2022 (6) TMI 1057 - AT - Income Tax

Validity of Reassessment proceedings u/s 147 - proceedings initiated after four years from the end of relevant assessment year - disallowance in respect of expenditure incurred on long term incentive plan under section 40A(9) as well as under section 37(1) as against the Appellant s contention that the said amount is deductible under section 37(1) - HELD THAT - Since all the materials/facts were available on record with regard to the expenses claimed in the return of income filed for the captioned AY, a presumption can be raised that such an order based on return filed with true and full disclosure of the facts has been passed on application of mind by the concerned AO - AO has no power to review his own order; he has the power to re-assess only. But re-assessment has to be based on fulfilment of certain preconditions. Change of opinion or borrowed belief is not permissible as in this case, re-opening has been done based on audit query. The reasons for the notice under section 148 of the Act nowhere mentioned that the Revenue came up with any other fresh material, not disclosed by the assessee warranting re-opening of assessment. The primary function of audit in relation to assessments and refunds is the consideration whether the internal procedures are adequate and sufficient, it is not intended that the purpose of audit should go any further. Audit party performs essentially administrative or executives functions and cannot be attributed the powers of judicial supervision over the quasi judicial acts of the Income tax Authorities i.e. AO. The Income Tax Act does not contemplate such powers in any internal audit party of the Income Tax Department but only in those authorities who are specifically authorize to exercise adjudicatory functions. There was no failure to disclose material facts and failure to place a version favourable to the Revenue cannot be a reason to reopen the assessment in the light of the undisputed factual material referred by us extensively it is apparent that the re-opening was fully impermissible in law. The facts which are taken from the Auditor s report, computation of income and return filed itself would indicate that the assessee had disclosed what was relevant and necessary for the purpose of making assessment. The assessee did not hold back any document nor failed to supply any information. In the circumstances, this is a clear case of change of opinion and based on which the reassessment is proposed which is impermissible in law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of reassessment proceedings under section 148 of the Income-tax Act, 1961, initiated after four years from the end of the relevant assessment year.
2. Disallowance of Rs. 3,03,42,451 in respect of expenditure incurred on the Long Term Incentive Plan (LTIP) under section 40A(9) and section 37(1) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Legality of Reassessment Proceedings Under Section 148:

The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the reassessment proceedings initiated under section 148 of the Income-tax Act, 1961, after four years from the end of the relevant assessment year. The assessee contended that the original assessment under section 143(3) was made with full and true disclosure of all material facts necessary for assessment, and there was no failure on the part of the assessee in this regard. The assessee argued that the reopening was based on the same set of facts/material available on record during the original assessment, thus constituting a mere change of opinion, which is impermissible under the law.

The assessee cited several judicial pronouncements, including CIT vs. Kelvinator of India Ltd. (Delhi) (FB) (256 ITR 1) and its affirmation by the Supreme Court (320 ITR 561), which emphasized that reassessment based on a mere change of opinion is not permissible. The assessee also referred to the decision in CIT vs. Foramer France (264 ITR 566) (SC), which held that notice for reassessment issued beyond four years is invalid unless there is a failure to disclose fully and truly all material facts necessary for assessment.

The Tribunal noted that the reasons recorded for reopening the assessment did not mention any fresh material warranting reopening. The Tribunal observed that the audit party's role is administrative and executive, not judicial, and cannot supervise the quasi-judicial acts of the Income-tax Authorities. The Tribunal concluded that there was no failure to disclose material facts by the assessee, and the reopening was based on a change of opinion, which is impermissible in law.

The Tribunal allowed ground no.1 raised by the assessee, declaring the assessment order framed as without jurisdiction.

2. Disallowance of Rs. 3,03,42,451 in Respect of LTIP Expenditure:

The CIT(A) upheld the disallowance of Rs. 3,03,42,451 in respect of expenditure incurred on the Long Term Incentive Plan (LTIP) under section 40A(9) and section 37(1) of the Income-tax Act, 1961. The assessee contended that the said amount is deductible under section 37(1) of the Act. The Tribunal, however, did not deal with ground no.2 on merits, as the assessment order itself was found to be without jurisdiction.

Conclusion:

The Tribunal concluded that the reassessment proceedings initiated under section 148 were impermissible in law due to the absence of any new material and the fact that the reopening was based on a mere change of opinion. Consequently, the assessment order was declared without jurisdiction, and the Tribunal did not address the merits of the disallowance of LTIP expenditure. The appeal was allowed in favor of the assessee on the grounds of jurisdiction.