2014 (8) TMI 765 - AT - Income Tax

Reopening of assessment u/s 147 Jurisdiction of AO to issue notice u/s 148 Mere change of opinion - Reopening based on audit objection Held that - No new material or information has come into the possession of the AO which may be called as reason for the belief of the AO that income of the assessee has escaped assessment - Mere change of opinion cannot be said to be reason to belief for the AO that income of the assessee has escaped assessment relying upon Asian Paints Ltd. Vs. DCIT 2008 (7) TMI 237 - BOMBAY HIGH COURT - The reopening was done by the AO based on the same facts and circumstances especially on the basis of letter which was submitted by the assessee itself at the time of assessment proceedings u/s 143(3) of the Act and was duly considered and reproduced in the original assessment proceedings - it was a merely change of opinion of AO and cannot be said to be a valid reason, information material or belief which would justify reopening thus, reopening of assessment was bad in law and is liable to be set aside Decided in favour of Assessee.

Summary

Issues involved:
1. Reopening of assessment under section 147 of the Income Tax Act.
2. Disallowance and capitalization of interest.

Issue 1: Reopening of assessment under section 147 of the Income Tax Act:

The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the assessment year 2006-07. The assessee challenged the reopening of the assessment by the Assessing Officer under section 147 of the Act. The reasons for reopening were based on the letter submitted by the assessee during the original assessment proceedings under section 143(3). The AO formed a fresh opinion solely based on the same letter, which had already been considered in the original assessment order. The Hon'ble Bombay High Court precedent established that mere change of opinion is not a valid reason for reopening an assessment. The AO's action was deemed a change of opinion, not a valid ground for reopening. Consequently, the reopening was held to be bad in law and was set aside, leading to the allowance of ground No.1 in the assessee's appeal.

Issue 2: Disallowance and capitalization of interest:

The assessee contested the disallowance of a specific amount of interest attributable to a particular unit under section 36(1)(iii) of the Act and its capitalization. The AO disallowed the interest based on the belief that it was not to be allowed as a deduction according to the proviso under section 36(1)(iii) of the Act. However, since the reopening of the assessment was deemed bad in law and set aside, the issue of disallowance and capitalization of interest did not require adjudication and was considered academic in nature. Consequently, the appeal of the assessee was allowed based on the decision regarding the reopening of the assessment.

In conclusion, the appellate tribunal's judgment in the case addressed the issues of reopening the assessment under section 147 of the Income Tax Act and the disallowance and capitalization of interest. The decision highlighted the importance of valid reasons for reopening an assessment and the impact it had on subsequent issues raised in the appeal.