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2018 (2) TMI 92 - AT - Income TaxReopening of assessment - reasons to believe - Held that - As in the present case, we find that the AO is unable to discern the link between the tangible material and the formation of the reasons to believe that income had escaped assessment. In the case on hand the information of bad debts/ advance written off is very much emanating from the audited financial statement available with the AO. Thus the reopening on the basis of financial statement per se does not refer to the tangible material gathered from independent sources. Thus we find that the manner of recording satisfaction remains the same even in the case where no scrutiny assessment was conducted. Therefore respectfully following the co-ordinate Bench order and other judgments as discussed above, we hold that the re-assessment was not valid and in view of above CO filed by assessee is allowed.
Issues Involved:
1. Initiation of Re-assessment Proceedings under Section 147 of the Income Tax Act, 1961. 2. Validity of the Re-assessment Proceedings based on the Alleged Excessive Claim of Bad Debt. Detailed Analysis: 1. Initiation of Re-assessment Proceedings under Section 147 of the Income Tax Act, 1961: The assessee challenged the initiation of re-assessment proceedings under Section 147 on the grounds that it was based on a mere change of opinion and a fresh application of mind to the same set of facts. The assessee argued that all necessary material facts regarding doubtful debts/bad debts were already available in the records of the Revenue. The assessee contended that the reasons recorded by the Assessing Officer (AO) did not form a firm belief or finding that the income had escaped assessment. The assessee relied on several judicial precedents, including CIT vs. Orient Craft Ltd (2013) 354 ITR 536 (Del) and CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC), to support the claim that re-assessment proceedings require new tangible material and cannot be based on the same set of facts already available. The Revenue, on the other hand, argued that the notice under Section 148 was issued within the prescribed time and that there was no assessment proceeding under Section 143(3). Therefore, it could not be said that the AO initiated the re-assessment proceedings merely on the basis of a change of opinion. 2. Validity of the Re-assessment Proceedings based on the Alleged Excessive Claim of Bad Debt: The AO observed that the assessee had claimed excessive bad debt to the tune of ?90 lakh, which was allowed under Section 143(1). The AO believed that the income of the assessee had escaped assessment and issued a notice under Section 148. The AO's belief was based on the financial statements, which showed a discrepancy between the opening and closing sundry debtors, leading to the conclusion that the assessee could at most write off ?1.42 crore but had written off ?2.32 crore. The Tribunal examined whether the AO had any tangible material to form a reason to believe that income had escaped assessment. It was found that the AO's reasons were based merely on the financial statements, which were already available before processing the return under Section 143(1). The Tribunal emphasized that for re-assessment proceedings under Section 147, there must be tangible fresh material in the possession of the AO. The Tribunal relied on the judgment of the Hon'ble Delhi High Court in CIT vs. Orient Craft Ltd. (2013) 354 ITR 536 (Del) and the Hon'ble Supreme Court in CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC), which held that the finality of an intimation under Section 143(1) can only be disturbed if the AO has a reason to believe, based on tangible material, that income has escaped assessment. The Tribunal concluded that there was no fresh material gathered by the AO for initiating the proceedings under Section 147. The information regarding bad debts/advance written off was already available in the audited financial statements. Therefore, the re-assessment proceedings were deemed invalid as they were based on a mere change of opinion without any new tangible material. Conclusion: The Tribunal allowed the assessee's Cross Objection, holding that the re-assessment proceedings were not valid. Consequently, the appeal filed by the Revenue was dismissed as infructuous. The Tribunal's order emphasized the necessity of tangible material for initiating re-assessment proceedings under Section 147 and reiterated that a mere change of opinion does not justify such proceedings.
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