2014 (11) TMI 652 - AT - Income Tax

Scope of Explanation 1 to Section 147 scope of term amounts to disclosure Change of opinion Principle of consistency - Whether the CIT(A) erred in ignoring Explanation 1 to Section 147 wherein production before the AO of account books or other evidence from which material evidence could, with due diligence, have been discovered by the AO will not necessarily amount to disclosure within the meaning of the foregoing proviso Held that - The AO has reopened the assessment u/s. 147 of the Act by issuing notice u/s. 148 on 27.3.2012, which is after expiry of four years from the end of the AY - the assessment had been reopened by the AO for the reason that the business expenditure claimed by assessee is not allowable as according to him income derived by assessee from interest is to be assessed as income from other sources and not as business income. So far as the other reason viz., discrepancy between the interest income shown by assessee and as appearing in the TDS certificate, as per the AO s own observation there is no such discrepancy - it needs to be examined whether there is failure on the part of assessee to disclose fully and truly all material facts which could have enabled the Assessing Officer to reopen the assessment beyond four years - assessee in the return of income as well as statement of accounts has not only disclosed the sources of income earned by it but has also shown the expenditure claimed - there are no other additional information or fresh materials on record on the basis of which the AO has formed his belief that income has escaped assessment - Only on the basis of information and materials furnished by assessee himself which was considered at the time of original assessment, the AO has reopened the assessment by coming to a different opinion that interest earned by assessee has to be assessed under the head income from other sources and not as business income. This is only a change of opinion by the AO on re-appreciation of same set of facts and materials considered at the time of original assessment - reopening of assessment on a mere change of opinion would amount to review of earlier order passed by the AO which is not permissible under the Act - the AO cannot treat the income in a different manner contrary to the system of accounting followed by assessee consistently over the years - assessee has disclosed all material facts in the return of income filed by it as well as during the scrutiny assessment proceedings - there being no failure on the part of assessee to disclose fully and truly all material facts, reopening of assessment beyond the period of four years, is without jurisdiction and legally invalid the order of the CIT(A) is upheld Decided against revenue.

Summary

Issues:
1. Validity of reopening assessment u/s. 147 beyond four years.
2. Treatment of interest income as income from business or other sources.
3. Allowability of claimed business expenditure.

Issue 1: Validity of reopening assessment u/s. 147 beyond four years:
The Department appealed against the CIT(A)'s order allowing the assessee's appeal for the assessment year 2006-07. The Department contended that the CIT(A) erred in ignoring Explanation 1 to Section 147, which states that production of account books or evidence not necessarily amounts to disclosure. The CIT(A) based the decision on the Hon'ble Supreme Court's judgment in CIT vs. Kelvinator of India Ltd., emphasizing that reopening an assessment should not be a mere change of opinion but based on new material. The CIT(A) found that the Assessing Officer's decision to reopen the assessment was a change of opinion without new information, rendering it invalid beyond four years.

Issue 2: Treatment of interest income as income from business or other sources:
The Assessing Officer reopened the assessment based on the view that the interest income earned by the assessee should be treated as income from other sources, not business income. The CIT(A) analyzed the facts and materials, concluding that the Assessing Officer's change in opinion without fresh information was impermissible. The CIT(A) noted that the assessee consistently treated interest income as business income, following the same method since inception. The Tribunal found that the Assessing Officer's differing treatment of income contradicted the assessee's consistent accounting practice, leading to the dismissal of the Department's appeal.

Issue 3: Allowability of claimed business expenditure:
The Department argued that the claimed business expenditure was wrong as the assessee did not have income under the business head. However, the assessee maintained that its accounting method treated interest income as business income, accepted by the Department previously. The Tribunal found that the Assessing Officer's decision to disallow the claimed expenditure was based on a change of opinion without new material. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had fully disclosed all material facts, making the reopening of assessment beyond four years legally invalid.

In conclusion, the Tribunal dismissed the Department's appeal, affirming the CIT(A)'s decision based on the lack of failure to disclose material facts by the assessee and the impermissible change of opinion by the Assessing Officer.