2017 (6) TMI 1328 - AT - Income Tax

Reopening of assessment u/s.147 - payment of freight charges addition - HELD THAT - There was no new material which has come to the knowledge of the AO to show after passing of the order u/s.143(3) of the Act on 21.12.2011 that income chargeable to tax has escaped assessment so as to trigger the reopening of assessment made u/s.147. In the case of CIT vs. Jet Speed Audio Pvt Ltd. 2015 (2) TMI 766 - BOMBAY HIGH COURT has held that the power to reopen is not a power to review an assessment order. At the time of passing assessment order it is expected of the Assessing Officer that he will apply mind and pass an order. If the AO had considered and formed an opinion on the material in the original assessment itself then he would be powerless to start the proceedings for reassessment. Hon ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT has held that he concept of change of opinion must be treated as an in-built test to check abuse of power by the Assessing Officer. Hence after 1st April 1989 the Assessing Officer has power to reopen an assessment provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Reopening in the instant case has been made on the basis of very same set of material to hold that freight charges was paid in cash by the assessee and hence was to be disallowed u/s.40A(3) of the Act which is clearly a change of opinion and in view of the decision in the case of Jet Speed Audio Pvt Ltd 2015 (2) TMI 766 - BOMBAY HIGH COURT and in the case of Kelvinator of India Ltd (supra) reassessment is not permissible in law. - Decided in favour of assessee.

Summary

Issues:
1. Reopening of assessment u/s.147 of the Act based on lack of credible additional material evidence.
2. Challenge to the reopening of assessment by the assessee.
3. Examination of the claim of freight charges and disallowance under section 40A(3) of the Act.
4. Legality of the reassessment order and cancellation of the same.

Analysis:

Issue 1: Reopening of assessment u/s.147 based on lack of credible additional material evidence
The Assessing Officer reopened the assessment for the assessment year 2009-2010 based on the claim of freight charges debited by the assessee. The reopening was challenged by the assessee on the grounds that there was no new material available to justify the reassessment. The recorded reasons for reopening did not present any fresh evidence to indicate that income had escaped assessment after the original assessment under section 143(3) of the Act. The lack of tangible material to support the reassessment was a key point of contention.

Issue 2: Challenge to the reopening of assessment by the assessee
The assessee contended that the reopening of assessment under section 147 was unjustified as it amounted to a mere change of opinion by the Assessing Officer. The original assessment had already addressed the issue of freight charges claimed by the assessee, resulting in a disallowance of a portion of the expenses. The reassessment based on the same set of materials without any new findings was deemed to be impermissible under the law. The argument centered on the Assessing Officer's inability to reopen the assessment solely on the basis of a change of opinion without substantial new evidence.

Issue 3: Examination of the claim of freight charges and disallowance under section 40A(3) of the Act
The dispute revolved around the disallowance of a specific amount towards freight charges under section 40A(3) of the Act. The Assessing Officer had disallowed a portion of the claimed expenses in the original assessment, citing non-production of all bills and vouchers. The challenge raised by the assessee questioned the validity of disallowing the same amount again in the reassessment without any additional material evidence. The reassessment order was deemed to be based on a change of opinion rather than new findings.

Issue 4: Legality of the reassessment order and cancellation of the same
The Tribunal analyzed the legality of the reassessment order in light of the principles laid down by the Hon'ble Bombay High Court and the Supreme Court. It was established that the reassessment lacked a valid reason to believe that income had escaped assessment, as the same set of materials had been considered in the original assessment. The Tribunal concluded that the reassessment order was not sustainable in law and proceeded to cancel it, thereby allowing the appeal filed by the assessee. The cancellation of the reassessment order rendered other grounds of appeal on merits irrelevant and, therefore, were not addressed.

In conclusion, the Tribunal found the reassessment to be invalid due to the absence of new material justifying the reopening of the assessment, leading to the cancellation of the reassessment order and the allowance of the appeal filed by the assessee.