2022 (8) TMI 285 - AT - Income Tax

Reopening of assessment u/s 147 - amount u/s 35D on account of preliminary expenses in Schedule 12D - HELD THAT - Assessee has not disallowed this expenditure in the computation of income and accordingly the income has escaped due to failure on the part of the assessee to disclose truly and fully all material facts. We note from the reasons recorded that all the information were duly disclosed in the books of account, audited financial statement and return of income filed by the assessee and it cannot be construed to mean that it is something in respect of which the assessee has not truly and fully disclosed all the material facts leading to escapement of income. In fact, the assessee has disclosed all the material facts in respect of increase in the authorised capital in the balance sheet and claimed on account of 1/5th preliminary expenses u/s 35D of the Act. Under these facts and circumstances, we find force in the contentions of the A.R. that the reopening was made in violation to provisions as contained in first proviso to section 147 of the Act which stipulates that reopening cannot be made where the assessment was framed u/s 143(3) of the Act after a period of four years from the end of relevant assessment year if the escapement of income has occurred due to non-disclosure of material facts by the assessee which ultimately led to the escapement of the income. But this is not the case before us. CIT(A) has quashed the re-opening of assessment u/s 147 of the Act and also assessment order by passing a speaking and reasoned order. In our considered opinion there is not failure of the kind on the part of the assessee and therefore, the reopening of the assessment has been made incorrectly and in violation to 1st proviso to section 147 of the Act and cannot be sustained as has been held by ld CIT(A). The Hon ble Bombay High Court in the case of Tao Publishing (P) Ltd 2015 (1) TMI 1162 - BOMBAY HIGH COURT , Sound Casting Pvt. Ltd. 2012 (4) TMI 248 - BOMBAY HIGH COURT , Hon ble Delhi High Court in the case of CIT vs. Orient Craft Ltd. 2013 (1) TMI 177 - DELHI HIGH COURT and in the case of Haryana Acrylic Manufacturing Co. 2008 (11) TMI 2 - DELHI HIGH COURT have held the reopening made beyond four years has to be in accordance with the first proviso to section 147 of the Act failing which the reopening as well as reassessment order are bad in law. We, therefore respectfully following the above legal position, uphold the order passed by the ld CIT(A) by dismissing the ground no. 1 raised by the revenue.

Summary

Issues:
1. Challenge to nullification of assessment done under section 147 of the Income Tax Act, 1961.
2. Challenge to deletion of addition made by the Assessing Officer for disallowing preliminary expenses.

Issue 1: Challenge to nullification of assessment under section 147:
The appeal before the Appellate Tribunal ITAT Kolkata involved the challenge against the nullification of an assessment done under section 147 of the Income Tax Act, 1961. The Revenue contended that the Commissioner of Income Tax (Appeals) erred in quashing the assessment. The Tribunal noted that the assessment was initially framed under section 143(3) and later reopened under section 147 based on the increase in authorized share capital and a claim for preliminary expenses. The Tribunal observed that all relevant information had been disclosed by the assessee in the books of account and financial statements. It was held that the reopening of the assessment was in violation of the provisions of the Act as there was no failure on the part of the assessee to disclose material facts leading to income escapement. The Tribunal relied on various judicial precedents to support its decision, ultimately upholding the order of the Commissioner of Income Tax (Appeals) and dismissing the Revenue's appeal.

Issue 2: Deletion of addition for disallowing preliminary expenses:
The second ground of appeal involved the deletion of an addition made by the Assessing Officer for disallowing preliminary expenses. The Tribunal noted that the Assessing Officer had disallowed and added back certain expenses related to share issue and preliminary expenses in the assessment order. However, the Commissioner of Income Tax (Appeals) quashed the assessment order based on the reopening of the assessment under section 147. As a result, the Tribunal did not adjudicate on the merit of the second ground raised by the Revenue, leaving it open for future consideration if necessary. Ultimately, the Tribunal dismissed the appeal of the Revenue, upholding the decision of the Commissioner of Income Tax (Appeals) on the issue of quashing the reopening of assessment under section 147 and nullifying the assessment order.

In conclusion, the Appellate Tribunal ITAT Kolkata, in the cited judgment, addressed the challenges raised by the Revenue regarding the nullification of the assessment under section 147 and the deletion of addition for disallowing preliminary expenses. The Tribunal carefully analyzed the facts and legal precedents to uphold the decision of the Commissioner of Income Tax (Appeals) in both instances, ultimately dismissing the appeal of the Revenue.