2021 (5) TMI 828 - AT - Income Tax

Reopening of assessment u/s 147 - 'reason to believe' OR 'reason to suspect' - Disallowance of depreciation on investments - HELD THAT - It is well settled by a number of judgments of the Hon'ble Supreme Court that the twin conditions which are required to be fulfilled before an Assessing Officer can exercise his jurisdiction under clause (a) of section 147 of the Act are (a) that the Assessing Officer must have reason to believe that income, profits or gains chargeable to tax had either been under assessed or had escaped assessment and (b) that the Assessing Officer must have reason to believe that such escapement or underassessment was caused by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. In the case on hand, all the information relating to depreciation on investments were there before the AO at the stage of original assessment, as there was no failure on the part of the assessee to disclose fully and truly all material facts that are necessary for completion of the assessment and further we observe in the reasons recorded, there is no reason to believe, allegation on the assessee that the income of the assessee under assessed or had escaped assessment. The contention of the assessee is that no new material has been found by the AO in the reassessment proceedings and therefore reopening of assessment is only due to change of opinion and that too beyond the time limit as prescribed in the proviso to section 147 of the Act which is bad in law. the reopening of assessment can be quashed on two counts, i) no new material was brought on record by the AO in the reopening of assessment to establish that the income of the assessee has escaped assessment as the assessee has already disclosed all the information necessary for completion of original assessment and ii) the reopening of assessment made beyond four years from the AY under consideration. We are of the view that the AO reopened the assessment based on change of opinion, which is not acceptable as per the decisions quoted supra. Therefore, we quash the reopening of assessment made by the AO and the grounds raised by the assessee on this issue are allowed.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act, 1961.
2. Disallowance of depreciation on investments categorized as Held to Maturity (HTM) securities.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147

The assessee, a Government of India Undertaking engaged in banking, originally filed its return for AY 2010-11 on 31.08.2010, declaring an income of ?9,17,60,29,790/-. A revised return was later filed on 29.03.2012, declaring an income of ?7,50,28,41,861/-. The assessment was completed on 28.01.2013, determining the total income at ?12,28,80,67,890/-. Subsequently, the AO issued a notice under Section 148 on 30.03.2017, leading to the reopening of the assessment. The reason for reopening was a discrepancy noted in the depreciation on investments, specifically an amount of ?3,62,67,82,885/- that needed to be added back as taxable income.

The assessee objected to the reopening, citing the proviso to Section 147, which states that an assessment cannot be reopened after four years unless there was a failure to disclose fully and truly all material facts necessary for the assessment. The assessee argued that all relevant information was disclosed during the original assessment, and the reopening was merely a change of opinion, which is not permissible.

The Tribunal referred to several judgments, including CIT Vs. Foramer France [264 ITR 566], Mahalakshmi Motors Ltd. Vs. DCIT [265 ITR 53], and others, to support the contention that a mere change of opinion does not justify reopening an assessment. The Tribunal concluded that since all information was available during the original assessment, the reopening was invalid as it was based on a change of opinion and beyond the four-year limit.

2. Disallowance of Depreciation on Investments Categorized as HTM Securities

The AO disallowed a sum of ?3,60,67,82,885/- representing depreciation on investments, stating that HTM securities are capital in nature and do not constitute stock in trade as per RBI guidelines. The AO argued that the assessee did not suffer any real loss on account of the fall in value of HTM securities, and therefore, the depreciation claimed was not allowable.

The CIT(A) directed the AO to re-work the depreciation allowance by considering the opening and closing balances of earlier years. Both the assessee and the revenue appealed against this order. The assessee contended that investments in its business are stock in trade, and the fall in market value is an allowable deduction. The revenue argued that the CIT(A) erred in directing the re-work without verifying the purpose for which the securities were purchased and whether they were held to meet SLR purposes.

The Tribunal noted that the reopening of the assessment was invalid due to the lack of new material and being based on a change of opinion. Consequently, the Tribunal quashed the reopening of the assessment, rendering the revenue's appeal infructuous.

Conclusion:

The Tribunal allowed the assessee's appeal, quashing the reopening of the assessment under Section 147 due to the absence of new material and the reopening being based on a change of opinion. The revenue's appeal was dismissed as infructuous since it was based on the reassessment, which was invalidated. The order was pronounced in the open court on 20th May 2021.