2024 (6) TMI 855 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - assessment is done beyond four years - reasons to believe - HELD THAT - Assessment is reopened entirely based on the material available on records in the form of notes to accounts for the financial year relevant to AY 2009-10. From the perusal of the assessment order passed u/s 143(3) and the details submitted before the assessing officer during the original assessment proceedings we notice that the assessee has submitted the details on capital assets depreciation etc. before the assessing officer during the proceedings u/s 143(3) of the Act and that the assessing officer has also verified the same while completing the assessment. It is settled law that where the assessment is sought to be reopened after the expiry of a period of four years from the end of the relevant year the proviso to section 147 stipulates a requirement that there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary. In the given case the assessment is sought to be reopened after a period of four years and the proviso to section 147 is applicable. The Hon ble Supreme Court in the case of Kelvinator of India Ltd 2010 (1) TMI 11 - SUPREME COURT has laid down that the AO has no power to review but only to reassess based on any new material that has come to his possession. In assessee s case from the perusal of records it is clear that the assessing officer has made the additions during reassessment based on the materials which are part of assessment records which have already been verified during the original assessment u/s.143(3). It is also noticed that the assessing officer has not brought on record any new material basis which the reopening is done and that the assessing officer has used the same material as has been considered during the original assessment under section 143(3) - Assessee appeal allowed.

Issues Involved:
1. Legality of the reopening of assessment under Section 147 of the Income Tax Act, 1961.
2. Validity of the reassessment proceedings initiated beyond four years from the end of the relevant assessment year.

Detailed Analysis:

1. Legality of the reopening of assessment under Section 147 of the Income Tax Act, 1961:

The assessee, a charitable trust registered under Section 12A of the Income Tax Act, 1961, filed its return of income for the assessment year 2009-10 on 30.09.2009, declaring a total income of Rs. Nil. The original assessment under Section 143(3) was completed on 23.03.2011, accepting the income returned by the assessee. Subsequently, the Assessing Officer (AO) issued a notice under Section 148 on 17.03.2016, stating that there was an escapement of assessment within the meaning of Section 147. The AO completed the reassessment under Section 143(3) read with Section 147, assessing the income of the assessee at Rs. 46,12,97,440/- as income from capital gains.

The assessee contended that the reopening of the assessment was based on a mere change of opinion and was therefore illegal, bad in law, and void. The assessee argued that the AO had not come into possession of any new tangible material or information that would warrant the reopening of the assessment.

2. Validity of the reassessment proceedings initiated beyond four years from the end of the relevant assessment year:

The assessee argued that the reopening of the assessment was beyond the stipulated four-year period, as provided under the proviso to Section 147. The proviso states that no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year unless there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.

The Tribunal noted that the assessment proceedings were completed under Section 143(3) and that the reopening of the assessment was done beyond four years from the end of the relevant assessment year. The Tribunal emphasized that the proviso to Section 147 was applicable, which requires a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.

The Tribunal observed that the AO had recorded the following reasons for reopening the assessment:

"On verification of records, it is seen that during the Financial year relevant to A.Y. 2009-10, the assessee has transferred certain development rights to three parties for a consideration of Rs. 5.46 crore, Rs. 42.47 crore, and Rs. 7 crore respectively, and payment was received prior to the assessment year 2006-07. The trust disclosed in the Notes to Accounts for the assessment year 2009-10 that the surplus amounting to Rs. 4,612.97 lakh was utilized for charitable activities, including the acquisition of capital assets in the preceding accounting periods. The trust had not acquired any capital asset against the asset sold and set off the gain against deficits brought forward from earlier years. The provisions of Section 11(1A) provide that in case of transfer of a capital asset, the net consideration should be invested in another capital asset. The trust was liable to be taxed on the capital gains arising out of the transfer of capital assets. The assessee failed to disclose fully and truly all the material facts relevant to the said transaction, resulting in income chargeable to tax escaping assessment."

The Tribunal found that the assessment was reopened based entirely on the material available on records in the form of notes to accounts for the financial year relevant to AY 2009-10. The Tribunal noted that the details on capital assets and depreciation were submitted by the assessee and verified by the AO during the original assessment proceedings under Section 143(3). The Tribunal emphasized that it is settled law that the AO has no power to review but only to reassess based on any new material that has come to his possession.

The Tribunal referred to the Hon'ble Supreme Court's decision in the case of Kelvinator of India Ltd [2010] 320 ITR 561 (SC), which laid down that the AO has no power to review but only to reassess based on any new material that has come to his possession. The Tribunal also referred to the Hon'ble Bombay High Court's decision in the case of Ananta Landmark (P.) Ltd. vs. DCIT ([2021] 131 taxmann.com 52 (Bombay)), which held that the assessment cannot be reopened on account of a change of opinion of the AO about the manner of computation of the deduction under Section 57 of the Act.

The Tribunal concluded that the AO had made the additions during reassessment based on the materials which were part of the assessment records and had already been verified during the original assessment under Section 143(3). The Tribunal noted that the AO had not brought on record any new material as the basis for reopening the assessment. Considering the facts of the present case and the legal precedents, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the additions made in the reassessment.

Conclusion:

The appeal of the assessee was allowed. The Tribunal ordered the deletion of the additions made in the reassessment, holding that the reopening of the assessment was not valid as it was based on a mere change of opinion and was initiated beyond the stipulated four-year period without any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.

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