2018 (1) TMI 328 - AT - Income Tax

Reopening of assessment - case reopened on the basis of independent information in the form of enquiry report of Investigation Wing - bogus payment - Held that - From the reasons recorded, we do not find anywhere that these reasons were recorded on the basis of enquiry report of Investigation Wing suggesting that the payment to M/s Maruti Papers Ltd. was bogus. Though in the assessment order, AO has mentioned the enquiry report of Investigation Wing, Meerut (UP) for making additions, but it has not been made basis for reopening of the assessment and the assessment has been reopened merely on account of the difference of the amount recorded in the books of accounts of the assessee as well as in books of accounts of the M/s Maruti Papers Ltd. only. The assessee in its books of accounts recorded arranger fee of ₹ 68,99,954/- whereas M/s. Maruti Papers Ltd. credited an amount of ₹ 68,47,500/-. According to AO this amount of ₹ 52,454 (Rs.68,99,954 - ₹ 68,47,500) has been debited in excess by the assessee. The assessee explained before us that this difference was due to change in accounting of service tax. According to him, the assessee followed inclusive method in respect of the service tax, whereas M/s. Maruti Paper Ltd followed exclusive method of service tax and therefore, said party has not shown amount of service tax in the profit & loss account. CIT(DR) could not controvert this fact that said information was already available with the Assessing Officer. In our opinion, when the information was already available before the Assessing Officer in respect of arranger fee paid to M/s Maruti Papers Ltd., reopening the assessment on the basis of the same information certainly amount to change of opinion. We may like to emphasize here that in the reasons recorded there is no mention of any additional information received in respect of M/s Maruti Paper Ltd. - Decided against revenue

Summary

Issues Involved:
1. Validity of reassessment proceedings under section 147 of the Income-tax Act, 1961.
2. Allegation of bogus payment to M/s. Maruti Papers Ltd.
3. Difference in sub-arranger fee recorded in the books of the assessee and M/s. Maruti Papers Ltd.
4. Change of opinion as a basis for reopening the assessment.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:
The primary issue in this appeal is whether the reassessment proceedings initiated under section 147 of the Income-tax Act, 1961, were valid. The Revenue contended that the reassessment was based on independent information from the Investigation Wing suggesting that the payment to M/s. Maruti Papers Ltd. was bogus. However, the Tribunal noted that the reasons recorded for reopening the assessment did not mention any such independent information. Instead, the reassessment was based on a discrepancy in the sub-arranger fee recorded in the books of the assessee and M/s. Maruti Papers Ltd. The Tribunal upheld the finding of the Commissioner of Income-tax (Appeals) [CIT(A)] that the reassessment was based on a mere change of opinion, which is not permissible under law.

2. Allegation of Bogus Payment to M/s. Maruti Papers Ltd.:
The Assessing Officer (AO) had disallowed a sub-arranger fee of ?68,99,954 paid to M/s. Maruti Papers Ltd., alleging it was an accommodation entry to reduce the assessee's profit. The AO's conclusion was based on an enquiry report from the Investigation Wing and statements from the director/authorized signatory of M/s. Maruti Papers Ltd. However, the CIT(A) and the Tribunal found that the reassessment was not based on this enquiry report but rather on the difference in the amounts recorded in the books of the assessee and M/s. Maruti Papers Ltd.

3. Difference in Sub-Arranger Fee Recorded:
The discrepancy noted was that the assessee recorded a sub-arranger fee of ?68,99,954, while M/s. Maruti Papers Ltd. recorded ?68,47,500, leading to an alleged excess debit of ?52,454. The assessee explained this difference was due to differing methods of accounting for service tax. The Tribunal found that this information was already available during the original assessment proceedings, and no new tangible material was presented to justify reopening the assessment.

4. Change of Opinion as a Basis for Reopening:
The Tribunal emphasized that reopening the assessment based on the same set of facts already considered in the original assessment constitutes a change of opinion. The Tribunal referred to its decision for the assessment year 2006-07, where a similar issue was adjudicated, and it was held that reassessment based on a change of opinion is invalid. The Tribunal reiterated that in the absence of any new tangible material, the AO cannot reopen the assessment on the same facts.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision that the reassessment proceedings were invalid as they were based on a mere change of opinion without any new tangible material. The Tribunal's decision was pronounced in the open court on January 3, 2017.