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2015 (12) TMI 34 - ITAT MUMBAI

2015 (12) TMI 34 - ITAT MUMBAI - TMI - Reopening of assessment - Reopening on audit objection - Held that:- In this case, an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer did not make any addition in the assessment order. Respectfully following Honourable Delhi high court in CIT V Usha International ( 2012 (9) TMI 767 - DELHI HIGH COURT) in such situations, it should be accepted that the issue was examined but the As .....

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ee - ITA No. 3218/Del/2011, ITA No. 2357/Del/2011 - Dated:- 18-11-2015 - A. T. Varkey, JM And Prashant Maharishi, AM For the Appellant : Shri Deepak Chopra, Amit Shrivastava, Adv. For the Respondent : Shri Hemant Gupta, SR. DR ORDER Per Prashant Maharishi, AM 1. Parties have preferred captioned cross appeals against the order dated 09.02.2011 of CIT (A)-V, New Delhi for AY 2004-05. 2. First taking up appeal of the assessee, assessee has raised following grounds of appeal -: "Based on the fa .....

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y offered to tax in the earlier years. 1.2 That the ld. CIT (A) has erred in law and facts in ignoring the fact that the ld. AO added back the said amount treating it as capital in nature. 2.Wrongful addition on account of Depreciation 2.1. The learned CIT(A) has erred in confirming the action of the Assessing Officer by allowing depreciation @ 15% instead of 25% on cables laid down for running of machinery 2.2 That ld. CIT(A), admitting that the cables were laid down in factory, has failed to d .....

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t the ld. CIT(A) has erred on facts and in law in mentioning that there is no discussion of any of the issues in original assessment." 3. We first take up ground no. 3 of the appeal of the assessee where reopening of assessment has been challenged alleging that same is on the basis of mere change of opinion without any new material fact or information coming into the possession of AO. 4. The Assessee a private limited company filed its return of income on 27.10.2004 declaring total income o .....

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rds, it has been observed that the assessee has made and allowed the following claims/deductions: I. The assessee has deducted an amount of ₹ 8,12,28,282/- on account of provisions for section 40(a)(i) of the I.T.Act disallowed in last year, now allowable on payment basis but as per computation of last year, the amount added back is ₹ 6,17,56,500/-. II. Advances written off to the extent of ₹ 56,48,790/- has not been added back although it is capital in nature. III. Royalty cha .....

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otice u/s 148 that no new material has come into possession of the assessee and as all the relevant details are already available on record the proceedings u/s 148 is invalid as it based on mere change of opinion. 6. Before us ld. AR of the assessee submitted that the reasons recorded by the assessing officer are on five counts and each of the issue has been examined by the assessee during the course of assessment proceedings for this. He submitted that notice dated 18.08.2000 covers point no. 6 .....

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. Further, he submitted that there is no material coming into possession of the assessing officer after completion of assessment proceedings on which reopening can be based upon. Therefore, he submitted that reopening proceedings are initiated on mere change of opinion for this he relied on several decisions of Hon'ble Delhi High Court and primarily on decision of Hon'ble Supreme Court in case of CIT vs. Kelvinator of India Ltd. 320 ITR 561. He further submitted that as no new material c .....

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T and Vodafone West Ltd. v. ACIT, Therefore, he submitted that 148 proceedings are not validly initiated and on this count itself the appeal of the assessee should succeed. 7. Ld. DR relied on the order of AO as well as the CIT (A) and submitted that on going through the orders of lower authorities it is apparent that reopening proceedings has not been challenged. He submitted that reopening has been validly done by AO and no infirmity can be found therein. He further relied on the decision of H .....

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d by AR is that (a) Reopening has been done on the basis of audit objection. (b) There is no new material coming in to possession of AO after original assessment for reopening it. (c) There is a change of opinion as in the original assessment proceedings AO has examined the details, did not make any adjustments on that account, and subsequently reopened assessment on same issues. All three proposition raised by the AR of the assessee are examined independently as under:- 9. Ld. AR of the appella .....

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tested but case is reopened. However, AR of the assessee could not produce any evidence before us that the reopening has been initiated at the behest of audit party. Therefore, in absence of any evidence we are afraid we cannot appreciate this proposition and hence, reject it. 10. Second proposition raised by the AR is that there is no new material coming in to the possession of AO after completing assessment based on which reopening proceedings are initiated. For this, we have perused the reaso .....

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rding of reasons as all the additions have been made on the same material available before AO at the time of original assessment. Ld. DR also could not point out before us any new material coming in to the possession of AO before recording reasons for reopening. Honorable Delhi high court in case of Madhukar khosla V ACIT 367 ITR 165 has quashed where Ao initiated reopening proceedings on appreciation of the same facts already on record. Honourable High court after considering decision of Honour .....

