2016 (6) TMI 374 - AT - Income Tax

Reopening of assessment - Held that - It is found that the Ld. AR was right in its contention that there was a change of opinion which was clearly seen in the letter produced before us dated 24/9/2003 sent to Senior Receipt Audit Officer. In the said letter, the stand of the A.O was that objection raised by the department may be treated as settled as the adjustment mentioned therein was not permissible under the Act. This letter was produced by the Ld. DR during the course of hearing. This letter clearly shows that notice under Section 148, was a clear change of opinion. There was no new material found by the Assessing Officer. There was a clear opinion given by the Assessing Officer before the Auditor that there was no evidence as the said provision was an unascertained liability as per letter dated 24.09.2003. Thus, the proceedings under Section 147 of the Income Tax Act, 1961 are not valid as the notice under Section 148 of the Act was issued on account of change of opinion. Therefore, CIT(A) was incorrect while dismissing the appeal of the assessee. - Decided in favour of assessee

Issues:
1. Validity of proceedings u/s 147 of the Income Tax Act, 1961 based on change of opinion.
2. Extending the scope of reassessment proceedings beyond recorded reasons for reopening assessment.
3. Disallowance of provision for doubtful debts and obsolescence.
4. Disallowance of marketing expenditure and addition to closing stock.
5. Deletion of addition made by the Assessing Officer on account of provision of gratuity, warranty, foreign travel expenses, and levy of interest u/s 234D of the IT Act, 1961.

Issue 1: Validity of proceedings u/s 147 based on change of opinion:
The appeal challenged the validity of proceedings u/s 147 of the Income Tax Act, 1961, arguing that the notice u/s 148 was issued based on a change of opinion. The Assessee contended that the notice was withdrawn after a second notice was issued or in the process of delivery, indicating a procedural lapse by the Assessing Officer. The Assessee presented a letter dated 24/09/2003, where the Assessing Officer had previously opined that the provisions in question were ascertained liabilities, thus objecting to their inclusion in the book profit. The Tribunal found that the notice u/s 148 was indeed a change of opinion without new material, rendering the proceedings under Section 147 invalid. Consequently, the appeal of the assessee was allowed, and the Revenue's appeal was dismissed.

Issue 2: Extending reassessment scope beyond recorded reasons:
The Assessee contested the extension of reassessment proceedings beyond the recorded reasons for reopening the assessment under Section 148 of the Act. The Assessee argued that the Assessing Officer had erred in disallowing specific provisions and expenses without proper justification. The CIT(A) upheld certain disallowances but deleted others based on the arguments presented. The Tribunal noted the contentions raised by both parties but primarily focused on the validity of the proceedings under Section 147 due to a change of opinion, leading to the decision in favor of the Assessee.

Issue 3: Disallowance of provisions and expenses:
The CIT(A) had upheld various disallowances, including provisions for doubtful debts, obsolescence, marketing expenditure, and additions to closing stock. The Assessee challenged these disallowances, arguing against their validity and necessity. The Tribunal's decision primarily revolved around the overarching issue of the validity of proceedings under Section 147, ultimately leading to the allowance of the Assessee's appeal and the dismissal of the Revenue's appeal.

Issue 4: Deletion of additions made by the Assessing Officer:
The Assessee's appeal also included challenges to the additions made by the Assessing Officer, such as provision of gratuity, warranty, foreign travel expenses, and levy of interest u/s 234D of the IT Act, 1961. The CIT(A) had deleted some of these additions, leading to a mixed outcome in the appeals filed by both the Revenue and the Assessee. However, the Tribunal's primary focus on the validity of the proceedings under Section 147 overshadowed the specific challenges to these additions.

In conclusion, the judgment primarily addressed the validity of proceedings under Section 147 of the Income Tax Act, 1961, based on a change of opinion regarding the notice issued under Section 148. The Tribunal found in favor of the Assessee, highlighting the procedural lapses and lack of new material to support the reassessment. The detailed analysis of various disallowances and additions made by the Assessing Officer was secondary to the overarching issue of the validity of the reassessment proceedings.

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