2015 (7) TMI 680 - AT - Income Tax

Validity of Reopening of assessment - whether CIT(A) erred in confirming the disallowance of compensation charges of ₹ 11,00,000/- paid to Bhairav metals considering that the same is not an expense of current year and holding that the same could be an advance or debit? - Held that - The issue regarding debit of ₹ 11.00 lacs to the P&L Account was duly enquired into by the AO vide notice issued to explain several expenses debited to P&L Account. The detailed reply was submitted by the assessee to the AO alongwith documentary evidences to explain that the claim of the assessee regarding ₹ 11.00 lacs was legitimate claim. After considering those evidences the AO did not make any addition. In view of those evidences it can be said that AO had formed the opinion for not making addition of ₹ 11.00 lacs during the course of original assessment proceedings. Subsequently, based on the same evidence, which was produced by the assessee to contend that no addition was called for, re-assessment proceedings were initiated, which is clearly as a result of change of opinion and cannot be approved in the light of decision of Hon ble Bombay High Court in the case of GKN Sinter Metals Ltd. vs. ACIT (2015 (1) TMI 832 - BOMBAY HIGH COURT ). Accordingly, accepting the arguments of Ld. AR that reassessment proceedings were not validly initiated - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 and issuance of notice under Section 148 of the Income Tax Act.
2. Disallowance of compensation charges of Rs. 11,00,000/- paid to Bhairav Metals.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment:
The primary issue revolves around whether the reopening of the assessment under Section 147 and the issuance of notice under Section 148 were justified. The assessee argued that the initiation of reassessment proceedings was based on a "change of opinion," which is not permissible under the law. The original assessment was completed under Section 143(3) on 26/12/2007, where the Assessing Officer (AO) had already raised queries regarding the impugned addition of Rs. 11,00,000/- and the assessee had provided detailed replies and evidence. The AO did not make any addition on this issue in the original assessment.

The assessee's representative cited the case of GKN Sinter Metals Ltd. vs. ACIT, where the Bombay High Court held that if the AO had raised queries and was satisfied with the assessee's explanations during the original assessment, reopening the assessment on the same grounds would amount to a change of opinion. The court emphasized that the power to reassess is not a power to review the original assessment.

The Tribunal agreed with the assessee's argument, noting that the AO had indeed formed an opinion during the original assessment and that the reassessment proceedings were initiated based on the same evidence already considered. Therefore, the reassessment proceedings were deemed invalid due to the change of opinion, and Ground No.1 filed by the assessee was allowed, quashing the impugned assessment order.

2. Disallowance of Compensation Charges:
Since the reassessment proceedings were held to be invalid, the Tribunal did not need to address the second issue regarding the disallowance of compensation charges on merit. The Tribunal stated that Ground No.2 does not survive as the reassessment itself was invalid.

Conclusion:
The appeal filed by the assessee was allowed, and the reassessment order was quashed. The Tribunal concluded that the reassessment proceedings were initiated based on a change of opinion, which is not permissible under the law. Consequently, the issue of disallowance of compensation charges was not addressed on merit. The order was pronounced on 03/07/2015.