2013 (11) TMI 809 - AT - Income Tax

Reopening of assessment u/s 147 - Notice u/s 148 - Bar of limitation - Held that - The assessment was reopened after expiry of four years from the relevant assessment year. Therefore, the proviso to sec. 147 is applicable on this case. The mandatory condition for reopening of the assessment after the expiry of 4 years from the end of the Assessment Year is that there is failure on the part of the assessee to disclose fully and truly all the relevant material facts necessary for the assessment - It is clear from the reasons given in the reassessment order that the assessment was reopened on two grounds i.e. method of accounting and non admission of rental income. As regards the method of accounting is concerned, the Assessing Officer has duly accepted the profit on work-in-progress declared by the assessee in the original assessment as well as in the subsequent years. Thus, it is clear that the assessee has been following the percentage completion project method of accounting and accordingly declaring the profit. In the original assessment order passed u/s 143(3), the Assessing Officer has duly recorded and acknowledged the facts that the assessee is declaring profit of work-in-progress method. Therefore, undoubtedly there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment on this issue. As regards the non offering of rental income is concerned, the Assessing Officer has recorded in the reasons that the assessee has shown the bungalows in question in the balance sheet and no new material or information came to the knowledge of the Assessing Officer after the completion of the assessment u/s 143(3). The Assessing Officer accepted the fact that the assessee has already shown the rental income in the P&L account. Therefore, the reasons regarding reopening on this issue is vague so far as the rental income in respect of the bungalow at Belapur has been duly offered to tax by the assessee as the same was shown as income in the P&L account. Thus, the reasons for reopening on this issue is contrary to the fact that has already existed on record. Thus, in the absence of any new tangible material as well as failure on the part of the assessee to disclose duly and truly all material necessary for assessment, the reopening on this issue is not permissible after expiry of four years as the same is hit by the proviso to sec. 147 of the act. The Commissioner of Income Tax(Appeals) has already decided this issue in favour of the assessee subject to verification. Hence, both the issues on merit were decided in favour of the assessee by the CIT(A). Therefore, the reopening on such issue is not sustainable, particularly in the facts of the present case - Decided in favour of assessee.

Issues Involved:
1. Validity of reopening the assessment under Section 147 by issuing notice under Section 148.
2. Method of accounting adopted by the assessee.
3. Non-admission of rental income from properties.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147 by Issuing Notice under Section 148:
The assessee challenged the reopening of the assessment by the Assessing Officer (AO) on the grounds that it was barred by limitation and lacked any new tangible material. The original assessment was completed under Section 143(3) on 24.3.2004, and the reassessment was initiated by a notice under Section 148 on 5.2.2007. The assessee argued that the notice under Section 148 was issued after the expiry of four years from the end of the relevant assessment year, which is not permissible unless there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Tribunal noted that the AO did not bring out anything on record to show that any income chargeable to tax had escaped assessment due to the failure of the assessee to disclose material facts. The Tribunal held that the reopening after four years is not valid for want of the conditions prescribed under the proviso to Section 147.

2. Method of Accounting Adopted by the Assessee:
The assessee consistently followed the work-in-progress/percentage completion method of accounting, which was accepted by the AO in the original assessment as well as for subsequent assessment years. The reassessment was based on the order under Section 263, which was later reversed by the Tribunal. The CIT(A) directed the AO to accept the method of accounting declared by the assessee, following the Tribunal's decision. The Tribunal upheld the CIT(A)'s decision, noting that the method of accounting was consistently followed and accepted in previous assessments, and reopening on this issue was not sustainable as it was based on a change of opinion.

3. Non-Admission of Rental Income from Properties:
The reassessment was also based on the non-admission of rental income from two bungalows. The AO noted that no rental income was shown from these properties, and computed the Annual Letting Value (ALV) under Section 23(1)(a). The assessee claimed that one of the bungalows was used as a Guest House and office, and the rental income from the other property was already declared in the Profit & Loss account. The Tribunal found that the reasons for reopening on this issue were vague and contrary to the facts on record. It was held that in the absence of any new tangible material and failure on the part of the assessee to disclose material facts, the reopening on this issue was not permissible after the expiry of four years.

Conclusion:
The Tribunal held that the reopening of the assessment after four years was not valid due to the lack of new tangible material and failure on the part of the assessee to disclose material facts. The method of accounting adopted by the assessee was consistently followed and accepted in previous assessments, and the reassessment on this issue was not sustainable. The non-admission of rental income was found to be contrary to the facts on record, and the reopening on this issue was also not permissible. Consequently, the appeal of the assessee was allowed, and the appeal of the revenue was dismissed.

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