2021 (2) TMI 731 - AT - Income Tax

Reopening of assessment u/s 147 - Validity of notice issued - non specification of reasons to believe - CIT-A quashed notice - HELD THAT - In the instant case, there is no mention in the notice issued u/s 148 of the I.T.Act that escapement of income was due to failure on the part of the assessee to make true and full disclosure of income. On the facts and circumstances of the case, since the A.O. in the original assessment has considered the entire issue and concluded the assessment, the reassessment initiated after four years from the end of the relevant assessment year is on account of mere change of opinion, which is not permissible in law. Therefore we confirm the CIT(A) s order in quashing the reassessment proceedings. Estimation of income - NP determination - CIT(A) had categorically found net profit is at the rate of 18.13% of the sales for the year, and therefore, for gross profit of 16.29% arrived at by the A.O. is factually incorrect. It was also found by the CIT(A) that N.P. of 18.13% is higher than NP declared for the previous assessment year and the subsequent assessment year. The above categorical finding of the CIT(A) has not been dispelled by the Revenue by placing any contra evidence. In the light of the finding of the learned CIT(A), which was not controverted by the Revenue, we uphold the impugned order of the CIT(A) as correct and in accordance with law. Revenue appeal dismissed.

Summary

Issues:
Reopening of assessment beyond four years period, validity of reassessment, failure to disclose all material facts, undervaluation of closing inventory, gross profit percentage discrepancy.

Reopening of Assessment:
The appeal was against the CIT(A)'s order regarding the assessment year 2010-2011. The original assessment was completed on 21.02.2013, and the reassessment was initiated beyond four years from the end of the relevant assessment year. The AO had issued notices during the original assessment, and the assessee had duly provided all necessary details. The reassessment was challenged on the grounds of a mere change of opinion, citing legal requirements for initiating reassessment under section 147 of the Income Tax Act. Citing judicial precedents, the Tribunal confirmed the CIT(A)'s order in quashing the reassessment proceedings.

Failure to Disclose All Material Facts:
The AO had reopened the assessment based on alleged understatement of work-in-progress value. However, the CIT(A) found that the assessee had disclosed all material facts during the original assessment proceedings. Citing relevant case laws, the Tribunal held that since there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, the reassessment initiated after four years was invalid due to being a mere change of opinion.

Undervaluation of Closing Inventory:
The AO had made an addition towards the undervaluation of closing inventory, which was challenged by the assessee. The CIT(A) found that the net profit percentage declared by the assessee was higher than alleged by the AO. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue did not provide any contrary evidence to dispute the CIT(A)'s findings. Consequently, the addition made by the AO was deemed unsustainable.

Gross Profit Percentage Discrepancy:
The AO alleged that the gross profit percentage was understated by the assessee. However, the CIT(A) found that the actual net profit declared was higher than what was alleged by the AO. The Tribunal upheld the CIT(A)'s decision, as the Revenue failed to present any evidence to challenge the CIT(A)'s findings. The appeal filed by the Revenue was dismissed, and the CIT(A)'s order was upheld as correct and in accordance with the law.