2017 (3) TMI 1226 - AT - Income Tax

Reopening of assessment - Held that - The undisputed fact is that there is no fresh tangible material in the possession of the AO to form belief of escapement of income. Under the circumstances, it would not be possible for the AO to take shelter of the protection provided in Explanation 1 to section 147. Thirdly, the real intent of this Explanation seems to be to protect those cases where the proper information was not provided by the assessee during the course of original assessment proceedings or it was provided in such a manner which was not possible to be examined by the AO in the peculiar facts and circumstances of a particular case. It may also provide protection in those cases where the issue was not examined at all by the AO as there was no occasion with the AO to examine the issue under consideration. However, in the case before us, the impugned issue was examined by the AO in view of the query asked by him and the same was properly replied with proper details and thereafter only original assessment u/s 143(3) was passed accepting the impugned claim. Thus, in our considered opinion, the AO does not have the shield of Explanation 1 of section 147 to justify the reopening which has been done without there being any fresh tangible material in the possession of the AO.

Summary

Issues Involved:
1. Validity of the notice issued under Section 158 of the Income Tax Act.
2. Legality of the reassessment proceedings under Sections 147/148 based on a change of opinion.
3. Allowability of the compensation amounting to ?6.50 crores as an ascertained liability.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 158:
The revenue challenged the CIT(A)'s decision to quash the notice issued under Section 158, arguing that the provisions for issuing the notice were complied with and reasons for reopening were recorded by the AO. The Tribunal noted that the assessment proceedings were originally completed under Section 143(3) and the AO recorded reasons for reopening within four years from the end of the relevant assessment year. However, the Tribunal found that the AO did not possess any fresh tangible material before recording the reasons for reopening. The AO referred to the same documents that were already on record, which does not justify reopening the assessment.

2. Legality of the Reassessment Proceedings Under Sections 147/148:
The revenue contended that the reassessment was not based on a change of opinion and that the assessee failed to disclose all material facts. The Tribunal, however, observed that the AO had examined the details of the compensation claim during the original assessment proceedings. The Tribunal emphasized that mere production of books and evidence does not necessarily amount to disclosure under Section 147, but this explanation is applicable only when the AO demonstrates the availability of fresh tangible material, which was missing in this case. The Tribunal concluded that the reassessment proceedings initiated by the AO were invalid as they were based on the same set of facts already examined during the original assessment.

3. Allowability of the Compensation Amounting to ?6.50 Crores:
The revenue argued that the compensation was only a provision and not an ascertained liability, which would distort the profit and loss account. The Tribunal upheld the CIT(A)'s decision that the compensation was indeed an ascertained liability. The assessee had provided detailed justifications for the compensation, including party-wise details and the background of disputes with various parties. The compensation was paid as and when settled by the Civil Courts, and any unpaid amount was written back as part of other income. The Tribunal found that the compensation claim was based on actual occurrences and was in line with accounting standards, thus allowable as a business expense.

Conclusion:
The Tribunal upheld the CIT(A)'s order, dismissing the revenue's appeal. The Tribunal found that the reassessment proceedings were invalid due to the lack of fresh tangible material and that the compensation claim of ?6.50 crores was a genuine and ascertained liability. The Tribunal's decision was pronounced in the open court at the conclusion of the hearing.