2019 (2) TMI 726 - HC - Income Tax

Reopening of assessment - validity of notice - Held that - After scrutiny that the AO passed the order of assessment in which he made no additions on this ground. In absence of any new or additional material available with him, any attempt on the part of the AO to disturb such assessment would be based on mere change of opinion and clearly impermissible in law. The second ground sought to be raised by the AO in the reasons is possible of summary disposal. The record would show that out of expenditure in question, the assessee had disallowed 50% voluntarily. The remaining 50% was disallowed by the AO. This was subject matter of the appeal before the Commissioner. On the ground of merger, this issue could not have been raised by the Assessing Officer for reopening the assessment. Even otherwise, where the Assessing Officer himself had disallowed the expenditure in its entirety, we do not understand how he can seek to reassess the expenditure which in the original assessment he disallowed in its entirety. The impugned notice is quashed.

Summary

Issues:
1. Validity of notice issued by Assessing Officer under Section 148 of the Income Tax Act, 1961.
2. Reopening of assessment based on transfer pricing and gift expenses.

Analysis:
1. The petitioner challenged a notice issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961, for the assessment year 2011-12. The notice was based on reasons related to transfer pricing and gift expenses. The petitioner contended that the issues raised were already examined during the original scrutiny assessment, where the transfer pricing provisions were applied, and no disallowance was made. The petitioner argued that there was no new material to justify reopening the assessment beyond the prescribed period of four years. The court noted that the reasons for reopening did not contain any new material found during a search operation, indicating a lack of justification for reassessment based on the existing record.

2. The Assessing Officer's reasons for reopening the assessment included allegations of the petitioner transferring profits to its Associated Enterprise (AE) and discrepancies in gift and sales promotion expenses. However, the court found that the Assessing Officer had already examined the transaction with the AE during the original assessment and made no additions. The court emphasized that without new or additional material, reopening the assessment would amount to a change of opinion, which is impermissible in law. Regarding the gift expenses, the court noted that the petitioner had voluntarily reduced the expenditure by 50%, and the remaining 50% was disallowed in the original assessment. The court held that the Assessing Officer could not reassess the expenditure that was already disallowed entirely in the original assessment.

In conclusion, the High Court quashed the impugned notice and allowed the petition, emphasizing that the reasons provided by the Assessing Officer did not justify reopening the assessment beyond the prescribed period and lacked new material to support reassessment.