2018 (4) TMI 1000 - AT - Income Tax

Re opening of assessment u/s 147 - payment of Octroi to BMC allowability - change of opinion - Held that - While completing the original assessment AO after examining the tax audit report has formed an opinion that the deduction claimed by the assessee on account of Octroi payment is allowable. Thus in the absence of any fresh tangible material coming to the possession of AO the re opening of assessment on re examination of the very same material on the basis of which the original assessment was completed amounts to re opening of assessment on a mere change of opinion resulting in review of the decision taken by the AO in the original assessment year is beyond the scope of section 147 - the impugned assessment order passed under section 143(3) r/w section 147 deserves to be quashed. Relying upon the tax audit report AO has concluded that the amount of 10, 50, 058 is in the nature of penalty paid to the BMC. However on a perusal of the tax audit report submitted in the paper book we have noticed that the amount of 10, 50, 058 has been shown as Octroi payment to BMC and an amount of 11, 18, 335 has been shown as penalty. Admittedly the assessee itself has disallowed the penalty of 11, 18, 335 in its computation of income. Therefore the material on record clearly establish that the amount of 10, 50, 058 claimed as deduction by the assessee is not in the nature of penalty. As regards the observations of the Commissioner (Appeals) that the payment pertains to earlier period and secondly assessee in the earlier year has debited the amount to its Profit & Loss account in our opinion such finding of the learned Commissioner (Appeals) is irrelevant for the impugned assessment year. When the assessee has brought material on record to demonstrate that the demand for Octroi and penalty have been raised by the BMC in the impugned assessment year and assessee has also made such payment in the impugned assessment year there is no reason why assessee s claim of deduction should not be allowed in the impugned assessment year. If the assessee has claimed any deduction wrongly in the earlier assessment year then the issue has to be dealt with in the said assessment year and not in the impugned assessment year. Therefore the deduction claimed by the assessee on account of payment of Octroi to BMC is allowable. - Decided in favour of assessee.

Summary

Issues:
1. Validity of re-opening of assessment under section 147 of the Income Tax Act, 1961.
2. Merits of the disallowance of an amount claimed as deduction by the assessee.

Analysis:

Issue 1: Validity of re-opening of assessment under section 147 of the Income Tax Act, 1961:
The appeal challenged the re-opening of assessment under section 147 of the Act. The Assessing Officer re-opened the assessment based on the belief that there was an escapement of income due to the non-disallowance of an amount paid towards Octroi. The Commissioner (Appeals) upheld the re-opening as it was within the four-year period and reasons were recorded. However, the Tribunal found that there was no fresh tangible material post the original assessment to indicate income escapement. The re-opening was solely based on the tax audit report, which was available during the original assessment. The Tribunal concluded that re-opening the assessment on the same material without new tangible evidence amounted to a mere change of opinion, which is impermissible under section 147 of the Act. Consequently, the Tribunal held the re-opening invalid and quashed the assessment order.

Issue 2: Merits of the disallowance of the claimed deduction:
Regarding the disallowance of an amount claimed as deduction by the assessee, the Assessing Officer treated it as penalty, which was disputed by the assessee. The Commissioner (Appeals) upheld the disallowance, stating the payment did not pertain to the impugned assessment year. However, the Tribunal found that the payment was for Octroi duty in the impugned assessment year and was paid to BMC. The Tribunal noted that the amount claimed as deduction was not penalty but Octroi payment. As the payment accrued and was paid in the impugned assessment year, the deduction was allowable. The Tribunal held that the assessee succeeded on both legal and merits grounds, allowing the appeal.

In conclusion, the Tribunal invalidated the re-opening of assessment under section 147 and allowed the appeal on the merits of the disallowance, stating the deduction claimed by the assessee for Octroi payment was allowable for the impugned assessment year.