2018 (12) TMI 1445 - AT - Income Tax

Reopening of assessment - include diminution in the value of investment and consequently to increase the assessed book profit to this extent - MAT computation - reopening after the expiry of four years from the end of the assessment year - Held that - The expression disclose in first proviso postulates a pre-existing knowledge. A person can possibly disclose something, he is privy to. A retrospective amendment of law cannot be visualized by an assessee which may lead to any kind of failure to disclose. Therefore, the conditions prescribed in the first proviso cannot be said to be fulfilled and thus the action of the AO u/s 147 after the expiry of four years from the end of the assessment year in question is clearly time barred and therefore, vitiated in law. AO initiated proceedings under s.147 read with proviso thereof solely on the grounds of retrospective insertion of clause (i) to Explanation 1 to Section 115JB of the Act whereby provisions for diminution in the value of any asset is required to be added to the book profit for the purposes of Section 115JB of the Act. As observed and as echoed in decision of Sadbhav Engineering Ltd. vs. DCIT 2014 (6) TMI 296 - GUJARAT HIGH COURT and Vodafone West Ltd. vs. ACIT 2013 (7) TMI 536 - GUJARAT HIGH COURT , retrospective amendment in law does not give rise to any failure to disclose material facts as contemplated in the first proviso. Thus, apparently the order of the CIT(A) in setting aside the re assessment order based on an invalid notice under s.148 of the Act cannot be faulted in law. - decided against revenue

Summary

Issues involved:
Reopening of assessment under Section 147 of the Income Tax Act, 1961 concerning AY 2005-06 based on diminution in the value of investment and its impact on book profit for MAT computation.

Analysis:
1. Reopening of Assessment: The Revenue appealed against the CIT(A)'s decision to quash the reopening of assessment under Section 147 of the Income Tax Act, 1961. The AO, after noticing a diminution in the value of investment, reopened the assessment to include this amount in the book profit for MAT computation. The retrospective amendment in Section 115JB was cited as the basis for the reassessment. However, the CIT(A) held that the proceedings under Section 147 were not sustainable to give effect to the retrospective amendment. The Tribunal concurred with the CIT(A) that the re-assessment based on the retrospective amendment did not fulfill the conditions of the first proviso to Section 147, as there was no failure on the part of the assessee to disclose material facts.

2. Jurisdiction under Section 147: The Tribunal analyzed the conditions under the first proviso to Section 147, emphasizing that reopening of assessment is permissible only if income has escaped assessment due to the assessee's failure to disclose material facts. The retrospective amendment in law cannot be a ground for reopening if there was no failure on the part of the assessee. The Tribunal held that the AO's action under Section 147, based solely on the retrospective amendment in Section 115JB, was time-barred and legally flawed. Citing relevant case laws, the Tribunal concluded that the CIT(A)'s decision to set aside the reassessment order was valid.

3. Cross Objection: The assessee had filed a cross objection challenging the assumption of jurisdiction under Section 147 and the re-computation of book profit under Section 115JB. However, since the Tribunal upheld the CIT(A)'s decision on the main issue, it did not delve into the alternative objection raised in the cross objection. Consequently, the Tribunal dismissed the Revenue's appeal and the assessee's cross objection as infructuous, affirming the CIT(A)'s order to quash the reassessment based on the retrospective amendment.

In conclusion, the Tribunal dismissed the Revenue's appeal against the quashing of the reassessment under Section 147, emphasizing that the retrospective amendment in law did not justify the reopening of assessment if there was no failure on the part of the assessee to disclose material facts. The Tribunal's detailed analysis upheld the CIT(A)'s decision, highlighting the importance of fulfilling the statutory conditions for reopening assessments under the Income Tax Act.