2021 (11) TMI 507 - HC - Income Tax

Reopening of assessment u/s 147 - Change of opinion - deductions u/s 57 - HELD THAT - On account of change of opinion of Assessment Officer about the manner of computation to deductions u/s 57 of the Act, reopening was not justified. The proposition in this judgment squarely applies to the case in hand as well. ITAT has concluded that during the assessment proceeding respondent had furnished actuarial form that showed negative result and the AO had made addition during the original assessment proceeding on account of actuarial surplus. Negative reserve was part of document furnished during the assessment and therefore it cannot be said that there was non disclosure of material facts relevant for assessment. ITAT has also observed that AO while passing assessment order has referred to the actuarial report as on 31/3/2003 and hence it cannot be said that AO has not made any inquiry in respect of negative reserve which has been shown in actuarial report. ITAT has also observed that the assessment order was passed with due application of mind and the AO has not brought any tangible material on record to show that there was any failure on the part of the assessee to disclose fully and truly all material on record necessary for assessment.

Summary

Issues:
1. Validity of proceedings under Section 147 of the Income Tax Act
2. Disclosure of material facts necessary for assessment
3. Treatment of negative reserve in actuarial surplus calculation

Issue 1: Validity of proceedings under Section 147 of the Income Tax Act
The respondent's case was reopened for the Assessment Year 2003-2004 based on the assertion that the actuarial surplus had been understated due to the exclusion of negative reserves. The Assessing Officer completed the reassessment under Section 143(3) read with Section 147, disallowing the provision for negative reserve. The CIT(A) allowed the appeal, stating that the proceedings under Section 147 were not valid. The ITAT upheld this decision, emphasizing that there was no failure on the part of the respondent to disclose all material facts necessary for assessment. The Revenue appealed this decision, questioning the validity of the reassessment under Section 147.

Issue 2: Disclosure of material facts necessary for assessment
The ITAT concluded that the Assessing Officer did not have tangible material to show any omission or failure on the part of the respondent to disclose all necessary material facts for assessment. It was noted that the negative reserve was part of the document furnished during the assessment process, indicating that there was no non-disclosure of relevant facts. The ITAT further observed that the assessment order was made with due application of mind, and there was no evidence of failure to disclose material facts by the respondent.

Issue 3: Treatment of negative reserve in actuarial surplus calculation
The ITAT also addressed the treatment of the negative reserve in the actuarial surplus calculation. It was argued that the negative reserve impacted the taxable surplus, and adjustments should have been made to arrive at the correct taxable surplus. However, the ITAT, based on the lack of jurisdiction of the Assessing Officer in reopening the assessment under Section 148, deleted the addition of the negative reserve amounting to &8377; 1,55,05,000. The court concurred with the ITAT's findings, stating that the assessment order had been set aside, rendering the question on merits moot.

In conclusion, the High Court upheld the ITAT's decision, finding no infirmity in the impugned order. The court answered Question Nos. 1 and 2 in the negative, affirming the validity of the proceedings under Section 147 and emphasizing the respondent's full disclosure of material facts necessary for assessment. The treatment of the negative reserve in the actuarial surplus calculation was also deemed appropriate based on the lack of jurisdiction in reopening the assessment.