2016 (8) TMI 360 - AT - Income Tax

Reopening of assessment - reasons to believe - excessive claim of the assessee - depreciation set-off - Held that - The reasons recorded by the Assessing Officer clearly speak for the under assessment of tax hence, the conditions laid above stand fulfilled in so far as re-assessment proceedings are concerned. In the present case, on framing the assessment order of Maheswari Sugars Ltd. for the assessment year 2006-07 vide order dated 25.03.2008, it came to the knowledge of the Assessing Officer that the depreciation pertaining to the assessment years 2002-03 to 2004-05 amounting to ₹.6,98,05,670/- was already set off out of total brought forward loss amounting to ₹.23,73,98,026/- and the balance amount of ₹.16,10,19,160/- could be carried forward for set off against the assessee s current income. As per Explanation 2 of Section 147 it is very clear that due to excessive claim of the assessee, the income chargeable to tax had escaped assessment. The assessee has not produced anything before the Commissioner of Income Tax (Appeals) to show as to how this fact was fully and truly disclosed before the assessing authority and that there was not failure on the part of assessee. Hence, the Commissioner of Income Tax (Appeals) wrongly cancelled the assessment order. It is fully covered by the provisions of Explanation 1 to Section 147 of the Income Tax Act It is possible that with due diligence the Assessing Officer would have ascertained this fat at the time of original assessment also, but in view of the Explanation (1) it does not mean that there was no default on the part of the assessee. Hence, reopening u/s.147 is held to be valid. - Decided against assessee.

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income Tax Act.
2. Whether there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.
3. Whether the reopening of assessment was based on a mere change of opinion or on tangible fresh material.
4. The applicability of the first proviso to Section 147 regarding the four-year time limit for reassessment.
5. The validity of the reassessment order passed by the Assessing Officer.

Detailed Analysis:

1. Validity of reassessment proceedings under Section 147 of the Income Tax Act:
The primary grievance of the Revenue was that the CIT(A) quashed the reassessment order on the grounds that there was no tangible fresh material to justify reopening the assessment. The tribunal held that the Assessing Officer is entitled to use any material collected, even if it was from an illegal search, for the purpose of reopening the assessment. The tribunal found no infirmity in relying on the assessment order of Maheswara Sugars Ltd. for the assessment year 2006-07 to reopen the impugned case.

2. Whether there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment:
The tribunal emphasized that the words "failure to disclose fully and truly all material facts" mean that the disclosure must be both full and true. In this case, the tribunal noted that the assessee did not disclose the fact that the depreciation pertaining to the assessment years 2002-03 to 2004-05 amounting to ?6,98,05,670/- was already set off, which led to an excessive claim. The tribunal held that this non-disclosure attracted the jurisdiction to reopen the assessment under Section 147.

3. Whether the reopening of assessment was based on a mere change of opinion or on tangible fresh material:
The tribunal clarified that the Assessing Officer must have "reason to believe" that income has escaped assessment, which should be based on objective material evidence. In this case, the tribunal found that the reasons recorded by the Assessing Officer provided a clear picture that there was material evidence to form the opinion that income had escaped assessment. The tribunal concluded that the reopening was not based on a mere change of opinion but on tangible material.

4. The applicability of the first proviso to Section 147 regarding the four-year time limit for reassessment:
The tribunal addressed the argument that the reassessment was initiated beyond the four-year limit specified in the first proviso to Section 147. The tribunal held that the proviso would not apply if there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The tribunal concluded that since the assessee failed to disclose the material facts, the four-year limit did not protect the assessee.

5. The validity of the reassessment order passed by the Assessing Officer:
The tribunal upheld the reassessment proceedings, stating that the Assessing Officer had valid reasons to believe that income had escaped assessment. The tribunal directed the CIT(A) to decide the appeal on merits after providing sufficient opportunity for the assessee to be heard.

Conclusion:
The tribunal allowed the appeal filed by the Revenue for statistical purposes, holding that the reassessment proceedings under Section 147 were valid. The case was remanded to the CIT(A) to decide on the merits of the reassessment after giving the assessee an opportunity to present their case. The order was pronounced on June 27, 2016, at Chennai.

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