2018 (6) TMI 274 - AT - Income Tax

Reopening of assessment u/s 148 - capital gain addition - eligibility of reasons to believe - Held that - Datewise capital account is placed wherein all the credit and debit entries which showed that at the beginning of the year the credit balance was ₹ 1,94,64,671/- whereas at the year end the capital account was overdrawn. A perusal of all these evidences on record reveals that the AO has examined all the materials at the time of original assessment proceedings u/s 143(3) and therefore there is no fresh tangible material before the AO to form a reason to believe that income of the assessee has escaped. The present case which is a mere formation of belief on the basis of re-examination of the same records which were available at the time of original assessment proceedings and therefore nothing less than a change of opinion which is not permissible under the IT Act. - Decided in favour of assessee.

Summary

Issues:
1. Reopening of assessment under section 148 without necessary satisfaction of Joint Commissioner of Income Tax.
2. Addition of interest to partners and calculation of interest on closing balance of one partner.

Analysis:

Issue 1: Reopening of assessment under section 148 without necessary satisfaction of Joint Commissioner of Income Tax

The assessee challenged the reopening of assessment under section 148 by the AO despite disclosing all material facts during the original assessment proceedings under section 143(3) of the Act. The AO issued a notice under section 148 based on the belief that income of the assessee had escaped assessment due to interest payments to a partner. The AO framed the reassessment under section 147, making additions towards interest charged on the negative capital of a partner. The assessee contended that all relevant details and information were provided during the original assessment proceedings, and the reassessment was a mere change of opinion without fresh tangible material. The appellate authority upheld the reopening, citing that the AO had sound reasons for the reassessment, and the assessee did not object during the original proceedings. However, the Tribunal found that the reassessment was based on a re-examination of existing records, constituting a change of opinion. Citing precedents, the Tribunal quashed the reassessment as impermissible under the IT Act, leading to the invalidation of the assessment.

Issue 2: Addition of interest to partners and calculation of interest on closing balance of one partner

The AO added amounts towards interest on the negative capital of a partner and withdrawal of interest wrongly allowed, totaling to a significant sum. The appellate authority upheld these additions, leading to the appeal by the assessee. The Tribunal found that the AO's actions were based on a flawed reassessment process, which was invalidated. Consequently, the additions made by the AO were also deemed invalid. The Tribunal's decision to quash the reassessment led to the allowance of the assessee's appeal, thereby overturning the additions made by the AO.

In conclusion, the Tribunal allowed the appeal of the assessee, quashing the reassessment and invalidating the additions made by the AO, emphasizing the impermissibility of reassessment based on a mere change of opinion without fresh tangible material.