2016 (9) TMI 1571 - AT - Income Tax

Reopening of assessment u/s 147 - addition on account of excise duty expenses paid on capital goods purchased - CIT(A) was of the considered view that the AO has no new material to form the opinion that the income has escaped assessment no new facts, either by the audit party or by the AO, have been brought on record - HELD THAT - It is not even in dispute that any fresh material or information came to the light suggesting that an income has escaped assessment. All the relevant material was before the AO at the stage of the original assessment itself. The only new input is an audit party objection which the AO himself has not accepted. Once the AO contests the audit objection and continues to hold the belief as he had at the time of original assessment proceedings, but reopens the assessment proceedings as a measure of abundant caution nevertheless, it cannot be said that the AO had any reasons to believe that an income has escapade assessment- a belief which is a sine qua non for reopening the assessment. As also bearing in mind entirety of the case, uphold the action of the CIT(A), in quashing the reassessment proceedings, and decline to interfere in the matter. Appeal is dismissed.

Summary

Issues:
Challenge to correctness of reassessment proceedings and addition of excise duty expenses in income tax assessment.

Analysis:
The Assessing Officer challenged the correctness of the reassessment order under section 143(3) r.w.s. 147 of the Income Tax Act, 1961. The primary issue was the addition of ?37,72,288 on account of excise duty expenses paid on capital goods purchased. The AO contended that income had escaped tax due to oversight, and he had the jurisdiction to reopen the assessment. The key contention was whether the reassessment was valid based on new material or merely a change of opinion.

The assessment was reopened based on two grounds: the excise duty on capital goods was wrongly allowed as a deduction, and verification was needed on unutilized CENVAT credit included in income. However, in the reassessment, only the excise duty payment was disallowed as a deduction. The CIT(A) quashed the reassessment, stating that all relevant material was available during the original assessment, and the reassessment was solely based on an audit objection not accepted by the AO. The CIT(A) emphasized that reassessment cannot be solely on the basis of a change of opinion.

The ITAT upheld the CIT(A)'s decision, noting that no new material suggested income had escaped assessment. The AO had all relevant information during the original assessment, and the audit objection was not accepted by the AO himself. Therefore, the reassessment lacked the necessary belief that income had escaped assessment, a prerequisite for reopening assessments. Consequently, the ITAT dismissed the appeal, affirming the quashing of the reassessment proceedings by the CIT(A).

In conclusion, the ITAT ruled in favor of the respondent, upholding the decision of the CIT(A) to annul the reassessment proceedings. The judgment emphasized the importance of new material or valid reasons to believe income had escaped assessment for reopening proceedings, rather than a mere change of opinion. The appeal was dismissed, and the decision was pronounced on September 1, 2016.