2019 (11) TMI 932 - AT - Income Tax

Reopening of assessment u/s 147 - allowability or exemption u/s. u/s.10(23C)(iiiab) - HELD THAT - In the present case, there is no new tangible material, which had come into the possession of the AO, therefore, reopening on the same material amounts to mere change of opinion, which is not permissible under the law. Similarly, the ld.Counsel has placed reliance in the case of Oriental Insurance Company Vs. CIT 2015 (9) TMI 757 - DELHI HIGH COURT wherein it was held that it cannot be disputed that the exemption claimed by the AO in respect of the profit on sale /redemption of investment was duly disclosed and the AO has also opined on the merits of taxability of profits of sale / redemption of investment. The income from profit on sale/redemption of investments is now sought to be taxed as income, which had escaped assessment. Thus, in our view, clearly represents a change in the opinion with regard to the taxability of the income in question. It was well settled that the power under Section 147 of the Act is not a power of review but a power to reassess. Permitting reopening of assessment on a change of opinion as to the taxability of the income of the Assessee is, thus, outside the scope of Section 147. We further find that the reopening has been done in the present case on the basis of Revenue Audit Objection which does not constitute an information for the purpose of reopening of assessment as held by the Hon ble Supreme Court in the case of CIT Vs. Lukas TVS Ltd. 2000 (12) TMI 102 - SC ORDER wherein it was held that an audit opinion in regard to the application or interpretation of law cannot be treated as information for reopening of the assessment u/s.147 - Decided in favour of assessee

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Validity of reopening of assessment under section 147.
3. Issuance of notice under section 148 based on audit objection.
4. Alleged change of opinion by the Assessing Officer (AO).
5. Failure to dispose of objections against notice under section 148.
6. Sanction for notice under section 148 without independent application of mind.
7. Disallowance of exemption under section 10(23C)(iiiab).
8. Interest charged under section 234B.

Detailed Analysis:

Condonation of Delay:
The appeal by the assessee was delayed by 41 days due to the clerk of the Chartered Accountant forgetting to file the appeal. The Tribunal found the explanation satisfactory and reasonable, noting no malafide intention or negligence on the part of the assessee. Therefore, the delay was condoned, and the appeal was admitted for decision on merit.

Validity of Reopening of Assessment (Grounds 1 to 6 & 8):
The assessee argued that the reopening of the assessment under section 147 was based on an audit objection, which amounted to a change of opinion and was not permissible under the law. The original assessment had already considered the exemption under section 10(23C)(iiiab), and no new facts had emerged to justify reopening. The Tribunal agreed, citing several precedents, including CIT vs. Lucas TVS Ltd. and ACIT vs. ICICI Securities Primary Dealership Ltd., which held that reassessment based on audit opinion is not valid. The Tribunal also noted that the AO had previously scrutinized and allowed the exemption after detailed examination during the original assessment. Thus, the reopening was quashed as it constituted a mere change of opinion and was based on audit objections, which are not valid grounds for reassessment.

Issuance of Notice under Section 148:
The notice under section 148 was issued based on an audit objection, which the Tribunal found invalid. The Tribunal referred to the Supreme Court's decision in CIT vs. Kelvinator India Ltd., which held that mere change of opinion cannot justify reopening of assessment. The Tribunal also noted that the JCIT's approval for the notice was mechanical and lacked independent application of mind, further invalidating the notice.

Failure to Dispose of Objections:
The AO failed to dispose of the objections raised by the assessee against the issuance of the notice under section 148. This failure was against the principles laid down by the Supreme Court in GKN Drive Shafts (India) Pvt. Ltd.

Sanction Without Independent Application of Mind:
The Tribunal found that the JCIT's sanction for the notice under section 148 was given without independent application of mind, as it merely stated "yes, I agree." This mechanical approval was deemed insufficient and invalid.

Disallowance of Exemption under Section 10(23C)(iiiab) (Ground 7):
The AO disallowed the exemption on the grounds that the assessee was not substantively financed by the government, as government grants constituted only 22.03% of the gross receipts. However, the Tribunal noted that the requirement of 50% financing by the government, as per Rule 2BBB, was introduced only in 2014 and was not applicable for the assessment year in question. Since the reopening was quashed, this ground was rendered academic and infructuous.

Interest under Section 234B (Ground 9):
This ground was consequential to the main issues and was not separately adjudicated.

Conclusion:
The Tribunal allowed the appeal, quashing the reopening of the assessment and the related proceedings. The order was pronounced in the open court on 18-11-2019.

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