May 30, 2018.