2019 (1) TMI 1210 - HC - Income Tax

Reopening of assessment - expenditure towards provision for warranty disallowed - Held that - According to the assessee, such claim was genuine. After such exercise, AO passed the order of assessment,in which, she made non disallowance towards the expenditure in question. In other words, the assessee s claim was accepted. In absence of any tangible material out side of assessment record, it would not be open for the AO to reopen the assessment on the said ground. Any attempt on her part would be based on a mere change of opinion as held in the case of CIT v/s. Kelvinator of India Ltd 2010 (1) TMI 11 - SUPREME COURT OF INDIA has held that even post the amendments in Section 147 of the Act w.e.f. 01.04.1989, the concept of change of opinion, continues to hold the field. In the result, the impugned notice is quashed and set aside. - Decided in favour of assessee.

Summary

Issues:
1. Challenge to notice of reopening of assessment dated 5th March, 2018.
2. Validity of reasons recorded for reopening assessment.
3. Consideration of unascertained liability for warranty expenses.
4. Relevance of Assessing Officer's examination during scrutiny assessment.
5. Application of change of opinion concept in reopening assessment.

Issue 1: Challenge to notice of reopening of assessment dated 5th March, 2018
The petitioner, a company engaged in manufacturing and selling generators, challenged a notice of reopening of assessment dated 5th March, 2018, based on the reasons recorded by the Assessing Officer. The petitioner had filed its return of income for the Assessment Year 2013-14, which was taken in scrutiny by the Assessing Officer. The notice of reopening was issued under Section 147 of the Income Tax Act, 1961, alleging an escapement of income to the extent of ?1.89 Crores.

Issue 2: Validity of reasons recorded for reopening assessment
The Assessing Officer had recorded reasons for reopening the assessment, primarily focusing on the petitioner's claim of expenditure of ?1.89 Crores towards provision for warranty liability. The officer contended that this liability was unascertained and contingent in nature, and hence, not allowable as an expenditure. The petitioner had argued that the liability being unascertained did not necessarily make it contingent. The court examined whether the impugned notice was based on a mere change of opinion by the Assessing Officer.

Issue 3: Consideration of unascertained liability for warranty expenses
The petitioner had treated the provision for warranty expenses as an unascertained liability in the computation for Minimum Alternate Tax provisions. The Assessing Officer relied on this treatment to reopen the assessment. The court noted that the petitioner's claim was accepted during the scrutiny assessment, and without any additional material, the reopening of assessment on the same ground would amount to a mere change of opinion.

Issue 4: Relevance of Assessing Officer's examination during scrutiny assessment
The court emphasized the importance of the Assessing Officer examining the petitioner's claim during the scrutiny assessment. It was held that if the officer had formed a belief on the issue during the original scrutiny and no additional material was available, reopening the assessment solely on the ground of an alleged error in considering the claim would not be permissible.

Issue 5: Application of change of opinion concept in reopening assessment
The court referred to the Supreme Court's decision in the case of Commissioner of Income Tax v/s. Kelvinator of India Ltd., which held that the concept of change of opinion continued to apply even after the amendments in Section 147 of the Act. The court concluded that the impugned notice was quashed and set aside, as it was based on a mere change of opinion without any new material warranting the reopening of assessment.

This detailed analysis of the judgment from the Bombay High Court covers the various issues involved in the challenge to the notice of reopening of assessment, the validity of reasons recorded, the treatment of unascertained liability for warranty expenses, the significance of the Assessing Officer's examination during scrutiny assessment, and the application of the change of opinion concept in reopening the assessment.