2023 (2) TMI 745 - AT - Income Tax

Reopening of assessment u/s 147 - case reopened beyond the period of 4 years from the end of the relevant assessment year - Reason to believe - HELD THAT - Primary duty of the assessee is only to disclose fully and truly all material facts necessary for the purpose of making the assessment and not draw the inferences. Thus, it cannot be said that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of making the assessment. Reliance in this regard can be placed on the decision of the Hon ble Bombay High Court in the case of Kalpataru Ltd. 2021 (10) TMI 465 - BOMBAY HIGH COURT - Thus, we are of the considered opinion that there is no satisfaction of the proviso to section 147 and the AO was not entitled to reopen the assessment. Even otherwise, it is admitted that the basis of reopening the assessment for the assessment years 2010-11 and 2011-12, wherein, similar addition was made by AO which came to be deleted by the Tribunal vide order 2021 (10) TMI 1204 - ITAT PUNE - It is also admitted fact that the decision of this Tribunal (supra) was not challenged by the Department before the Hon ble High Court. Thus, the issue had attained finality. Therefore, the very basis of the re-assessment proceedings does not stand, as once the foundation is removed, the superstructure falls (sublato fundmento credit opus). We are of the considered opinion that the AO was not justified in initiating reassessment proceedings and the orders passed by the lower authorities are hereby reversed. - Decided in favour of assessee.

Issues involved:
- Reopening of assessment beyond the prescribed period
- Failure to disclose material facts for assessment
- Validity of notice issued u/s 148
- Addition u/s 43D on interest
- Legal basis for reassessment

Reopening of assessment beyond the prescribed period:
The judgment dealt with the issue of reopening the assessment beyond the four-year period from the end of the relevant assessment year. The Assessing Officer sought to reopen the assessment for the appellant bank for the assessment years 2007-08 and 2008-09. The primary contention was that the provisions of section 147 empower the Assessing Officer to reopen the assessment if there is a reason to believe that income chargeable to tax has escaped assessment. However, the Tribunal held that in this case, the reassessment was initiated beyond the prescribed period, and there was no failure on the part of the assessee to disclose all material facts necessary for assessment. The Tribunal referred to various judicial precedents to support its decision, emphasizing that the primary duty of the assessee is to disclose all material facts, not draw inferences.

Failure to disclose material facts for assessment:
The judgment analyzed whether the appellant bank had failed to disclose fully and truly all material facts necessary for making the assessment. The Assessing Officer alleged that the bank had not made a provision for NPA accounts in accordance with Rule 6EA of the Income Tax Rules. However, the Tribunal found that the provision for NPA accounts was made as per RBI directions, and there was no failure on the part of the bank to disclose material facts. The Tribunal cited legal precedents to establish that the bank had fulfilled its duty to disclose all necessary facts, thereby rejecting the Assessing Officer's contention.

Validity of notice issued u/s 148:
The judgment also addressed the validity of the notice issued u/s 148 for reassessment. The appellant bank challenged the validity of the notice, arguing that there was no income that escaped assessment to tax. However, the Tribunal upheld the validity of the reopening of the assessment, but directed the Assessing Officer to allow deductions after verification. The Tribunal's decision highlighted the importance of complying with RBI directions and relevant rules while recognizing income to avoid reassessment issues.

Addition u/s 43D on interest:
Another issue discussed in the judgment was the addition made under section 43D of the Income Tax Act on account of interest. The appellant bank contended that no addition was required under this section unless there was a failure to comply with RBI directions. The Tribunal directed the Assessing Officer to allow deductions under section 43D after verification, indicating the importance of following regulatory guidelines in income recognition.

Legal basis for reassessment:
The judgment concluded by emphasizing that the Assessing Officer was not justified in initiating reassessment proceedings. It noted that the basis for reopening the assessment in previous years had been challenged and deleted by the Tribunal, with no appeal from the Department to the High Court. Therefore, the Tribunal held that the reassessment proceedings lacked a legal basis and reversed the orders passed by the lower authorities, ultimately allowing the appeals filed by the assessee for the respective assessment years.

This comprehensive analysis of the judgment highlights the key issues addressed, the arguments presented by both parties, and the Tribunal's decision based on legal principles and precedents.

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