2015 (3) TMI 577 - HC - Income Tax

Reopening of assessment - excessive and bogus claim of labour charges - Held that - In this case, the labour charges paid by the Respondent for Assessment Year 2004-05 was subject matter of enquiry during the regular assessment proceedings. This enquiry was in the context of the fact that there were outstanding labour charges payable as was evidenced from the Respondent-Assessee's balance sheet filed along with return of income. A detailed enquiry was made into the labour charges and the same was responded by relating it to the quantum of work done. Thus, in the present facts, the Assessing Officer has considered the material available on record and formed an opinion holding that the labour charges have to be allowed. No further tangible material has been obtained in the following Assessment Year, warranting a reopening of assessment. Thus, the attempt to reopen the notice would be clear case of change of opinion as formed during the regular assessment proceedings and cannot be sustained. The contention urged by Revenue that as the Revenue's Appeal for the Assessment Year 200506 has been admitted, this appeal should also be admitted is not required to be considered. This is because, we find that the jurisdictional requirement of issuing the notice under Sections 147 and 148 of the Act is not satisfied. This is threshold issue and, therefore, the result of the Revenue's appeal for Assessment Year 2005-06 would not in any manner affect the requirement of jurisdictional satisfaction for issuing notice for reopening under Sections 147 and 148 of the Act. In view of the decision of this Court in NYK Line (India) Ltd. (2012 (2) TMI 283 - BOMBAY HIGH COURT ), no substantial questions of law arises for our consideration - Decided in favour of assessee.

Summary

Issues involved:
Challenging the order of the Income Tax Appellate Tribunal for Assessment Year 2004-05 regarding excessive and bogus claim of labour charges, reopening of assessment on the grounds of excessive claim of labour charges and unexplained source of capital introduced by partners, sustainability of the reopening of assessment, sufficiency of reasons for reopening, and consideration of the second aspect of the reasons recorded for reopening.

Detailed Analysis:

1. Excessive and Bogus Claim of Labour Charges:
The Tribunal dismissed the Revenue's appeal against the Commissioner of Income Tax (Appeals) order, holding that the reopening notice under Sections 147 and 148 of the Income Tax Act for the subject Assessment Year was unsustainable on merits. The Assessing Officer reopened the assessment for Assessment Year 2004-05 based on excessive claim of labour charges and unexplained capital introduction by partners. The reasons for reopening cited the disallowance of labour charges in the subsequent year and unexplained capital introduced by partners as grounds for reassessment. The Tribunal found that the notice to reopen the assessment could not be sustained as it appeared to be a mere change of opinion, as the issue of labour charges had already been considered during regular assessment proceedings.

2. Reopening of Assessment on Labour Charges and Capital Introduction:
The Tribunal held that the reopening notice was not valid as it seemed to be based on a change of opinion rather than new material. The Revenue argued that material obtained during subsequent assessment years, showing excessive deduction of labour charges, justified the reopening. However, the Tribunal found that the Assessing Officer had already considered the issue of labour charges during regular assessment proceedings, and no new tangible material was presented to warrant reopening the assessment. The Tribunal emphasized that the power to reopen assessments must adhere to the principles laid down by the Supreme Court, requiring tangible material or new information, which was lacking in this case.

3. Sustainability of Reopening and Sufficiency of Reasons:
The Tribunal dismissed the Revenue's appeal, stating that the reopening notice lacked jurisdiction as it was based on a change of opinion rather than new material. The Tribunal highlighted that the Assessing Officer had already examined the labour charges issue during regular assessment proceedings, and no fresh material was presented for reopening. The Tribunal's decision was supported by a previous court ruling, emphasizing the need for tangible material or new information to justify reopening an assessment. The Tribunal concluded that the attempt to reopen the assessment was a clear case of change of opinion and could not be sustained.

4. Consideration of Second Aspect of Reasons for Reopening:
The Tribunal dismissed the second issue raised by the Revenue regarding the introduction of partners' capital account, as no submissions were made before the Tribunal on this matter. The Tribunal found that the Revenue did not raise this issue during the proceedings, and therefore, it was not considered in the impugned order. The Tribunal concluded that the second issue did not arise from the order, and hence, it was dismissed.

In conclusion, the High Court of Bombay upheld the Tribunal's decision to dismiss the Revenue's appeal, emphasizing the need for tangible material or new information to justify reopening an assessment. The Court found that the reassessment notice was based on a change of opinion rather than fresh material, and therefore, lacked jurisdiction. The Court highlighted the importance of adhering to legal principles when reopening assessments and dismissed the appeal accordingly.