2018 (3) TMI 2027 - AT - Income Tax

Validity of reassessment proceedings - change of opinion - reopening made after 4 years - CIT(A) has quashed re-assessment order passed by the AO on the ground that the AO has reopened assessment merely on change of opinion without-there being any fresh material which suggests escapement of income-within the meaning of section 147(b) - HELD THAT - We find that the AO has considered the issue of prior period expenses and prior period income in the-proceedings u/s 143(3) and after considering relevant facts has made-addition towards net prior period income after setting off of prior period-expenses. AO has reopened assessment on the same set of facts-on the ground that while completing assessment u/s 143(3) addition has-been wrongly made in respect of prior period income instead of higher amount as prior period expenses cannot be netted off against write back of liability of prior period. The issue on which the reopening of assessment has been made has already been a subject matter of assessment u/s 143(3) and the AO has considered all relevant facts while completing assessment u/s 143(3). Therefore without there being any fresh material and also any allegation-on the part of the assessee to disclose fully and truly all material facts-necessary for assessment reopening cannot be made after 4 years-when the assessment has been concluded u/s 143(3) - CIT(A) was right in quashing assessment order passed by the AO u/s 143(3) r.w.s. 147 of-the Act. We do not find any error in the order of the CIT(A); hence we-are inclined to uphold the findings of the CIT(A) and dismiss appeal filed by the revenue.

Summary

Issues:
1. Validity of reopening assessment based on change of opinion.
2. Treatment of prior period liabilities and expenses for taxation.

Issue 1: Validity of reopening assessment based on change of opinion:
The appeal was against the order of the CIT(A)-10, Mumbai pertaining to AY 2006-07. The revenue contended that the CIT(A) erred in quashing the reopening of the assessment, arguing that there was no failure on the part of the assessee to disclose all material facts necessary for assessment. The AO had reopened the assessment based on the belief that income had escaped assessment due to the prior period liabilities and expenses not being fully disclosed. The CIT(A) observed that the assessment could not be reopened on an issue already discussed in the original assessment. The CIT(A) noted that the ITAT had previously ruled in favor of the assessee on the same issue. The CIT(A) held that the reopening was done on a change of opinion without fresh material, thus quashing the assessment order.

Issue 2: Treatment of prior period liabilities and expenses for taxation:
The assessee, engaged in shipping, property development, and financial operations, had filed its return for AY 2006-07, declaring a total income. The AO completed the assessment, including additions under prior period income. Subsequently, the assessment was reopened, alleging that income had escaped assessment due to prior period liabilities and expenses not being fully accounted for. The assessee challenged the reopening, arguing that the issues were already discussed in the original assessment and at the ITAT level, where relief was granted. The AO made additions towards prior period liabilities and expenses in the reopened assessment. The ITAT upheld the CIT(A)'s decision to quash the reassessment, stating that without fresh material and failure to disclose all necessary facts, reopening the assessment after four years was improper. The ITAT dismissed the revenue's appeal, affirming the CIT(A)'s decision.

In conclusion, the ITAT upheld the CIT(A)'s decision to quash the reassessment, emphasizing that reopening an assessment based on a change of opinion without fresh material and failure to disclose all necessary facts was improper. The appeal filed by the revenue was dismissed.