2023 (2) TMI 351 - AT - Income Tax

Initiation of reassessment proceedings - Income not fully offered as income - Whether requisite condition of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, was complied with? - assessee recognized Revenue on sale of plots as against 10% of the amount realised from leasing of plots of land during the year which ought to have been considered, Similarly for Transfer Premium AO observed that the assessee recognized only Part for taxation, which led to escapement of income and for item Rent accrued which in the opinion of the AO ought to have been offered at a higher level - HELD THAT - There is nothing in the reasons to indicate that the assessee did not disclose fully and truly all material facts necessary for assessment on this count. Such details were already before the AO when the return was filed and the original assessment u/s.143(3) was completed. At that time, the AO accepted such income after due verification. However, later on, he realised that the assessee had recorded income at a lower level which amounted to escapement of income. In our considered opinion, it is only change of opinion of the AO de hors any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Depreciation of leased properties - difference between finance and operating leasing with reference to the accounting standards - AO observed in the reasons that it was a case of under-reporting of income by claiming excess depreciation - HELD THAT - As can be seen from the assessee s Income and Expenditure account that the total amount of depreciation has been reflected on the face of it at Rs.8.74 crore. Such depreciation includes depreciation of leased properties amounting to Rs.7.15 crore. Here again, the AO changed his opinion from the original assessment in allowing deduction for the depreciation as claimed to now pointing out that the claim of depreciation was not permissible. There is no reference to any tangible material taken note of by the AO in concluding that the income escaped assessment. AO has nowhere brought out as to how the claim of depreciation at higher level in the original assessment proceedings can be construed as failure of the assessee to disclose fully and truly all facts necessary for assessment. It is only change of the opinion by the AO, which in our considered opinion, cannot lead to initiation of reassessment proceedings after a period of four years from the end of the relevant assessment year. Capital receipts not credited to the Income and Expenditure account - assessee claimed entire amount as exempt u/s.11 - assessee changed the accounting system from Cash system to Accrual method due to which proper income was not reflected - HELD THAT - By no standard, claim by the assessee of certain amounts as capital receipt in the annual accounts, can be construed as failure of the assessee to disclose fully and truly all material facts necessary for assessment, more so, when the case of the AO in the reasons is based on the assessee claiming exemption u/s.11, which is actually not the position. The next connecting point about change of method as a reason for reassessment has also no legs to stand. Income and Expenditure account was drawn as per the changed method of accounting. It was on that basis only that the AO completed the assessment u/s.143(3). Having done so, the AO cannot turn around to claim that the change of method by the assessee was not bona fide, more so, when all such facts were open before him during the course of original assessment proceedings. This point again does not fall in the realm of failure on the part of assessee to disclose fully and truly all material facts necessary for assessment. The above discussion manifests that the initiation of reassessment proceedings was founded on certain factors, which the AO was not entitled to proceed, because he had already completed the assessment u/s.143(3) and there was nothing to show on these issues that the assessee failed to disclose fully and truly all material facts necessary for assessment. Thus we hold that the reassessment was wrongly initiated. - Decided in favour of assessee.

Summary

Issues:
Initiation of reassessment proceedings.

Analysis:
The judgment involves two cross appeals challenging the order passed by the Commissioner of Income-tax (Appeals) for the assessment year 2006-07. The first issue raised by the assessee pertains to the initiation of reassessment proceedings. The assessee, an institution set up by the State Government, enjoyed exemption u/s.10(20A) up to A.Y. 2002-03. The assessment was completed u/s.143(3) in 2008, and a notice u/s.148 was issued in 2013. The AO sought to reopen the assessment after four years, alleging income escapement due to the assessee's failure to disclose material facts fully and truly. The reasons for reassessment included discrepancies in income recognition and depreciation claims.

The AO's reasons for reassessment included income not fully offered, excess depreciation claimed, and capital receipts not credited to the Income and Expenditure account. However, the Tribunal found that the AO's initiation of reassessment proceedings was not justified. The Tribunal observed that the assessee had disclosed all material facts necessary for assessment during the original proceedings. The discrepancies pointed out by the AO were considered a change of opinion rather than a failure on the part of the assessee to disclose relevant information. The Tribunal emphasized that the AO had already examined and accepted the income details during the original assessment, making the reassessment initiation invalid.

The Tribunal referenced a judgment of the Delhi High Court in a similar context but concluded that the circumstances in the present case did not align with the case law cited by the Revenue. The Tribunal held that the reassessment was wrongly initiated and subsequently quashed. As a result, the other grounds raised by both the assessee and the Revenue on merits became irrelevant and did not require further adjudication. Ultimately, the appeal of the assessee was allowed, and that of the Revenue was dismissed as academic.

In conclusion, the Tribunal's detailed analysis focused on the validity of the reassessment proceedings initiated by the AO, emphasizing the importance of full and true disclosure of material facts by the assessee. The judgment highlighted that discrepancies in income recognition and depreciation claims did not constitute a valid reason for reassessment when the assessee had already provided necessary information during the original assessment.