2020 (9) TMI 194 - AT - Income Tax

Validity of reopening of assessment u/s 147 - onus on the AO to show that primary disclosure was not sufficient for further investigation by the AO - HELD THAT - In the reasons recorded the AO has alleged that which is debited to P L Account is in the nature of future content expenditure and should have been disallowed. In our considered opinion these details were very much available during the course of the original assessment proceedings therefore imagine on the part of the AO not to apply the law correctly cannot confer power on the Assessing Officer to reopen the case. Reopening is not based on any fresh new tangible material evidence brought on record therefore the ratio laid down by the Hon ble Supreme Court in the case of Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT squarely apply wherein the Hon ble Supreme Court has held that Assessing Officer cannot proceed to reopen the assessment on the basis of mere change of opinion. We are of the considered opinion that exemption of jurisdiction u/s 147 of the Act by issue of notice u/s 148 of the Act is bad in law and deserves to be quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147/148 of the Income Tax Act.
2. Confirmation of disallowance of Rs. 2,203,234 in respect of "Provision for Demo Inventory" charged to the Profit & Loss account.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147/148:

The primary contention was whether the reassessment proceedings initiated by the Assessing Officer (AO) were valid under Section 147/148 of the Income Tax Act. The assessee argued that the reassessment was barred by limitation as per the proviso to Section 147, asserting there was no failure on their part to disclose fully and truly all material facts necessary for the assessment. The assessee also contended that there was no fresh or tangible material that emerged post the original assessment, and the reassessment was merely based on a change of opinion on the same set of facts considered during the original assessment.

The Tribunal examined the reasons for reopening the assessment, which were based on the AO's review of the existing records, specifically the Profit & Loss account, where an amount of Rs. 2,203,234 was debited as "Provision for Demo and testing equipment." The AO considered these expenses as future contingent expenditure and believed they should have been disallowed.

The Tribunal found that the AO had no new tangible material and relied solely on the assessment records, which were already available during the original assessment proceedings. It was noted that the AO did not point out any specific non-disclosure by the assessee. The Tribunal emphasized that the first proviso to Section 147 applies, which prohibits action after four years unless there is a failure on the part of the assessee to disclose fully and truly all material facts. The Tribunal concluded that the reassessment was based on a mere change of opinion, which is not permissible under the law.

The Tribunal referenced several judicial decisions, including the Supreme Court's ruling in New Delhi Television Ltd., which clarified that subsequent facts can be considered for reopening assessments, but there must be a failure to disclose material facts. The Tribunal also cited the Delhi High Court's decision in Donaldson India Filters Systems (P.) Ltd., which highlighted that the AO must show that primary disclosure was insufficient for further investigation.

The Tribunal further noted that the decision in Consolidated Photo and Finvest Limited, relied upon by the Revenue, was no longer good law following subsequent rulings, including the Supreme Court's decision in Kelvinator of India Ltd., which established that a mere change of opinion cannot justify reopening an assessment.

2. Confirmation of Disallowance of Rs. 2,203,234 in Respect of "Provision for Demo Inventory":

Given the Tribunal's decision to quash the reassessment proceedings, it did not delve into the merits of the disallowance of Rs. 2,203,234 related to the "Provision for Demo Inventory." The Tribunal concluded that since the reassessment order was invalid, there was no need to address the substantive issue of the disallowance.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, quashing the reassessment order on the grounds that it was based on a mere change of opinion without any fresh tangible material, and thus, was not in accordance with the law. The Tribunal did not find it necessary to examine the merits of the disallowance of Rs. 2,203,234, as the reassessment itself was invalid. The order was pronounced in the open court on 03.09.2020.