2013 (8) TMI 824 - AT - Income Tax

Notice u/s 148 - Validity of reassessment proceeding - Change of opinion - Reopening at the instance of Audit objections - Held that - Reassessment proceedings were initiated by the AO after objections were received from the internal audit party, the dates of audit objections and the dates of issue of notice u/s. 148 establish the fact that there was nexus between the two - while passing the original assessment order, AO had called for the details about lease equalisation reserve as well as about the writing off of non- performing assets - after considering the submissions of the assessee AO decided that lease equalisation reserve and provision of diminution in investment has to be given particular treatment. As stated earlier one of the items was taxed under normal provisions and not under MAT provisions, whereas the other item was considered for MAT provisions and not for computation under normal provisions of the Act. Thus an informed decision was taken by the AO about both the items. In these circumstances, if AO decided to issue a fresh notice for reopening the completed assessment it has to be treated as change of opinion - order of assessment that was passed by the AO under section 143(3) is not silent in respect of points on the basis of which the assessment was sought to be reopened - reopening was result of change of opinion. Fact that the AO did not record reasons for computing income under normal/MAT provisions, would be of no consequence - Decided in favour of assessee. Role of the Audit parties to point out of the factual mistakes and not to advise the AO on legal matters. Therefore if an AO, reopens the assessment on the legal advice of the audit party it cannot be held forming of an independent opinion.

Issues Involved:
1. Validity of reassessment proceedings initiated under Section 147.
2. Disallowance of depreciation of Rs. 69,22,568/- on residential properties.
3. Application of Section 14A read with Rule 8D for disallowance.
4. Clubbing of disallowances under different sections for exempt income.
5. Levy of interest under Section 234B.
6. Application of Section 234D regarding interest on refunds.
7. Addition to book profit under Section 115JB for lease equalization reserve.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings:
The appellant contested the reassessment proceedings initiated under Section 147, arguing that the conditions of Section 147 were not satisfied and the notice under Section 148 was invalid. The reassessment was claimed to be based on a change of opinion without new facts or evidence, and the reassessment was initiated based on audit objections, which is not permissible. The tribunal held that the reassessment proceedings were invalid as they were based on a change of opinion and not on any tangible material. The original assessment had already considered the issues raised, and the reassessment was merely a review, which is not allowed. The tribunal cited several judgments to support this view, including Rajesh Jhaveri Stock Brokers P. Ltd. and Kelvinator of India Ltd., emphasizing that reassessment requires tangible material and cannot be based solely on a change of opinion.

2. Disallowance of Depreciation on Residential Properties:
The appellant argued that the disallowance of depreciation of Rs. 69,22,568/- on residential properties was unjustified. The tribunal did not specifically address this issue in detail as the primary issue of the validity of reassessment proceedings was decided in favor of the appellant, rendering this ground moot.

3. Application of Section 14A read with Rule 8D:
The appellant challenged the disallowance made under Section 14A read with Rule 8D, arguing that the disallowance was not justified and should be deleted. The tribunal did not specifically address this issue in detail due to the decision on the validity of reassessment proceedings.

4. Clubbing of Disallowances under Different Sections:
The appellant argued that the disallowances made in respect of exempt income under Sections 10(23G), 10(34), and 10(35) should not be clubbed together and should be computed separately. This issue was not specifically addressed in detail by the tribunal due to the decision on the validity of reassessment proceedings.

5. Levy of Interest under Section 234B:
The appellant contested the levy of interest under Section 234B, denying liability for such interest. The tribunal did not specifically address this issue in detail due to the decision on the validity of reassessment proceedings.

6. Application of Section 234D:
The AO argued that the provisions of Section 234D, which were introduced with effect from 01.06.2003, should apply to the case. The tribunal did not specifically address this issue in detail due to the decision on the validity of reassessment proceedings.

7. Addition to Book Profit under Section 115JB:
The AO had added Rs. 113.73 crores to the book profit under Section 115JB for the lease equalization reserve. The tribunal found that the original assessment had already considered the lease equalization reserve and the provision for investment valuation, and the reassessment was merely a change of opinion. Therefore, the addition to book profit under Section 115JB was not justified.

Conclusion:
The tribunal concluded that the reassessment proceedings were invalid as they were based on a change of opinion and not on any tangible material. Consequently, the reassessment notice under Section 148 was issued without jurisdiction, and the appeal filed by the assessee was allowed. The appeal filed by the AO was dismissed. The tribunal emphasized the importance of tangible material for reopening assessments and the prohibition against reassessment based solely on a change of opinion.

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