2016 (5) TMI 529 - AT - Income Tax

Reopening of assessment - Held that - The original assessment proceedings, once the questionnaire/queries stood replied by assessee on each and every aspect of the case, reopening of assessment will amount to change of opinion, has also not been rebutted by the Revenue before us. Therefore, in view of several decisions relied on by the ld. CIT(A) in the impugned order, as well as by assessee before us, the re-assessment proceedings have rightly been held as invalid. We, therefore, are not inclined to interfere with the findings of the ld. CIT(A) given impugned order as reproduced above and the appeal of the Revenue is, thus, found to have no merits. - Decided in favour of assessee

Summary

Issues:
1. Validity of reopening assessment u/s. 147/148
2. Addition of prior period expenses
3. Jurisdiction of Assessing Officer in reassessment proceedings

Analysis:

Issue 1: Validity of reopening assessment u/s. 147/148
The case involved the reopening of assessment under section 147/148 for the assessment year 2004-05. The Assessing Officer (AO) reopened the assessment based on certain discrepancies, including the treatment of bank guarantee expenditure and prior period expenses. The assessee challenged the reopening on various grounds, including the absence of reasons to believe that income had escaped assessment and the lack of approval from higher authorities. The CIT(A) held that reopening cannot be based on a mere change of opinion and that the AO did not apply his mind but acted on the direction of the audit team. The CIT(A) concluded that the reassessment proceedings were invalid, and the addition made by the AO was deleted.

Issue 2: Addition of prior period expenses
The AO disallowed the prior period expenses claimed by the assessee, treating them as bad debts written off. The AO contended that bad debts can be claimed as an expense only if shown as income in a previous year, which was not the case here. However, the CIT(A) allowed the deduction of bad debts written off as irrecoverable under Section 36(1)(vii) and deleted the addition made by the AO.

Issue 3: Jurisdiction of Assessing Officer in reassessment proceedings
The Revenue argued that the reassessment proceedings were valid as the income was under-assessed in the original assessment. However, the CIT(A) and the Tribunal found that the notice u/s. 148 was issued after the expiry of four years, and the reasons recorded did not establish that income had escaped assessment due to the assessee's failure to disclose material facts. The Tribunal relied on decisions stating that reassessment without proper approval and on issues already considered in the original assessment amounts to a change of opinion, rendering the reassessment proceedings invalid.

In conclusion, the Tribunal upheld the CIT(A)'s decision, dismissing the appeal of the Revenue. The reassessment proceedings were deemed invalid, and the addition of prior period expenses was deleted based on the provisions of Section 36(1)(vii) allowing the deduction of bad debts written off.