2022 (1) TMI 874 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - reopening resorted to beyond four years from the relevant assessment year - Eligibility of reasons to believe - reasons note that the EDC charges were shown by the assessee as a liability in its Balance Sheet under the head other liabilities and rest of the reasons is only the interpretation of the AO regarding the nature of the receipts of EDC being revenue in nature - In the last para of the reasons the AO again reiterates the disclosure of the EDC received by the assessee as a liability in its Balance Sheet - HELD THAT - Except for the fact that the assessee received EDC during the year, no other fact has come to the knowledge of the AO and this fact as per his own admission, was disclosed by the assessee in his Balance Sheet as liability. Further it is a fact on record, which was brought to the notice of the CIT(A) also and has remained uncontroverted before us, that during assessment proceedings the assessee was asked to submit details of other liabilities, in response to which the assessee submitted the said details disclosing therein the fact of EDC received from land developers. Therefore, to say that the assessee had concealed any material fact relating to EDC, is not correct. That he had reflected it is as a liability in the Balance Sheet and not shown it as revenue receipt in its Profit Loss Account, is not a matter of fact but on the contrary it is an interpretation of the fact of receipt of EDC regarding its nature and the reasons do not bring out any material /information with the AO leading him to form this opinion of the EDC charges being Revenue in nature. DR has been unable to enlighten us as to what material fact relating to EDC was concealed by the assessee so as to empower the AO to assume jurisdiction to reopen the case of the assessee beyond four years from the relevant assessment year. No hesitation in holding that since the AO has failed to point out concealment of any material fact relating to income escaping assessment, being EDC, the reopening of the case of the assessee resorted to beyond four years from the assessment years, is against the provisions of law. The jurisdiction assumed by the AO therefore, to frame the assessment u/s 147 of the Act is, therefore, not as per law. The order passed, by the AO as a consequential is not sustainable in law and is, therefore, set aside. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the assessment framed under Section 147 of the Income Tax Act, 1961.
2. Treatment of External Development Charges (EDC) as income or liability.

Issue-wise Detailed Analysis:

1. Validity of the assessment framed under Section 147 of the Income Tax Act, 1961:

The primary legal contention raised by the assessee was regarding the validity of the assessment framed under Section 147 of the Income Tax Act, 1961. The assessee argued that the Commissioner of Income Tax (Appeals) erred in law and on facts by not quashing the order under Section 143(3) read with Section 147 of the Act, as all the facts relating to "External Development Charges" (EDC) were fully and truly disclosed during the original assessment under Section 143(3). The assessee contended that the reassessment proceedings were merely a change of opinion, which is not permissible by law.

The Tribunal noted that the case was reopened beyond four years from the relevant assessment year, which requires the Assessing Officer (AO) to demonstrate that income had escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The Tribunal found that the reasons recorded by the AO for reopening the case did not indicate any material fact that was not disclosed by the assessee. The AO's reasons primarily revolved around the interpretation of EDC as revenue in nature rather than as a liability, which was already disclosed in the Balance Sheet.

The Tribunal also considered the fact that the assessee had filed a Civil Writ Petition against the reopening of the assessment, which was dismissed by the Punjab & Haryana High Court. However, the Supreme Court, while dismissing the Special Leave Petition (SLP) filed by the assessee, clarified that the appellate authority could adjudicate the issue of reopening uninfluenced by the observations of the High Court.

Given these facts, the Tribunal held that the reopening of the case beyond four years was not in accordance with the law as the AO failed to point out any concealment of material facts by the assessee. Consequently, the jurisdiction assumed by the AO to frame the assessment under Section 147 was invalid, and the assessment order was set aside.

2. Treatment of External Development Charges (EDC) as income or liability:

The second issue was whether the EDC received by the assessee should be treated as income or liability. The AO had reopened the assessment on the belief that the EDC received by the assessee was in the nature of income, while the assessee had reflected it as a liability in its Balance Sheet. The AO argued that the EDC charges were attributable to the regular business of the assessee and should have been credited to the Profit & Loss Account.

The Tribunal found that the AO's reasons for treating the EDC as income were based on an interpretation of the nature of the receipts rather than on any new material facts. The Tribunal noted that the EDC charges were already disclosed in the Balance Sheet under "Other Liabilities" and that the assessee had provided details of these charges during the original assessment proceedings. Therefore, the Tribunal concluded that there was no failure on the part of the assessee to disclose material facts.

Since the Tribunal set aside the assessment order on the grounds of invalid reopening, the merits of the case regarding the treatment of EDC charges became academic and did not require further adjudication.

Conclusion:

In conclusion, the Tribunal allowed the appeals filed by the assessee, setting aside the assessment orders framed under Section 147 of the Income Tax Act, 1961, due to the invalid assumption of jurisdiction by the AO. The appeal filed by the Revenue on the merits of the case was dismissed as infructuous.