2016 (6) TMI 478 - AT - Income Tax

Reopening of assessment - Adoption of the income at the returned figure as against the income returned on the basis of the assessment completed u/s. 143 - Held that - The action of the AO in treating the lease transactions and re-working the lease/ finance incomes has become final. Consequently, effect in the later year of 2006-07 was also upheld. Assessee in this year has not challenged the AO s order u/s. 143 as it is in tune with the stand taken by AO in AY. 2005-06 and no prejudice was caused to assessee. Even otherwise, AO is not entitled to review his own order to come to a different conclusion on the same set of facts. In view of this, the proceedings initiated u/s. 147 are bad in law. Moreover, as rightly pointed out by the ITAT in earlier year, those issues were also confirmed by CIT(A) and ITAT in earlier years. Therefore, AO cannot differ from those findings. In view of this, to the extent of reopening of the assessment, we are agreeing with the Ld. CIT(A) and hold that the reopening of assessment is bad in law. Consequently, the order u/s. 143(3) gets restored. AO is directed to examine the order u/s. 143(3), whether the same is in tune with the directions/findings given in AY. 2005-06 and AY. 2006-07. With reference to quantification of financial leases after adjusting the so called claim of depreciation, in case the order u/s. 143(3) is on similar lines, no action is required. Otherwise, AO is directed to pass necessary modification orders u/s. 154/155 in this year also so that there is no double taxation or double allowance of claims/amounts involved. With these observations, Revenue s appeal is considered partly allowed.

Summary

Issues:
1. Validity of the initiation of proceedings under section 147 of the Income Tax Act.
2. Adoption of income figure in the reassessment.
3. Disallowance of depreciation and interest payments under section 40(a)(ia).
4. Reopening of assessment and modification of income figure.
5. Adjudication of issues not arising from the reassessment order.

Issue 1: Validity of the initiation of proceedings under section 147:
The appeal by the Revenue challenged the order of the Commissioner of Income Tax (Appeals)-V, Hyderabad, dated 16-09-2013, regarding the initiation of proceedings under section 147. The Assessing Officer (AO) determined the total income at a figure lower than the returned income, leading to proceedings under section 147. The ITAT held that the initiation of proceedings under section 147 was not sustainable in law, as the AO had changed the method of recognition of income adopted by the assessee without validly demonstrating under-assessment. The ITAT referred to previous decisions and emphasized that the AO cannot redo the assessment inconsistently with the original order.

Issue 2: Adoption of income figure in the reassessment:
The ITAT noted that the AO, without proper discussion, adopted the income figure returned by the assessee, which was originally disallowed under section 40(a)(ia) and depreciation. The ITAT held that the AO's actions were not justified as the original transactions were confirmed as financial lease transactions by the ITAT in previous years. The ITAT emphasized that the AO cannot modify the income figure based on the same set of facts and that the proceedings initiated under section 147 were bad in law.

Issue 3: Disallowance of depreciation and interest payments under section 40(a)(ia):
The ITAT addressed the disallowance of depreciation and interest payments under section 40(a)(ia), which were originally disallowed by the AO in the order under section 143(3). The ITAT held that the AO's actions in disallowing these amounts were not valid, as they were confirmed as financial lease transactions in previous years. Therefore, the ITAT directed the AO to restore the income figure determined in the original assessment order.

Issue 4: Reopening of assessment and modification of income figure:
The ITAT found that the AO's decision to reopen the assessment and modify the income figure was not sustainable in law. The ITAT emphasized that the AO cannot review his own order to reach a different conclusion on the same set of facts. The ITAT held that the proceedings initiated under section 147 were bad in law, and the original assessment order under section 143(3) was restored.

Issue 5: Adjudication of issues not arising from the reassessment order:
The ITAT noted that the CIT(A) adjudicated issues that did not arise from the reassessment order but were originally addressed in the order under section 143. The ITAT held that the CIT(A)'s directions on these issues could not be upheld. Therefore, the ITAT allowed the directions of the CIT(A) on the contested issues in the original order under section 143.

In conclusion, the ITAT partially allowed the Revenue's appeal, directing the AO to examine the original assessment order to ensure alignment with previous findings. The ITAT emphasized that the AO must not modify the income figure based on the same set of facts and confirmed that the proceedings initiated under section 147 were not valid.