2018 (6) TMI 895 - AT - Income Tax

Validity of reopening of assessment - disallowance of excess depreciation on building, plant and machinery and office equipment - reopening after 4 years - validity of reason to believe - Held that - AO clearly shows that the assessment originally completed in the case of the assessee under section 143(3) was reopened by him after the expiry of four years from the end of the assessment year under consideration without pointing out that any income chargeable to tax had escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment and even the learned DR has not been able to dispute this position clearly evident from the reasons recorded by the AO - reopening made by him without satisfying this statutory condition is invalid being barred by limitation. - decided in favor of assessee.

Summary

Issues:
Validity of assessment under section 147/144 beyond 4 years from the end of the relevant assessment year.

Analysis:
The appeal was against the order of Ld. CIT(A) challenging the validity of the assessment and disputing the addition made by the AO on account of disallowance of excess depreciation. The AO reopened the assessment under section 147 after determining the total income of the assessee, a manufacturing company, at a higher amount due to disallowance of excess depreciation. The assessee contended that the reopening of the assessment beyond 4 years was barred by limitation as there was no failure on their part to disclose material facts necessary for assessment. The Ld. CIT(A) rejected this contention and other challenges, upholding the assessment and addition. The Tribunal heard arguments from both sides and examined the reasons recorded by the AO for reopening the assessment.

The AO's reasons for reopening the assessment showed that the assessment was indeed reopened after 4 years without pointing out any failure on the part of the assessee to disclose all material facts necessary for assessment. The first proviso to section 147 states that no action can be taken after 4 years from the end of the relevant assessment year unless income has escaped assessment due to such failure. The Tribunal found that the AO did not satisfy this statutory condition for reopening the assessment under section 143(3) and thus the reopening was invalid and barred by limitation. Consequently, the Tribunal canceled the assessment made under section 147/144, deeming it as bad in law, and allowed the appeal of the assessee on this preliminary issue.

In conclusion, the Tribunal found that the AO's reopening of the assessment beyond 4 years without demonstrating any failure on the part of the assessee to disclose material facts necessary for assessment was invalid and barred by limitation. As a result, the appeal of the assessee was allowed, and the assessment made by the AO under section 147/144 was canceled.