2015 (2) TMI 1142 - AT - Income Tax

Reopening of assessment - increase in shortage - Held that - A bare reading of comparative shortage in various commodities dealt with by the assessee, as reproduced by the CIT(A) at page no.8 of his appellate order shows that there was practicably no excessive shortage during the relevant period as compared to the shortage in the earlier assessment years 2003-04 and 2004-05. The increase in shortage during the relevant period was mainly in some commodities whose total turnover was very less, at a figure less than ₹ 1.00 lakh in the entire year. We find that the AO has calculated the average shortage in various commodities purchased and sold by the assessee at 2.52% by taking average of the shortage in various commodities, which includes the commodities wherein the assessee has a very insignificant turnover. In these facts, we are of the view that even on merits, there was no justification for reopening of assessment by invoking section 147 of the Act. We find that no comparable case of lesser shortage in various commodities dealt with by the assessee has been cited by the AO in the assessment order. It is a case of change of opinion on the part of the AO which was not permissible for invoking provisions of section 147 of the Act. In these facts, we are of the view that the CIT(A) was justified in striking down the reopening in this case - Decided in favour of assessee

Summary

Issues:
Validity of reopening of assessment under section 147 of the Act based on excessive shortage in commodities compared to earlier years.

Analysis:
The appeal by the Revenue was against the order of the CIT(A) for the Asstt. Year 2005-2006, with the main ground being the treatment of the reopening of the case and assessment proceedings as invalid. The Revenue argued that the reopening was valid as it was made within four years from the end of the relevant assessment year, with reasons duly recorded, highlighting a higher shortage in commodities compared to earlier years. On the other hand, the assessee contended that the original assessment was under scrutiny assessment, and the reassessment was a clear case of change of opinion by the AO, which is impermissible under the Act. The assessee presented evidence showing better profits in commodities purchased and sold during the year compared to previous years, supported by case law. The Tribunal found that there was no excessive shortage during the relevant period, mainly in commodities with insignificant turnover, and the AO failed to provide a comparable case of lesser shortage. The Tribunal agreed that it was a case of change of opinion by the AO, not justified for invoking section 147 of the Act, and confirmed the CIT(A)'s decision to strike down the reopening due to lack of new information with the AO. Consequently, the appeal of the Revenue was dismissed, affirming the order of the CIT(A).

The judgment emphasizes the importance of valid reasons for reopening assessments under section 147 of the Act, highlighting that a mere change of opinion by the AO is not sufficient grounds for reassessment. It underscores the need for tangible evidence and substantial differences to justify reopening, rather than relying on subjective interpretations. The Tribunal's decision reinforces the principle that reassessment cannot be based on arbitrary reasoning or without concrete justifications, ensuring fairness and adherence to legal provisions in tax assessments. The case law cited by the assessee played a crucial role in supporting their argument against the reopening, showcasing the significance of legal precedents in tax matters to establish the validity of positions taken by taxpayers. Overall, the judgment sets a precedent for careful consideration and thorough evaluation before initiating reassessment proceedings, safeguarding against arbitrary actions by tax authorities and upholding the principles of natural justice and legal certainty in tax matters.