2021 (10) TMI 232 - HC - Income Tax

Reopening of assessment u/s 147 - expenditure incurred towards sales commission - HELD THAT - Assessment proceeding are based on the basis of same information which was available with the AO at the time of original order of assessment and inferences drawn by the AO on the same set of facts cannot be said to be tangible material. It is also noteworthy that mere fact that expenses were huge in the opinion of the AO cannot be a ground for re-opening the assessment and necessity of incurring expenditure cannot be gone into by the AO. No material was gathered in the survey proceeding to suggest that expenditure incurred towards sales commission is not an allowable expenditure and disallowance made in respect of the expenditure for the subsequent Assessment Year 2006-07 cannot be a ground for re-opening the assessment. Tribunal rightly recorded the findings of fact that there is no tangible material on the basis of which assessment for Assessment Year 2005-06 was re-opened and the assessment of the subsequent AY is based on the inferences drawn from certain facts which cannot be construed as tangible material. The reasons mentioned in the notice for re-assessment are based on mere change of opinion and therefore, the re-opening of the assessment proceeding is not permissible in the facts and circumstances of the case. The aforesaid finding cannot be said to be perverse - Decided in favour of assessee.

Summary

Issues Involved:

1. Validity of the re-assessment order under Section 147 of the Income Tax Act, 1961.
2. Whether the Tribunal's order is perverse for not applying principles laid down by the Supreme Court in relevant cases.

Issue-wise Detailed Analysis:

1. Validity of the re-assessment order under Section 147 of the Income Tax Act, 1961:

The assessee, engaged in the manufacture and export of garments, filed a return for the Assessment Year 2005-06, which was scrutinized, and an original assessment order was passed without disallowing the sales commission. Later, the Assessing Officer issued a notice under Section 148, proposing to re-assess the income based on a belief that income chargeable to tax had escaped assessment. The assessee objected, arguing that the re-assessment was based on a mere change of opinion. The Tribunal held that the re-assessment was initiated on the same set of information available during the original assessment, thus amounting to a change of opinion, which is not a valid ground for re-opening the assessment.

The court reviewed relevant judicial decisions, including the Supreme Court's ruling in 'Kalyanji Mavji & Co. vs. Commissioner of Income-Tax', which outlined conditions under which re-assessment could be justified, such as new information or oversight. The Tribunal found that the Assessing Officer had no new tangible material and merely re-evaluated the same facts, which does not justify re-assessment. The court emphasized that the necessity of expenditure cannot be questioned if all primary facts were disclosed initially.

2. Whether the Tribunal's order is perverse for not applying principles laid down by the Supreme Court in relevant cases:

The revenue argued that the Tribunal's order was contrary to the Supreme Court's principles, particularly in cases like 'Ess Kay Kay Engg Co. vs. CIT' and 'Phool Chand Bajrang Lal vs. ITO'. The court examined these precedents and noted that the Tribunal had correctly applied the principle that re-assessment cannot be based on a mere change of opinion. The revenue's reliance on decisions like 'Indian & Eastern Newspaper Society vs. Commissioner of Income-Tax' and 'Assistant Commissioner of Income-Tax vs. Rajesh Jhaveri Stock Brokers (P.) Ltd.' was found inapplicable as these cases supported the necessity of new tangible material for re-assessment.

The court also referred to a Full Bench decision in 'Dell India Pvt. Ltd. vs. Joint Commissioner of Income-Tax', which reinforced that re-assessment based on a change of opinion is not permissible. The Tribunal's finding that there was no new material and that the re-assessment was based on the same facts as the original assessment was upheld. The court concluded that the Tribunal's order was not perverse and aligned with established legal principles.

Conclusion:

The court dismissed the appeal, upholding the Tribunal's decision that the re-assessment proceedings were invalid as they were based on a mere change of opinion without any new tangible material. The substantial questions of law were answered in favor of the assessee and against the revenue.