2016 (6) TMI 497 - AT - Income Tax

Reopening of assessment based upon revenue auditor party s objections - reasons to believe - Held that - The assessee s first argument seeks to quash the impugned reopening by quoting his request to revenue audit party hereinabove. He himself makes it clear in the end of the reassessment that the impugned reopening/reassessment has been completed in view of the audit objection. We observe in these peculiar facts and circumstances that this reopening is not based on a judicious approach formed on reasons to believe that there has been escapement of assessee s taxable income from being assessed but merely seeks to satisfy the revenue auditor party s objections. Hon ble jurisdictional high court in RAAJRATNA case (2014 (8) TMI 598 - GUJARAT HIGH COURT) quashes a similar reopening instance by observing that the same does not amount to an Assessing Officer s satisfaction as per provisions of the Act. The Revenue fails to distinguish its operation in the instant facts and law. We accordingly accept assessee s first legal argument challenging validity of reopening. We hold the present case to be the one containing Assessing Officer s failure in recording due independent satisfaction by reiterating that triggering point of a reopening is a judicious belief based on reasons formed in view of tangible material pointing out escapement of taxable income. We accordingly quash the impugned reopening on this score alone. The assessee s other grounds/arguments on change of opinion and merits are rendered infructuous. - Decided in favour of assessee.

Summary

Issues:
1. Validity of reopening assessment
2. Classification of income as business income or income from other sources
3. Allowance of set off against brought forward losses
4. Disallowance of prior period expenditure

Analysis:

Issue 1: Validity of reopening assessment
The assessee contested the validity of the reassessment order, arguing that it was bad in law and void ab initio. The contention was based on the lack of independent satisfaction by the Assessing Officer for the reopening, as it was solely done to address audit objections. The Tribunal agreed with the assessee, citing the requirement for a judicious belief formed on tangible material for a valid reopening. The Tribunal quashed the reassessment, emphasizing the necessity of the Assessing Officer's independent satisfaction as per the provisions of the Income Tax Act.

Issue 2: Classification of income
The second issue involved the classification of income as business income or income from other sources. The CIT(A) partially accepted the assessee's argument, directing that a portion of the income be treated as business income. The Tribunal upheld this decision, allowing depreciation relief based on set off principles from a relevant special bench decision.

Issue 3: Allowance of set off
Regarding the allowance of set off against brought forward losses, the Tribunal addressed the assessee's plea for setting off the entire amount of income against losses. While the CIT(A) only allowed a portion to be set off as business income, the Tribunal upheld this decision based on the special bench decision's principles.

Issue 4: Disallowance of prior period expenditure
The final issue pertained to the disallowance of prior period expenditure. The assessee argued against the disallowance, contending that the addition made by the Assessing Officer was uncalled for. However, the Tribunal did not find merit in this argument and upheld the CIT(A)'s decision on this matter.

In conclusion, the Tribunal allowed the assessee's appeal, primarily on the grounds of the invalidity of the reassessment due to lack of independent satisfaction by the Assessing Officer. The Tribunal also addressed the classification of income and the allowance of set off against losses, while upholding the decision on the disallowance of prior period expenditure.