2022 (9) TMI 1422 - AT - Income Tax

Reopening of assessment u/s 147 - reason to believe - disallowance of the Directors remuneration claimed as the current year s revenue expenditure, whereas according to AO this amount forms part of the indirect expenses of the project and accordingly the same is capital in nature - HELD THAT - We noted that the Assessee has not completed any project as per the Profit and Loss Account but had claimed the Directors remuneration as current year s revenue expenditure. According to the Assessing Officer, this forms part of the indirect expenses of the project only and hence is not allowable. For this reason, the assessment was reopened by the Assessing Officer. We noted that in the case of TANMAC India Vs. Deputy Commissioner of Income Tax, Circle I, Pondicherry 2017 (1) TMI 122 - MADRAS HIGH COURT has considered an identical situation by following the decision of the Hon ble Supreme Court in the case of Commissioner of Income Tax Vs. Kelvinator of India 2010 (1) TMI 11 - SUPREME COURT and held that What is sought to be done by the re-assessment ought to have been achieved by scrutiny assessment proceedings. Having missed the bus earlier, the Department cannot be permitted to avail of the extended time limit in the absence of any new or tangible material - Thus we quash the re-assessment and allow the appeal of the Assessee.

Summary

Issues:
1. Validity of jurisdiction u/s.147 for reopening assessment.

Analysis:
The appeal before the Appellate Tribunal ITAT Chennai challenged the Commissioner of Income Tax (Appeals) confirming the jurisdiction assumed by the Assessing Officer under section 147 of the Income Tax Act, 1961 for reopening the assessment. The Assessee contended that the re-assessment was passed out of time, lacked fresh materials, and did not comply with legal principles. The Tribunal noted that the original assessment was completed earlier, and the reasons for reopening primarily focused on the disallowance of Directors' remuneration. The Assessee argued that the issues raised were known during the original assessment and relied on a Madras High Court decision to support their case.

Analysis Continued:
The Commissioner of Income Tax (Appeals) upheld the reopening, citing precedents from various High Courts. However, the Tribunal referred to a Madras High Court decision that emphasized the importance of tangible material for reassessment. The Tribunal highlighted the need for a link between reasons recorded and the belief for reassessment, emphasizing that the Assessing Officer cannot arbitrarily change their opinion based on stale material. The Tribunal concluded that the reassessment lacked new or tangible material and quashed the reassessment, thereby allowing the Assessee's appeal.

Result:
The Appellate Tribunal ITAT Chennai allowed the Assessee's appeal, quashing the reassessment due to the absence of new or tangible material for reopening. The Tribunal did not address the issue of disallowance of Directors' remuneration on merits, as the reassessment was already invalidated.