2019 (8) TMI 1816 - AT - Income Tax

Reopening of assessment u/s 147 - Rectification u/s 154 dropped - change of opinion - disallowance being alleged ad hoc provision made for liability on account of rent - HELD THAT - The assessee enclosed a copy of the claim letter of the Directorate of Estates to substantiate that this amount was an ascertained liability. It is also seen that both the parties have accepted that the 154 proceedings were dropped by the Assessing Officer. Thus, it is very much apparent that the issue of the rent of A Barracks was duly examined by the Assessing Officer, first during the course of assessment proceedings and for the second time during the course of proceedings u/s 154 and in both these proceedings, no adverse inference was drawn by the Assessing Officer inasmuch as the returned income was accepted during the course of original assessment proceedings and the proceedings initiated u/s 154 were dropped without making any addition. A perusal of the record as well as the reasons would also indicate that there was no fresh material which had come in possession of the Assessing Officer prior to the issuance of notice u/s 148 and even in the reasons, the Assessing Officer has duly stated that the issue came to light after the assessment records were examined and it was found that as per Schedule 10 of the balance sheet, certain amount of provision was made which should have been disallowed and added back to the income of the assessee. Thus, it is a clear case where the Assessing Officer has had a change of opinion on the issue since the Assessing Officer had raised a specific query regarding fall in gross profit and it had been submitted that the reason for the fall in gross profit, amongst other reasons, was also rent of A Barracks. It follows by implication that the issue was duly considered by the Assessing Officer at the time of original assessment itself. Secondly, even the proceedings u/s 154 which were initiated on the same issue were subsequently dropped by the Assessing Officer. Therefore, on the facts of the case, we are prima facie of the view that the Assessing Officer has by necessary implication allowed the assessee s claim in the original assessment proceedings itself. It is also an accepted position that the assessment orders would necessarily deal with the claim being disallowed and not with the claims being allowed. The Hon ble Gujarat High Court in the case of C.I.T. vs. Nirma Chemical Works Pvt. Ltd 2008 (2) TMI 373 - GUJARAT HIGH COURT has held that if the Assessing Officer was to deal with all the claims which were to be allowed in the assessment order, the result would be an epic tome as it would cast an impossible burden on the Assessing Officer considering his work load and period of limitation. Thus, in the present case, it must necessarily be inferred that the Assessing Officer had applied his mind at the time of passing of the assessment order by not disallowing the same in the assessment order framed u/s 143(3) as he was satisfied with the same. Therefore, assumption of jurisdiction, in our considered opinion, would prima facie amount to change of opinion. Thus it is our considered opinion that since the reassessment proceedings in this case were based on a change of opinion, the same cannot be sustained. Accordingly, we set aside the order of the Ld. Commissioner of Income Tax (A) and quash the reassessment proceedings. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of proceedings under Section 148 of the Income Tax Act.
2. Alleged change of opinion by the Assessing Officer.
3. Disallowance of rent payable to Directorate of Estates as a contingent liability.

Detailed Analysis:

1. Validity of proceedings under Section 148:
The assessee contested the reopening of the assessment under Section 148, arguing that there was no fresh material to justify the reassessment. The original assessment was completed under Section 143(3) with no adverse findings on the provisions in question. The assessee had disclosed all material facts during the original assessment, and the reassessment was based on the same set of facts, which the assessee claimed amounted to a mere change of opinion. The Tribunal noted that the Assessing Officer had previously issued a notice under Section 154 regarding the same provisions, which was dropped after the assessee's clarification. The Tribunal concluded that the reassessment was initiated without any new material and was, therefore, invalid.

2. Alleged change of opinion by the Assessing Officer:
The Tribunal observed that the Assessing Officer had already examined the issue of the provisions during the original assessment and the proceedings under Section 154. The Tribunal cited the judgment of the Hon’ble Bombay High Court in the case of State Bank of India vs. ACIT, which held that reassessment based on reappraisal of the same material constitutes a change of opinion and is not permissible. The Tribunal further referenced the Full Bench decision of the Hon’ble Delhi High Court in CIT vs. Kelvinator of India Ltd., which emphasized that reassessment must be based on "tangible material" and not merely a change of opinion. The Tribunal concluded that the reassessment proceedings were indeed based on a change of opinion and hence, invalid.

3. Disallowance of rent payable to Directorate of Estates as a contingent liability:
The Assessing Officer had disallowed the provision for rent payable to the Directorate of Estates, treating it as a contingent liability. The assessee argued that the liability was ascertained and provided a copy of the claim letter from the Directorate of Estates. The Tribunal noted that this issue was examined during the original assessment and the proceedings under Section 154, both of which did not result in any disallowance. The Tribunal concluded that the disallowance was unjustified as the liability was ascertained and not contingent.

Conclusion:
The Tribunal quashed the reassessment proceedings, holding that they were based on a change of opinion and lacked fresh material. The appeal of the assessee was allowed, and the reassessment order was set aside. The Tribunal emphasized that reassessment should not be used as a tool for reviewing the same material already considered during the original assessment, thereby preventing abuse of power by the Assessing Officer.

Order:
The appeal of the assessee stands allowed, and the reassessment proceedings are quashed. The order was pronounced in the open court on 31st August 2019.