2017 (11) TMI 957 - AT - Income Tax

Reopening of assessment - addition of bonus/commission paid to the directors - reopening simply on the basis of audit report in Form no.3CD - non independent application of minD by AO - Held that - Undisputedly, in case of assessee, assessment was originally completed under section 143(3) of the Act on 30th November 2007. Assessing Officer has passed a detailed order after verifying all facts and materials brought on record and in the process has made a number of disallowances. Thus, it is not a case where the Assessing Officer has passed a cryptic assessment order accepting the returned income. Further, from the reasons recorded which is reproduced in the impugned assessment order, it is evident that the Assessing Officer on verifying the audit report in form no.3CD was of the view that the bonus / commission paid of ₹ 1.90 crore to the directors is excessive, hence, the entire amount is not allowable. Thus, as could be seen from the reasons recorded, the re opening of assessment was simply on the basis of audit report in Form no.3CD filed by the assessee along with the return of income and was available before the Assessing Officer at the time of original assessment proceedings under section 143(3) of the Act. Thus, it is very much clear that after completion of original assessment proceedings, no fresh and tangible material has come to the possession of the Assessing Officer revealing escapement of income. Formation of belief on the basis of materials already available before the Assessing Officer and examined by him in the original assessment proceedings, amounts to change of opinion, hence, impermissible - Decided in favour of assessee.

Summary

Issues:
1. Validity of re-opening of assessment under section 147 of the Act.
2. Challenge to the disallowance of bonus and commission paid to directors under section 40A(2)(b) of the Act.

Validity of re-opening of assessment under section 147 of the Act:
The appeal by the Revenue challenged the re-opening of assessment for the assessment year 2005-06 under section 147 of the Act. The original assessment was completed under section 143(3) of the Act, with the Assessing Officer re-opening the assessment due to excessive commission paid to directors. The learned Commissioner (Appeals) found that the re-opening was based on a mere change of opinion and was made after the four-year limitation period, without any failure on the part of the assessee to disclose necessary facts. The Revenue argued that the re-opening was valid as the Assessing Officer had overlooked the reasonableness of the payments during the original assessment. However, the Tribunal upheld the decision of the Commissioner (Appeals), stating that the re-opening was impermissible as it was based on previously available information and there was no failure on the part of the assessee to disclose material facts.

Challenge to the disallowance of bonus and commission paid to directors under section 40A(2)(b) of the Act:
The Assessing Officer disallowed bonus and commission paid to directors amounting to ?1.90 crore under section 40A(2)(b) of the Act. The Revenue contended that the disallowance was valid, while the assessee challenged the validity of the re-opening of assessment. The Tribunal noted that the disallowance was based on a review of the audit report filed by the assessee along with the original return of income, which was available during the original assessment proceedings. The Tribunal held that the disallowance was impermissible as it was a result of a change of opinion and was initiated after the four-year limitation period, without any failure on the part of the assessee to disclose material facts. Therefore, the Tribunal dismissed the Revenue's appeal, upholding the decision of the Commissioner (Appeals).

In conclusion, the Tribunal affirmed the decision of the Commissioner (Appeals) that the re-opening of assessment under section 147 of the Act was void and the disallowance of bonus and commission paid to directors was not justified.