2023 (8) TMI 438 - AT - Income Tax

Reopening of assessment u/s 148 - AO did not provide the copies of the reasons to the assessee inspite of prayer of the assessee - main emphasize of assessee was that a scrutiny assessment was passed on assessee and notice u/s 148 has been issued after expiry of four years from the end of the relevant assessment year - HELD THAT - In the present case, the earlier assessment has been framed u/s 143(3) - AO sought to reopen this assessment order after five years, we have extracted the reasons but nowhere in the reasons the AO has alleged, which material was not truly and fully declared by the assessee, and such non-disclosure has led to escapement of income. Assessee has demonstrated that two-fold of reasoning assigned by AO namely that assessee has claimed carry forward of losses, i.e. the first-fold of reasoning and the second fold of reasoning is that a provision for NPA has been made which is not allowable in case loss is concern, the first one is factually incorrect and in the second observation, AO has not visualize the provision u/s 36(viia) - He has not pinpointed, which provision has been made illegally. Assessee being a non-scheduled Bank is entitled to make provision. If there were some error that has not been demonstrated in the reason. Therefore, AO failed to pinpoint the failure at the end of the assessee to disclose all material facts fully and truly, which led the escapement of income from taxation. Apart from the above, it is further observed that under the original assessment, loss was determined at Rs. 1,73,54,450/- In the re-assessment order, this loss has been reduced to Rs. 1,05,47,793/-. The only fact is that loss has been reduced. The loss has not claimed as a carry forward. There is no impact on taxation. It is just an academic exercise undertaken by the ld. Assessing Officer. Had the AO verified subsequent return, then, he would have dropped the proceedings. On going through all these aspects, we are of the view that reopening is not sustainable. Decided in favour of assessee.

Summary

Issues Involved:
1. Timeliness of the appeal.
2. Legitimacy of the re-opening of assessment under section 148 of the Income Tax Act.
3. Validity of the reasons provided for re-opening the assessment.
4. Compliance with the provisions of section 147.

Summary:

Timeliness of the Appeal:
The appeal was received on 13th January, 2021, during the COVID period, and thus considered within time despite the Registry's objection that it was time-barred by 2809 days. The Tribunal clarified that the delay was due to an error in mentioning the date of the assessment order instead of the date of the CIT(Appeals)'s order.

Legitimacy of the Re-opening of Assessment:
The assessee challenged the re-opening of the assessment initiated by a notice under section 148. The original assessment was completed on 31.12.2008, and the re-opening notice was issued on 26.03.2012, based on internal audit objections without providing copies of the reasons to the assessee initially.

Validity of the Reasons Provided:
The reasons for re-opening included:
- The claim of carry forward of losses by the assessee.
- Provision for NPA of Rs. 68,06,656/- deemed illegal by the Assessing Officer.
- Interest income from investments not related to business activities, thus not qualifying for deduction under section 80P(2)(a)(i).

The assessee contended that:
- No carry forward of loss was claimed in the return for A.Y. 2007-08.
- As a Cooperative Bank, it is eligible to make provisions for bad and doubtful debts under section 36(viia).
- The interest income was not from surplus funds but from regular business operations.

Compliance with Provisions of Section 147:
The Tribunal noted that the re-opening was attempted after more than four years from the end of the relevant assessment year. For such re-opening, there must be a failure on the part of the assessee to fully and truly disclose all material facts, which was not demonstrated by the Assessing Officer. The reasons provided did not pinpoint any specific non-disclosure by the assessee that led to the escapement of income.

The Tribunal concluded that the re-opening was not sustainable, as the Assessing Officer failed to establish any failure by the assessee to disclose material facts fully and truly. The reassessment order was quashed, and the appeal of the assessee was allowed.

Conclusion:
The appeal of the assessee is allowed, and the impugned reassessment order is quashed. The Tribunal emphasized the importance of clear and specific reasons for re-opening assessments, especially after the statutory period of four years.