2023 (4) TMI 370 - AT - Income Tax

Validity of the reopening of the assessment - scope of tangible material - assessee s claim of interest expenditure incurred on payment made - As per DR merely filing the balance-sheet cannot absolve the assessee s duty to explain/furnish fully and truly all the relevant material facts necessary for the assessment in respect of interest expenditure - HELD THAT - Assessee had disclosed all the primary documents before the AO as discussed; and it cannot be said in the facts of this case that the assessee failed to disclose any material facts necessary for assessment on this issue (interest expenditure). Moreover, as noted this issue (Interest expenditure) has been specifically asked and assessee has replied to it - assessee cannot be said to have failed to disclose truly and fully the material/information regarding this issue. As decided in Mangalore Refinery Petro Chemicals Ltd. 2022 (2) TMI 1038 - BOMBAY HIGH COURT as held it cannot be said that the income escaped assessment on account of failure to make a true and full disclosure of the material facts (in cases where the proviso operates) - the exercise would then fall in the realm of mere change of opinion on the basis of the very same material, which is legally impermissible - it cannot be said that there is a tangible material which would justify recourse to the provisions contained in section 147 of the Act, 1961. Decided in favour of assessee.

Issues Involved:
1. Legality and validity of the reopening of assessment for AY 2012-13 under sections 147 and 148 of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Legality and Validity of Reopening of Assessment:

The assessee challenged the reopening of the assessment on several grounds, arguing that the Assessing Officer (AO) erred in reopening the assessment under section 148 and completing it under section 147 without any new information, and that the notice under sections 143(2) and 142(1) was issued before furnishing the reasons to believe and disposing of objections, contrary to the principles laid down by the apex court in G K N Driveshaft.

Legal Framework and Principles:

The tribunal reviewed the settled legal principles regarding the power of the AO to reopen assessments under section 147. It emphasized that the concept of assessment is governed by the time-barring rule, and an assessee acquires a right to the finality of proceedings. The reopening can only be justified if there is new information or evidence indicating undisclosed income or if the AO has information showing escapement of income. The AO must record the "reason to believe" that income has escaped assessment, which should be based on tangible material.

Facts and Reasoning:

In this case, the assessee filed its return of income for AY 2012-13 on 29.09.2012, which was selected for scrutiny, and the AO accepted the returned income on 20.03.2015. A notice under section 148 was issued on 14.03.2018, after four years from the end of the assessment year, invoking the first proviso to section 147, which requires the AO to have tangible material indicating that income escaped assessment due to the assessee's failure to disclose fully and truly all material facts.

The AO's reasons for reopening the assessment were based on the assessee's claim of interest expenditure paid to Urban Kshetra Infrastructure Pvt. Ltd. (UKIPL). The AO noted that the loan from UKIPL was repaid in August 2011, and the interest rate was only 10%, but the assessee claimed excessive interest payment, resulting in under-assessment of income. However, the tribunal found that the AO's reasons were based on information already available in the assessee's balance sheet and tax audit report, which were part of the original scrutiny assessment.

Judicial Precedents:

The tribunal referred to the Hon'ble Bombay High Court's decision in Hindustan Lever Ltd., which emphasized that reasons recorded for reopening must be read as they were recorded by the AO, without any substitution or deletion. The reasons must be self-explanatory and provide a link between the conclusion and the evidence.

The tribunal also referred to the Hon'ble Bombay High Court's decision in M/s. Godrej & Boyce Mfg. Co. Ltd., which held that mere production of books of accounts does not necessarily amount to disclosure, but filing balance sheets and computation of income with the annual return fulfills the disclosure requirement. The court observed that there must be clear indication in the reasons that there was a failure to disclose fully and truly all material facts necessary for assessment.

Conclusion:

The tribunal concluded that the AO did not have any new/tangible material from outside sources to justify reopening the assessment. The information was already available in the balance sheet and tax audit report submitted during the original assessment. The tribunal held that the assessee had disclosed all primary documents, and the AO had already inquired into the interest expenditure during the original assessment. Therefore, the reopening of the assessment was not justified.

Final Decision:

The tribunal allowed the legal issue raised by the assessee and quashed the notice issued under section 148, declaring all subsequent actions null and void. The appeal of the assessee was allowed. The order was pronounced in the open court on 27/02/2023.

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