2022 (10) TMI 757 - AT - Income Tax

Reopening of assessment u/s 147 - whether AO had no any new tangible materials and the AO has referred to the computation of taxable income which was already available during the course of assessment completed u/s 143(3) ? - HELD THAT - On perusal of the letter in which the contents of the reasons for reopening has been mentioned, the copy of reasons were provided to the AR of the assessee, which is clear from the reassessment order. Therefore, we reject the contention of the ld.AR that the reason for reopening was recorded after issuance of notice u/s 148 of the Act. On observation of the above letter, it is clear that before reopening the case, the AO had no any new tangible materials and the AO has referred to the computation of taxable income which was already available during the course of assessment completed u/s 143(3) of the Act. It means it is complete change of opinion by the AO, which is not tenable in the eye of law. AO reopened assessment on mere ground that expenditure incurred by assessee-company, for renovation of hotel expenses and rates and taxes claimed as FBT payable, since said reason for reopening was based on same set of information which was available at time of original assessment proceedings, therefore, reopening of assessment based on a mere change of opinion is invalid and not permissible under the law. No substance on the submission of ld.DR on this issue. Further, on other legal issues that the assessee could not produce substantial evidence for deciding the issues. Since we have quashed the reopening of the reassessment on the basis of change of opinion, therefore, the entire reassessment order does not survive. Accordingly, the appeal of the revenue also does not survive.

Summary

Issues:
1. Reopening of assessment beyond the limitation period without new tangible materials.
2. Disallowance of renovation expenses and Fringe Benefit Tax (FBT).
3. Change of opinion by the Assessing Officer (AO) during reassessment proceedings.

Issue 1: Reopening of assessment beyond the limitation period without new tangible materials:
The case involved challenges to the reopening of the assessment by the AO beyond the limitation period without any new tangible materials. The AO had issued a notice u/s 148 of the Act to reassess the case, adding back renovation expenses and FBT claimed by the assessee. The AO's reasons for reopening were found to be based on the same information available during the original assessment, indicating a change of opinion. The Tribunal referred to legal precedents and held that reopening based on a mere change of opinion is invalid and impermissible under the law. The Tribunal emphasized the importance of complying with the procedure for reopening assessments as per court decisions.

Issue 2: Disallowance of renovation expenses and Fringe Benefit Tax (FBT):
The AO disallowed the entire claimed renovation expenses and added back the FBT claimed by the assessee into the total income during the reassessment proceedings. The CIT(A) partly allowed the appeal, holding that some of the expenses were revenue expenditure while others were capital in nature. The CIT(A) directed the AO to allow depreciation on the capital expenditure after disallowing it. The Tribunal upheld the CIT(A)'s decision, allowing the appeal partly and emphasizing the need to distinguish between revenue and capital expenditures.

Issue 3: Change of opinion by the Assessing Officer during reassessment proceedings:
The assessee argued that there was a complete change of opinion by the AO during the reassessment proceedings, as all materials were available and accepted during the original assessment. The Tribunal examined the contentions and held that the AO's reopening of the assessment was based on the same set of information available earlier, indicating a change of opinion. The Tribunal referred to a Supreme Court judgment dismissing a similar case based on a change of opinion. Consequently, the Tribunal quashed the reassessment due to the impermissible change of opinion, rendering the entire reassessment order invalid.

In conclusion, the Tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeal. The Tribunal emphasized the importance of following legal procedures for reopening assessments and distinguishing between revenue and capital expenditures. The judgment highlighted the invalidity of reassessments based on a mere change of opinion and the need for tangible new materials to support reopening decisions.