2020 (1) TMI 1302 - AT - Income Tax

Validity of reopening of assessment u/s 147 - HELD THAT - As per the reassessment order, it is clear that the assessment u/s.143(3) of the Act was completed on 24.03.2014. The audit report on the basis of which the AO has recorded the reasons for reopening of the completed assessments were available with him. There was no any tangible material came to the knowledge of the AO. The same set of facts were already in the existence at the time of original assessment made by the AO. AO reopened the case that the assessee had closed his business activity and the loss cannot be carried forward on the closed business. No opinion formed in this regard by the AO and he had also accepted the loss claimed by the assessee in the original assessments and the assessee had carried forward the said loss which has been allowed by the AO. It can be said that reopening was based on any change of opinion. We are unable to accept the contention of the ld. DR. Even if there is any mistake committed by the AO while competing the assessment u/s. 143(3) of the Act, the same cannot be allowed to be taken as a basis for reopening of the assessment as it would amount of giving premium to an authority exercising qua judicial function to take the benefits of its own wrong. Reopening in the case in hand is unjustified. Accordingly, we dismiss the impugned order passed by the CIT(A) and quashed the reassessment order passed by the AO in the case in hand. Disallowance of Expenses - Business of the assessee is discontinued long back - HELD THAT - As both the authorities mentioned in their respective orders that the assessee company engaged in the business of providing Power Distribution Management Service. It appears that the assessee is still carrying on his business as per the memorandum of association. Therefore, the assessee is entitled to debit the expenses in the profit and loss account for the impugned assessment year and he has rightly claimed as per Section 37(1) - Decided in favour of assessee.

Summary

Issues Involved:
1. Re-opening and reassessment under Sections 147 and 148 of the Income Tax Act.
2. Disallowance of expenses amounting to ?64,84,215/- for the assessment year 2011-2012.
3. Disallowance of expenses amounting to ?4,20,680/- for the assessment year 2013-2014.

Issue-wise Detailed Analysis:

1. Re-opening and Reassessment under Sections 147 and 148 of the Income Tax Act:
The assessee challenged the re-opening of the assessment, arguing that it was against the principles of natural justice and based on a change of opinion. The CIT(A) held that the conditions for reopening were satisfied and that there was no change of opinion by the AO. The Tribunal, however, observed that the original assessment under Section 143(3) had already considered the facts, and no new tangible material had surfaced to justify reopening. The Tribunal cited the Supreme Court's decision in CIT Vs. Kelvinator of India Ltd., holding that reopening based on a change of opinion is not permissible. Consequently, the Tribunal quashed the reassessment order, deeming the reopening unjustified.

2. Disallowance of Expenses Amounting to ?64,84,215/- for the Assessment Year 2011-2012:
The AO disallowed the expenses on the grounds that the business had been discontinued and the expenses were not justified with adequate evidence. The CIT(A) upheld this disallowance, stating that the business had been discontinued long back, and there was no business income to justify these expenses. The Tribunal disagreed, noting that the assessee's business activities were still ongoing as per the memorandum of association. The Tribunal referenced previous ITAT decisions in the assessee's favor and concluded that the expenses were allowable under Section 37(1). Therefore, the Tribunal allowed the appeal, overturning the disallowance.

3. Disallowance of Expenses Amounting to ?4,20,680/- for the Assessment Year 2013-2014:
The AO disallowed the expenses, arguing that no business activity was carried on during the year, and therefore, the expenses could not be allowed under Section 37(1). The CIT(A) upheld this disallowance. The Tribunal, however, found that the assessee was still engaged in its business activities as per the memorandum of association. The Tribunal cited previous ITAT decisions in similar circumstances, which had ruled in favor of the assessee. Consequently, the Tribunal allowed the expenses under Section 37(1) and overturned the disallowance.

Conclusion:
The Tribunal allowed both appeals filed by the assessee, quashing the reassessment order for the assessment year 2011-2012 and allowing the expenses disallowed for both assessment years 2011-2012 and 2013-2014. The Tribunal emphasized that reopening based on a change of opinion is not permissible and that the assessee was entitled to claim the expenses under Section 37(1) of the Income Tax Act.