2020 (9) TMI 1016 - HC - Income Tax

Reopening of assessment u/s 147 - notice beyond the period of four years from the end of the relevant assessment year - whether the business loss claimed by the assessee can be treated as a Speculative Loss - HELD THAT - The decision in the case of Kelvinator of India Private Limited 2010 (1) TMI 11 - SUPREME COURT fully supports the case of the assessee, wherein the Hon'ble Supreme Court held that after 01.04.1989, the Assessing Officer has power to reopen, provided there is tangible material to come to a conclusion that there is escapement of income from assessment, reasons must have a live link with formation of belief. As already pointed out the finding rendered by the AO stating that the expression 'or' occurring in between Clause (a) to (d) of Section 43(5) should be read as 'and' as no such interpretation could have been made to the statutory provision as explained by us in the presiding paragraphs. On facts, the Assessment Officer was in favour of the assessee. As used the expression 'seems' by stating that though the assessee seems to be qualified under clause (a) to Section 43(5), since they had not complied with condition ('d') they are not entitled to any relief. As pointed out earlier reopening, based upon a change of opinion or a review of decision taken by the Assessing officer, is impermissible. Further the interpretation given by the Assessing Officer to Section 43(5) of the Act is wholly untenable.- Decided against the Revenue

Summary

Issues:
1. Jurisdiction to reopen the case under Section 147 of the Income Tax Act
2. Disclosure of material facts during original assessment
3. Treatment of business loss as speculative loss

Issue 1: Jurisdiction to Reopen the Case
The Revenue filed appeals challenging the Tribunal's order on the jurisdiction to reopen the case under Section 147 of the Income Tax Act. The Tribunal held that the Department lacked jurisdiction to reopen the case beyond the four-year period from the end of the relevant assessment year. The notice under Section 148 was issued before the expiry of four years from the assessment year 2009-10. The Tribunal also considered whether the assessee fully disclosed all material facts during the original assessment under Section 143(3) of the Act. The Tribunal's decision was based on Explanation 1 and Explanation 2(c) to Section 147 of the Income Tax Act.

Issue 2: Disclosure of Material Facts
The assessee, a company involved in bullion and jewelry business, filed its return of income declaring total income. The assessment was completed under Section 143(3) of the Act. The notice under Section 148 was issued, citing reasons related to purchase details, sales tax payment, and trademark expenses. The Assessing Officer accepted explanations for purchase charges and sales tax but granted partial relief on trademark expenses. The Tribunal found in favor of the assessee on two grounds, and the third issue was not challenged by the assessee. However, the Assessing Officer raised a new issue regarding a claimed business loss during reassessment proceedings.

Issue 3: Treatment of Business Loss
The Assessing Officer questioned the treatment of a business loss claimed by the assessee, considering it as speculative loss. The Tribunal analyzed the nature of transactions and the applicability of Section 43(5) of the Act. The Assessing Officer's interpretation was based on the decision in the case of Sharp Electronics Private Limited. The Tribunal disagreed with this interpretation, emphasizing that each clause under Section 43(5) deals with separate transactions. The CIT(A) and the Tribunal concluded that the business loss claimed should not be treated as speculative loss, as no fresh material surfaced during reassessment proceedings.

In conclusion, the High Court dismissed the Tax Case Appeals, upholding the Tribunal's decision. The Court found no grounds to interfere, answering the substantial questions of law against the Revenue. The judgment emphasized the importance of disclosing all material facts during the original assessment and highlighted the limitations on reopening assessments based on a change of opinion.