2021 (10) TMI 1211 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - disallowing the provision for negative reserve - HELD THAT - This Court in a recent judgment in Ananta Landmark (P.) Ltd 2021 (10) TMI 71 - BOMBAY HIGH COURT has held that where assessment was not sought to be reopened on reasonable belief that income had escaped assessment on account of failure of assessee to disclose truly and fairly full material fact that were necessary for computing of income it was not the case wherein assessment as sought could be reopened. On account of change of opinion of Assessment Officer about the manner of computation to deductions u/s 57 of the Act, reopening was not justified. The proposition in this judgment squarely applies to the case in hand as well. ITAT has concluded that during the assessment proceeding respondent had furnished actuarial form that showed negative result and the Assessing Officer had made addition during the original assessment proceeding on account of actuarial surplus. Negative reserve was part of document furnished during the assessment and therefore it cannot be said that there was non disclosure of material facts relevant for assessment. ITAT has also observed that AO while passing assessment order has referred to the actuarial report as on 31/3/2003 and hence it cannot be said that AO has not made any inquiry in respect of negative reserve which has been shown in actuarial report. ITAT has also observed that the assessment order was passed with due application of mind and the Assessing Officer has not brought any tangible material on record to show that there was any failure on the part of the assessee to disclose fully and truly all material on record necessary for assessment. - Decided in favour of assessee.

Summary

Issues:
1. Validity of proceedings under Section 147 of the Income Tax Act
2. Failure to disclose fully and truly all material facts necessary for assessment
3. Deletion of addition made on account of negative reserve

Issue 1: Validity of proceedings under Section 147 of the Income Tax Act
The Respondent's case was reopened under Section 148 of the Act due to negative reserves not forming part of the actuarial surplus for the Assessment Year 2003-2004. The Assessing Officer completed re-assessment disallowing the provision for negative reserve, resulting in income escaping assessment. The CIT(A) allowed the appeal, stating the proceedings under Section 147 were not valid. The ITAT dismissed the Revenue's appeal, noting the absence of tangible material showing failure to disclose all necessary facts. The High Court referenced a recent judgment, emphasizing that reopening based on a change of opinion was not justified. The ITAT found that the negative reserve was part of the assessment documents, indicating no non-disclosure of material facts relevant for assessment. The High Court upheld the ITAT's decision, finding no infirmity in the order.

Issue 2: Failure to disclose fully and truly all material facts necessary for assessment
The Respondent contended that the negative reserve was part of the actuarial report furnished during the assessment, thus not constituting non-disclosure of relevant material facts. The ITAT observed that the Assessing Officer had made the addition of &8377; 81,000 during the original assessment based on the actuarial surplus, which included the negative reserve. It further noted that the assessment order was passed with due application of mind, and no tangible material was brought on record to establish a failure in disclosure of material facts by the assessee. The High Court concurred with the ITAT's findings, answering Question Nos. 1 and 2 in the negative.

Issue 3: Deletion of addition made on account of negative reserve
The ITAT deleted the addition of &8377; 1,55,05,000 made on account of the negative reserve, emphasizing that the negative reserve impacts the "taxable surplus" and adjustments need to be made accordingly. However, since the assessment order was set aside, the High Court noted that Question No. 3 on merits would not arise as a substantial question of law. The High Court upheld the ITAT's decision and found no infirmity in the impugned order, concluding that the Respondent's appeal was justified.