2020 (5) TMI 482 - AT - Income Tax

Reopening of assessment u/s 147 - assumption of jurisdiction by the AO u/s 147 - HELD THAT - There is no dispute and it is a settled legal proposition that for assumption of jurisdiction u/s 147, the AO must form a prima facie opinion on the basis of material that there is an escapement of income, the opinion formed may be subjective but the reasons recorded or the information available on record must show that the opinion is not a mere suspicion, the reasons recorded and/or the documents available on record must show a nexus and relevancy to the opinion formed by the AO regarding escapement of income and the reasons are required to be read as they were recorded by the AO. It is for the AO to disclose and open his mind through the reasons recorded by him and he has to speak through the reasons. We find that the reopening of the completed assessment u/s 143(3) is without bringing any fresh material on record and where the material relied upon has already been examined by the Assessing officer during the original assessment proceedings, it clearly amounts to change of opinion which as per settled jurisprudence, cannot be sustained and notice so issued u/s 148 seeking to reopen the assessment is liable to be set-aside. Another contention which has been raised by AR is that in the reasons so recorded, the Assessing officer has not alleged that there is failure on the part of the assessee to disclose fully and trully all material facts and where the powers u/s 147 have to be exercised by the AO after a period of four years, there has to be a failure to disclose fully and truly all material facts and information by the assessee which is not alleged by the AO in the instant case. These are all primary facts as to the treatment done by the assessee in its books of accounts of the compensation so paid by it which are duly disclosed and where on appreciation of such primary facts, the AO is of the view that such expenditure is in nature of capital expenditure and not revenue expenditure, it is his inference and analogy which has drawn basis review of such primary facts. As far as onus on the assessee to disclose the primary facts are concerned, the same has been satisfied and there is no such failure and infact, in the reasons so recorded, there is no allegation made by the AO that there is any such failure on the part of the assessee company and as we have stated above, it is for the AO to disclose and open his mind through the reasons recorded by him and he has to speak through the reasons. We agree with the contention so advanced by the ld AR that this being a jurisdiction requirement and in absence of any such failure on part of the assessee company, the AO cannot assume jurisdiction u/s 147 - Decided in favour of assessee.

Issues Involved:

1. Assumption of jurisdiction by the Assessing Officer under Section 147 of the Income Tax Act.
2. Validity of the reassessment proceedings under Section 147 read with Section 148 of the Income Tax Act.
3. Disallowance of compensation paid to plot owners as a capital expenditure.
4. Addition of ?50,820 on account of non-deduction of TDS on interest, treating the payment as interest instead of compensation.

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction by the Assessing Officer under Section 147 of the Income Tax Act:

The assessee challenged the jurisdiction of the Assessing Officer (AO) under Section 147, arguing that the reopening of the assessment was merely based on a change of opinion without any new material. The AO had originally completed the assessment under Section 143(3) and allowed the compensation as revenue expenditure. The reassessment was initiated after four years based solely on the existing records and submissions made during the original assessment, without any fresh material. The Tribunal noted that the AO had no new material and the reasons recorded for reopening were based on the same facts already examined during the original assessment. It was held that the reopening was a mere change of opinion, which is not permissible as per the settled legal proposition.

2. Validity of the Reassessment Proceedings under Section 147 read with Section 148 of the Income Tax Act:

The Tribunal emphasized that for reopening an assessment after four years, there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. In this case, the AO did not allege any such failure by the assessee. The reasons recorded by the AO were based on the assessee's financial statements and submissions made during the original assessment, indicating that the primary facts were fully disclosed. The Tribunal concluded that the AO's action was based on a review of the same material facts, amounting to a change of opinion, and thus, the reassessment proceedings were quashed.

3. Disallowance of Compensation Paid to Plot Owners as a Capital Expenditure:

The AO treated the compensation paid to plot owners due to high tension lines as a capital expenditure, arguing that it should have been capitalized and added to the closing stock. The Tribunal found that this issue was already examined during the original assessment, where the AO had allowed it as revenue expenditure. The Tribunal held that the reassessment was initiated based on the same material facts without any new evidence, constituting a change of opinion. Therefore, the disallowance of compensation as capital expenditure was not justified.

4. Addition of ?50,820 on Account of Non-Deduction of TDS on Interest:

The AO made an addition of ?50,820, treating the payment as interest and disallowing it under Section 40(a)(ia) for non-deduction of TDS. The Tribunal noted that this issue was also examined during the original assessment, where the AO had accepted the payment as compensation. The reassessment was based on the same facts, and the Tribunal held that it was a change of opinion. Consequently, the addition made by the AO was quashed.

Conclusion:

The Tribunal concluded that the reassessment proceedings were initiated without any fresh material and were based on a change of opinion. The AO did not have the legal basis to assume jurisdiction under Section 147, and the reassessment proceedings were quashed. The other grounds on the merits of the additions became academic and were dismissed as infructuous. The appeal filed by the assessee was allowed.

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