2013 (9) TMI 1075 - AT - Income Tax

Reopening of assessment - Held that - Considering the absence of tangible material , we find that the CIT (A) order is required to be reversed. As such, AO reopened the assessment relying only on the papers available on records. Therefore, we agree with the arguments of the Ld AR for the assessee. On merits also, it is the case of the assessee that there is sufficient interest free funds to cover the interest free advances given by the assessee and therefore, the presumption would be that such advances were given from interest free funds and not from the interest bearing funds as held by the Hon‟ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd 2009 (1) TMI 4 - BOMBAY HIGH COURT 313 ITR 340. Without going into the merit, in our view, the assessee should succeed on the legal issue itself

Summary

Issues:
1. Reopening of assessment based on change of opinion.
2. Validity of reopening assessment under section 148 of the Act.
3. Requirement of tangible material for reassessment jurisdiction.

Issue 1: Reopening of assessment based on change of opinion:
The appellant challenged the reopening of the assessment for the assessment year 2004-2005, contending that it was merely a change of opinion and should be quashed. The appellant argued that the Assessing Officer (AO) lacked tangible material to support the belief of income concealment. The appellant cited case laws to support the argument that reopening concluded assessments without tangible material is impermissible. The appellant's counsel highlighted that the reasons for reopening were based on figures from the financial statement already available during the initial assessment, indicating a case of change of opinion.

Issue 2: Validity of reopening assessment under section 148 of the Act:
The Tribunal noted that the AO reopened the assessment without any tangible material, solely revisiting existing records. The Commissioner of Income Tax (Appeals) rejected the appellant's explanation, emphasizing that during the initial assessment, no queries were raised regarding the disallowance of interest under section 36(1)(iii) of the Act. The Tribunal found the absence of tangible material essential for reopening the assessment, rendering the notice under section 148 invalid. Citing relevant case laws, the Tribunal affirmed that tangible material is a prerequisite for the AO to assume jurisdiction under such provisions.

Issue 3: Requirement of tangible material for reassessment jurisdiction:
The Tribunal emphasized the necessity of tangible material to support the reopening of assessments. Relying on precedents and case laws, the Tribunal concluded that the absence of tangible material renders the reopening proceedings invalid. The Tribunal agreed with the appellant's argument that the AO lacked substantial grounds to reopen the assessment, as the reasons were based on existing records without new material. Additionally, the Tribunal noted that the appellant had sufficient interest-free funds to cover advances, aligning with legal precedents.

The Tribunal allowed the appellant's appeal, holding that the reopening of the assessment lacked tangible material and was based on a mere change of opinion. The Tribunal emphasized the requirement of tangible material for reassessment jurisdiction and cited relevant case laws to support its decision. The Tribunal dismissed the academic nature of the second ground raised by the appellant and pronounced the order in favor of the appellant on 4th September 2013.