2016 (6) TMI 491 - HC - Income Tax

Reopening of assessment - over invoicing of the purchase - Held that - Order of assessment dated 30.12.2010 did not make any disallowance or addition on over invoicing of the purchase. Thus, the Assessing Officer, ofcourse without citing reasons, accepted the explanation of the assessee regarding the sale and purchase of goods in question. With this background, if we revert back to reasons recorded. It is this very issue which the Assessing Officer now wants to reopen by exercising powers under Section 147 of the Act. In the reasons recorded, he has stated that the assessee purchased goods worth ₹ 80.51 lacs from a sister concern which was purchased by the seller for ₹ 49.01 lacs and, therefore, there was over invoicing of the purchase to the extent of ₹ 31.49 lacs. He, therefore, wanted to disallow such sum of ₹ 31.49 lacs under Section 40A(2)(b) of the Act. The attempt on part of the Assessing Officer is, thus, clearly based on change of opinion, which would simply not be permissible. - Decided in favour of assessee

Summary

Issues:
1. Validity of notice for re-opening assessment for AY 2008-09 beyond the permissible period of four years.
2. Whether there was a failure on the part of the assessee to disclose material facts justifying the re-opening.
3. Consideration of over-invoicing of purchases and its taxability under Section 40A(2)(b) of the Income Tax Act.

Issue 1:
The High Court analyzed the notice issued by the Assessing Officer beyond the four-year period for reassessment for AY 2008-09. The court emphasized that for such re-opening, there must be a failure on the part of the assessee to disclose material facts. The court noted that the reasons recorded did not indicate any such failure, as all necessary materials were available during the original assessment. Therefore, the re-opening of the assessment order after four years was deemed impermissible.

Issue 2:
The court further examined whether the Assessing Officer's attempt to re-open the assessment was based on a change of opinion, which is not allowed. It highlighted that during the original assessment, the Assessing Officer had already examined the issue of over-invoicing of purchases by the petitioner from a sister concern. The court noted that the Assessing Officer had accepted the explanation provided by the assessee regarding the sale and purchase of goods in question during the original assessment. Therefore, the attempt to re-open the assessment based on the same issue was considered impermissible.

Issue 3:
Regarding the over-invoicing of purchases, the court reviewed the communication between the Assessing Officer and the petitioner. The court noted that the Assessing Officer had raised queries about the over-invoicing and its taxability under Section 40A(2)(b) of the Act. However, since the Assessing Officer had accepted the explanation provided by the assessee during the original assessment and did not make any disallowance or addition on this ground, the court found that the attempt to re-open the assessment solely on this issue was unjustified.

In conclusion, the High Court allowed the petition and quashed the notice dated 11.03.2015 for re-opening the assessment for AY 2008-09, citing reasons related to the impermissible time period for re-assessment, absence of failure to disclose material facts, and the impermissibility of re-opening based on a change of opinion.