2017 (9) TMI 1151 - AT - Income Tax

Reopening of assessment - addition on excessive allowance under the head Repair and Maintenance - eligibility of reason to believe - period of limitation - AO exceeding his jurisdiction - Held that - A.O. is not empowered to issue notice u/s 148 of the Act after a period of four years from the end of relevant assessment year particularly when there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Proviso to section 147 itself is categorical enough to bar the A.O. from initiating reopening. In the instant case at the time of original assessment proceedings, the A.O. has made detailed scrutiny of the tax audit report filed by the assessee by relying upon the bills and vouchers brought on record by the assessee to carry out repair and maintenance and thereafter the A.O. had completed the assessment u/s 143(3). Even otherwise in all assessment years 2007-08, 2009- 10, 2010-11, 2011-12 identical expenses claimed by the assessee have been allowed by the revenue while passing order u/s 143(3) as is apparent from the return of income for the aforesaid assessment years available. So the contentions raised by Ld. Sr. DR for the revenue are not tenable nor the case law relied upon by him is applicable to the facts and circumstances of the case in the face of proviso to section 147 of the Act which clearly bars the jurisdiction of the A.O. to reopen the assessment after a period of four years when there is no failure on the part of assessee to disclose fully and truly all material facts necessary for assessee. - Decided in favour of assessee.

Summary

Issues:
1. Reopening of assessment based on change of opinion.
2. Deletion of excessive allowance under Repair and Maintenance.
3. Validity of reopening assessment after four years.

Issue 1 - Reopening of assessment based on change of opinion:
The Appellant, Assistant Commissioner of Income-tax, sought to set aside the order passed by the Commissioner of Income-tax (Appeals) for the assessment year 2005-06, arguing that the case was reopened on the basis of a change of opinion rather than new material. The original assessment was completed, but the A.O. reopened it after noticing excessive expenditure under Repair and Maintenance. The A.O. treated a portion of the expenditure as capital in nature, resulting in an increased total income. The Tribunal noted that the assessment was reopened after four years without any failure on the part of the assessee to disclose material facts. The reasons recorded for reopening did not indicate any failure to disclose facts. Legal precedents were cited to support the view that reopening after four years without such failure is not permissible. The Tribunal held that the A.O. exceeded jurisdiction in reopening the assessment solely based on disallowed expenses, leading to the dismissal of the revenue's appeal.

Issue 2 - Deletion of excessive allowance under Repair and Maintenance:
The A.O. disallowed a significant amount under Repair and Maintenance, treating it as capital expenditure. The assessee appealed, and the Ld. CIT(A) deleted the disallowance. The revenue challenged this deletion, arguing that the A.O. had rightly reopened the assessment. However, the Tribunal found that the A.O. lacked the authority to reopen the assessment after four years without any failure on the part of the assessee to disclose material facts. Legal judgments were cited to support this position, emphasizing the necessity of a failure to disclose facts for reopening after the prescribed period. The Tribunal upheld the deletion of the disallowance by the Ld. CIT(A) based on the lack of jurisdiction in reopening the assessment.

Issue 3 - Validity of reopening assessment after four years:
The core legal question was whether the A.O. had the power to reopen the assessment after four years from the end of the relevant assessment year without any failure on the part of the assessee to disclose material facts. The Tribunal analyzed the timeline of events and the reasons recorded for reopening. It was established that the assessment was reopened solely due to disallowed expenses, without any failure to disclose facts by the assessee. Legal precedents and a judgment by the Hon'ble Delhi High Court were cited to support the conclusion that reopening after the prescribed period without such failure is impermissible. The Tribunal dismissed the revenue's appeal, affirming the Ld. CIT(A)'s decision to delete the disallowance and quash the reopening of the assessment.

This detailed analysis of the judgment addresses the issues of reopening the assessment based on a change of opinion, deletion of excessive allowance under Repair and Maintenance, and the validity of reopening the assessment after four years, providing a thorough understanding of the legal arguments and conclusions reached by the Tribunal.