2020 (12) TMI 46 - AT - Income Tax

Invalid assessment orders quashed by Tribunal due to improper reopening under Income Tax Act

The Tribunal held that the re-opening of assessment under section 147 of the Income Tax Act was invalid as it was based on a mere change of opinion and ... Validity of re–opening of assessment u/ 147 - as argued assessment under section 147 of the Act was made after expiry of four years - claim of depreciation on various categories of securities AND deduction claimed under section 36(1)(viia) - HELD THAT:- As regards the first reason, admittedly, no disallowance or addition has been made in the re–assessment order. This, in other words, means the Assessing Officer himself was satisfied that there is no escapement of income on this issue. Claim of deduction under section 36(1)(viia) - specific allegation of AO that some of the branches in respect of which the assessee claimed deduction, did not qualify as rural branches as per Censes Department - It is a fact on record that while disposing off assessee’s appeal, Commissioner (Appeals) has deleted the disallowance made by the AO - essentially, the dispute relating to assessee’s claim of deduction under section 36(1)(viia) of the Act has attained finality after the decision of learned Commissioner (Appeals) on the issue arising out of the original assessment proceedings. Though, these events have happened much prior to the initiation of re–assessment proceedings and, in effect, the original assessment order has merged with the order of learned Commissioner (Appeals), still the Assessing Officer went ahead to not only initiate the proceeding under section 147 of the Act on the very same issue, but has also passed an assessment order under the said provision. This, in our view, is contrary to the settled legal position. On a perusal of the objections raised by the assessee, a copy of which is at Page–70 of the paper book, it is noticed that one of the grounds raised by the assessee is, on the basis of a census report of 2004 which is not applicable to the impugned assessment year, it cannot be said that some of the branches have exceeded certain population limit, hence, would not qualify as rural branches. However, it is a fact on record that the objection filed by the assessee raising such a vital issue has not been disposed off by the Assessing Officer independently prior to completion of assessment under section 143(3) r/w section 147 of the Act - Decided in favour of assessee. Issues Involved:1. Validity of re-opening of assessment under section 147 of the Income Tax Act, 1961.2. Disallowance of deduction claimed under section 36(1)(viia) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Validity of Re-opening of Assessment under Section 147 of the Act:The assessee challenged the re-opening of assessment under section 147 of the Act, which was initiated after the expiry of four years from the end of the relevant assessment year. The original assessment was completed under section 143(3) of the Act. The assessee contended that for re-opening after four years, the Assessing Officer must prove that the income escaped assessment due to the assessee's failure to fully and truly disclose material facts. The assessee argued there was no such failure, and the Assessing Officer did not dispose of the objections raised by the assessee before completing the assessment, violating the settled position of law.The Tribunal noted that the original assessment was completed on 19th March 2002, and the notice under section 148 was issued on 11th July 2006, making the re-opening after four years subject to the proviso to section 147. The Tribunal observed that the re-opening was based on two reasons: depreciation on securities and deduction under section 36(1)(viia). However, no disallowance was made on the first reason in the re-assessment order, indicating no escapement of income on this issue. Regarding the second reason, the Tribunal found that the original assessment had already considered whether some branches did not qualify as rural branches. The Tribunal concluded that the re-opening was based on a mere change of opinion, which is impermissible.The Tribunal further noted that the original assessment order had merged with the order of the learned Commissioner (Appeals), who had deleted the disallowance made by the Assessing Officer. Therefore, the re-opening of assessment on the same issue was invalid. Additionally, the Tribunal found that the Assessing Officer did not independently dispose of the objections raised by the assessee, violating the law laid down by the Hon'ble Supreme Court and the Hon'ble Jurisdictional High Court.2. Disallowance of Deduction Claimed under Section 36(1)(viia) of the Act:The assessee claimed a deduction under section 36(1)(viia) for rural advances, which was disallowed by the Assessing Officer in the re-assessment order. The assessee argued that the original assessment had already examined and disallowed the entire deduction claimed, and the issue had attained finality after the decision of the learned Commissioner (Appeals).The Tribunal observed that during the original assessment, the Assessing Officer had specifically enquired into the deduction claimed under section 36(1)(viia) and disallowed the entire claim. The Tribunal noted that the Assessing Officer was aware that some branches might not qualify as rural branches but did not make a separate disallowance on this ground as the entire deduction was already disallowed. The Tribunal concluded that the re-opening of assessment on the same issue was a mere change of opinion and invalid.The Tribunal also noted that the assessee had raised objections to the re-opening, arguing that the census report of 2004, which was not applicable to the impugned assessment year, could not be used to disqualify branches as rural. The Assessing Officer's failure to dispose of these objections before completing the assessment violated the law.Conclusion:The Tribunal held that the initiation of proceedings under section 147 of the Act was invalid, and consequently, the assessment orders passed in pursuance thereof were also invalid. The appeals were allowed, and the impugned assessment orders were quashed. The Tribunal's decision applied to both assessment years 1999-2000 and 2000-01, as the facts and legal principles were identical. The appeals were allowed, and the orders were pronounced in the open court on 09.11.2020.