2017 (12) TMI 1801 - AT - Income Tax

Reopening of assessment u/s 147 - assessee had failed to disclose material facts pertaining to the EDC charges - HELD THAT - Undisputedly EDC charges had been disclosed in the Balance Sheet of the assessee for the impugned year and which formed part of the documents filed with the return of income. Also it is not disputed that during assessment proceedings the assessee had disclosed EDC charges received during the year in the detail of other liabilities filed in response to questionnaire issued by the Assessing Officer. A perusal of the reasons recorded for reopening reveal that the information provided by the assessee itself, as pointed out above, formed the basis of reopening. In the first para of the reason, AO records during perusal of records in this case, it was seen that EDC charges were received by the assessee. - Thereafter the reasons only state the nature of the EDC charges, which is general and publicly known information, and further on inference and conclusion has been drawn therefrom that it is in the nature of revenue receipt of the assessee and hence chargeable to tax. AO thereafter states that since the assessee failed to include it in its income, the same has escaped assessment. And lastly the Assessing Officer mentions that after independent verification of records with respect to the above mentioned facts , I have reason to believe that income has escaped assessment. It was on the basis of already available information and not any new information pertaining to EDC charges that came in the possession of the Assessing Officer thereafter that led to the formation of belief that the EDC charges were in the nature of revenue receipt of the assessee and had thus escaped assessment. Therefore when the reopening was resorted to on the basis of material already on the file, the same having been provided by the assessee only during assessment proceedings, and nothing else, we fail to understand how the assessee could be charged with failure to disclose material facts relating to the said receipt. No merit in the contention of the Ld.DR that mere production of account books and balance sheet and profit and loss account will not tantamount to disclosure. No justification for the authorities below to justify the reopening of the assessment. The reopening is thus clearly bad in law and liable to be quashed. We accordingly set aside the orders of the authorities below and quash the reopening of the assessment u/s 147/148 of the Act - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961.
2. Treatment of External Development Charges (EDC) in the assessee's financial statements.

Detailed Analysis:

1. Validity of Reassessment Proceedings:

The primary issue was whether reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961, were valid. The reassessment was based on the claim that the assessee failed to disclose fully and truly all material facts necessary for assessment, which led to the escapement of taxable income.

- Arguments by Assessee:
- The assessee contended that all facts regarding EDC were disclosed in the Balance Sheet and during the original assessment proceedings under Section 143(3). Therefore, the reassessment proceedings initiated after four years from the end of the relevant assessment year were invalid as they were based on a mere change of opinion without any new material.
- The assessee emphasized that the EDC charges were clearly reflected in the Balance Sheet and detailed submissions were made during the original assessment proceedings, fulfilling the requirement of full and true disclosure.

- Arguments by Revenue:
- The Revenue argued that the assessee did not disclose all material facts necessary for assessment. The Assessing Officer (AO) had issued a general questionnaire seeking details of other liabilities, including EDC charges, but no specific inquiry or further questions were raised during the original assessment.
- The CIT(Appeals) upheld the reassessment, stating that mere production of account books and Balance Sheet does not amount to full disclosure, as per Explanation 1 to Section 147.

- Tribunal's Findings:
- The Tribunal found that the EDC charges were disclosed in the Balance Sheet and detailed submissions during the original assessment proceedings. The reasons recorded for reopening the assessment were based on the same set of facts already available on record, indicating a change of opinion rather than any new material.
- The Tribunal referred to several judicial pronouncements, including the Hon'ble Supreme Court's decision in Calcutta Discount Co. Ltd. vs ITO, which held that the duty of the assessee is to disclose primary facts, not the inferences or conclusions.
- The Tribunal concluded that the reassessment proceedings were invalid as they were based on a change of opinion and not on any failure to disclose material facts by the assessee.

2. Treatment of External Development Charges (EDC):

The second issue was whether the EDC charges received by the assessee should be treated as revenue receipts and included in the Profit & Loss Account or as liabilities in the Balance Sheet.

- Arguments by Assessee:
- The assessee argued that the EDC charges were not income but deposits on behalf of the Punjab Government, and hence, should be treated as liabilities in the Balance Sheet.
- The assessee contended that the EDC charges were collected for specific purposes and not for the assessee's regular business activities.

- Arguments by Revenue:
- The Revenue contended that the EDC charges were attributable to the assessee's regular business activities and were regular and recurring receipts, thus revenue in nature.
- The CIT(Appeals) upheld the AO's view that the EDC charges should be treated as revenue receipts and included in the Profit & Loss Account.

- Tribunal's Findings:
- The Tribunal did not adjudicate on the merits of the treatment of EDC charges, as it had already set aside the reassessment order on the legal ground of invalidity of reassessment proceedings.
- The Tribunal noted that adjudicating the merits of the case would be a purely academic exercise since the reassessment proceedings were quashed.

Conclusion:
The Tribunal quashed the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961, on the grounds that they were based on a change of opinion without any new material. The Tribunal did not adjudicate the merits of the treatment of EDC charges, as the reassessment order was already set aside. The appeal of the assessee was partly allowed.