2014 (1) TMI 947 - AT - Income Tax

Validity of re-opening of assessment u/s 147 of the Act Expenses claimed as broken period interest deduction allowed u/s 36(1)(vii) of the Act Held that - Re-openings were done after the end of four years for the impugned assessment years. Therefore, the first proviso to Section 147 will squarely apply - It is required for the Revenue to show that there was failure on the part of the assessee to disclose fully and truly material facts necessary for the assessment - Reopening for assessment year 1989-90 was done for a reason that CBDT circular was not correctly followed by the A.O. with regard to the claim of bad debts under Sections 36(1)(vii) and 36(1)(viia) of the Act - Both these cannot be considered as arising on account of any failure on the part of the assessee to disclose fully and truly material facts necessary for the assessment - Both these also cannot be construed as on account of any evidence which could not come to the notice of the Assessing Officer for want of due diligence. The decision in CIT v. Kelvinator India Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA followed - unless and until tangible materials are available with Assessing Officer, and failure of the assessee to fully and truly disclose material particulars necessary for assessment is established, reopening could not be done after the expiry of a period of four years from the end of the assessment year - thus, reopening done for both of the years was not valid Decided in favour of Assessee.

Summary

Issues:
Reopening of assessments for assessment years 1986-87 and 1989-90 based on subsequent judicial decisions and circulars.

Analysis:
1. The appeals were filed against orders passed by the Commissioner of Income Tax (Appeals)-III, Chennai, for the assessment years 1986-87 and 1989-90. The assessee challenged the reopening of assessments, which the CIT(Appeals) did not address initially. The Tribunal previously remitted the issue of the validity of reopening back to the CIT(Appeals) for consideration.

2. The reasons recorded for reopening the assessment for 1986-87 were related to the treatment of broken period interest expenses based on a Supreme Court decision. For 1989-90, the reopening was due to the interpretation of bad debts provisions and a CBDT circular. The assessee argued that there was no failure to provide necessary information during the original assessments.

3. The CIT(Appeals) justified the reopening based on subsequent judicial decisions and the internal audit party's information. The CIT(Appeals) relied on court decisions to support the validity of the re-openings.

4. During the Tribunal proceedings, the assessee contended that the re-openings were done after four years without evidence of failure to disclose material facts. The assessee argued against the validity of the re-openings based on judicial interpretations and the CBDT circular.

5. The Tribunal analyzed the legal precedents cited by both parties. It noted that the re-openings were not valid as they were done after four years without tangible evidence of failure to disclose material facts. The Tribunal emphasized the importance of tangible materials for reopening assessments after the prescribed time limit.

6. Consequently, the Tribunal quashed the reassessments for both years, ruling in favor of the assessee. The appeals filed by the assessee were allowed, and the orders were pronounced in Chennai on July 18, 2013.