2021 (3) TMI 409 - AT - Income Tax

Reopening of assessment u/s 147 - reopening of assessment beyond a period of 4 years - Disallowance of expenses claimed under breakages damages - Addition for the alleged reason that, it is only an estimate, in the nature of provision and hence not allowable - HELD THAT - Queries were raised by the Ld.AO on the same issue and assessee had filed submissions in respect of the issues considered for reopening the assessment. On a co-joint reading of all the materials filed by assessee before the Ld.AO in respect of alleged issues and the assessment order passed, it necessarily implies an opinion of the erstwhile assessing officer not to consider the issues to be taxable, though silent in the original assessment order. Therefore and the subsequent issuance of notice to reopen the assessment on such issues amounts to change of opinion. Further the reasons recorded reproduced hereinabove suggests that there was no failure on behalf of assessee to fully and truly disclose all material facts necessary for assessment, which is a necessary precondition for reopening an assessment beyond a period of 4 years as stipulated under the Act. The reasons recorded also reveal that, there has been no new material available with the Ld.AO which could justify the reopening of a concluded assessment beyond a period of 4 years. We set aside and quash the notice dated 17/05/2016 seeking to reopen a concluded assessment to be bad in law. As we have set aside and quashed the notice of reopening, consequential assessment order passed by the Ld.AO stands to be quashed and set-aside. Appeal filed by assessee stands allowed.

Summary

Issues Involved:

1. Validity of reopening the assessment under Section 147 of the Income Tax Act beyond four years.
2. Disallowance of expenses claimed under breakages and damages.
3. Disallowance of expenditure on arrack rentals as a prior period expense.

Detailed Analysis:

1. Validity of Reopening the Assessment Under Section 147 Beyond Four Years:

The primary contention raised by the assessee was the validity of the reopening of the assessment beyond four years. The assessee argued that there was no fresh material warranting the invocation of Section 147, and the reopening was based on a mere change of opinion. The Tribunal noted that the reasons recorded for reopening were based on information already available on record during the original assessment proceedings. The Tribunal observed that the reopening was based on the materials already available and did not involve any new information. The Tribunal emphasized that there was no failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment, which is a necessary precondition for reopening an assessment beyond four years. Consequently, the Tribunal quashed the notice dated 17/05/2016 for reopening the assessment and set aside the consequential assessment order passed by the AO.

2. Disallowance of Expenses Claimed Under Breakages and Damages:

The assessee claimed an expense of ?37,00,000 under breakages and damages. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the addition on the grounds that the expense was only an estimate and in the nature of a provision, hence not allowable. The Tribunal did not find it necessary to adjudicate this issue on merits because the reopening itself was quashed.

3. Disallowance of Expenditure on Arrack Rentals as a Prior Period Expense:

The assessee claimed an expenditure of ?66,31,408 towards arrack rentals, which was disallowed by the CIT(A) on the grounds that it was a prior period expense. The assessee argued that the expenditure, though related to the excise year 2001-02, fructified only during the previous year relevant to A.Y. 2011-12 and hence was allowable for the said year. The Tribunal did not adjudicate this issue on merits due to the quashing of the reopening notice.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, primarily on the grounds that the reopening of the assessment beyond four years was invalid as it was based on information already available on record and did not involve any new material. Consequently, the Tribunal quashed the notice for reopening and the consequential assessment order. The issues related to the disallowance of expenses under breakages and damages and arrack rentals were not adjudicated on merits due to the quashing of the reopening notice.