2013 (6) TMI 628 - AT - Income Tax

Reopening of assessment - AO noticed that the assessee society s profits were diverted to the account of its General Secretary for construction of a building, wherein the General Secretary s proprietary business was being carried on - Held that - There is sufficient force in the contention of the assessee that material facts are fully and truly disposed of by the assessee as evidenced by the two letters filed at the time of completion of original assessment. AO has raised certain queries in the original assessment and, in reply, the assessee has given details vide the aforesaid letters. The ratio laid down in the case of CIT Vs. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA is fully applicable to the facts and circumstances and it cannot be said that there was failure on the part of the assessee in disclosing the material facts. As the assessee has disclosed all the material facts relating to giving of advance to Mr. SV Rao and it is also on record that he is a Secretary of the assessee Trust. AO after considering this fact preferred not to take any decision on this issue. Being so, AO precluded from taking any contra decision as there is no failure on the part of the assessee in furnishing the material evidence before the Assessing Officer. Once AO applied his mind and had taken conscious decision on the impugned matter, it is not open to AO to reopen the assessment. In favour of assessee.

Summary

Issues: Reopening of assessment u/s 147 after 4 years based on failure to disclose material facts; Validity of notice u/s 148; Applicability of sec. 13 in exemption u/s 10(22) of IT Act.

Reopening of assessment u/s 147 after 4 years based on failure to disclose material facts:
The case involved an appeal against the order of the CIT(A) confirming the reassessment by the Assessing Officer. The Assessing Officer had reopened the assessment after four years, alleging that the assessee failed to disclose material facts regarding the diversion of profits to the General Secretary for building construction. The assessee contended that all necessary information had been disclosed during the original assessment u/s 143(3) and that the reassessment was based on a change of opinion. The Tribunal analyzed the letters submitted by the assessee during the original assessment, highlighting that the material facts were fully disclosed. Citing the Supreme Court judgment in CIT Vs. Kelvinator of India Ltd., it was held that without tangible fresh material indicating concealment, the reassessment after four years was unjustified. The Tribunal concluded that the Assessing Officer's decision to reopen the assessment lacked merit and amounted to a change of opinion, thereby quashing the reassessment.

Validity of notice u/s 148:
The assessee raised objections to the validity of the notice u/s 148, arguing that it was issued after four years without fresh material to indicate income escapement. The Tribunal examined the contentions of both parties and reviewed the letters submitted by the assessee during the original assessment. It was observed that the assessee had provided detailed information in response to queries raised by the Assessing Officer, indicating no failure to disclose material facts. Relying on the precedent set by the Supreme Court, the Tribunal emphasized that a mere change of opinion without new tangible material does not warrant reopening an assessment. Consequently, the Tribunal held that the notice u/s 148 was not validly issued and was out of time, supporting the assessee's argument against the reopening of the assessment.

Applicability of sec. 13 in exemption u/s 10(22) of IT Act:
One of the grounds raised in the appeal was the applicability of sec. 13 concerning exemption u/s 10(22) of the IT Act. The assessee contended that sec. 13 had no relevance to the exemption under sec. 10(22) and that the CIT(A) erred in applying it. The Tribunal did not delve into this issue in detail due to quashing the reassessment based on the lack of fresh material and the change of opinion by the Assessing Officer. As a result, the Tribunal refrained from addressing the specific grounds related to sec. 13 and sec. 10(22) exemption, focusing primarily on the invalidity of the reassessment.

In conclusion, the ITAT Hyderabad quashed the reassessment initiated by the Assessing Officer after four years, emphasizing the absence of new material indicating income escapement and considering it a change of opinion. The Tribunal highlighted the importance of full disclosure of material facts by the assessee during the original assessment, citing relevant legal precedents to support its decision. The appeal was allowed in favor of the assessee, and the reassessment was deemed invalid.