2014 (8) TMI 69 - AT - Income Tax

Reopening of assessment u/s 147 r.w section 148 - Disclosure of facts - Held that - AO formed his opinion that the income had escaped assessment only on re-examination of the records and not from any other information or any new or additional fact coming to his knowledge Relying upon Assistant Commissioner of Income-Tax Versus Rajesh Jhaveri Stock Brokers P. Limited 2007 (5) TMI 197 - SUPREME Court - if to a set of facts and circumstances, the AO has applied his mind and he was of the belief that there was no escapement of income then for invoking the provisions of section 147 of the Act, he is precluded, on the basis of same facts and circumstances, to say that he has reason to believe that income of the assessee has escaped assessment - the AO had not come to a conclusion that the full disclosure of the facts was not made by the assessee or that the income had escaped assessment on account of failure or omission of the assessee to make a true and full disclosure of material facts - assessment was reopened after four years and the AO had not attributed any failure on the part of the assessee to disclose truly and fully the material which required disclosure for making assessment, the action of the AO in reopening the assessment u/s 143(3) r.w. section 147 suffered from lack of jurisdiction - the reopening of assessment u/s 147 is set aside Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of a concluded assessment
2. Disallowance of royalty expenditure

Issue 1: Reopening of a concluded assessment
The appeal was filed against the Commissioner of Income Tax (Appeals) order for assessment year 2003-04. The primary issue was the validity of reopening the assessment under section 147 of the Income Tax Act by the Assessing Officer (AO). The AO believed that income had escaped assessment due to under assessment of income related to royalty payments. The AO issued a notice under section 148 after the expiry of four years from the end of the relevant assessment year. The assessee argued that all necessary facts were disclosed during the original assessment, making the notice for reopening invalid. The CIT(A) upheld the AO's decision, stating that the royalty expenses were not clearly disclosed as revenue expenditure. However, the ITAT disagreed, citing the Supreme Court's ruling that reopening can only occur based on specific, reliable, and relevant information not disclosed previously. As the AO did not establish a lack of full disclosure by the assessee, the reopening was deemed to lack jurisdiction. The ITAT set aside the reopening of the assessment under section 147.

Issue 2: Disallowance of royalty expenditure
As the reopening of the assessment was set aside, the consequential reassessment order was deemed nonoperational. Therefore, the ITAT did not provide further adjudication on the merits of the disallowance of royalty expenditure. Consequently, the appeal of the assessee was allowed, and the consequential addition was directed to be deleted. The ITAT pronounced the order in the open court on 31.7.2014.