2024 (7) TMI 1665 - AT - Income Tax

Validity of Reopening proceedings on the ground of change of opinion - new tangible material to reopen assessment - reassessment on basis of the material already available on record HELD THAT - Reopening of the assessment on the material and information which was already available on the record while passing the original assessment order amounts to change of opinion which is not permitted in law. In our opinion after completion of the assessment u/s 143(3) of the Act for reopening of the assessment there has to be some trigger by way of either information received from the external source or from the internal source and without such trigger reopening of the assessment merely to relook into the assessment on the issues which had been considered during the regular assessment proceedings will amount to review of the assessment order by the AO which is not permitted in law under the provisions of section 147 of the Act. AO can only reassess the assessment wherever income escaped assessment and not the review the order passed by him. In view of the above discussion and respectfully following the decision of HDFC Bank Ltd 2024 (9) TMI 913 - BOMBAY HIGH COURT and Castrol India Ltd. 2024 (3) TMI 730 - BOMBAY HIGH COURT we set aside the finding of the Ld. CIT (A) on the issue of validity of the reassessment and we quash the reassessment proceedings. Assessee appeal allowed.

Summary

ISSUES:

Validity of reassessment proceedings under section 147 of the Income-tax Act, 1961, particularly whether reopening is permissible without new tangible material or based on mere change of opinion.Chargeability to tax of opening balance of Foreign Currency Translation Reserve (FCTR) under section 43AA read with section 145(2) of the Act and applicable Income Computation and Disclosure Standards (ICDS).Taxability of interest accrued but not due on securities on accrual basis versus receipt basis.Allowability of deductions claimed under section 36(1)(viia) of the Act for advances made from rural branches, and classification of branches as rural, semi-urban, or metropolitan for such deduction.Verification and treatment of miscellaneous income and expenditure in the absence of detailed breakup.

RULINGS / HOLDINGS:

Reopening of assessment under section 147 is invalid if based solely on material already available during original assessment, as it amounts to a "mere change of opinion" which is not permitted in law; reassessment requires "tangible material" leading to "reason to believe" that income has escaped assessment.The retrospective amendment to section 43AA by the Finance Act 2018, effective from assessment year 2017-18, introduced a new chargeability for foreign exchange gains, justifying reopening where such issue was not considered in original assessment; however, reopening cannot be sustained if no new tangible material is brought on record.Interest accrued but not due must be offered to tax on accrual basis as per CBDT Circular No. 10/2017 and ICDS notified under section 145(2) of the Act; failure to do so results in escapement of income.Deductions under section 36(1)(viia) are allowable only for advances made from branches classified as rural as per RBI branch locator and census data; advances from semi-urban or metropolitan branches are not eligible, and such excess deductions lead to under-assessment.In absence of detailed breakup of miscellaneous income and expenditure, adjustments claimed by assessee cannot be verified, leading to escapement of income.

RATIONALE:

The Court applied the legal framework under section 147 of the Income-tax Act, emphasizing the statutory requirement of "reason to believe" based on "tangible material" for reopening assessments, as clarified in precedents including the decisions of the Hon'ble Bombay High Court and the Supreme Court. The Court relied on authoritative rulings that reopening based on "mere change of opinion" is impermissible, reaffirming the principle that reassessment is not a review.The retrospective amendment to section 43AA and the introduction of ICDS under section 145(2) were considered relevant to the issue of foreign exchange gains, but reopening must still comply with the requirement of new tangible material.The Court referred to CBDT Circular No. 10/2017 to interpret the taxability of interest income on accrual basis, consistent with ICDS provisions.Classification of branches for deduction under section 36(1)(viia) was grounded on RBI's branch locator as per census 2011, establishing objective criteria for eligibility of rural branch status.The Court recognized that absence of detailed records for miscellaneous income and expenditure undermines verification, justifying addition for escapement of income.There was no dissenting or concurring opinion recorded in the judgment.