2022 (3) TMI 893 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - Reopening on the basis of the report of the Centralized Audit Unit, CAG - transfer from the share premium account to P L account as resulted to conversion of the capital receipts into Revenue receipts as credit to the P L account reduced from statement of income - main object of the CAG is that the assessee cannot take a different stand one in the Income Tax purpose and another for the book purpose i.e., treating it as capital receipts for the Income Tax purpose and crediting it to P L account for the book purpose - HELD THAT - The assessee adjusted the security premium by reduction of capital. In one hand, the credit was made in P L account and on the other hand amount was adjusted during computation of income u/s. 115JB of the Act. There is no affect in the P L account during computation of the net profit. The issue was already disclosed in the tax audit report and as well as computation u/s. 115JB of the Act. During the assessment u/s. 143(3), the AO never pointed out the issue as escapement of income. The reopening was made as per the report of the CAG. So, there is no tangible material to the ld. AO for permission of reasonable believe for escapement of income. Different Apex Court pointed out that the audit report cannot be the basis for re-opening u/s. 148 of the Act. Further, there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for this assessment. There is no reason to believe that the income has escaped assessment during the year. The Petitioner statement that all said withdrawals from security premium account consequent to the aforesaid proposal will be utilized for the adjustments set up prescribed above. The issue was already discussed in the financial statement for the financial year 2008-09 and which was came to the purview of the ld. AO. The re-opening is nothing but a mere change of opinion of the Ld. AO during formation of belief for re-opening, Pr CIT, Non-Corporate Cir.2(1)/Chennai vs M.R.Narayanan, 2021 (6) TMI 825 - MADRAS HIGH COURT As a result, all the grounds of the Revenue are rejected in relation to the re-opening u/s. 148 - Decided against revenue.

Summary

Issues Involved:
1. Validity of reopening the assessment under section 147 of the Income Tax Act.
2. Whether the adjustments made in the security premium account were correctly treated under section 115JB of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147 of the Income Tax Act:
The Revenue challenged the order of the CIT(A) for quashing the assessment completed under section 147 without adjudicating on the merits of the issues raised in the reopened assessment. The CIT(A) had quashed the reopening on the grounds that it was based on a mere change of opinion and not on any fresh tangible material. The reopening was initiated based on a report from the Comptroller and Auditor General (CAG), which was later rejected by the Ministry. The Tribunal upheld the CIT(A)'s decision, stating that the reopening was not justified as it was based on a change of opinion and not on any new information that was not available during the original assessment under section 143(3). The Tribunal emphasized that the audit report cannot be the sole basis for reopening an assessment, and there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.

2. Adjustments in the Security Premium Account under Section 115JB:
The assessee had adjusted an amount of ?323.53 crores in the security premium account against various provisions made during the years towards diminution in the value of investments/write-off of loss assets. This adjustment was made as per the directions of the Hon'ble High Court of Madras. The CIT(A) and the Tribunal found that these adjustments were properly disclosed in the tax audit report and the financial statements. The Tribunal noted that there was no effect on the net profit as the amount was credited in the P&L account and adjusted during the computation under section 115JB. The Tribunal concluded that the AO's addition of ?323.53 crores to the income assessed under normal provisions and under section 115JB was not justified, as the issue was already disclosed and there was no new material to warrant the reopening of the assessment.

Conclusion:
The Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)'s order quashing the reopening of the assessment under section 147. The Tribunal found that the reopening was based on a mere change of opinion and not on any fresh tangible material. Additionally, the adjustments in the security premium account were correctly treated under section 115JB, and there was no failure on the part of the assessee to disclose all material facts necessary for the assessment.