2016 (10) TMI 1237 - AT - Income Tax

Re opening of the assessment u/s 147 - addition u/s 14A - mere change of opinion - reopening on the basis of audited account of the assessee which were not only available at the time of original assessment - Held that - This issue having already merged with the order of the Commissioner (Appeals) cannot be a subject matter of re opening. Further, it is evident from the reasons recorded that the re opening of assessment is on the basis of audited account of the assessee which were not only available at the time of original assessment but the Assessing Officer in the course of original assessment proceedings, had examined the accounts of the assessee and the nature of receipts and expenditure also. Therefore, the issue having already been examined at the time of original assessment and there being no fresh material before the Assessing Officer the re opening of assessment on re appreciation / reappraisal of the very same material considered at the time of original assessment amounts to re opening on a mere change of opinion, hence, invalid. Further, from the office note available in the assessment order it appears that the assessment was re opened only due to the revenue audit objection. Therefore, there is also lack of application of mind by the Assessing Officer while recording reasons for re opening of assessment and on this count also, the re assessment is invalid. Thus, no reason to interfere with the order of the learned Commissioner (Appeals) on the issue. - decided against revenue

Issues Involved:
1. Validity of re-opening of assessment under section 147 of the Income Tax Act, 1961.
2. Allowability of expenditure on developmental activities.

Detailed Analysis:

1. Validity of re-opening of assessment under section 147 of the Income Tax Act, 1961:

The Department's grounds of appeal challenged the decision of the Commissioner (Appeals) who held the re-opening of assessment under section 147 as invalid. The brief facts reveal that the assessee, a Government of India Undertaking, had its original assessment completed under section 143(3). However, the Assessing Officer (AO) subsequently re-opened the assessment on the grounds that income had escaped assessment due to certain expenditures being added back to the profit.

The Commissioner (Appeals), after considering the submissions and judicial precedents, held the re-opening invalid for several reasons:
- The AO did not dispose of all objections raised by the assessee against the re-assessment proceedings.
- The issue of allowability of expenditure had already been considered in the original assessment and by the first appellate authority, thus it could not be re-opened.
- The re-opening was based merely on an audit objection without any fresh material, amounting to a change of opinion.

The Tribunal agreed with these findings, emphasizing that the AO had examined the nature of receipts and expenditures in detail during the original assessment. The Tribunal also noted that the AO had failed to dispose of the assessee's objections before completing the re-assessment, which is a mandatory requirement as per the Supreme Court's decision in GKN Drive Shafts India Ltd. v/s ITO. Consequently, the re-assessment was deemed invalid.

2. Allowability of expenditure on developmental activities:

The original assessment proceedings had involved scrutiny of the assessee's expenditures related to developmental activities. The AO had initially disallowed an amount under section 14A, which was later deleted by the Commissioner (Appeals) on the grounds that the expenditures were allowable under section 36(1)(xii) considering the assessee's objectives.

Upon re-opening, the AO again disallowed the expenditures, but the Commissioner (Appeals) reiterated that the expenditures were allowable, following the earlier appellate decision which had attained finality. The Tribunal upheld this view, noting that the issue had already been examined and adjudicated in the original assessment and appeal proceedings. The Tribunal concluded that the re-opening based on the same material without any new evidence amounted to a change of opinion, which is not permissible.

Conclusion:

The Tribunal dismissed the Department's appeal, upholding the Commissioner (Appeals)'s decision that the re-opening of assessment was invalid. The Tribunal also dismissed the assessee's cross objection as infructuous in light of the main decision. Thus, the re-assessment was quashed, and the original appellate decision on the allowability of expenditures was maintained.

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