2022 (1) TMI 894 - AT - Income Tax

Reopening of assessment u/s 147 - expenses claimed on account of repair to kitchen equipments as capital in nature instead of revenue as claimed by the assessee - Notice beyond period of four years - HELD THAT - As gone through the reasons recorded and noted that the AO has taken the reasons mainly from the audited accounts and the claim made by the assessee of expenses from the computation of income. As gone through the reasons and noted that there is no charge levied by the AO that there is any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the relevant assessment year 2009-10. Rather, recording of reason clearly states that the assessee has disclosed this fact in the return of income and computation of income as well as during the course of original assessment proceedings. The ld.counsel for the assessee before us also filed the computation of income, depreciation chart and audited accounts which clearly reveals that the assessee has made claim of kitchen equipments repair and replaced during the year written off fully. See FORAMER FRANCE case 2003 (1) TMI 101 - SC ORDER In the present case the Revenue could not point out any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for relevant assessment year 2009-10, as the assessee has completely disclosed the facts relating to the claim of expenditure incurred towards repairs to kitchen equipments and furniture by replacing the table top for dosa stone, dining tables and replacement of glasses etc This expenditure is towards stainless steel sheets for replacing the worn out sheets over the dining tables and dosa table tops, glass top etc. In view of the fact that original assessment was completed u/s.143(3) of the Act for the assessment year 2009-10 and notice u/s.148 of the Act was issued on 11.03.2016, which is beyond 4 years, we held that reopening is bad in law and hence, quashed. - Decided in favour of assessee.

Issues Involved:
1. Validity of the assumption of jurisdiction under Section 147 of the Income Tax Act.
2. Timeliness of the reassessment order.
3. Lack of fresh materials and change of opinion.
4. Full disclosure of material facts by the assessee.
5. Treatment of expenses as revenue or capital expenditure.

Issue-wise Detailed Analysis:

1. Validity of the Assumption of Jurisdiction under Section 147 of the Income Tax Act:
The primary issue raised by the assessee was the validity of the assumption of jurisdiction under Section 147 of the Act. The assessee contended that the reopening of the assessment was invalid as it was based on a change of opinion and lacked fresh tangible material. The Tribunal noted that the original assessment was completed under Section 143(3) and the reasons for reopening were derived from the assessment records. The Tribunal emphasized that the reasons recorded by the Assessing Officer (AO) did not indicate any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Tribunal concluded that the reopening was not permissible as per the proviso to Section 147 of the Act.

2. Timeliness of the Reassessment Order:
The assessee argued that the reassessment order was passed beyond the permissible time limit, making it invalid. The Tribunal observed that the original assessment was completed on 31.10.2011, and the notice for reopening under Section 148 was issued on 11.03.2016, which was beyond the four-year limit. The Tribunal held that since the reopening was beyond four years and there was no failure on the part of the assessee to disclose material facts, the reassessment was time-barred and invalid.

3. Lack of Fresh Materials and Change of Opinion:
The assessee contended that the reopening was based on a mere change of opinion, as the same issue had been examined during the original assessment proceedings. The Tribunal agreed with the assessee, noting that the AO had disallowed a sum of ?6,00,000 on an ad hoc basis during the original assessment after examining the expenses. The Tribunal held that the reopening was not justified as it was based on the same set of facts that were already available during the original assessment, and there was no fresh material to warrant the reassessment.

4. Full Disclosure of Material Facts by the Assessee:
The assessee argued that all material facts were fully disclosed during the original assessment proceedings. The Tribunal reviewed the computation of income, depreciation chart, and audited accounts provided by the assessee, which clearly indicated the claim of expenses towards repairs to kitchen equipment and furniture. The Tribunal concluded that the assessee had disclosed all relevant facts necessary for the assessment, and there was no failure on the part of the assessee in this regard. The Tribunal relied on the decision of the Hon'ble Supreme Court in the case of CIT vs. Foramer France, which held that if there was no failure to disclose material facts, the reopening beyond four years was not permissible.

5. Treatment of Expenses as Revenue or Capital Expenditure:
The Tribunal noted that the assessee had treated the expenses of ?28,02,794 towards repairs to kitchen equipment and furniture as revenue expenditure in the computation of income, while the same was treated as capital expenditure in the books of accounts. The AO had disallowed the expenses as capital in nature during the reassessment. However, since the Tribunal quashed the reopening on the grounds of invalid jurisdiction and time-barred reassessment, it did not adjudicate on the merits of the treatment of expenses.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, quashing the reopening of the assessment under Section 147 of the Act. The Tribunal held that the reopening was invalid as it was beyond the permissible time limit, based on a change of opinion, and there was no failure on the part of the assessee to disclose material facts. The appeal of the assessee was allowed in full.

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