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2014 (11) TMI 765 - AT - Income TaxValidity of reopening of assessment - Change of opinion - Whether the CIT(A) was justified in confirming the disallowance of expenditure upto 50% out of the total disallowance made by the AO on account of administrative expenses Held that - Reopening was done on the ground that from the assessment records it transpired that computation of loss from business by allowing deduction towards administrative expenditure was irregular as there was no business activity during the year - assessee contended that the computation of loss from business by allowing deduction of administrative expenditure was examined by the AO - AO has held that the assessee has adjusted the loss with Long Term Capital Gain from sale of land and held that it was not allowable - It was clearly evident that AO was conscious of the administrative expenses claimed by the assessee - It also cannot be said that assessee s claim of administrative expenses was to be disallowed at the very first glance as the assessee has also shown income from operation relying upon CIT vs Ganga Properties Ltd. 1989 (5) TMI 10 - CALCUTTA High Court assessee rightly contended that there was change of opinion and in this view of the matter reopening is not sustainable reference is also made to CIT vs Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA - there was change of opinion and the reopening is not valid Decided in favour of assessee.
Issues:
Reopening of assessment under section 147 of the Act, validity of reassessment order, disallowance of expenditure, change of opinion, jurisdiction of the assessing officer. Analysis: 1. Reopening of Assessment under Section 147: The original assessment for Assessment Year 2006-07 was completed under section 143(3) of the Act. The assessing officer reopened the assessment based on the belief that the assessee failed to fully disclose material facts, resulting in underassessment of income and undercharge of tax. The reasons recorded for reopening highlighted the irregularity in allowing deductions for administrative expenses when there was no business activity during the previous year. 2. Validity of Reassessment Order: The assessee challenged the validity of the reassessment order, arguing that there was a change of opinion by the assessing officer, which is not permitted. The counsel for the assessee contended that the administrative expenses were duly mentioned in the Profit and Loss Account, and the AO had previously considered and disallowed a portion of these expenses. The High Court decision in CIT vs Ganga Properties Ltd. supported the assessee's case. Ultimately, the tribunal agreed that there was a change of opinion, rendering the reopening unsustainable. 3. Disallowance of Expenditure: The assessing officer disallowed a portion of the administrative expenses claimed by the assessee, stating that they were not incidental to business expenditure. However, the tribunal noted that the AO had previously allowed a portion of these expenses, indicating a consideration of the claim. The tribunal agreed with the assessee that no further disallowance was warranted, especially considering the nature of the expenses and the income from operations shown by the assessee. 4. Change of Opinion and Jurisdiction: The tribunal referenced the decision in CIT vs Kelvinator of India Ltd. to emphasize that reassessment cannot be initiated solely based on a change of opinion. The tribunal found that the assessing officer's decision to disallow administrative expenses in the reassessment contradicted the previous assessment where a portion of these expenses was allowed. This inconsistency indicated a change of opinion, leading to the tribunal's conclusion that the reopening was not valid. 5. Final Decision: Given the findings on the validity of the reassessment, the tribunal did not delve into the merits of the case. The appeal of the assessee was allowed, and the tribunal pronounced the order in favor of the assessee on 05.11.2014. This detailed analysis of the legal judgment highlights the key issues involved, the arguments presented by the parties, and the tribunal's decision based on legal principles and precedents.
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