2013 (12) TMI 711 - AT - Income Tax

Reassessment u/s 147 - Held that - The auditor has mentioned in the Audit Report that the assessee made recoveries against recoverable written off to the tune of Rs.5.56 crore, which was credited to the Profit and loss account - When the auditor is reporting that the amount of recoveries has been credited to the P&L account, it shows that the said amount had found its way into the taxability net - There was appropriate, full and true disclosure of all the relevant aspects on this point - The assessment has been reopened on the basis of audit report already available on record making such observations, aptly demonstrates that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment - The material condition for reopening the case is lacking. The solitary basis for the initiation of reassessment is the audit report furnished by the assessee along with the return of income indicating that the amount representing recoveries was credited to the P&L Account - Such audit report was available with the AO at the time of framing assessment - The AO did ask about the details of the such amount debited to the P&L account, which amount is net of the recoveries - When such details were furnished and no addition was made, it has to be presumed that the AO got convinced with such details - There is no fresh material coming into the possession of the AO which prompted him to issue notice u/s 148 - Consideration of the same material already on the record of the AO, which led to the initiation of reassessment is a case of change of opinion - Decided in favour of assessee.

Summary

Issues involved:
1. Sustenance of initiation of reassessment proceedings u/s 147.

Detailed Analysis:

Issue 1: Sustenance of initiation of reassessment proceedings u/s 147

The case involved a challenge to the initiation of reassessment proceedings under section 147 of the Income Tax Act. The original assessment was completed under section 143(3) on 28.3.2006, and the reassessment was initiated by issuing a notice under section 148 on 26.8.2010. The initiation was based on the auditor's report indicating that a sum of Rs. 5.56 crore was chargeable to tax under section 41(1) in respect of recoveries made against recoverable written off. The appellant contended that there was no failure on their part to disclose fully and truly all material facts necessary for assessment. The Tribunal analyzed the facts and relevant legal provisions.

The Tribunal noted that the reassessment could only be initiated if there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The reassessment in this case was initiated after the expiry of four years from the end of the relevant assessment year. The Tribunal referred to the first proviso of section 147 and cited relevant case laws to support the proposition that reassessment beyond the prescribed period is not justified if there was full and true disclosure by the assessee.

The Tribunal further examined the details of the case, emphasizing that the amount in question had been credited to the Profit and Loss account, albeit not separately. The Tribunal found that there was no failure on the part of the assessee to disclose all material facts, as the relevant information was available in the audit report and financial statements submitted by the assessee. The reassessment was based on the same material already on record, indicating a change of opinion by the Assessing Officer.

Ultimately, the Tribunal held that the reassessment proceedings were invalidly initiated as there was no failure to disclose material facts and it amounted to a change of opinion. Therefore, the Tribunal allowed the appeal, striking down the initiation of reassessment proceedings.

In conclusion, the Tribunal did not delve into the merits of the addition, as the decision on the initiation of reassessment proceedings rendered further adjudication unnecessary.