2013 (11) TMI 182 - AT - Income Tax

Re-opening of assessment u/s 147 of the Income Tax Act Invocation of proviso to Section 147 of the Act - Whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for the year in question Held that - During the course of original assessment proceedings the Assessing Officer had raised a question on the issue of the claimed bad debt and on the provisions of warranty and current liabilities - Tax Audit Report filed by the assessee was already there on record on the basis of which reopening of assessment u/s 147 was initiated after recording the reasons. Thus it cannot be alleged that the assessee had not disclosed all the material and relevant facts fully and truly during the course of original assessment No reason to interfere with the finding of the ld. CIT (A) that initiation of reopening proceedings in the present case was barred under the proviso to Section 147 of the Act Decided in favor of Assessee.

Issues Involved:

1. Validity of reassessment proceedings under Section 147/143(3) of the Income-tax Act, 1961.
2. Allegation of failure to disclose material facts fully and truly by the assessee.
3. Applicability of the proviso to Section 147 of the Income-tax Act, 1961.
4. Examination of whether the reassessment was based on a change of opinion.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147/143(3):

The Revenue challenged the first appellate order, claiming that the Commissioner of Income-tax (Appeals) erred in quashing the assessment proceedings initiated under Section 147/143(3). The original assessment was completed on 17th March 2006, accepting a declared loss of Rs. 6,02,50,937/-. A notice for reopening the assessment was issued on 12th March 2010. The assessee objected, arguing that the notice was issued after four years from the end of the assessment year, making it invalid under the proviso to Section 147. The Assessing Officer (AO) rejected the objections and framed the reassessment, adding certain expenditures.

2. Allegation of Failure to Disclose Material Facts Fully and Truly:

The assessee contended that all primary material facts were disclosed during the original assessment. The AO had accepted the claimed provisions for warranty and bad debts. The CIT(A) agreed, stating that the reassessment was invalid as there was no failure on the part of the assessee to disclose fully and truly all material facts. The reasons recorded for reopening were based on the balance sheet furnished with the return of income, and no new material had surfaced after the original assessment.

3. Applicability of the Proviso to Section 147:

The proviso to Section 147 stipulates that no action shall be taken after four years from the end of the relevant assessment year unless the income chargeable to tax has escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The reassessment proceedings were initiated after the expiry of four years. The Tribunal examined whether there was a failure on the part of the assessee to disclose all material facts. It was found that the AO had raised queries on the claimed bad debt and provisions during the original assessment, and the assessee had duly responded. Thus, there was no failure to disclose material facts.

4. Examination of Whether the Reassessment was Based on a Change of Opinion:

The Tribunal noted that the AO had accepted the assessee's submissions on the provisions for warranty and bad debts during the original assessment. The reasons for reopening were based on the balance sheet, and no fresh material had emerged. The Tribunal referred to various judicial precedents, including the case of CIT vs. Kelvinator of India Ltd., where it was held that reassessment based on a change of opinion is not permissible. The Tribunal concluded that the reopening was indeed due to a change of opinion, which is not valid under the proviso to Section 147.

Conclusion:

The Tribunal upheld the CIT(A)'s decision, quashing the reassessment proceedings as invalid. It was determined that the reassessment was barred by the proviso to Section 147, as there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The appeal by the Revenue was dismissed.

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