2015 (9) TMI 1642 - AT - Income Tax

Reopening of assessment - disallowance of loss on sale of assets - change of opinion - Held that - Re-assessment proceedings are liable to be quashed for the reason that the proceedings u/s 147 has been initiated merely on change of opinion. As already seen that while completing the original assessment the AO has made enquiries with regard to the details of loss on sale of assets and further the details of the customs duty on the plant & machinery debited by the assessee in P & L account as the asset was not existing during the year. Thus we notice that the assessing officer has applied his mind on the impugned issue and has taken a view. On perusal of the reasons recorded by AO for initiating the re-assessment proceedings we notice that the above said details were available while completing the assessment u/s 143(3). AO on a mere change of opinion has issued the notice for re-assessment. It is not permissible for the AO to resort to proceedings u/s 147 merely on change of opinion. We notice that the AO has reopened the assessment after expiry of four years from the end of the relevant assessment year. Hence it is imperative on the part of the assessing officer to show that the conditions specified in the first proviso to sec. 147 are complied with. However the AO has failed to show that there was failure on the part of the assessee to disclose fully and truly all material facts. We are of the view that the reassessment proceeding under section 147 has not been validly initiated because the same has been initiated merely on a change of opinion without any fresh material coming into the possession of the AO. We therefore hold that the reassessment proceedings are invalid and consequently the order of reassessment is quashed. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of reopening assessment under Section 147 of the Income Tax Act.
2. Allowability of loss on the sale of assets.

Issue-Wise Detailed Analysis:

1. Validity of Reopening Assessment under Section 147 of the Income Tax Act:

The appeal was filed by the revenue challenging the decision of the CIT(A) regarding the reopening of the assessment under Section 147. The assessee filed a cross-objection questioning the validity of the reopening. The original assessment was completed under Section 143(3) on 26.3.2002. The AO later noticed that the assessee claimed a loss on the sale of assets amounting to Rs. 2,65,78,977, which pertained to customs duty paid for Plant & Machinery sold in the assessment year 1993-94. The AO issued a notice under Section 148 on 29.3.2006 to disallow this claim.

The assessee argued that the reopening was done after four years from the end of the relevant assessment year, invoking the first proviso to Section 147. The AO did not prove any failure by the assessee to disclose fully and truly all material facts necessary for the original assessment. The assessee had provided detailed explanations during the original assessment proceedings, which the AO accepted without making any additions.

The revenue contended that the original claim was allowed under the belief of a contractual liability, which was later found to be non-existent. The Tribunal noted that the AO had asked specific questions about the loss on the sale of assets and customs duty during the original assessment, to which the assessee had responded in detail. The AO's reasons for reopening, communicated on 01-09-2006, did not indicate any new material but were based on a change of opinion.

2. Allowability of Loss on Sale of Assets:

The CIT(A) confirmed the validity of reopening but allowed the expenditure incurred by the assessee on payment of customs duty. The Tribunal referred to several judicial precedents, including the Delhi High Court's decision in Kelvinator India Ltd (320 ITR 561) and the Bombay High Court's decisions in CIT vs Gabriel India Ltd (203 ITR 1089) and Hindustan Lever Ltd vs ACIT (268 ITR 332). These cases established that reopening on the basis of a change of opinion is not permissible.

The Tribunal concluded that the AO had applied his mind to the issue during the original assessment, as evidenced by the detailed queries and responses. The reopening was based on the same material, indicating a mere change of opinion. Additionally, since the reopening was after four years, the AO failed to demonstrate any failure by the assessee to disclose fully and truly all material facts, as required by the first proviso to Section 147.

The Tribunal held that the reassessment proceedings were invalid and quashed the order of reassessment. Consequently, the issues raised by the revenue in its appeal were not adjudicated.

Conclusion:

The Tribunal dismissed the revenue's appeal and allowed the assessee's cross-objection, quashing the reassessment proceedings initiated under Section 147. The order was pronounced on 23rd September 2015.