2014 (10) TMI 649 - AT - Income Tax

Validity of reassessment u/s 143 r.w section 147 Change of opinion - Nexus between the reasons recorded and additions made in the guise of escapement of income or not Held that - CIT(A) erred in holding that the AO had valid reasons to reopen the assessment of Assessee-company to examine the veracities and financial implications between Assessee-company and M/s. Satyam Computer Services Limited - there is no rationale nexus with such statement by Sri Ramalinga Raju and reassessment made - even though the assessment was reopened to examine the transaction between M/s Satyam computers and assessee, no such exercise was undertaken and no findings were given on that issue - The additions made are routine disallowances out of already allowed expenditure in original assessment - There is no nexus between the reasons recorded and additions made in the guise of escapement of income relying upon Ganga Saran & Sons P. Ltd. vs. ITO and others 1981 (4) TMI 5 - SUPREME Court AO had no tangible material to come to the conclusion that there was escapement of income from the original assessment. The assessment made u/s 143(3) has been wrongly reopened u/s 147 beyond period of 4 years, as there is no failure on the part of the assessee to disclose fully and truly all the material facts in the original assessment itself - The reopening was on wrong foundation of reasoning of the financial implication between the assessee-company and M/s. Satyam Computer Services Limited, which was not established in the reassessment to justify the reopening thus, there being no nexus or live-link with the reasons recorded and the formation of belief to come to a conclusion that there was escapement of income and also since the assessment has been reopened beyond the period of 4 years when there is no failure on the part of the assessee to fully and truly disclose all material facts in the original assessment itself, and there being no tangible material for the reopening of the assessment, the CIT(A) erred in confirming the order of the AO hence, the reopening of the assessment u/s 147 is bad in law and is to be quashed Decided in favour of assessee.

Issues Involved:
1. Validity of reopening of assessment under section 147 after four years.
2. Nexus between reasons recorded for reopening and the actual assessment.
3. Whether there was tangible material to justify the reopening.
4. Legality of various additions and disallowances made by the Assessing Officer.
5. Treatment of interest income and other expenditures.

Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147 after Four Years:
The primary issue was whether the reopening of the assessment under section 147 was valid, especially since it was done after four years from the end of the assessment year. The Tribunal noted that the assessment had already been completed under section 143(3) and had become final. For reopening an assessment after four years, there must be a failure on the part of the assessee to disclose fully and truly all material facts. The Assessing Officer (AO) did not allege any such failure on the part of the assessee. The Tribunal held that reopening the assessment based on a mere change of opinion is not permissible, citing the Supreme Court's decision in CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561.

2. Nexus Between Reasons Recorded for Reopening and the Actual Assessment:
The Tribunal found that there was no rational nexus between the reasons recorded for reopening the assessment and the actual additions made during the reassessment. The reopening was purportedly to examine transactions between the assessee-company and M/s. Satyam Computer Services Limited, but no such transactions were examined or findings made. The additions made were routine disallowances of already allowed expenditures in the original assessment. The Tribunal relied on the Supreme Court's decision in Ganga Saran & Sons P. Ltd. vs. ITO and others 130 ITR 1 (SC) to hold that if there is no rational nexus between the reasons and the belief of income escapement, the notice issued by the AO is invalid.

3. Whether There Was Tangible Material to Justify the Reopening:
The Tribunal observed that the AO had no tangible material to conclude that there was an escapement of income from the original assessment. The reopening was based on the financial implications between the assessee-company and M/s. Satyam Computer Services Limited, which were not established in the reassessment. The Tribunal emphasized that the reopening was beyond the period of four years and there was no failure on the part of the assessee to disclose all material facts in the original assessment.

4. Legality of Various Additions and Disallowances Made by the Assessing Officer:
The Tribunal noted that the additions made by the AO were routine disallowances of expenditures that had already been allowed in the original assessment. Since the reopening itself was invalid, the Tribunal did not find it necessary to address the merits of these additions and disallowances. The Tribunal allowed the assessee's appeal on the grounds of reopening and treated the other grounds on merits as academic in nature.

5. Treatment of Interest Income and Other Expenditures:
The Tribunal did not specifically address the treatment of interest income and other expenditures, as the primary issue of reopening was decided in favor of the assessee. Since the reopening was quashed, the Tribunal did not need to adjudicate on the specific treatment of interest income and other expenditures.

Conclusion:
The Tribunal allowed the assessee's appeals and quashed the reopening of the assessment under section 147, holding it as invalid. The Tribunal dismissed the revenue's appeals, finding no merit in their contentions. The order of the CIT(A) was set aside, and the original assessment under section 143(3) was restored.

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