2019 (7) TMI 1434 - AT - Income Tax

Reopening of assessment u/s 147 - validity of reasons to believe - refundable security deposit - HELD THAT - Assessing Officer has not brought on record any tangible material or information to establish a case of escapement of income. The whole basis of the reopening in the instant case is based on addition made in assessment year 2013-14 which, in our opinion, cannot be termed as tangible material for the purpose of the provisions of section 147 of the IT Act, especially when the Assessing Officer in the assessment year 2012-13 has accepted this very issue after due examination and no addition has been made. In our opinion, for the purpose of section 148, the requirement of tangible material is mandatory irrespective of mode of original assessment as held by the Hon'ble Delhi High Court in the case of Tupperware India P. Ltd. 2015 (8) TMI 517 - DELHI HIGH COURT Further, as held by the Hon'ble Supreme Court in the case of Mahendra Mills Ltd. 1975 (3) TMI 1 - SUPREME COURT the term record includes the entire record of subsequent and preceding years. Since the issue of refundable security deposit was examined in assessment year 2012-13 and the opinion so formed will be equally relevant for assessment year 2009-10 to 2011-12 as well and as such the reassessment proceedings based on a different view adopted in assessment year 2013-14, in our opinion, would be based on change of opinion and reappraisal of facts already on record. Therefore, we agree with the contention of the ld. counsel for the assessee that the reassessment proceedings so initiated are void on the ground that the reasons are not based on any tangible material for recording of such reasons. The various decisions relied on by the ld. DR are distinguishable and not applicable to the facts of the present case. In view of the above discussion, we hold that the reassessment proceedings initiated by the Assessing Officer are not in accordance with the law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings under section 148.
2. Taxability of non-refundable interest-free security deposits.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 148:

The assessee challenged the reassessment proceedings on the grounds that they were based on a change of opinion and lacked tangible material. The original assessments for the years 2009-10 and 2010-11 were completed under section 143(1), and for 2011-12 under section 143(3). The reassessment was initiated based on findings from the assessment year 2013-14, where non-refundable security deposits were considered taxable income. The assessee argued that similar deposits were examined and accepted in the assessment year 2012-13 without any addition, implying that the reassessment was based on a change of opinion rather than new tangible material.

The Tribunal found merit in the assessee's argument, noting that the reassessment was indeed based on a change of opinion and reappraisal of facts already on record, without any new tangible material. The Tribunal cited various judicial precedents, including CIT v. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC), which emphasized that reassessment must be based on tangible material and not merely a change of opinion. The Tribunal concluded that the reassessment proceedings were invalid as they were not based on any tangible material and were merely a reappraisal of facts already on record.

2. Taxability of Non-Refundable Interest-Free Security Deposits:

The Assessing Officer (AO) added ?7,00,64,800 to the assessee's income, considering the non-refundable interest-free security deposits received during the year as taxable income. The AO argued that these deposits were non-refundable and thus taxable in the hands of the recipient, the assessee, and not M/s Silverline Holding Pvt. Ltd. The AO dismissed the assessee's claim that the deposits were refundable and held in trust for maintenance purposes.

The CIT(A) upheld the AO's decision, stating that the deposits were non-refundable and had a nexus with the operation and maintenance (O&M) services provided by the assessee, thus taxable as revenue receipts. The CIT(A) relied on the Mumbai Bench Tribunal's decision in Aakash Lavlesh Leisure Pvt. Ltd. (2017) 78 taxmann.com 338 (Mum), which held similar non-refundable deposits as taxable.

The Tribunal, however, did not adjudicate on the merits of this issue, as it had already decided in favor of the assessee on the validity of the reassessment proceedings. The Tribunal noted that since the reassessment proceedings were invalid, the grounds challenging the addition on merit were academic and did not require adjudication.

Conclusion:

The Tribunal allowed the appeals filed by the assessee, holding that the reassessment proceedings were invalid due to being based on a change of opinion and lacking tangible material. Consequently, the grounds on the merits of the addition were not adjudicated. The decision emphasized the necessity for tangible material in reassessment proceedings and reinforced the principle that reassessment cannot be based merely on a change of opinion.