2019 (9) TMI 381 - AT - Income Tax

Reopening of assessment u/s 147 - addition made by the AO on account of product warranty - change of opinion - HELD THAT - Assessment has been reopened on change of opinion without there being any tangible material, in the possession of the AO, which suggest escapement of income. The Ld.CIT(A) had also recorded categorical findings, in light of proviso to section 147 and held that unless, there is an allegation from the AO in the reasons recorded for reopening of assessment that any income chargeable to tax had escaped assessment by reasons of the failure, on the part of assessee to disclose fully and truly all material facts necessary for reassessment, for that assessment year, the assessment cannot be reopened after four years from the end of relevant assessment year, if such assessment has been completed u/s 143(3). In this case, on perusal of facts, we find that the original assessment has been completed u/s 143(3) of the I.T.Act, 1961 on 29/12/2018 and the assessment has been reopened after four years from the end of relevant assessment years without making any allegation as to failure on the part of assessee to disclose fully and truly all material facts necessary for assessment. Therefore, we are of the considered view that reopening of assessment, in this case was made on change of opinion without there being any tangible material in the position of the AO, which suggest escapement of income and also without making any allegation as to failure on the part of assesee to disclose fully and truly all the material facts necessary for assessment - CIT(A) has rightly quashed reassessment proceedings - Decided in favour of assessee.

Summary

Issues:
1. Validity of reopening assessment u/s 147
2. Application of change of opinion doctrine in reassessment

Issue 1: Validity of reopening assessment u/s 147
The case involved an appeal by the revenue against the order of the Commissioner of Income Tax (Appeals) pertaining to the Assessment Year 2005-06. The revenue challenged the deletion of an addition made by the Assessing Officer (AO) on account of product warranty. The assessment was reopened under section 147 of the Income Tax Act, 1961, for alleged escapement of income due to various issues, including allowance of ineligible expenditure. The revenue contended that the assessment was reopened based on valid reasons. However, the Commissioner (Appeals) held that the reassessment was invalid as it was a mere change of opinion without any new material to suggest income escapement. The Commissioner also noted that the AO failed to establish a failure on the part of the assessee to disclose material facts necessary for assessment, as required by the proviso to section 147. Consequently, the additions made by the AO were deleted.

Issue 2: Application of change of opinion doctrine in reassessment
The assessee challenged the reopening of assessment on the grounds of change of opinion without tangible material to suggest income escapement. The Commissioner (Appeals) agreed with the assessee, citing the Supreme Court's decision in CIT vs Kelvinator of India Ltd., emphasizing that reassessment based on a mere change of opinion is impermissible under section 147. The Commissioner found that the AO's reference to under-assessment after reviewing the case records did not constitute valid grounds for reassessment. The Commissioner also noted that the AO did not allege any failure on the part of the assessee to disclose material facts, rendering the reassessment invalid. The assessee further supported the Commissioner's decision by citing relevant case laws, including ITO vs TechSpan India (P.) Ltd. and SBI vs ACIT, to establish that the reassessment was indeed a change of opinion without new material.

In conclusion, the Appellate Tribunal upheld the decision of the Commissioner (Appeals), dismissing the revenue's appeal. The Tribunal found that the reassessment was initiated based on a change of opinion without tangible material to suggest income escapement, and without establishing a failure on the part of the assessee to disclose material facts. The Tribunal's decision was supported by various case laws cited by both parties, emphasizing the impermissibility of reassessment on mere change of opinion.