2020 (8) TMI 896 - AT - Income Tax

Reopening of assessment u/s 147 - disallowance of depreciation and disallowance of expenditure incurred for increase of capital respectively - HELD THAT - AO has passed the original assessment order after taking into consideration each and every detail/explanation furnished by the assessee in response to the notice issued or query raised by him during the course of assessment proceedings. It can further be concluded that the AO had no tangible material for forming the belief that the income of the assessee has escaped assessment. Hence, in our considered opinion since the AO has initiated the reassessment proceedings on the basis of the material already placed on record by the assessee during assessment proceedings, the action of the AO amounts to change of opinion which is not permissible under law. In the case of CIT vs. Kelvinator of India Ltd 2010 (1) TMI 11 - SUPREME COURT has held that post 01-04-1989, power of AO to reopen u/s 147 is much wider, however, the AO has no jurisdiction to reopen assessment on the basis of mere change of opinion. Powers u/s 147 of the Act can be exercised by the AO provided there is tangible material to come to the conclusion that there is escapement of income from assessment. In our considered view, the AO had no tangible material to come to the conclusion that income of the assessee has escaped assessment. Thus we hold that since the AO had initiated reassessment proceedings in the present case on the basis of change of opinion, the Ld. CIT(A) has wrongly upheld the action of the AO. We, therefore, allow the legal ground raised by the assessee and set aside the order passed by the Ld. CIT(A) holding the notice u/s 148 read with section 147 of the Act and the subsequent proceedings as void ab initio.- Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act.
2. Disallowance of commission paid to Great Spirits Marketing.
3. Disallowance of packing charges paid to Sai Enterprises.
4. Disallowance of promotional exhibition expenses.
5. Disallowance and enhancement of depreciation on architectural and management fees.
6. Disallowance and enhancement of interest expenses under Section 36(1)(iii).
7. Disallowance of rental charges.
8. Disallowance of housekeeping charges.

Detailed Analysis:

1. Validity of Reopening the Assessment:
The primary issue was whether the reopening of the assessment under Section 147 was valid. The assessee argued that the reopening was based on a change of opinion without any fresh tangible material, which is not permitted under law. The Tribunal noted that the original assessment was completed after examining all details, including payments to Sh. Anand Nair. The Tribunal referenced the Supreme Court’s decision in CIT vs. Kelvinator of India Ltd., which states that reopening based on a mere change of opinion is not permissible. The Tribunal concluded that the Assessing Officer (AO) had no tangible material to justify the belief that income had escaped assessment, making the reopening invalid. Consequently, the Tribunal set aside the order of the CIT(A) and held the notice under Section 148 and subsequent proceedings as void ab initio.

2. Disallowance of Commission Paid to Great Spirits Marketing:
The assessee contended that the commission paid was for the sale of liquor in Kerala and was wholly and exclusively for business purposes. The Tribunal did not specifically address this issue due to the overall decision to invalidate the reopening of the assessment.

3. Disallowance of Packing Charges Paid to Sai Enterprises:
The assessee argued that the packing charges were paid wholly and exclusively for business purposes. Similar to the commission issue, the Tribunal did not specifically address this due to the overarching decision on the invalidity of the reopening.

4. Disallowance of Promotional Exhibition Expenses:
The assessee claimed that these expenses were incurred for brand promotion and were entirely for business purposes. Again, this issue was not separately addressed by the Tribunal due to the primary decision on the invalidity of the reopening.

5. Disallowance and Enhancement of Depreciation on Architectural and Management Fees:
The Tribunal noted that the AO had disallowed depreciation on fees paid to Sh. Anand Nair and further enhanced the disallowance. However, the Tribunal found that the payments were genuine, services were rendered, and the expenditure was incurred wholly and exclusively for business purposes. The Tribunal referenced its own decisions in the assessee’s appeals for the assessment years 2010-11 and 2011-12, where it directed the AO to allow the depreciation claimed on similar grounds.

6. Disallowance and Enhancement of Interest Expenses under Section 36(1)(iii):
The assessee argued that the advances were made out of its own funds for business purposes and were subsequently paid back. The Tribunal did not specifically address this issue due to the primary decision on the invalidity of the reopening.

7. Disallowance of Rental Charges:
The assessee claimed that the rental charges were genuine and incurred wholly and exclusively for business purposes. This issue was not separately addressed by the Tribunal due to the primary decision on the invalidity of the reopening.

8. Disallowance of Housekeeping Charges:
The assessee contended that the housekeeping charges were genuine and incurred wholly and exclusively for business purposes. Similar to other specific disallowances, this issue was not separately addressed by the Tribunal due to the primary decision on the invalidity of the reopening.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, primarily on the grounds that the reopening of the assessment was invalid as it was based on a change of opinion without any fresh tangible material. Consequently, the Tribunal did not find it necessary to discuss and decide the other grounds raised by the assessee on merits. The appeal for the assessment year 2009-2010 was allowed, and the order was pronounced on 28th August 2020.