2014 (1) TMI 930 - AT - Income Tax

Validity of reopening of assessment u/s 147 of the Act wrong claim of deduction made u/s 80HHC of the Act Royalty derived from export business or not Held that - All the facts relating to the mining franchise fees and deduction claimed u/s 80HHC of the Act were before the AO at the time of original assessment proceeding and the AO after applying his mind to the facts and materials on record has taken conscious decision while calculating deduction u/s 80HHC thus, it cannot be said that there is any failure on the part of the assessee to disclose truly and fully all the material facts necessary for its assessment - Even otherwise also there is nothing on record to suggest that escapement of income, if at all, there is any, was on account of failure on the part of the assessee to disclose fully and truly all material facts. Reopening of assessment on the basis of the self-same material, which were considered by the AO while completing original assessment would amount to change of opinion and the assessment order passed has to be held as invalid in law Thus initiation of proceeding u/s 147 of the Act and the assessment order passed in cannot be considered to be valid firstly for the reason that there being no failure on the part of the assessee to disclose fully and truly all material facts, no reopening could have been made after expiry of 4 years from the end of the assessment year and secondly, there being no fresh and tangible material before the AO for initiating proceeding u/s 147 of the Act, initiation of proceeding on a mere change of opinion is invalid and bad in law Decided against Revenue.

Summary

Issues:
1. Validity of reopening assessment u/s 147 of the Act after 4 years.
2. Failure on the part of the assessee to disclose all material facts necessary for assessment.

Analysis:
1. The appeal was against the order of CIT(A)-III, Hyderabad, for the assessment year 2003-04, where the department challenged the reopening of assessment u/s 147. The AO reopened the assessment due to the disallowed claim of mining franchise fees and deduction u/s 80HHC. The CIT(A) held the reassessment proceeding null and void, stating that there was no failure on the part of the appellant to disclose all material facts necessary for assessment. The CIT(A) emphasized that the AO had recomputed the deduction u/s 80HHC during the original assessment, and no new information had emerged post-assessment to warrant reopening. The CIT(A) concluded that the notice u/s 148 was not in order, annulling the assessment based on it.

2. The assessee contended that all relevant facts regarding mining franchise fees and deduction u/s 80HHC were disclosed during the original assessment. The AO had thoroughly considered these aspects and made adjustments accordingly. The Tribunal observed that the AO had no fresh tangible material to justify the reassessment, which appeared to be a mere change of opinion. The Tribunal noted that the AO's decision to reopen the assessment solely based on the correctness of the deduction u/s 80HHC, without new material, was invalid. The Tribunal upheld the CIT(A)'s decision, emphasizing the absence of failure on the part of the assessee to disclose all material facts necessary for assessment.

3. Section 147 of the Act allows the AO to reopen an assessment if income has escaped assessment, subject to certain conditions. In this case, the reassessment was initiated beyond the 4-year limit from the end of the assessment year. The Tribunal found that the assessee had provided all relevant information during the original assessment, and the AO's decision to reassess based on the same information was deemed a change of opinion. Therefore, the Tribunal dismissed the revenue's appeal, confirming the CIT(A)'s decision to declare the reassessment null and void.

4. The Tribunal's decision highlighted the importance of full and accurate disclosure of material facts by the assessee during the assessment process to prevent arbitrary reassessment based on the same information already considered by the AO. The judgment underscored the legal requirement for fresh and tangible material to justify reopening an assessment beyond the statutory time limit, ensuring procedural fairness and preventing abuse of authority by tax authorities.