2016 (4) TMI 242 - AT - Income Tax

Reopening of assessment - Held that - Reopening is bad in law for the reason that there are no tangible materials to form reason to believe that income has escaped assessment and the reopening is bad in law for the reason that the assessment cannot be reopened based on the same set of facts which were already on record. Thus, we hold that the reopening is bad in law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act.
2. Justification of disallowances made in the reassessment order.

Issue-wise Detailed Analysis:

1. Validity of reopening the assessment under Section 147 of the Income Tax Act:

The assessee challenged the reopening of the assessment under Section 147 of the Income Tax Act, arguing that there was no tangible material that came on record after the completion of the original assessment to justify the reopening. The original assessment was completed on 29.12.2008, accepting the loss declared by the assessee. However, a notice under Section 148 was issued on 24.10.2011, leading to a reassessment completed on 8.12.2011. The reasons for reopening included disallowing franking charges and expenses related to non-convertible bonds, treating them as capital expenditure.

The assessee contended that these expenses were already examined and accepted as revenue expenses during the original assessment proceedings. The absence of new tangible material was emphasized, and the reopening was claimed to be based solely on the existing records, which constituted a mere change of opinion.

The Tribunal, after reviewing the material, concluded that the reopening was indeed based on the same set of facts available during the original assessment. The Tribunal cited several judgments, including the Hon'ble Supreme Court in CIT vs. Kelvinator India Ltd. and the Hon'ble Bombay High Court in CIT vs. Prima Paper and Engineering Industry, which established that reopening an assessment without new tangible material is impermissible and constitutes an abuse of power.

The Tribunal held that in the absence of fresh tangible material, the reopening of the assessment was invalid and amounted to an impermissible review. Consequently, the reassessment order was quashed on jurisdictional grounds.

2. Justification of disallowances made in the reassessment order:

Since the Tribunal held that the reopening of the assessment was invalid, it did not adjudicate the grounds related to the merits of the disallowances made in the reassessment order. The issues regarding the disallowance of franking charges, stamp duty expenses, and other disallowances under Sections 43B(e) and 40A(ia) became academic and were not addressed further.

Conclusion:

The Tribunal concluded that the reopening of the assessment under Section 147 was invalid due to the absence of new tangible material and was based on a mere change of opinion. As a result, the reassessment order was quashed, and the appeal filed by the assessee was allowed. The Tribunal did not address the merits of the disallowances, as the primary issue of jurisdiction invalidated the reassessment proceedings. The order was pronounced in the open court on 5.2.2016.