2023 (3) TMI 284 - AT - Income Tax

Reopening of assessment u/s 147 - notice beyond a period of four years from the end of the assessment year Reasons to believe - Disallowance of the prior period expense treating the same as expenditure of earlier years - the same has been booked as expenditure only due to the reversal of entry of earlier years where the same was shown as income - HELD THAT - In the case of ICICI Securities Primary Dealership Ltd. 2012 (8) TMI 754 - SC ORDER AO completed assessment of assessee under section 143(3) after taking into consideration account furnished by assessee. After lapse of four years from relevant assessment year Assessing Officer reopened assessment of assessee on ground that during relevant year assessee company had incurred a loss in trading in share, which was a speculative one and therefore chargeable to tax. Accordingly, AO passed order under section 147 of the Act. The Hon'ble Supreme Court held that since after a mere re-look of accounts which were earlier furnished by assessee, Assessing Officer had come to conclusion that income had escaped assessment, same was not permissible under section 147 as it was clearly a change of opinion. Therefore, order re-opining assessment was not permissible. In the case of Godrej Boyce Mfg. Co. Ltd. 2022 (4) TMI 639 - BOMBAY HIGH COURT the High Court held that where Assessing Officer completed original assessment under section 143(3) and subsequently he issued notice seeking to reopen such assessment for reason that interest bearing funds had been used for making addition of capital work-in-progress and hence interest paid in respect of capital borrowed for addition to capital work-in-progress should have been added back and capitalized as per provisions of section 36(1)(iii), as reasons did not indicate that there was failure to disclose truly and fully all material facts, impugned notice deserved to be quashed . Accordingly, in view of our observations in the preceding paragraphs and in light of the above judicial precedents highlighted above, we are hereby directing that the present reassessment proceedings are liable to be set aside. Since, we are quashing the notice issued u/s 147 of the Act on grounds of jurisdiction itself, we are not separately adjudicating on other Grounds of Appeal filed by the assessee.

Summary

Issues Involved:
1. Disallowance of prior period expenses.
2. Initiation of penalty proceedings under section 271(1)(c).
3. Charging of interest under section 234B.
4. Validity of reassessment proceedings under section 147 beyond four years.

Issue-wise Detailed Analysis:

1. Disallowance of Prior Period Expenses:
The assessee contested the disallowance of Rs. 16,02,98,000/- as prior period expenses, arguing that these were booked due to the reversal of earlier income entries. The Commissioner of Income Tax (Appeals) confirmed the disallowance, stating that the assessee employed the mercantile system of accounting, under which prior period expenses are not allowable. The Tribunal noted that the assessee had added back a portion of these expenses in the computation of income and that the issue was discussed during the original assessment proceedings.

2. Initiation of Penalty Proceedings Under Section 271(1)(c):
The assessee challenged the initiation of penalty proceedings under section 271(1)(c), which was dismissed by the Commissioner of Income Tax (Appeals). The Tribunal did not separately adjudicate this issue as it quashed the reassessment proceedings on jurisdictional grounds.

3. Charging of Interest Under Section 234B:
The assessee disputed the charging of interest under section 234B of the Income Tax Act, 1961. This issue was also not separately adjudicated by the Tribunal due to the quashing of the reassessment proceedings.

4. Validity of Reassessment Proceedings Under Section 147 Beyond Four Years:
The primary contention of the assessee was that the reassessment proceedings initiated after four years were time-barred and invalid. The original assessment was completed under section 143(3) on 30-12-2010, and the notice for reassessment under section 147 was issued on 18-03-2015. The Tribunal observed that there was no material on record to indicate that the assessee failed to disclose fully and truly all material facts necessary for the assessment. The reassessment was based on the same documents available during the original assessment, indicating a mere "change of opinion" by the Assessing Officer. The Tribunal cited several judicial precedents, including the Supreme Court and High Court rulings, which held that reassessment based on a change of opinion and without any new material is not permissible. Consequently, the Tribunal quashed the reassessment proceedings as they were initiated beyond the permissible period without any failure on the part of the assessee to disclose material facts.

Conclusion:
The appeal of the assessee was allowed, and the reassessment proceedings were quashed on jurisdictional grounds. The Tribunal did not separately adjudicate the other grounds of appeal due to the quashing of the reassessment notice. The order was pronounced in the open court on 03-03-2023.