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2014 (12) TMI 3 - AT - Income TaxValidity of reopening of assessment u/s 147 failure on the part of assessee to disclose fully and truly all material facts or not - Held that - Assessee has not only filed its return of income for the AYs as per section 139, but also, assessments in case of assessee have been completed u/s 143(3) of the Act - at least for the AYs 2002-03 and 2003-04, the first proviso to section 147 comes into play as the reopening of assessment in case of assessee has been made after expiry of four years from the end of the relevant AYs - there is no allegation made by AO that alleged escapement of income is attributable to failure on the part of assessee to disclose fully and truly all material facts required for his assessment for the AYs under consideration - assessee is consistently following the same accounting policy so far as debiting the differential amount of interest payable to IDBI and IFCI to the interest suspense account - assessee has made full and true disclosure of all material facts relating to the reduction of interest and transferring it to the interest suspense account - it cannot be said that there is failure on the part of assessee in disclosing fully and truly all material facts for his assessment which could have enabled the AO to reopen assessment after expiry of four years from the end of the relevant AYs - in the reasons recorded also, AO has neither made any allegation that there is failure on the part of assessee in making full and true disclosure of material facts for his assessment nor he has specifically pointed out the issues/subjects on which according to AO, assessee has not made full and true disclosures the reopening of assessment beyond four years from the end of relevant AY is in violation of provision contained u/s 147 read with first proviso - For this reason alone, initiation of proceeding at least for the AYs 2002-03 and 2003-04 is without jurisdiction and consequently assessment order passed is void ab-initio Decided in favour of assessee.
Issues Involved:
1. Validity of proceedings initiated under Section 147 of the Income Tax Act. 2. Disallowance of interest on the suspense account. Issue-Wise Detailed Analysis: 1. Validity of Proceedings Initiated Under Section 147: The primary issue was the validity of the proceedings initiated under Section 147 of the Income Tax Act. The assessee challenged the reopening of assessments on the grounds that all necessary information had been disclosed during the original assessment, and the reopening was based on a change of opinion, which is not permissible under the law. Facts and Arguments: - The assessee, a company engaged in the manufacture and sale of white crystal sugar, filed its returns declaring losses and the assessments were completed under Section 143(3). - The Assessing Officer (AO) reopened the assessments based on the information that the assessee had not offered an amount of Rs. 59.30 lakhs to tax, which was debited to the interest suspense account. - The AO argued that the amount was a liability on capital account and not on revenue account, and even if considered a revenue liability, it was not allowable under Section 43B(d) as no payment was made to financial institutions during the year. CIT(A) Observations: - The CIT(A) rejected the assessee's contentions, stating that there was no full and true disclosure of all material facts necessary for the assessment year 2002-03. - The CIT(A) noted that the information regarding the interest suspense account was not adequately disclosed in the audit report or the statement of total income. Tribunal's Analysis: - The Tribunal observed that the reopening of assessments after four years from the end of the relevant assessment years is permissible only if there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. - The Tribunal found that the assessee had made full and true disclosures in the final accounts, notes to accounts, and computation of income for the relevant assessment years. - The AO's reasons for reopening were based on the same facts and materials that were available during the original assessments, indicating a mere change of opinion. - The Tribunal cited the Supreme Court's decision in CIT Vs. Kelvinator of India Ltd., which held that reopening on a mere change of opinion is not permissible unless there is tangible material indicating escapement of income. Conclusion: - The Tribunal concluded that the reopening of assessments for the assessment years 2002-03 and 2003-04 was invalid as it was beyond four years and there was no failure on the part of the assessee to disclose material facts. - For the assessment years 2004-05 and 2005-06, the Tribunal also found the reopening invalid as it was based on the same facts and materials considered during the original assessments. - The assessment orders passed in pursuance to the reopening under Section 147 were quashed. 2. Disallowance of Interest on the Suspense Account: The second issue was the disallowance of interest on the suspense account. The AO had disallowed the interest on the grounds that it was a liability on capital account and not on revenue account, and even if considered a revenue liability, it was not allowable under Section 43B(d). Arguments by Assessee: - The assessee argued that the interest on the suspense account was disclosed in the annual reports and computation of income. - The assessee contended that the AO had examined the issue during the original assessments and had accepted the accounting treatment. Tribunal's Analysis: - The Tribunal noted that the assessee had consistently followed the same accounting policy for debiting the differential interest to the interest suspense account. - The Tribunal observed that the AO had examined the issue during the original assessments and had accepted the accounting treatment. - The Tribunal found that the reopening was based on a mere change of opinion and there was no new tangible material indicating escapement of income. Conclusion: - The Tribunal did not find it necessary to go into the merits of the disallowance as the assessment orders were quashed on the legal issue of reopening under Section 147. Final Judgment: The Tribunal allowed the appeals of the assessee, quashing the assessment orders for all the relevant assessment years on the grounds that the reopening of assessments under Section 147 was invalid. The Tribunal pronounced the judgment in the open court on 26th November 2014.
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