2018 (1) TMI 1284 - AT - Income Tax

Reopening of assessment - eligible reasons to believe - allowability of deduction on account of diminishing in value of investments - Held that - While concluding the original assessment proceedings the AO raised queries on issues which were recorded by the AO in the reasons for initiation of re-assessment proceedings. The AO while completing the original assessment proceedings did not make any reference or give any reasons for accepting the answer of the assessee to the issue but did not make any addition. In the given circumstances the AO may be held to have applied his mind on this issue and thereafter allowed the claim of the assessee. It cannot therefore be said in the present case that the AO while completing the original assessment did not consider the issue with regard to the allowability of deduction on account of diminishing in value of investments. The arguments of the ld. DR in this regard is therefore not accepted. The conditions to be satisfied for validity of reassessment proceedings by the first proviso to section 147 of the Act are not satisfied in the present case. In conclusion we hold that there is no merit in this appeal by the revenue and the order of CIT(A) does not suffer from infirmity. Order of CIT(A) is therefore confirmed and the appeal of the revenue is dismissed.

Issues Involved:
1. Validity of reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961.
2. Whether the reassessment was based on a mere change of opinion.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The primary issue was the validity of the reassessment proceedings initiated by the Assessing Officer (AO) under Section 147 of the Income Tax Act, 1961. The original assessment for the Assessment Year (AY) 2002-03 was completed under Section 143(3) on 28.03.2005. The AO issued a notice under Section 148 on 09.09.2008, beyond the four-year period from the end of the relevant assessment year. According to the proviso to Section 147, no action can be taken after the expiry of four years unless there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

The AO's reason for reopening the assessment was based on the observation that the assessee had not added back the "Investment Written Off" amounting to ?6,50,01,073/- in the computation of income for AY 2002-03, which was considered capital in nature. The AO contended that this led to an income chargeable to tax escaping assessment.

The CIT(A) held that the initiation of reassessment proceedings was not valid as there was no failure on the part of the assessee to disclose fully and truly all material facts. The CIT(A) noted that the AO had raised specific queries regarding the "Investment Written Off" during the original assessment, and the assessee had provided detailed explanations. The AO did not disallow the claim in the original assessment, indicating that the AO had considered and accepted the assessee's claim. Thus, the reassessment proceedings were annulled by the CIT(A).

2. Reassessment Based on Change of Opinion:
The assessee argued that the reassessment was based on a mere change of opinion, which is not permissible. The CIT(A) agreed, stating that the AO had already examined the issue during the original assessment and had not made any addition, implying that the AO had formed an opinion. The CIT(A) relied on the Supreme Court's decision in CIT vs. Kelvinator of India Ltd. (320 ITR 561), which held that reassessment cannot be initiated on a mere change of opinion.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the conditions for reassessment under the first proviso to Section 147 were not met. The Tribunal noted that the AO had indeed considered the issue during the original assessment, and there was no failure on the part of the assessee to disclose material facts. The Tribunal also referred to the Gujarat High Court's decision in Sai Consulting Engineers Pvt. Ltd vs. DCIT (377 ITR 354), which supported the view that the AO is deemed to have applied his mind if specific queries were raised and addressed during the original assessment.

Conclusion:
The Tribunal concluded that the reassessment proceedings were not valid as they were initiated beyond the four-year period without any failure on the part of the assessee to disclose material facts. The reassessment was also found to be based on a mere change of opinion. Consequently, the appeal by the revenue was dismissed, and the order of the CIT(A) was confirmed.

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