2016 (3) TMI 418 - AT - Income Tax

Reopening of assessment - assessment based on the information received from the revenue audit team - change of opnion - Held that - We have observed that detail of deviation from the method of valuation prescribed u/s 145A of the Act are duly given in Annexure D to tax audit report u/s 44AB of the Act which was submitted before the AO and also in the computation of income filed along with the return of income with the Revenue, hence, the assessee company has truly and fully disclosed all the material facts necessary for the assessment. With respect to the amount of ₹ 10,72,897/-, we have observed that the assessee company has disclosed the said facts in the computation of income filed with the Revenue Authorities. The tax audit report u/s 44AB of the Act is an important piece of evidence and is a statutory document u/s 44AB of the Act, which is filed before the A.O. along with the return of income from where the A.O. seeks all the prescribed information which is vital and necessary for framing the assessment. It cannot by any stretch of imagination be said that the A.O. has not gone through the tax audit report while framing assessment u/s 143(3) of the Act and in fact the A.O.is duty bound to go through the same before framing the assessment . The said information was also duly declared and disclosed in the computation of income filed with the Revenue Authorities. The Revenue is seeking reopening of the assessment based on the information received from the revenue audit team. Thus, as per section 147/148 of the Act change of opinion is not permitted as the AO while framing the original assessment u/s 143(3) of the Act vide orders dated 09-03-2008 has duly applied his mind to the issues as detailed above and is now re-opening the assessment merely on the basis of information received from revenue audit team while there is no independent application of mind by the AO before re-opening the assessment which is not permissible and more-so when the AO has passed scrutiny assessment u/s 143(3) of the Act in original assessment and four years have elapsed from the end of the assessment year when the assessment was reopened vide notice u/s 148 of the Act dated 28-03-2012 and the reasons were recorded on 26-03-2012 , and there is no failure on the part of the assessee company to truly and fully disclose all material information in the return of income filed with the revenue and during the course of original assessment proceedings u/s 143(2) of the Act read with Section 143(3) of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Legality of reopening the assessment under Section 147 of the Income Tax Act.
2. Inclusion of Modvat credit in closing stock as per Section 145A.
3. Taxability of rebate on non-payment of sales tax deferral installments under Section 41(1) read with Section 43B.

Issue-wise Detailed Analysis:

1. Legality of Reopening the Assessment under Section 147:
The core issue was whether the reopening of the assessment after four years from the end of the relevant assessment year was valid. The assessee company argued that all material facts were fully and truly disclosed during the original assessment, and the reopening was merely based on audit objections without any new information. The CIT(A) agreed, noting that the reasons for reopening were based on information already available on record, thus constituting a change of opinion, which is not permissible under the law. The Tribunal upheld this view, emphasizing that the reopening was invalid as there was no failure on the part of the assessee to disclose material facts, and the AO did not have any fresh material to justify the reopening.

2. Inclusion of Modvat Credit in Closing Stock as per Section 145A:
The AO added Rs. 72,07,660/- to the income of the assessee for not including Modvat credit in the closing stock, as mandated by Section 145A. The assessee contended that the method of accounting was consistently followed and was revenue-neutral. The CIT(A) found that the AO had already considered this aspect during the original assessment, and reopening on the same ground was a change of opinion. The Tribunal agreed, noting that the details were fully disclosed in the tax audit report and computation of income, and no new information justified the reopening.

3. Taxability of Rebate on Non-Payment of Sales Tax Deferral Installments under Section 41(1) read with Section 43B:
The AO added Rs. 10,72,897/- to the income, treating the rebate on sales tax deferral installments as taxable under Section 41(1) read with Section 43B. The assessee argued that the rebate was a capital receipt and not a revenue expenditure, hence not taxable. The CIT(A) observed that this issue was also considered during the original assessment, and reopening on this basis was again a change of opinion. The Tribunal upheld this view, noting that the facts were fully disclosed, and no new material justified the reopening.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that the reopening of the assessment was invalid as it was based on a change of opinion without any new material. The additions made by the AO were quashed, and the original assessment order was restored. The Tribunal refrained from deciding the issues on merit, as the reopening itself was held to be illegal and bad in law.