2017 (2) TMI 854 - AT - Income Tax

Reopening of assessment - whether AO has rightly brought to tax 1/6th of the amount of interest in each of the assessment years in which interest has been held to be taxable by the Tribunal? - Held that - From a literal reading of the observation of the ITAT for the A.Y 2006-07 we find that the Tribunal has held that the entire interest has not accrued to the assessee in A.Y 2006-07 but that it pertains to six years and therefore only 1/6th of the amount can be brought to tax in the relevant A.Y. We do not find any direction to bring the balance of the interest received to tax in the earlier A.Ys. Therefore the AO invoking the provisions of section 150(1) and reopening the assessments u/s 147 of the Act for the A.Ys before us is not sustainable. In the case of P.G. and W.Sawoo Pvt Ltd (2016 (4) TMI 1002 - SUPREME COURT) has held that income to be charged to tax must accrue or arise at any point of time during the previous year and it can be said to have accrued or arisen only when a right to receive the amount in question is vested in the assessee. It was held in that case that no such right to receive rent accrued to the assessee at any point of time during the A.Y in question in as much as enhancement of rent though with retrospective effect was made only in the year 1994. It was held that notice seeking to reopen the assessment for the A.Y 1989-1990 was without jurisdiction or authority of law. - Decided in favour of assessee.

Summary

Issues:
Validity of reopening assessment u/s 147 read with 150(1) based on ITAT order for A.Y 2006-07. Barred by limitation u/s 148 of the I.T. Act.

Analysis:
The case involved appeals by the assessee for A.Ys 2001-02 to 2004-05 challenging the reopening of assessments. The AO reopened assessments based on an ITAT order for A.Y 2006-07, which directed taxing only 1/6th of the interest credited in the P&L account for that year. The AO sought to tax 1/6th of interest in the earlier A.Ys as well. The assessee contended that the Tribunal lacked jurisdiction to direct taxation in other A.Ys not before it. The ITAT observed that only 1/6th of the interest pertaining to the relevant A.Y could be taxed, not the balance amount from other years. The AO's reopening based on section 150(1) was deemed unsustainable as the Tribunal's direction did not extend to other A.Ys.

The ITAT cited precedents to support its decision. In the case of P.G. & W. Sawoo Pvt. Ltd, the Supreme Court held that income must accrue when the right to receive it vests in the assessee. The Tribunal's order in the present case did not confer such a right for earlier A.Ys. In CIT vs. Manick Sons, it was established that a Tribunal cannot reopen assessments for years not under appeal without proper legal sanction. Similarly, in Emgeeyar Pictures P Ltd vs. DCIT, it was emphasized that the Tribunal cannot direct assessments for A.Ys not before it. The ITAT emphasized that the AO's actions were barred by limitation as the notices issued u/s 148 were beyond the due date.

Consequently, the ITAT allowed the assessee's appeals for all the A.Ys, setting aside the assessment orders. The reopening of assessments for A.Ys 2001-02 to 2004-05 based on the ITAT order for A.Y 2006-07 was deemed invalid and barred by limitation, as the Tribunal's direction only applied to the relevant A.Y and not subsequent years.