2014 (11) TMI 1003 - AT - Income Tax

Reopening of assessment - reasons recorded for reopening - Held that - On a perusal of the reasons extracted clearly brings out that the contentious issues were noticed by the AO on a perusal of the assessment records for the A.Y. 03-04 ; and there is no whisper about any fresh information on the basis of which the AO has based his reasons to believe that income has escaped assessment. Moreover, we find that the reopening has been ordered after four years from the end of relevant assessment year. So, the AO was duty bound to clearly indicate whether there was any failure on the part of the assessee to disclose fully and truly material facts necessary for the assessment. The admitted facts emerging from the records of this case are that the assessee had filed its return on 28/11/2003 for the relevant assessment year. Scrutiny assessment u/s 143(3) was completed on 02/03/2006 (PB page 36 to 40). Admittedly, four year s expired on 31/03/2008 from the end of relevant assessment year. So the notice dated 31/03/2009 u/s 148 of the Act, for reopening of the assessment for A.Y. 2003-04 was issued after expiry of four years from the end of the relevant assessment year. Therefore, as provided by the first proviso to sec. 147, the AO has to satisfy that there was a failure on the part of the assessee to disclose fully and truly material facts necessary for the assessment. On a perusal of the reasons recorded by the AO, we find that the AO has made a bald statement, that the assessee s total income to the tune of ₹ 42,95,200/- has escaped assessment because of failure on the part of the assessee to disclose fully and truly material facts necessary for the assessment. But for this bald statement of the AO, nothing emerges from the records to support the said observation of the AO. We find that all the three issues raised by the AO has been dealt during the original scrutiny assessment u/s 143(3) of the Act and, therefore, it is a clear case of change of opinion, which has been correctly held by ld. CIT(A) following the ratio-decidendi of the Apex Court in Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA wherein, it was held that mere change of opinion cannot per-se be reason to reopen and does not confer jurisdiction u/s 147 of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
Reopening of assessment u/s 147 of the Income Tax Act based on commission payment to directors, royalty payment to a US company, and excess deduction u/s 80HHC for Assessment Year 2003-04.

Analysis:

Commission Payment to Directors:
The AO reopened the assessment based on the commission payment of &8377; 35,02,907 made to directors, arguing it was not allowable u/s 36(1)(ii) as it could have been paid as profit or dividend. However, the ld. CIT(A) found that the AO's reasons for reopening relied on information already available during the original assessment. The ld. CIT(A) emphasized that the AO's action was a change of opinion and not justified under sec. 147. Citing legal precedents, the ld. CIT(A) held that a mere change of opinion does not warrant reopening, as affirmed by the Hon'ble Supreme Court in various judgments. The AO's failure to demonstrate any new material or failure on the part of the assessee to disclose facts led to the annulment of the reopening.

Royalty Payment to US Company:
The AO also cited royalty payment of &8377; 20,11,115 to a US company, proposing that 25% should have been capitalized based on a Supreme Court decision. However, the ld. CIT(A) reiterated that the issues were already addressed in the original assessment and the AO's reliance on old information did not justify reopening. The ld. CIT(A) emphasized the need for fresh material to invoke sec. 147 and highlighted the AO's failure to establish non-disclosure of material facts by the assessee.

Excess Deduction u/s 80HHC:
Additionally, the AO contended that excess deduction u/s 80HHC was allowed, resulting in escapement of income. The ld. CIT(A) observed that all issues were scrutinized in the original assessment, and the AO's attempt to reopen the case after four years without new information was deemed a change of opinion. Referring to legal principles, the ld. CIT(A) held that a mere change of opinion does not confer jurisdiction under sec. 147. The ld. CIT(A) rejected the Revenue's grounds and dismissed the appeal, emphasizing the need for valid reasons and fresh material to reopen assessments under the Income Tax Act.

In conclusion, the appellate tribunal upheld the ld. CIT(A)'s decision, emphasizing the importance of new material and valid reasons to reopen assessments under sec. 147. The judgment highlighted the distinction between a change of opinion and reassessment, underscoring that a mere change of opinion does not warrant reopening. The Revenue's appeal was dismissed, affirming the annulment of the reopening of assessment for the relevant year.