2017 (11) TMI 1144 - AT - Income Tax

Reopening of assessment - reason to believe - wrong calculation of 80-O, 80HHC & 80IA deduction and interest payable at compound interest rate to APSEB - Held that - These matters had come up for appeal in the year 1997-98 & 98-99 and dealt by him in detail in the orders of those years which were identical in present appeal. Reopening without any appropriate satisfaction/reason is not done as per the law by the Assessing Officer. Thus, the assessee s case gets support from the Hon ble Apex Court judgment in case of Kelvinator India (P) Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA wherein it is held that post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words reason to believe failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of mere change of opinion , which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. AO has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of change of opinion as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words reason to believe but also inserted the word opinion in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words reason to believe , Parliament reintroduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the Assessing Officer. The appeal of the assessee is allowed on the ground that the CIT(A) erred in upholding the re-opening of the assessment u/s 147 of the Act - Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of assessment under Section 147.
2. Addition of interest on line of credit.
3. Disallowance of prior period expenses.
4. Computation of deduction under Section 80-O.
5. Disallowance of deduction under Section 80-IA.
6. Re-computation of deduction under Section 80HHC.
7. Charging of interest under Section 234D.
8. Withdrawal of interest under Section 244A.
9. Initiation of penalty proceedings under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147:
The assessee contested the reopening of the assessment under Section 147, arguing that full details were provided and considered during the original assessment under Section 143(3). The Tribunal noted that the reopening was initiated after four years from the end of the relevant assessment year, and there was no failure on the part of the assessee to disclose material facts. The Tribunal referenced the Supreme Court's decision in CIT Vs. Kelvinator of India Ltd., emphasizing that a mere change of opinion does not constitute a "reason to believe" for reopening an assessment. The Tribunal concluded that the reopening was not justified and thus void ab initio.

2. Addition of Interest on Line of Credit:
The assessee argued that the interest on the line of credit extended to APSEB was accounted for as simple interest due to ongoing negotiations, and this was disclosed in the annual accounts. The Tribunal found that the issue was previously examined and accepted by the Assessing Officer in the assessment for the year 2001-02. Therefore, the addition of interest was deemed a change of opinion, which is not permissible for reopening.

3. Disallowance of Prior Period Expenses:
The assessee submitted that prior period expenses were disclosed in the annual accounts and accepted during the original assessment. The Tribunal noted that the system of accounting for prior period expenses was accepted in earlier assessments and by the ITAT in previous orders. The disallowance was thus considered a change of opinion.

4. Computation of Deduction under Section 80-O:
The assessee claimed that the deduction under Section 80-O was computed correctly in the original assessment. The Tribunal observed that the details were provided and considered during the original assessment and upheld by the CIT(A). The recomputation was again deemed a change of opinion.

5. Disallowance of Deduction under Section 80-IA:
The assessee argued that the deduction under Section 80-IA for the Nuclear Steam Generator project was correctly claimed and allowed in the original assessment. The Tribunal found that the commercial production started in May 1991, and the deduction was allowed for ten assessment years as per the provisions. The disallowance in the reassessment was considered a change of opinion.

6. Re-computation of Deduction under Section 80HHC:
The assessee contested the recomputation of the deduction under Section 80HHC, arguing that the lease rental income was business income and should not be excluded. The Tribunal noted that the original assessment and CIT(A) had accepted the computation. The recomputation in the reassessment was again deemed a change of opinion.

7. Charging of Interest under Section 234D:
The assessee argued that interest under Section 234D could not be charged as the original assessment was completed before the introduction of Section 234D. The Tribunal did not specifically address this issue, as the reopening itself was declared void ab initio.

8. Withdrawal of Interest under Section 244A:
The assessee contested the withdrawal of interest under Section 244A. The Tribunal did not specifically address this issue, as the reopening itself was declared void ab initio.

9. Initiation of Penalty Proceedings under Section 271(1)(c):
The assessee argued that the initiation of penalty proceedings under Section 271(1)(c) was not appealable. The Tribunal did not specifically address this issue, as the reopening itself was declared void ab initio.

Conclusion:
The Tribunal concluded that the reopening of the assessment under Section 147 was not justified as it was based on a mere change of opinion and lacked new tangible material. The assessment was declared void ab initio, and the order of the CIT(A) was set aside. The appeal of the assessee was allowed, and there was no need to decide the issues on merit.