2018 (5) TMI 2190 - AT - Income Tax

Reopening assessment under section 147 beyond four years invalid when based on re-appraisal of existing records

ITAT Chandigarh held that reopening of assessment under section 147 beyond four years was invalid. The assessee had disclosed EDC charges in the balance ... Reopening of assessment u/s 147 - income relevant to the receipts on account of EDC charges had escaped assessment - Notice issued beyond period of four years - HELD THAT:- Undisputedly, the facts of the case and issue under consideration are exactly identical to that of the assessee’s own case for assessment year 2008-09 [2017 (12) TMI 1801 - ITAT CHANDIGARH] discussed that the EDC charges have been disclosed by the assessee in the balance sheet of the assessee which form part of the documents filed with the return of income and further the AO had also gone through the balance sheet and made various queries to assessee through questionnaires dated 18.7.2011 and 10.10.2011. The EDC charges formed part of Schedule D of the balance sheet under the head ‘other liabilities’. No new tangible material had come to the knowledge of the AO. AO has recorded that “during perusal of records in this case, it was seen that EDC charges were received by the assessee”. Hence the opinion regarding the escapement of income had been derived by the AO on re-appraisal of the material already available on record. Tribunal has also discussed that what the assessee was supposed to disclosed was that important and primarily facts pertaining to the income and not reasoning or logic which would lead to the conclusion of the nature of receipt. When the assessee in this case had already disclosed the necessary facts about the EDC charges i.e the nature and quantum of receipts, hence, there was no failure on the part of the assessee to disclose fully and truly any material facts necessary for the assessment. Thus, held that the balance sheet and profit and loss account are the primary documents, which are attached along with return. AO is supposed to go through these primary documents. These documents do not fall in the category of books of account or other evidences which may escape the attention of the Assessing officer during the assessment proceedings. In the case in hand before us also, the facts are identical to that for assessment year 2008-09. The balance sheet wherein the EDC charges found mention under the head “other liability” was duly attached with the return of income. AO had duly considered the said balance sheet and applied his mind and issued various queries to the assessee regarding various expenditure, liabilities and assets etc. forming part of the balance sheet through questionnaires dated 18.7.2011 and 10.10.2011. Under the circumstances, it cannot be said that there was any failure on the part of the assessee to disclose fully and truly the material facts necessary for the assessment. Thus the reopening is hereby held bad in law and reassessment framed in this case is set aside and the consequential additions made during the re-assessment, hence, stood deleted. Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment revolve around the validity of the reopening of the assessment under Section 147 of the Income Tax Act, 1961, specifically focusing on whether the reopening was justified given the facts of the case. The Tribunal examined:Whether the reopening of the assessment was valid under the first proviso to Section 147, considering that it was initiated after four years from the end of the relevant assessment year.Whether there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.The nature of the External Development Charges (EDC) and whether they should be treated as income or liability.ISSUE-WISE DETAILED ANALYSIS1. Validity of Reopening under Section 147Relevant Legal Framework and Precedents: The reopening of an assessment under Section 147 is subject to the conditions stipulated in the first proviso, which restricts reopening after four years unless there is a failure by the assessee to disclose fully and truly all material facts necessary for assessment. Various precedents, including the Supreme Court's decision in GKN Driveshafts, were considered.Court's Interpretation and Reasoning: The Tribunal noted that the reopening was based on information already available in the records and not on any new material. The Tribunal emphasized that the Assessing Officer's belief of income escapement was derived from a reappraisal of existing records, not from any new evidence.Key Evidence and Findings: The Tribunal found that the EDC charges were disclosed in the balance sheet under 'other liabilities' and were part of the documents filed with the return of income. The Assessing Officer had previously examined these documents during the original assessment proceedings.Application of Law to Facts: The Tribunal applied the legal principles from relevant case law, including the requirement for new tangible material to justify reopening, and concluded that the reopening was unjustified as it was based on a change of opinion rather than new evidence.Treatment of Competing Arguments: The Tribunal considered the Department's argument that the mere production of account books does not amount to disclosure but found this unpersuasive given the facts.Conclusions: The Tribunal concluded that the reopening was invalid as it was based on a change of opinion without any new material evidence.2. Nature of External Development Charges (EDC)Relevant Legal Framework and Precedents: The classification of EDC as either a liability or income was central to the case. The Tribunal referred to the provisions of the Punjab Regional and Town Planning and Development Act, 1995, and relevant accounting principles.Court's Interpretation and Reasoning: The Tribunal noted that the EDC charges were disclosed as liabilities in the balance sheet and that the assessee had followed a cash system of accounting. The Tribunal emphasized that the nature and quantum of EDC were disclosed, and there was no misrepresentation.Key Evidence and Findings: The Tribunal found that the EDC charges were consistently treated as liabilities in the balance sheet and that the assessee had disclosed these charges during the original assessment.Application of Law to Facts: The Tribunal applied the principles of accounting and tax law to determine that the EDC charges were not income but liabilities, as disclosed by the assessee.Treatment of Competing Arguments: The Tribunal rejected the Department's argument that the EDC should be treated as income, noting that the assessee's treatment of EDC as liabilities was consistent with previous assessments and accounting practices.Conclusions: The Tribunal concluded that the EDC charges were correctly disclosed as liabilities and not income, supporting the assessee's position.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal held, 'In view of this, the reopening is hereby held bad in law and reassessment framed in this case is set aside and the consequential additions made during the re-assessment, hence, stood deleted.'Core Principles Established: The Tribunal reaffirmed that reopening an assessment requires new tangible material and cannot be based solely on a change of opinion. Additionally, the Tribunal emphasized the importance of fully and truly disclosing material facts, which the assessee had done.Final Determinations on Each Issue: The Tribunal determined that the reopening of the assessment was invalid, and the EDC charges were correctly treated as liabilities, leading to the dismissal of the Department's appeal.