2019 (1) TMI 856 - AT - Income Tax

Reopening of assessment - Claim of rebate u/s. 88E - Review in the garb of re-assessment - Held that - It is undisputed fact that the assessee was assessed u/s 143(3) and the reassessment proceedings were initiated beyond 4 years from the end of relevant AY. Pre-conditions to invoke the reassessment proceedings u/s 147 was that the AO had reasons to believe that certain income escaped assessment and such escapement has occurred due to failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. So far as the formation of reasons is concerned, it is undisputed fact that no tangible material came into the possession of AO which suggested any escapement of income against the assessee & the belief was based on same set of material which was available before Ld. AO during original assessment proceedings. It is trite law that AO has the power to re-assess but no power to review. Review in the garb of re-assessment was not permissible. The revenue is unable to point out any tangible material suggesting escapement of income, which came into the notice of AO subsequent to completion of assessment proceedings. Specific question as to allocation of expenses were raised against the assessee during original assessment proceedings which were duly addressed by the assessee with supporting details / workings. This is further fortified by the fact that the adjustment of speculation loss was incorporate during rectification proceedings upon being pointed out by the assessee himself. These facts have already been noted by first appellate authority which could not be controverted by revenue in any manner. No hesitation in upholding that the reassessment proceedings were bad in law and the lower authorities could not be permitted to review the already concluded matter. So far as the merits of the case are concerned, we find that the assessee had already allocated the expenditure between share trading activity and brokerage business on a reasonable basis. It emanates from the records that the assessee had allocated administrative expenditure aggregating to ₹ 24.67 Crores i.e. ₹ 2.63 Crores against trading in shares and ₹ 22.03 Crores against derivative trading as against the estimation of ₹ 15 crores made by AO and therefore, the same was factually incorrect. CIT(A) has already provided relief to the assessee on merits and we concur with the same. - Decided against revenue

Summary

Issues Involved:
1. Validity of reassessment proceedings initiated under Section 148 of the Income Tax Act.
2. Correctness of the rebate allowed under Section 88E of the Income Tax Act.

Detailed Analysis:

1. Validity of Reassessment Proceedings:

The primary issue raised by the assessee in their cross-objections was the legality of the reassessment proceedings initiated under Section 148 of the Income Tax Act. The assessee argued that the reopening of the assessment was "bad in law, ultra vires and contrary to the provisions of the Act." The original assessment was completed under Section 143(3), and the reassessment was initiated beyond four years from the end of the relevant assessment year. According to the law, for reassessment proceedings to be valid, the Assessing Officer (AO) must have "reasons to believe" that income has escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for the assessment.

The tribunal noted that no new tangible material came into the possession of the AO that suggested any escapement of income. The belief for reassessment was based on the same set of materials available during the original assessment proceedings. The tribunal cited the legal principle that an AO has the power to reassess but not to review, as established in the case of CIT Vs. Kelvinator of India Ltd. [320 ITR 561]. The tribunal concluded that the reassessment proceedings were essentially a review of the original assessment, which is not permissible under the law. Therefore, the reassessment proceedings were deemed invalid, and the assessee's cross-objections were allowed.

2. Correctness of Rebate Allowed Under Section 88E:

The revenue contested the order of the Commissioner of Income Tax (Appeals) [CIT(A)] directing the AO to allow a rebate of ?30,21,73,810 under Section 88E, instead of ?15,00,000 as claimed by the revenue. The reassessment proceedings were initiated because the AO believed that the assessee did not properly allocate expenses between share trading activity and brokerage activity, resulting in an excess claim of rebate under Section 88E by ?15.21 Crores.

The tribunal examined the facts and found that the assessee had already allocated the expenditure between share trading and brokerage business on a reasonable basis. The assessee provided detailed workings and supporting documents during the original assessment proceedings, which were duly examined by the AO. The tribunal noted that the expenses were properly allocated, and the AO's estimation of ?15 Crores was factually incorrect. The CIT(A) had already provided relief to the assessee on merits, and the tribunal concurred with this decision.

Conclusion:

The tribunal upheld the CIT(A)'s decision to allow the rebate under Section 88E as claimed by the assessee. The reassessment proceedings were declared invalid, and the revenue's appeal was dismissed. The assessee's cross-objections were allowed, and the tribunal directed the AO to allow the rebate under Section 88E as originally claimed by the assessee. The final order was pronounced in the open court on 16th January 2019.