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ary evidence on records, the same is required to be brought on tax net as per provisions of section 68 of the Income tax Act, 1961 as the assessee had offered no explanation about the nature and source of the said additions…" and thus, must be treated as income which escaped assessment. No details are provided as to what such information is which excited the AO's notice and attention. The reasons must indicate specifically what such objective and new material facts are, on the ba .....

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o believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But reassessment has to be based on fulfillment of certain pre-condition and if the concept of .....

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a live link with the formation of the belief. " 10. This Court recollects that even in case of an assessment completed under Section 143 (1), the requirement of recording "reasons to believe" are mandatory - as the text of Section 147 indicates. Rejecting an argument by the Revenue to the contrary, this Court in Orient Craft Ltd.'s case (supra) held that: "The assumption of the Revenue that somehow the words "reason to believe" have to be understood in a libera .....

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143(1) and Section 143(3). We are unable to appreciate what permits the Revenue to assume that somehow the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of an assessment earlier made under Section 143(3) cannot apply where only an intimation was issued earlier under Section 143(1). It would in effect place an assessee in whose case the return was processed under Section 143(1) in a more vulnerable position than an assess .....

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d thereafter issue notices to reopen the assessment. An interpretation which makes a distinction between the meaning and content of the expression "reason to believe" in cases where assessments were framed earlier under Section 143(3) and cases where mere intimations were issued earlier under Section 143(1)may well lead to such an unintended mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be eschewed. 13. Certain observations m .....

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under section 148, the proceedings cannot be challenged on the ground of "change of opinion". It was not opined by the Supreme Court that the strict requirements of section 147 can be compromised. On the contrary, from the observations (quoted by us earlier) it would appear clear that the court reiterated that "so long as the ingredients of section 147 are fulfilled" an intimation issued under section 143(1) can be subjected to proceedings for reopening. The court also empha .....

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observations of the Supreme Court in Rajesh Jhaveri (supra) would also appear to be self-defeating, because if an "intimation" is not an "assessment" then it can never be subjected to section 147 proceedings, for, that section covers only an "assessment" and we wonder if the revenue would be prepared to concede that position. It is nobody's case that an "intimation" cannot be subjected to section 147 proceedings; all that is contended by the assessee, .....

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nt of "change of opinion" is not available to him, it would still be open to him to contest the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment. In doing so, it is further open to the assessee to challenge the reasons recorded under section 148(2) on the ground that they do not meet the standards set in the various judicial pronou .....

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oes not possess jurisdiction to reopen the assessment. It is at the next stage that the question, whether the reopening of assessment amounts to "review" or "change of opinion" arises. In other words, if there are no "reasons to believe" based on new, "tangible materials", then the reopening amounts to an impermissible review. Here, there is nothing to show what triggered the issuance of notice of reassessment - no information or new facts which led the AO .....

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me issues reassessment is initiated without any new, tangible material coming in to the possession of AO. 12. Reliance placed by Ld. DR on GRUH Finance Ltd. v. Jt. CIT [2000] 243 ITR 4821, a judgment of the Gujarat High Court, is misplaced and distinguishable. The said case is prior to the decision of Delhi High Court and the Supreme Court in the case of Kelvinator of India Ltd. (supra). The Gujarat High Court has recorded a specific finding that at the time of the original assessment, there was .....

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ated are sustainable, therefore same is quashed. 14. Alternatively, also on the ground of change of opinion assessee's appeal deserves to succeed because in the original assessment proceedings vide notice dated 18/08/2008 AO has asked for all the details recorded in reason. Assessee submitted compliance letter dated 06/09/2006 furnishing these details and Ao perused them and did not take any adverse cognizance in original assessment. Sr no Particular reasons of reopening Details asked for by .....

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utation of total income submitted by the assessee the amount of disallowance u/s 40a (i) is given as well as deduction of the expenditure on payment of TDS basis is also disclosed. 2 Advances written off Para No 15 of the notice dated 18/8/2008 Details ae available at schedule XVIII of the balance sheet 3 Royalty charges Para no 8 of the notice dt. 18/8/2008 Para No 7 of the reply dated 06/9/2006 4 Depreciation on computers allowed @ 60 % instead of 25 % and on electric Installation @ 25 % inste .....

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al Limited 348 ITR 485 has laid down the following propositions of law: (i) The expression 'change of opinion' postulates formation of opinion and then a change thereof. In the context of section 147, it implies that the Assessing Officer should have formed an opinion at the first instance, i.e., in the proceedings under section 143(3) and now by initiation of the reassessment proceeding, the Assessing Officer proposes or wants to take a different view. (ii) Reassessment proceedings will .....

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d that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer, had formed an opinion in the original assessment, whether or not he had recorded his reasons in the assessment order. 16. In this case, an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer did no .....

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