2023 (4) TMI 1177 - HC - Income Tax

Validity of reopening of assessment u/s 147 - assessee was subjected to scrutiny and accordingly, an order u/s 143(3) of the Act was framed - whether the AO could have commenced the reassessment proceedings based on the information already available on record? - HELD THAT - On a careful perusal of the reasons, it appears that there is no reference to an audit objection, or to any other objection for that matter. Therefore, insofar as the AO is concerned, the trigger was the information which was already available on record. The respondent/assessee had debited, as it appears, the loss on sale of fixed assets in its Profit and Loss account, and this was an aspect which the AO seems to have noticed after the scrutiny assessment was framed. It is well-established that reassessment proceedings can be based on new material, and not material information which is already on record. The respondent/assessee in this case had disclosed primary facts. AO, decidedly, committed an error in appreciating the information that was already available on record. To our minds, the power available to the AO under Section 147 of the Act does not go so far as to correct errors in appreciating the primary facts, which are disclosed by the respondent/assessee. Insofar as Appellant submission is concerned, that the respondent/assessee had agreed to the addition with regard to the deduction qua loss on sale of fixed of assets wrongly claimed by it, we can only say that once we hold that the error was impregnated with jurisdictional flaw, no amount of concession can help the cause of the appellant/revenue. Decided in favour of assessee.

Summary

Issues involved:
The judgment involves the issue of whether the Tribunal misdirected itself on facts and in law in deleting additions made by the Assessing Officer concerning the loss on sale of fixed assets amounting to Rs. 2,45,35,280.

Comprehensive Details:

The respondent/assessee filed a return for the AY 2005-06 declaring a loss of Rs. 41,72,99,430. An order under Section 143(3) of the Income Tax Act was framed, pegging the assessed income at Rs. 40,29,18,340. Subsequently, a notice under Section 148 was issued, triggering reassessment proceedings. The reasons for reassessment included the underassessment of income due to the deduction claimed on the loss on sale of fixed assets. The respondent/assessee objected to these reasons, but the AO proceeded to pass the assessment order. The CIT(A) confirmed the AO's finding, leading the respondent/assessee to appeal to the Tribunal.

The Tribunal ruled in favor of the respondent/assessee, prompting an appeal to the High Court. The appellant/revenue argued that the AO's error in allowing the deduction for the loss on sale of fixed assets was pointed out by the auditor, and the respondent/assessee agreed to the addition being made. On the other hand, the respondent/assessee contended that the reassessment was triggered based on information already available to the AO, without any reference to audit objections.

The High Court analyzed the reasons furnished by the AO and found no reference to an audit objection. It concluded that the AO initiated reassessment based on information already on record, which is not a valid ground for reassessment. The Court held that the AO's error in appreciating the disclosed primary facts was jurisdictionally flawed. Therefore, the Court ruled in favor of the respondent/assessee, stating that no concession could remedy the jurisdictional flaw. The appeal was disposed of accordingly.

The judgment highlights the importance of reassessment proceedings being based on new material, not information already available on record. The Court emphasized that the AO's power under Section 147 does not extend to correcting errors in appreciating disclosed primary facts.