2014 (11) TMI 681 - AT - Income Tax

Reopening of assessment u/s 147 r.w 148 - Expenses claimed under the head prior paid expenses relates to current AY or not - Held that - The assessee has claimed a deduction in the Profit & Loss A/c for the year ended on 31.03.2006 under the head Prior Period & Exceptional items (Net of tax) - not only assessee has disclosed full particulars with regard to prior period and exceptional items in its final accounts, but, explanatory notes was also appended with the final accounts with regard to such claim - AO at the time of original assessment has enquired into the aspect and called for details from assessee and after examining the information submitted by assessee, he has completed assessment - AO while completing assessment has also disallowed a part of expenditure relating to previous year - not only assessee has disclosed all material facts relating to prior period and exceptional items, but, AO while completing original assessment has examined the same and completed assessment accordingly - there are no tangible material before AO to form the belief that income has escaped assessment - Only on reappraisal of the materials available and considered at the time of original assessment and which were also examined during original assessment, AO has reopened assessment u/s 147 of the Act. AO himself has expressed the fact that on review he has noted assessee has claimed deduction in the P&L Account towards prior period and exceptional items, which is not relatable to current year - an issue which has already been considered and decided in original assessment cannot be subjected to reopening u/s 147 as it will amount to review of earlier assessment order in CIT Vs. Kelvinator India Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA the scope of section 147 had been discussed in details here AO has completed original assessment after making due enquiry and proper application of mind on the issue on which assessment was reopened - Only because AO has accepted the deduction claimed towards prior period and exceptional items without making any reference, it cannot be said that the issue was not examined by AO - reopening would amount to change of opinion or a review of assessment order earlier passed which is not permissible in law the order of the CIT(A) is upheld Decided against revenue.

Summary

Issues Involved:
1. Validity of the assessment order passed under Section 147 of the Income Tax Act.
2. Examination of prior period and exceptional items during the original assessment.
3. Concept of "change of opinion" in the context of reopening assessments under Section 147.

Issue-wise Detailed Analysis:

1. Validity of the assessment order passed under Section 147 of the Income Tax Act:

The Department appealed against the order dated 03/05/11 by the Commissioner of Income-tax (Appeals)-V, Hyderabad, which held the assessment order passed under Section 147 of the Act to be invalid. The assessee, a company engaged in the manufacture and trading of bulk drugs and intermediates, filed its return of income for the assessment year 2004-05 declaring 'nil' income after setting off brought forward losses. The original assessment was completed under Section 143(3) of the Act, determining taxable income at 'nil' after disallowing certain expenditures and restricting the deduction under Section 80HHC. Subsequently, the assessment was reopened by issuing a notice under Section 148, and the reassessment resulted in disallowing prior period expenditure, determining total income at Rs. 6,38,77,991. The CIT(A) found the reopening of the assessment invalid and annulled the reassessment order.

2. Examination of prior period and exceptional items during the original assessment:

During the original assessment, the assessee disclosed all material facts related to the expenditure claimed, including prior period items. The Assessing Officer (AO) conducted due inquiry and examination of these facts and completed the assessment under Section 143(3). The CIT(A) noted that the AO had reviewed the materials already available on record and considered them during the original assessment. The reopening of the assessment was based on the same materials, which amounted to a change of opinion. The CIT(A) followed the decision of the Hon'ble Supreme Court in CIT Vs. Kelvinator India Ltd., which held that reopening an assessment on the same issue and materials considered in the original assessment is invalid.

3. Concept of "change of opinion" in the context of reopening assessments under Section 147:

The concept of "change of opinion" was central to this case. The CIT(A) and the Tribunal found that the AO had already examined the issue of prior period and exceptional items during the original assessment. The reopening of the assessment was based on the same materials, which the AO had already considered. This amounted to a change of opinion, which is not permissible under Section 147. The Tribunal upheld the CIT(A)'s order, stating that reopening the assessment on the same issue and materials considered earlier would be a review of the earlier assessment order, which is not allowed by law. The Tribunal referred to the decision of the Hon'ble Supreme Court in CIT Vs. Kelvinator India Ltd., which emphasized that reopening an assessment requires "tangible material" and cannot be done merely on a change of opinion.

Conclusion:

The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision that the reopening of the assessment under Section 147 was invalid as it was based on a mere change of opinion. The original assessment had already examined and considered the prior period and exceptional items, and there was no new tangible material to justify the reopening. The Tribunal's decision reinforced the principle that an assessment cannot be reopened merely for a reappraisal of the same materials considered during the original assessment.