2017 (11) TMI 1737 - AT - Income Tax

Reopening of assessment - Addition on account of change in accounting policy with respect to recovery of non-performing advance where assessee has filled suits decree or compromised accountsbonafide belief - Held that - Reopening is with respect to reappraisal of the notes on accounts of the assessee which was there at the time of original assessment also. The bank has disclosed all material facts to the LD AO at the time of original assessment. There was no failure on the part of the assessee to disclose fully and truly material fact of the computation of total income. This stand of the assessee is also supported by the order of the Hon ble Supreme Court in case of CIT Vs. Corporation Bank 1999 (2) TMI 16 - SUPREME COURT . Thus assessee has not failed to disclose fully and truly the material facts Addition on account of change in method appropriating partial recovery with respect to NPA account where suits filed or accounts are compromised - Held that - In the present case the revenue has failed to establish that how the change in the method of accounting is not permissible. The finding of fact which was arrived at by the Commissioner (Appeals) was that the change in the method of accounting was bona fide and it has been followed regularly and consistently. The changed method has been held to be a better method for preparing and presenting financial statements of income of the assessee. DR could not show us any reason that the change in the method of accounting is detrimental to the interest of the Revenue. DR also could not controvert that the change was bona fide and consistently followed after the year in which it was changed - addition of 10.43 crores on account of change in method appropriating partial recovery with respect to NPA account where suits filed or accounts are compromised to be deleted - Appeal decided against revenue.

Summary

Issues Involved:
1. Reopening of assessment u/s 147/143(3) by LD CIT (A)
2. Addition of ?10.43 crores due to change in accounting policy

Analysis:

Issue 1: Reopening of assessment u/s 147/143(3) by LD CIT (A)

The case involved an appeal filed by the Revenue against the order of the LD CIT (A)-7, New Delhi for the Assessment Year 2006-07. The Revenue challenged the quashing of the reassessment order u/s 147/143(3) by the LD CIT (A). The LD AO had issued a notice u/s 148 beyond four years from the end of the assessment, resulting in an assessed income of ?37.28 crores. The LD CIT (A) quashed the reopening, citing the decision of the Hon'ble Supreme Court in a similar case, emphasizing that there was no failure on the part of the assessee to disclose material facts. The Hon'ble Supreme Court's judgment in CIT Vs. Corporation Bank supported the assessee's stand. The Tribunal dismissed the Revenue's appeal, upholding the quashing of the reopening.

Issue 2: Addition of ?10.43 crores due to change in accounting policy

The Revenue contested the deletion of the addition of ?10.43 crores by the LD CIT (A) on account of a change in accounting policy. The LD CIT (A) found that the change in policy was bonafide and consistently followed by the assessee, bringing uniformity in appropriation of recovery in all NPA accounts. The Revenue failed to establish that the change in accounting method was impermissible. The Tribunal noted that the choice of accounting method lies with the assessee, provided it aligns with accounting principles. As the Revenue could not prove any detriment to their interest due to the change, the Tribunal upheld the deletion of the addition. Consequently, the appeal of the Revenue was dismissed.

In conclusion, the Tribunal upheld the decisions of the LD CIT (A) regarding both the reopening of assessment and the deletion of the addition, emphasizing the importance of disclosing material facts and the permissibility of accounting method changes in alignment with accounting principles.