2022 (10) TMI 990 - HC - Income Tax

Reopening of assessment u/s 147 - Claim for compensation paid/provided to the profit and loss account (P L Account) - ITAT confirmed the order of the CIT(A) holding that since there was no fresh tangible material in the possession of the Assessing Officer on the basis of which a belief could be formed for escapement of income, the re-opening notice was bad in law - HELD THAT - As observed by the ITAT that since the impugned issue was examined by the A.O., in view of the query asked by him, which was properly replied with proper details after which the original assessment order under Section 143(3) came to be passed accepting the impugned claim, the AO did not have the shield of Explanation-1 to Section 147 to justify the re-opening which was done without there being any fresh tangible material in the possession of the Assessing Officer. The above findings of fact have not been controverted by the Revenue. As recorded in the Tribunal order that the Assessing Officer before recording the reasons for reopening has made reference to the same documents/material which were also on the record of the Assessing Officer in the original assessment proceedings under Section 143(3). We, therefore, observe that there does not appear to be any fresh tangible material that has come into the possession of the Assessing Officer before recording the reasons for re-opening the assessment. Even in the recorded reasons, the Assessing Officer clearly states that his observations are based on a perusal of records but no fresh or new tangible material has been referred to or brought on record. The re-opening is within a period of four years from the end of the relevant assessment year. Therefore, it is important that the officer reopening a assessment has reason to believe based on tangible material that income has escaped assessment. What we observe from the aforesaid facts is that the dis-allowance of the claim of Rs. 6,50,00,000/- on account of compensation is based on record that was already with the AO at the time of the proceedings under Section 143 (3) of the Act. There is no new or fresh tangible material that has been brought on record. This appears to be an attempt to view the same material from a different angle of perception. It is nothing but a case of change of opinion, which cannot be permitted. We also agree with the Tribunal that since the impugned issue was examined by the A.O. on a query raised by him and which was replied to with details during the original scrutiny proceedings, Explanation 1 to Section 147 would not be applicable in the facts of the case. - Decided in favour of assessee.

Summary

Issues:
1. Validity of re-opening of assessment under Section 147 of the Income Tax Act, 1961.
2. Dis-allowance of claim of compensation of Rs. 6,50,00,000/- made by the Assessing Officer.
3. Appeal challenging the decisions made by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT).

Issue 1: Validity of re-opening of assessment under Section 147:
The Principal Commissioner of Income Tax-13, Mumbai filed an Appeal challenging the order of the Income Tax Appellate Tribunal (ITAT) dismissing the Appeal filed by the Revenue. The Respondent-Company's return of income for the assessment year 2008-2009 was scrutinized, and a re-opening notice was issued under Section 148 of the Act. The Assessing Officer disallowed Rs. 6,50,00,000/- as compensation claimed by the Respondent-Company, stating it was a contingent liability and not an allowable expense. The Commissioner of Income Tax (Appeals) held the re-opening invalid due to lack of fresh material and deleted the dis-allowance. The ITAT upheld this decision, noting the absence of new tangible material for re-opening within the four-year period. The Tribunal concluded it was a case of change of opinion, not permissible under the law.

Issue 2: Dis-allowance of claim of compensation of Rs. 6,50,00,000/-:
The Assessing Officer disallowed the Rs. 6,50,00,000/- claim of compensation made by the Respondent-Company, stating it was a contingent liability and not an allowable expense. The CIT(A) held the dis-allowance lacked legal authority and deleted the amount. The ITAT upheld this decision, emphasizing that the claim was based on actual financial incidences related to business activities, with no contradictory evidence provided by the Revenue. The Tribunal confirmed the validity of the claim, as it was supported by factual findings and actual occurrences, leading to the rejection of the dis-allowance.

Issue 3: Appeal challenging decisions of CIT(A) and ITAT:
The Revenue filed an Appeal against the decisions of the CIT(A) and the ITAT. The ITAT upheld the decisions, stating the re-opening lacked fresh material and the dis-allowance of the compensation claim was not justified. The Tribunal highlighted that the Assessing Officer had the necessary information during the original assessment, making the re-opening a case of change of opinion. The Appeal was dismissed as it did not raise substantial questions of law, affirming the decisions of the lower authorities.

In conclusion, the High Court of Bombay upheld the decisions of the CIT(A) and the ITAT, dismissing the Appeal filed by the Principal Commissioner of Income Tax-13, Mumbai. The re-opening of the assessment lacked fresh tangible material, and the dis-allowance of the compensation claim of Rs. 6,50,00,000/- was deemed invalid as it was based on actual financial incidences related to business activities. The Tribunal's findings were based on factual evidence, leading to the rejection of the dis-allowance and affirming the decisions of the lower authorities.