2015 (12) TMI 288 - AT - Income Tax

Reopening of assessment - whether advance was not a trading liability - cessation of liability - Held that - Assessing officer did not invoke the provision of section 41(1) in the original assessment proceedings after being fully satisfied with the reply filed by the asseessee. Therefore, on the basis of same facts, without having any fresh tangible material, solely on the basis of audit objection, the invocation of provision of section 147 was not justified and was solely on the basis of change of opinion. As decided in DCIT & Anr. vs.- Vikas Sharma reported in (2015 (3) TMI 600 - ITAT CHANDIGARH) Reasons recorded are based on same facts/information as was available on record, when the original assessment proceedings were conducted, that too after enquiry, since complete facts were available with the department and no new facts came into existence, reopening of assessment on identical facts is clearly a case of change of opinion and not sustainable. - Decided in favour of assessee.

Summary

Issues:
Reopening of assessment based on audit objection under section 147 of the Income Tax Act, 1961.
Treatment of advance received as income due to alleged cessation of liability under section 41(1) of the Income Tax Act, 1961.
Charging of interest under sections 234B and 234D.

Reopening of Assessment:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the reopening of assessment under section 147 of the Income Tax Act, 1961 based on an audit objection. The Commissioner upheld the Assessing Officer's action, stating that the audit objection was a valid reason for reopening the assessment. However, the Tribunal found that the Assessing Officer did not invoke section 41(1) during the original assessment proceedings, and the reopening was solely based on a change of opinion without fresh tangible material. Citing a previous ITAT judgment, the Tribunal held that reopening the assessment on identical facts without new information amounted to a change of opinion and was not sustainable. Consequently, the Tribunal set aside the Commissioner's order and allowed the assessee's appeal.

Treatment of Advance Received:
The case involved treating an advance of Rs. 50,00,000 received by the assessee as income due to the alleged cessation of liability under section 41(1) of the Income Tax Act, 1961. The Commissioner confirmed the addition made by the Assessing Officer, considering the advance as income. However, the assessee contended that the advance was not a trading liability, was never claimed as expenditure in previous years, and there was no cessation of liability. The Tribunal, after reviewing the facts and submissions, found that the Assessing Officer did not apply section 41(1) during the original assessment despite being satisfied with the assessee's explanations. Therefore, the Tribunal held that treating the advance as income was not justified and allowed the assessee's appeal on this ground.

Charging of Interest:
One of the grounds raised in the appeal was related to the charging of interest under sections 234B and 234D. The Tribunal did not provide a detailed analysis of this issue in the judgment, but it was mentioned that the Commissioner's order was set aside, and the assessee's appeal was allowed in its entirety. Therefore, it can be inferred that the Tribunal may have found merit in the assessee's argument regarding the charging of interest and decided in favor of the assessee.

In conclusion, the Appellate Tribunal ITAT Kolkata, in its judgment, addressed the issues of reopening the assessment based on an audit objection, treating an advance received as income under section 41(1), and the charging of interest under sections 234B and 234D. The Tribunal found that the reopening of the assessment was unjustified as it was solely based on a change of opinion without fresh tangible material. Additionally, the Tribunal held that treating the advance as income was not valid as there was no trading liability or cessation of liability. The appeal was allowed in favor of the assessee on all grounds, emphasizing the importance of proper application of tax laws and procedures.