2014 (4) TMI 524 - AT - Income Tax

Reopening of assessment u/s 147 CIT(A) reopened of assessment u/s 147 and confirmed disallowance made by AO against deduction on account of de-bonding interest on capital goods Held that - letter dated 19.09.2007 indicates that assessee has provided all details on impugned claims of deduction and after opining on said details assessment has been completed by AO on 20.12.2007 - Reasons recorded for reopening said assessment do not suggest that any tangible material has come for concluding that there is escapement of income from assessment - Applying ratio of Apex Court in case of CIT vs. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA , CIT(A) is not justified in confirming reopening of assessment made by AO u/s 147 of Act - Reopening of assessment made under section 147 is bad in law and the same is quashed - Original assessment order passed under Section 143(3) is restored Decided in favor of Assessee.

Summary

Issues:
1. Disallowance of deduction on de-bonding interest on capital goods.
2. Validity of reopening the assessment under section 147 of the Income Tax Act.

Issue 1: Disallowance of deduction on de-bonding interest on capital goods:
The appellant contested the disallowance of Rs.43,36,227/- by the Ld.CIT(A) against the deduction claimed for de-bonding interest on capital goods. The AO disallowed the deduction as the interest claimed was on capital goods lying in a bonded house and not put to use, thus not allowable under section 36(1)(iii) of the IT Act. The Ld.CIT(A) upheld the disallowance. The appellant argued that the reopening of the assessment under section 147 was unjustified and the original assessment order u/s 143(3) should stand. The ITAT held that the reasons for reopening did not show tangible material for income escapement, citing the 'change of opinion' doctrine. Following the Supreme Court's ruling in CIT vs. Kelvinator of India Ltd., the ITAT concluded that the reopening of the assessment was unjustified. Consequently, the assessment order under section 147 was quashed, and the original assessment order under section 143(3) was reinstated. The appeal was allowed in favor of the assessee.

Issue 2: Validity of reopening the assessment under section 147 of the Income Tax Act:
The initiation of proceedings under section 147 was based on the AO's belief that there was income escapement due to wrong claims made by the assessee regarding terminal depreciation and de-bonding interest on capital goods. The appellant argued that the reopening amounted to a change of opinion as all details were provided during the original assessment u/s 143(3). The ITAT noted that the reasons for reopening did not present any new tangible material for income escapement. Referring to the 'change of opinion' principle and the requirement of tangible material post-1-4-1989 for reopening, as per the Supreme Court's ruling in CIT vs. Kelvinator of India Ltd., the ITAT held that the Ld.CIT(A) erred in confirming the reopening of the assessment under section 147. Consequently, the assessment order under section 147 was deemed unlawful and quashed, restoring the original assessment order under section 143(3). The appeal by the assessee was allowed.

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