2014 (7) TMI 457 - AT - Income Tax

Reopening of assessment u/s 147 of the Act Mere change of opinion Held that - The AO had required the assessee to explain as to why income from bonded warehouses be not accounted for on accrual basis - The relevant point regarding accrued income from bonded warehouse had been disclosed in note no. 11 of the notes forming part of the accounts which were available in the printed accounts of the Corporation AO completed the assessment after considering the assessee s reply - it was clearly a case of change of opinion to tax the income from bonded warehouses on accrual basis which is not permissible as decided in Commissioner of Income Tax, Delhi Versus M/s. Kelvinator of India Limited 2010 (1) TMI 11 - SUPREME COURT OF INDIA - the reopening has been done after four years of the close of re-assessment year in 2011 and therefore, it could be done only if assessee failed to disclose fully and truly all material facts necessary for assessment - From the query raised by AO and reply filed by Assessee it is evident that there was no failure on the part of assessee to disclose that the income from bonded warehouses was accounted for on realization basis and not on accrual basis Decided against Revenue.

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act.
2. Whether the reopening was based on a mere change of opinion.
3. Applicability of the Supreme Court's rulings on reopening cases based on factual errors or new information.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:
The revenue filed an appeal against the order of the Commissioner of Income Tax (Appeals) regarding the assessment year 2005-06. The assessee, a Government of India undertaking, had filed its return of income declaring nil income. The assessing officer, upon perusal of records, noticed that accrued income of Rs. 91.6 crores from bonded stock had not been offered to tax, leading to the reopening of the case under Section 147 after obtaining necessary approval. The assessee objected, asserting that the reopening was based on a change of opinion and that all facts were on record during the original assessment.

2. Whether the Reopening was Based on a Mere Change of Opinion:
The assessing officer argued that warehousing charges become payable as soon as the importers keep their cargo in the bonded warehouse operated by the assessee corporation. The officer contended that the warehousing charges should not be treated on a realization basis and that the reopening was legitimate under the amended provisions, which allow reopening even if the assessee had disclosed all material facts. The Commissioner of Income Tax (Appeals) found that the original assessment under Section 143(3) was completed after due application of mind on the issue of non-accounting of warehousing income on an accrual basis. The reassessment notice under Section 148 was issued based on a reappraisal of the same facts, constituting a mere change of opinion, which is not permissible as per the Supreme Court's ruling in CIT Vs. Kelvinator of India Ltd.

3. Applicability of Supreme Court's Rulings:
The Departmental Representative relied on various Supreme Court decisions, including M/s P.V.S. Beedies (Pvt.) Ltd. and Phool Chand Bajrang Lal Vs. ITO, to argue that reopening based on factual errors or new information is permissible. However, the Commissioner of Income Tax (Appeals) and the Tribunal found these decisions distinguishable as the reopening in the present case was done after four years and was based on the same set of facts, not new information or factual errors.

The Tribunal noted that during the original assessment, the assessing officer had already scrutinized the issue of warehousing income on an accrual basis and had accepted the assessee's explanation. Thus, the reopening was indeed a change of opinion, which is not allowed under the law. The Tribunal upheld the Commissioner of Income Tax (Appeals) order, confirming that there was no failure on the part of the assessee to disclose material facts and that the reopening was invalid.

Conclusion:
The Tribunal dismissed the department's appeals for both assessment years, confirming that the reopening of the assessment was based on a mere change of opinion and not on new information or factual errors. The original assessment had been completed after due scrutiny of all relevant facts, and thus, the reassessment proceedings were invalid. The appeals were dismissed, and the order was pronounced in open court on 2.6.2014.

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