2012 (9) TMI 322 - AT - Income Tax

Validity of reopening of assessment earlier framed u/s 143(3) after expiry of four years from the end of the relevant AY - assessment reopened on ground that amount surrendered on account of excess stock and excess cash is an unexplained investment in the stock and unexplained money and is deemed income of the assessee u/s 69 and 69A - assessee had claimed remuneration to the partners against the income surrendered by the assessee firm at the time of survey operation u/s 133A(1) - Held that - At the very outset, it is observed that initiation of re-assessment proceedings was based on change of opinion of the AO which is not permissible in law. It is an admitted fact that the assessee has fully and truly disclosed all material facts necessary for assessment at the time of filing of return and also during the course of assessment proceedings and the assessment was completed u/s 143(3). It is well settled law that re-assessment proceedings cannot be initiated merely by fresh application of mind of the Assessing Officer to same set of information which is nothing but change of opinion, which is not permissible under the law. There was no material or information which had come to possession of Assessing Officer after completion of the original assessment to justify the reopening - Decided in favor of assessee

Summary

Issues Involved:
1. Validity of initiation of proceedings u/s 147 of the Income Tax Act, 1961.
2. Treatment of surrendered stock and remuneration to partners under sections 69 and 69A of the Act.
3. Justification of reopening of assessment u/s 147 of the Act beyond the four-year period.

Issue 1: Validity of initiation of proceedings u/s 147 of the Income Tax Act, 1961:
The original assessment was framed under section 143(3) of the Act, where certain expenses were disallowed. Subsequently, it was observed that the assessee had claimed remuneration to partners against income surrendered during a survey operation. The Assessing Officer deemed the surrendered amount as unexplained investment and income under sections 69 and 69A of the Act. The CIT(A) upheld the initiation of proceedings u/s 147, stating that the assessee did not correctly reflect the surrendered amount in the profit and loss account, justifying the reopening based on the failure to disclose material facts necessary for assessment.

Issue 2: Treatment of surrendered stock and remuneration to partners under sections 69 and 69A of the Act:
The Assessing Officer considered the surrendered stock and excess cash as unexplained investment and income under sections 69 and 69A of the Act, restricting the claimed remuneration to partners. The CIT(A) supported this view, emphasizing that the assessee did not transparently reflect the surrendered amount in the profit and loss account, leading to the initiation of re-assessment proceedings. The tribunal, however, found the reopening invalid, as there was no failure on the part of the assessee to disclose all material facts fully and truly, ultimately quashing the re-assessment order.

Issue 3: Justification of reopening of assessment u/s 147 of the Act beyond the four-year period:
The tribunal emphasized that the initiation of re-assessment proceedings based on a change of opinion by the Assessing Officer was impermissible under the law. It was noted that the assessee had fully disclosed all material facts necessary for assessment during the original assessment under section 143(3) of the Act. As there was no new material or information justifying the reopening, the tribunal held the re-assessment proceedings invalid and canceled the assessment completed by the Assessing Officer.

In conclusion, the tribunal allowed the appeal, quashing the re-assessment order and emphasizing the importance of full and transparent disclosure of material facts to avoid invalid re-assessment proceedings beyond the prescribed time limits under the Income Tax Act.