2019 (3) TMI 79 - AT - Income Tax

Reopening of assessment - Original assessment u/s 143(3)- reopening on basis of objection raised by audit party - Disallowing the proportionate of depreciation expenses on building in respect of let out portion such building on the contention that the building was partly let out and partly used for business - reasons for reopening of assessment was not provided - HELD THAT - We note that at the appellate stage, CIT(A) did not give detailed finding about validity of reopening of the assessment u/s 147 except to say that the AO had already discussed the issue while passing the order stating therein that there was an excess allowance of business expenditure which resulted in under-assessment of business income and therefore confirmed the order passed by the AO. In order to initiate the reassessment proceedings, the notice under section 148 should be issued to the assessee. It is well settled law that initiation of reassessment proceedings u/s 147 without issuing notice under section 148 of the Act is void ab initio. How the assessee can defend his case if the reasons for reopening of assessment is not provided to him? Apart from this the AO has reopened the assessment completed u/s 143(3) on the basis of objection raised by audit party. AO has not applied his mind independently to arrive at the conclusion as to whether he had reasons to believe that income of the assessee was escaped from tax in the assessment for the relevant year. Therefore the material on record, we are unable to uphold the stand of the AO for reopening the assessment U/s 147/148, therefore, we cancel the reassessment order passed by the assessing officer under section 147 of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of reassessment proceedings under section 147 of the Income Tax Act, 1961.
2. Proportionate disallowance of repair expenses on the building.

Issue-wise Detailed Analysis:

1. Legality of Reassessment Proceedings under Section 147 of the Income Tax Act, 1961:

The primary grievance of the assessee was that the reassessment proceedings initiated under section 147 of the Act were illegal as the reasons for reopening the assessment were not provided. The assessee argued that the reassessment was initiated based on the same set of facts/details already on record during the original assessment under section 143(3) of the Act, which constituted a review rather than a reassessment. Additionally, the reassessment was allegedly based on audit objections without the independent application of mind by the Assessing Officer (AO).

The Tribunal noted that the reassessment order was passed without serving a notice under section 148 of the Act on the assessee, which is a condition precedent for the validity of any reassessment. Citing the Supreme Court's judgment in Y. Narayana Chetty vs. ITO, it was held that the absence of such notice renders the proceedings void ab initio. Furthermore, the Tribunal observed that the information used for reopening was already available during the original assessment, indicating a mere change of opinion rather than new tangible material, as required by the Supreme Court's ruling in CIT vs. Kelvinator of India.

2. Proportionate Disallowance of Repair Expenses on the Building:

The second issue was the proportionate disallowance of repair expenses amounting to ?15,51,000. The AO disallowed this amount on the grounds that the building was partly used for business and partly let out, thus necessitating a proportionate disallowance under section 38 of the Act. The assessee contended that the entire repair expenditure was incurred for the portion of the building used exclusively for business purposes.

The Tribunal noted that the AO had used the same basis for disallowing repair expenses as the assessee used for disallowing depreciation on the let-out portion of the building. However, the Tribunal found that the reassessment proceedings were based on a review of the same documents already considered during the original assessment, which is not permissible. The Tribunal emphasized that reassessment should be based on new tangible material, not a mere change of opinion.

Conclusion:

The Tribunal concluded that the reassessment proceedings under section 147/148 of the Act were invalid due to the lack of proper notice and the absence of new material. Consequently, the reassessment order was quashed, and the appeal filed by the assessee was allowed. The Tribunal's decision underscored the importance of adhering to procedural requirements and the necessity of new material for valid reassessment proceedings.