2018 (2) TMI 977 - AT - Income Tax

Reopening of assessment - three items of income have escaped assessment - validity of reasons to believe - Held that - A perusal of the reasons to believe reveals that the records on the basis of reasons for re-opening were recorded were available before the AO even at the time of original assessment proceedings as is apparent from the statement of computation of total income placed at page 1 of the paper book and also fortified by the discussions by the AO himself in the original assessment order passed under Section 143(3) r.w.s. 153A dated 22.12.2008 of the original assessment order. Thus we find that the AO has recorded the reasons on re-examination of the same records/information which were available at the time of framing the original assessment passed under Section 143(3) r.w.s. 153A of the Act. A review by the AO of his own order is not permissible under the Act as decided by the Hon ble Supreme Court in the case of Kelvinator of India Ltd. (2010 (1) TMI 11 - SUPREME COURT OF INDIA ) - Decided in favour of assessee

Summary

Issues Involved:

1. Reopening of assessment under Section 147 of the Income Tax Act, 1961.
2. Jurisdictional validity of the assessment order.
3. Disallowance of ?31,37,000 on account of manufacturing and other expenses.
4. Disallowance of ?1,80,437 by invoking provisions of Section 40(a)(ia) of the Income Tax Act.
5. Disallowance of ?3,91,653 by invoking provisions of Section 43B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147:

The assessee challenged the reopening of the assessment under Section 147, arguing that it was based on a change of opinion on facts already available during the original assessment. The CIT(A) upheld the reopening, stating that the issues were not examined during the original assessment. The Tribunal found that the reasons for reopening were based on records available during the original assessment and thus constituted a change of opinion, which is not permissible. The Tribunal relied on the Supreme Court's decision in Kelvinator of India Ltd. and other relevant case laws, concluding that the reassessment proceedings were invalidly initiated and quashed them.

2. Jurisdictional Validity of the Assessment Order:

The assessee contended that the assessment order was void for want of jurisdiction. The Tribunal did not specifically address this issue separately but quashed the reassessment proceedings on the grounds of invalid reopening, implicitly addressing the jurisdictional concerns.

3. Disallowance of ?31,37,000 on Account of Manufacturing and Other Expenses:

The AO disallowed ?31,37,000, categorized as "charity and donation" under manufacturing and other expenses, arguing it was not incurred for business purposes. The Tribunal noted that this disallowance was based on information available during the original assessment, reinforcing the view that the reopening was a change of opinion. Since the reassessment proceedings were quashed, this disallowance issue was not adjudicated on merits.

4. Disallowance of ?1,80,437 by Invoking Provisions of Section 40(a)(ia):

The AO disallowed ?1,80,437 based on the tax audit report, which the assessee did not disallow suo moto. The Tribunal observed that this issue was also based on records available during the original assessment. As the reassessment proceedings were quashed, this disallowance issue was not adjudicated on merits.

5. Disallowance of ?3,91,653 by Invoking Provisions of Section 43B:

The AO disallowed ?3,91,653, the difference between the provision for gratuity made during the year and the suo moto disallowance by the assessee, under Section 43B(b). The Tribunal found that this issue, too, was based on records from the original assessment. With the reassessment proceedings quashed, this disallowance issue was not adjudicated on merits.

Conclusion:

The Tribunal quashed the reassessment proceedings for both assessment years 2006-07 and 2007-08, deeming them invalid due to being based on a change of opinion. Consequently, the issues raised on merits were not adjudicated. The appeals filed by the assessee were allowed.