2012 (12) TMI 255 - AT - Income Tax

Reopening of Assessment - Escapement of Income - The objection of the assessee remained that the notice issued by the AO u/s 148 was beyond a period of four years from the end of the asstt. Year, hence it was barred by limitation under the proviso to section 147 of the Act. - Held that - AO completely overlooked the record of the assessment before initiating the proceedings which inter alia reflected that the assessee had claimed only deduction of ₹ 45,57,381/- towards gratuity and ₹ 5,84,045/- represented the liability towards bonus which too had been paid before the due date of filing of the return of income. All material facts necessary for the assessment had been truly and fully disclosed during the course of original assessment u/s 143(3) of the Act, hence initiation of reassessment proceedings u/s 147 / 148 was illegal in view of the specific proviso to section 147 of the Act. - There was neither fresh material surfaced after the original assessment nor in the reassessment proceedings disallowance made by the AO which was not made by his predecessor in the original assessment order, was based on suppression of primary information on the part of the assessee. - Decided in favor of assessee.

Issues Involved:
1. Validity of reopening assessment under Section 147/148 of the Income Tax Act.
2. Alleged failure of the assessee to disclose fully and truly all material facts.
3. Disallowance of provision for gratuity and bonus.
4. Credit of taxes withheld and paid by way of advance tax or self-assessment tax.
5. Initiation of penalty proceedings under Section 271 read with Section 274 of the Income Tax Act.

Detailed Analysis:

1. Validity of Reopening Assessment under Section 147/148:
The revenue challenged the first appellate order on the grounds that the CIT(A) erred in quashing the assessment proceedings initiated under Section 147/148. The original assessment was framed under Section 143(3) on 28.03.2006. The AO issued a notice under Section 148 on 04.03.2010, beyond the four-year limitation period from the end of the relevant assessment year. The assessee argued that all material facts were disclosed during the original assessment, and the reopening was based on a mere change of opinion without any new information. The CIT(A) agreed with the assessee, holding that the reopening was invalid as it was barred by the limitation period prescribed under the proviso to Section 147.

2. Alleged Failure of the Assessee to Disclose Fully and Truly All Material Facts:
The AO's reason for reopening the assessment was that the assessee had claimed a provision for gratuity on an accrual basis amounting to Rs. 1,45,42,573/-, but only added back Rs. 94,01,147/-, resulting in an excess allowance of Rs. 51,41,426/-. The AO claimed that this was due to the assessee's failure to fully disclose all material facts. However, the assessee had provided all necessary details, including the auditors' report and financial statements, during the original assessment. The CIT(A) found that the assessee had disclosed all material facts, and the reopening was based on the same facts already considered during the original assessment, thus constituting a change of opinion.

3. Disallowance of Provision for Gratuity and Bonus:
The AO disallowed Rs. 51,41,426/- on account of the provision for gratuity, alleging that the assessee did not furnish complete details to support the claim. The assessee contended that Rs. 45,57,381/- was actually paid towards gratuity and Rs. 5,84,045/- towards bonus, both before the due date of filing the return. These payments were supported by documentary evidence and were examined during the original assessment. The CIT(A) agreed with the assessee, noting that the AO had considered these details during the original assessment and did not disallow the amounts then. Thus, the disallowance in the reassessment was unjustified.

4. Credit of Taxes Withheld and Paid by Way of Advance Tax or Self-Assessment Tax:
The assessee argued that the AO erred in not giving appropriate credit for taxes withheld and those paid by way of advance tax or self-assessment tax. However, since the reassessment proceedings were quashed, this issue became academic and was not separately adjudicated.

5. Initiation of Penalty Proceedings under Section 271 read with Section 274:
The assessee also raised objections against the initiation of penalty proceedings under Section 271 read with Section 274. However, as the reassessment proceedings were held invalid, the initiation of penalty proceedings was also rendered academic and not separately addressed.

Conclusion:
The Tribunal upheld the CIT(A)'s order quashing the reassessment proceedings under Section 147/148, finding that the reopening was barred by the limitation period and based on a mere change of opinion without any new material facts. Consequently, the appeal by the revenue was dismissed, and the cross-objection by the assessee became academic and was also dismissed.

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