2020 (8) TMI 465 - AT - Income Tax

Validity of reopening of assessment u/s 147 - reopening after four years - validity of reason to believe - Accrual of income - Whether lapsed freezer deposits cannot be treated as income in the hands of assessee? - HELD THAT - Admittedly reopening of assessment was initiated after four years and the original assessment order was completed u/s 143(3) of the I.T.Act. Necessary precondition in such situation for reopening the assessment, is that the income has escaped assessment by reason of the failure on the part of assessee to disclose fully and truly all material facts. AO in the reasons recorded for issuance of notice u/s 148 had not mentioned that income has escaped assessment, on account of non-disclosure on the part of the assessee of full and true material facts necessary for completion of assessment. The taxability of lapsed freezer deposit on proportionate was basis of original assessment, whereas in the reassessment, the lapsed freezer deposit as on 31.03.2006 was sought to be taxed as income for assessment year 2009-2010. Therefore, the reassessment was initiated on mere change of opinion. Hence, going by the judicial pronouncements cited supra, we hold that reassessment order for assessment year 2009-2010 is bad in law. Accrual of income - Taxability of freezer deposits received by these assessee from their customers - Issues on merits we notice that the ITAT Cochin bench in its own case 2014 (4) TMI 1227 - ITAT COCHIN had dismissed the department appeal against the original assessment following its own orders for the earlier years on the ground that the said amount is taxable only in the year of termination and the assessee had already offered such amount to tax in the return of income filed by it. - Decided in favour of assessee.

Issues Involved:
1. Whether the CIT(A) is justified in quashing the reopening of assessment as invalid.
2. Whether the CIT(A) is correct in holding that the lapsed freezer deposits cannot be treated as income in the hands of the assessee.

Detailed Analysis:

Issue 1: Validity of Reopening of Assessment

The Revenue's appeal challenges the CIT(A)'s decision to quash the reopening of the assessment for the assessment year 2009-2010. The reopening was based on the treatment of lapsed freezer deposits as income. The CIT(A) found that the reopening notice issued u/s 148 of the I.T. Act on 30.03.2016 was beyond the four-year period and thus required a failure on the part of the assessee to disclose fully and truly all material facts during the original assessment.

The CIT(A) noted that the issue of freezer deposits was considered during the original assessment, and the AO did not specify what material facts were not disclosed. The CIT(A) concluded that a mere assertion without details of non-disclosure is insufficient to reopen the case beyond four years, especially when the original assessment was completed u/s 143(3) and the issue had been considered.

The Tribunal upheld the CIT(A)'s findings, emphasizing that the AO failed to establish that the reassessment was due to the assessee's failure to disclose fully and truly all material facts. The Tribunal referenced the Kerala High Court's rulings in IBS Software Services Private Ltd v. UOI and CIT vs Hindustan Latex Ltd, which require the absence of full and true disclosure by the assessee for reopening beyond four years. The Tribunal also cited the Supreme Court's decision in ITO vs Techspan India Private Ltd, which clarified that reassessment should not be based on a mere change of opinion.

Issue 2: Taxability of Lapsed Freezer Deposits

On the merits, the CIT(A) followed the ITAT's previous orders in the assessee's own case, which held that lapsed freezer deposits are taxable only in the year of termination of the dealership agreement. The CIT(A) noted that the department's appeal against this order was pending before the High Court, but no stay had been granted.

The Tribunal confirmed the CIT(A)'s decision, reiterating that the freezer deposits could not be considered income until the termination of the dealership agreement. The Tribunal referenced its earlier decision, which was not reversed by the High Court, and noted that the Revenue had withdrawn appeals in similar cases due to low tax effect.

The Tribunal concluded that the reassessment was invalid as it was based on a change of opinion rather than new material facts, and the lapsed freezer deposits could not be treated as income in the year under consideration. Thus, the appeal filed by the Revenue was dismissed.

Conclusion:

The Tribunal upheld the CIT(A)'s decision to quash the reopening of the assessment and confirmed that lapsed freezer deposits are taxable only upon termination of the dealership agreement. The appeal filed by the Revenue was dismissed.

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