2024 (5) TMI 1290 - AT - Income Tax

Validity of reassessment proceedings - notice issued beyond four years - unexplained credit u/s. 68 - as per AO capital gain on Sale of Vehicles had escaped assessment - scope of change of opinion - additions made u/s 68 in the original assessment are different from additions made u/s 50 or 41(2) in the re-assessment proceedings - HELD THAT - As absolutely clear that during the original assessment proceedings, the AO had enquired in the issue of Sale of Vehicles . Assessee had filed copies of sale agreements for vehicles, copy of ledger accounts, copy of balance sheet. AO had reproduced these facts in the original assessment order. Subsequently, AO made an addition u/s 68 of the Act with reference to the outstanding liability which was emanating from Sale of Vehicles . During the original assessment proceedings, the AO had applied mind to the issue of Sale of Vehicles, which is absolutely clear from the assessment order and details filed by the assessee during the assessment proceedings. Thereafter, after four years without bringing any new evidence on record the AO issued notice under section 148 of the Act. Here, in the reasons recorded, AO has not alleged that assessee failed to disclose all material facts. In the reasons recorded for reopening, the AO stated on verification of the agreements, it is noticed that as per the agreement, purchase cost receivable by the seller will be adjusted against the existing liabilities. Therefore, AO stated that he had reason to believe that capital gain on Sale of Vehicles had escaped assessment. Thus, it is very much clear from the reasons that AO is referring to the same agreements which were examined by the AO during original assessment proceedings and which has been mentioned in the original assessment order. The issue of Sale of Vehicles is discussed in the original assessment order. In these facts, the reasons recorded are nothing but change of opinion. Therefore, we are of the opinion that AO has reopened assessment merely on the basis of change of opinion. Revenue has not proved that assessee has failed to disclose fully and truly all material facts. The AO has not uttered a single word in the reasons recorded regarding any failure of the assessee to disclose any material facts necessary for deciding the issue. Rather, it is on record that assessee had filed copies of sale agreements for Sale of Vehicles . AO had raised queries on this issue, during the original assessment proceedings. The AO had mentioned all these facts in the original assessment order. Revenue has not brought any new evidence on record. Therefore, as per proviso to section 147, there was no new material on record for issuing notice under section 148 As observed from reasons recorded, the AO has not uttered a single word regarding assessee s failure to disclose all true facts. Once the reasons recorded does not allege any failure of the assessee to disclose material facts, as per proviso to section 147 after four years AO does not have any jurisdiction to reopen the case. In this case, AO has not alleged any failure of the assessee to disclose all material facts. Admittedly, the reopening is after four years. - Decided in favour of assessee.

Issues Involved:
1. Deletion of addition of Rs. 2,31,89,907/- as capital gain taxable u/s 50 of the IT Act.
2. Distinction between additions made u/s 68 in the original assessment and u/s 50 or 41(2) in the re-assessment.
3. Consideration of documentary evidence relating to transfer of bank loan liability of trucks sold.
4. Scope of the appellate authority in reassessment proceedings under section 147.
5. Powers of the appellate authority to go beyond the remand report given by the AO.
6. Validity of reopening of assessment u/s 147.

Detailed Analysis:

1. Deletion of Addition of Rs. 2,31,89,907/- as Capital Gain Taxable u/s 50:
The original assessment order dated 22.12.2011 discussed the sale of vehicles by the assessee to M/s. KSR Transport Company, including the submission of Sale Agreements and Ledger Accounts. The AO initially made an addition under section 68 of the Act. The ITAT later allowed the assessee's appeal, and the AO issued a notice under section 148, leading to a reassessment. The AO concluded that the surplus over WDV of the trucks should be taxable under section 50, treating the transfer of loan liability as a book entry to avoid tax. However, the appellate tribunal found that the AO had already examined the sale agreements during the original assessment and that the reassessment was based on the same agreements, constituting a change of opinion. Thus, the addition was deleted.

2. Distinction Between Additions Made u/s 68 in the Original Assessment and u/s 50 or 41(2) in the Re-assessment:
The AO initially made an addition under section 68 related to the sale of vehicles. In the reassessment, the AO aimed to tax the surplus over WDV as capital gains under section 50 and considered the transaction as an attempt to escape tax provisions. The tribunal found that the AO's reassessment was based on the same facts and agreements already examined in the original assessment, thus constituting a change of opinion and not justifying the reassessment.

3. Consideration of Documentary Evidence Relating to Transfer of Bank Loan Liability of Trucks Sold:
The AO argued that the assessee failed to furnish documentary evidence during the original assessment but provided it during the appellate proceedings. The tribunal noted that the AO had already examined the sale agreements and loan liabilities during the original assessment, and no new evidence was brought on record to justify the reassessment.

4. Scope of the Appellate Authority in Reassessment Proceedings under Section 147:
The tribunal emphasized that the appellate authority could only consider issues raised in the reassessment proceedings if there was a failure to disclose material facts by the assessee. Since the AO did not allege any such failure and the reassessment was based on the same agreements examined earlier, the tribunal found the reassessment unjustified.

5. Powers of the Appellate Authority to Go Beyond the Remand Report Given by the AO:
The tribunal held that the appellate authority has the power to consider issues beyond the remand report if new evidence or failure to disclose material facts is established. However, in this case, the reassessment was based on previously examined agreements, and no new evidence was presented.

6. Validity of Reopening of Assessment u/s 147:
The tribunal found that the reopening of the assessment beyond four years was invalid as the AO did not allege any failure by the assessee to disclose material facts. The reassessment was based on the same agreements examined during the original assessment, constituting a change of opinion. The tribunal cited legal precedents, including the Hon'ble Bombay High Court's rulings, to support its conclusion that the reassessment was invalid.

Conclusion:
The tribunal allowed the assessee's cross-objection appeal, declaring the notice under section 148 and the consequent reassessment order as bad in law. Consequently, the revenue's appeal was dismissed as academic. The order was pronounced on 9th Jan 2024.

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