2017 (5) TMI 484 - HC - Income Tax

Reopening of assessment - return filed was processed under Section 143 (1) - Held that - ITAT was right that the reopening was based merely on a change of opinion. Not only did he examine the records but came to the conclusion that there was prima facie no evidence that the liabilities were not ascertained liabilities.

Summary

Issues:
1. Validity of reopening the assessment under Section 148 of the Income Tax Act, 1961.
2. Disallowance of expenses and additions made by the Assessing Officer.
3. Decision of the Commissioner of Income Tax (Appeals) on Section 148 and disallowances.
4. Appeals filed by both the Revenue and the Assessee before the ITAT.

Issue 1: The High Court examined the appeal challenging the order passed by the Income Tax Appellate Tribunal (ITAT) for the Assessment Year 1999-2000. The Assessee initially declared a 'Nil' taxable income, which was later revised, leading to a notice under Section 148 of the Act seeking to reopen the assessment. The reasons provided for reopening highlighted certain provisions in the return of income that were considered 'unascertained liabilities,' resulting in under-assessment of income. The Assessing Officer (AO) disallowed certain expenses and made additions to the closing stock, which was contested by the Assessee.

Issue 2: The AO disallowed 20% of foreign travelling expenses, provision for warranty, FOC marketing expenses, and 25% of provision for obsolescence of inventory, adding to the closing stock. The Commissioner of Income Tax (Appeals) upheld some disallowances but deleted others. The ITAT, in its order, allowed the Assessee's appeal and dismissed the Revenue's appeal, emphasizing that the reopening was based on a change of opinion and not new material.

Issue 3: The Court analyzed a letter written by the AO in response to an audit objection, where he concluded that there was prima facie no evidence that the liabilities were not ascertained liabilities. The Court held that the AO did form an opinion, contrary to the Revenue's argument, and agreed with the ITAT that the reopening was indeed a change of opinion. The Court dismissed the appeal, stating that no substantial question of law arose.

Issue 4: Both the Revenue and the Assessee had filed appeals before the ITAT, leading to a common order where the ITAT allowed the Assessee's appeal and dismissed the Revenue's appeal. The ITAT's decision was based on the examination of audit objections and the AO's response, highlighting the lack of new material in the reopening of the assessment.

In conclusion, the High Court upheld the ITAT's decision, emphasizing that the reopening of the assessment was not valid due to being based on a change of opinion rather than new evidence, leading to the dismissal of the appeal by the Revenue.