2017 (3) TMI 257 - AT - Income Tax

Validity of re-assessment proceedings - failure on the part of the A.O. to provide the reasons recorded for re-opening - Held that - In the present case on hand, on perusal of the facts available on record, we find that the A.O. has formed an opinion merely based on the return of income and CBDT instructions, but not based on any tangible material which came to his knowledge subsequent to the completion of original assessment completed u/s 143(1) & 143(3) of the Act. Though there is no question of change of opinion in the cases where the assessment has been completed u/s 143(1) of the Act, but the facts remains that the A.O. should form reasons to believe which should be based on a new material which is came to his knowledge after completion of original assessment, but not based on same set of facts or return of income, which is already available with the A.O. at the time of completion of original assessment. Therefore, we are of the view that there is no sound basis for formation of reason to believe for re-opening of the assessment and hence, re-opening of assessment for the assessment year 2007-08, 2008-09 & 2009-10 is bad in law Question of non-furnishing the reasons for re-opening on already concluded assessment goes to very route of the matter and that the assessee is entitled to be furnished reasons for such re-opening and that if reasons are not furnished to the assessee, then the proceedings for the re-assessment cannot be taken any further, and re-opening of the assessment would be bad in law. A.O. had issued notice u/s 148 of the Act, on 30.6.2011 calling upon the assessee to furnish return of income. In response, the assessee has filed a letter on 18.7.2011 requesting for time of atleast 30 days for submitting the required details. Thereafter, the A.O. has issued a letter dated 25.7.2011 to furnish returns in response to notice issued u/s 148 of the Act. In response to letter, the assessee has filed a letter on 8.8.2011 and requested the A.O. to furnish reasons recorded for re-opening of the assessment for all the assessment years. Thereafter, the assessee has filed one more letter on 26.8.2011 and requested the A.O. to treat the return filed earlier u/s 139(1) of the Act, as the return filed in response to notice issued u/s 148 of the Act, for the assessment year 2007-08, but the assessee has filed returns in response to notice u/s 148 for the assessment year 2008-09 and 2009-10. Therefore, it is abundantly clear that the assessee has followed the procedure laid down by the Hon ble Supreme Court, in the case of G.K.N. Drive Shaft s India Ltd. (2002 (11) TMI 7 - SUPREME Court ). It is only the A.O. has not followed the procedure laid down by the Hon ble Supreme Court. Therefore the re-opening of the assessment for the assessment years 2007-08, 2008-09 & 2009-10 is invalid - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of re-assessment proceedings under Section 147 of the Income Tax Act.
2. Whether the re-assessment was based on a "change of opinion" without any fresh material.
3. Non-furnishing of reasons recorded for re-opening the assessment.
4. Deduction towards provision for bad and doubtful debts under Section 36(1)(viia) of the Income Tax Act.

Detailed Analysis:

1. Validity of Re-assessment Proceedings:
The primary issue in this case was the validity of the re-assessment proceedings initiated by the Assessing Officer (A.O.) under Section 147 of the Income Tax Act. The assessee contended that the re-assessment was invalid as it was initiated merely on the basis of a "change of opinion" without any fresh material. The A.O. had reopened the assessments for the years 2007-08 to 2009-10, stating that the assessee had claimed excessive deductions towards provision for bad and doubtful debts under Section 36(1)(viia) of the Act, which was not subjected to verification during the original assessment.

2. Change of Opinion:
The Tribunal examined whether the re-assessment was based on any tangible material or merely a change of opinion. The A.O. had relied on the CBDT Instruction No. 17/2008 dated 26.11.2008 to form the belief that income had escaped assessment. However, the Tribunal observed that the A.O. did not refer to any new material that came to his knowledge after the completion of the original assessment. The reasons recorded for re-opening were based on the return of income and the CBDT instructions, which were already available at the time of the original assessment. The Tribunal held that re-opening of assessment on the same set of facts amounts to a mere change of opinion, which is not permissible under law.

3. Non-furnishing of Reasons for Re-opening:
The assessee had also raised an additional ground challenging the validity of the re-assessment proceedings on the ground that the A.O. did not furnish the reasons recorded for re-opening the assessment despite a specific request. The Tribunal noted that the assessee had requested the reasons for re-opening through a letter dated 8.8.2011, but the A.O. failed to provide the reasons before completing the re-assessment. The Tribunal referred to the Supreme Court's decision in G.K.N. Drive Shaft's India Ltd. vs. ITO, which mandates that the A.O. must furnish reasons recorded for re-opening if requested by the assessee. The Tribunal concluded that the failure to furnish reasons invalidates the re-assessment proceedings.

4. Deduction towards Provision for Bad and Doubtful Debts:
On the merits, the Tribunal addressed the issue of deduction towards provision for bad and doubtful debts under Section 36(1)(viia) of the Act. The A.O. had restricted the deduction to the actual provision created in the books of accounts, whereas the assessee had claimed a higher deduction as per the statutory limit. The Tribunal upheld the CIT(A)'s decision that the deduction is allowed subject to the actual provision created in the books of accounts.

Conclusion:
The Tribunal quashed the re-assessment orders for the assessment years 2007-08, 2008-09, and 2009-10, holding that the re-opening was invalid as it was based on a mere change of opinion without any fresh material. Additionally, the re-assessment was invalidated due to the A.O.'s failure to furnish the reasons recorded for re-opening despite the assessee's request. The Tribunal did not adjudicate the issues on merits as the re-assessment orders were quashed on legal grounds.