2022 (10) TMI 721 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - income chargeable to tax had escaped assessment for three-fold reasons, viz. (i) the offering of the income surrendered in the course of the survey proceedings as business income and claiming of interest and remuneration as a deduction against the same was not as per the mandate of law; (ii) there depreciation on truck was wrongly claimed at a higher rate i.e @40%; and (iii) the failure on the part of the assessee to deduct tax at source on interest paid on loan to a non-banking finance company rendered its claim for deduction of the same liable for disallowance u/s 40(a)(ia) of the Act - HELD THAT - We are inclined to accept the claim of the Ld. AR that as the concluded assessment in the case of the assessee had been reopened by the A.O by issuing notice u/s.148 i.e. beyond four years from the end of the relevant assessment year i.e A.Y 2008-09, therefore, the assessment so framed in absence of valid assumption of jurisdiction on his part could otherwise also not be sustained and is liable to be struck down on the said count itself. Our aforesaid view that as per the mandate of the 1st proviso to Sec. 147 reopening of a concluded assessment beyond four years from the end of the relevant assessment year, inter alia, in the absence of any failure on the part of the assessee to disclose fully and truly all material facts which were necessary for its assessment is not permissible is supported by the judgment of the Hon ble High Court of Delhi in the case of Haryana Acrylic Manufacturing Company 2008 (11) TMI 2 - DELHI HIGH COURT In the case of New Delhi Television Ltd. 2020 (4) TMI 133 - SUPREME COURT had, inter alia, held, that though the assessee is obligated to disclose the primary facts , but it is neither required to disclose the secondary facts nor required to give any assistance to the A.O by disclosure of the other facts and it is for the A.O to decide what inferences are to be drawn from the facts before him. As in the present case before us the assessee had disclosed fully and truly all the material facts, therefore, by no means he could have been saddled with any failure to disclose fully and truly all material facts that were necessary for framing of its assessment, which would have otherwise justified bringing its case within the realm of the extended time period contemplated in the 1st proviso of section 147 of the Act for validly reopening the same. We, thus, in terms of our aforesaid observation being of the view that the A.O had wrongly assumed the jurisdiction and reopened the concluded assessment of the assessee, which, was earlier framed by his predecessor vide order passed u/s.143(3) therefore, quash the consequential assessment order passed by him u/s.144 r.w.s. 147. Assessee appeal allowed.

Summary

Issues Involved:
1. Validity of the jurisdiction assumed by the Assessing Officer (A.O) for reopening the assessment under Section 147 of the Income-tax Act, 1961.
2. Addition of Rs.7,98,278/- on account of interest and remuneration paid to partners out of income surrendered during the survey.
3. Disallowance of Rs.49,599/- out of depreciation on plant and machinery.
4. Addition of Rs.7,100/- out of interest on Chola Mandalam, DBS Finance Limited.

Detailed Analysis:

1. Validity of Jurisdiction Assumed by the A.O for Reopening the Assessment:
The primary issue addressed was the validity of the jurisdiction assumed by the A.O for reopening the assessment under Section 147 of the Income-tax Act, 1961. The assessee argued that the reassessment was initiated merely on the basis of a "change of opinion" and not due to any fresh tangible material. The Tribunal noted that the original assessment was framed under Section 143(3) and the reopening was based on the same set of facts without any new material. The Tribunal referred to the Supreme Court's judgment in Commissioner of Income-Tax Vs. Kelvinator of India Ltd., which held that reopening on the basis of a mere change of opinion is not permissible. Additionally, the Tribunal observed that the reopening was beyond four years from the end of the relevant assessment year, and there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Therefore, the Tribunal quashed the reassessment order for lack of valid jurisdiction.

2. Addition of Rs.7,98,278/- on Account of Interest and Remuneration Paid to Partners:
The A.O had added Rs.7,98,278/- on account of interest and remuneration paid to partners out of the income surrendered during the survey, treating it as non-business income. However, since the Tribunal quashed the reassessment order on jurisdictional grounds, it did not delve into the merits of this addition.

3. Disallowance of Rs.49,599/- Out of Depreciation on Plant and Machinery:
The A.O disallowed Rs.49,599/- of depreciation claimed on plant and machinery, arguing that the depreciation was claimed at a higher rate. Again, due to the quashing of the reassessment order on jurisdictional grounds, the Tribunal did not address the merits of this disallowance.

4. Addition of Rs.7,100/- Out of Interest on Chola Mandalam, DBS Finance Limited:
The A.O made an addition of Rs.7,100/- related to interest on Chola Mandalam, DBS Finance Limited, citing non-deduction of tax at source. The Tribunal did not adjudicate this issue on merits due to the quashing of the reassessment order on jurisdictional grounds.

Conclusion:
The Tribunal quashed the reassessment order passed under Section 144 read with Section 147 of the Income-tax Act, 1961, due to the invalid assumption of jurisdiction by the A.O. The reassessment was found to be based on a mere change of opinion without any new tangible material and was initiated beyond the permissible four-year period without any failure on the part of the assessee to disclose material facts. Consequently, the Tribunal did not address the merits of the additions and disallowances made by the A.O. The appeal of the assessee was allowed.