Case Law Details
DCIT Vs K.V. Mohana Rao and Co. Pvt. Ltd. (ITAT Visakhapatnam)
The issue under consideration is whether the re-opening of assessment u/s 147 is justified if the details on the basis of which case is re-opened was already available at the time of original assessment?
ITAT states that the concept of “change of opinion” on the part of the Assessing Officer to reopen the assessment does not stand obliterated by substitution of Section 147 of the Income Tax Act, 1961 by Direct Tax Laws (Amendment) Act, 1987 & 1989 after the amendment the Assessing Officer has a reason to believe that income has escaped assessment but it does not mean that simply the Assessing Officer can reopen the case, one must treat the concept of “change of opinion” as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to re-open, provided there is “tangible material” to come to the conclusion that there is an escapement of income from assessment. Reasons must have a live link with the formation of the belief. In the present case, the assessee has claimed interest on service tax paid as allowable deduction relates to the present A.Y. 2011-13, for that purpose he filed revised return, the same is examined by the Assessing Officer and completed the assessment u/sec. 143(3), therefore the Assessing Officer has already firmed opinion that the deduction claimed by the assessee is allowable deduction and accordingly allowed. Subsequently, on the basis of very same revised return and on the very same claim the Assessing Officer came to a conclusion that the expenses claimed by the assessee relates to the earlier year i.e. A.Y. 2011-12 and not relating to the assessment year under consideration, in our opinion is merely a change of opinion and is not permissible as per the decision of the Hon’ble Supreme Court in the case of M/s.Kelvinator of India Ltd. (supra).
Therefore, notice issued by the Assessing Officer has to be quashed.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by the Revenue and the cross objection by the assessee are directed against the order of Commissioner of Income Tax (Appeals)-1, Visakhapatnam, dated 28/06/2019 for the Assessment Year 2013-14.
2. The grounds of appeal raised by the revenue are as under:-
1) The Order of the ld.CIT(A)-1, Visakhapatnam is erroneous both on facts and in law.
2) The ld.CIT(A) has erred in quashing the notice issued u/s. 148 of the Act as invalid by holding that the reopening is not validly made, more particularly when the Assessing Officer has a reason to believe that the income chargeable to tax has escaped assessment and satisfied himself that it is a fit case for issue of notice u/s. 148 of the Act which was approved by the Addl. Commissioner of Income-tax.
3) The ld.CIT(A) has erred in directing the AO to delete the addition of Rs.2,00,19,879/- made towards disallowance of interest on service tax, more particularly when the AO has noted that the assessee is following the mercantile system of accounting and the accounts are prepared on accrual basis and the expenses incurred pertaining to the prior period are not to be debited to the P&L a/c as per the Accounting Standards prescribed u/s. 145(2) of the Act.
4) The appellant craves leave to add or delete or amend or substitute any ground of appeal before and/or at the time of hearing of appeal. For these and other grounds that may be urged at the time of appeal hearing, it is prayed that addition made on account of disallowance on interest on service tax be restored.”
3. Ground Nos. 1 & 4 are general in nature, no adjudication is required, therefore same are dismissed. Ground No.2 relates to reopening of the assessment.
4. Facts of the case in brief are that assessee filed its return of income by admitting total income of Rs. 23,82,54,770/-. Subsequently revised return is filed on 18/04/2014 admitting total income of Rs. 21,82,34,890/-. In the revised return assessee claimed deduction of Rs. 2,00,19,879/- paid towards interest on service tax. The revised return filed by the assessee was taken up for scrutiny and assessment was completed u/sec. 143(3) of the Act, dated 24/03/2016 by making addition of Rs. 42,13,819/- towards disallowance of certain expenditure on the ground that assessee could not submit proper bills and vouchers. Subsequently, Assessing Officer has reopened the assessment by issuing notice u/sec. 148, dated 28/03/2018 on the ground that an amount of Rs. 2,00,19,879/- paid towards service tax relates to A.Y. 2011-12 and is not admissible in the A.Y.2013-14, therefore total income was assessed at Rs. 24,24,68,590/-.
5. On appeal before the ld. CIT(A) it was submitted that expenditure relates to earlier year was mentioned in column No. 22(b) of the audit report filed in Form No.3CD and by considering the same, the Assessing Officer has completed the assessment on 24/03/2016 after calling the various details in respect of revised return filed by the assessee. Therefore, the Assessing Officer has already firmed opinion that the claim of the assessee of Rs.2,00,19,879/- paid towards service tax is an allowable expenditure and accordingly allowed. Subsequently, this expenditure relates to earlier year and allowable in the current year is amounting to change of opinion and is not permissible according to law. For that he relied on the judgment of the Hon’ble Supreme Court in the case of CIT Vs. M/s. Kelvinator of India Ltd., [(2010) 320 ITR 561]. So far as merits of the case is concerned, ld. counsel for the assessee has relied on the decision of the Hon’ble Jurisdictional High Court in the case of CIT Vs. Andhra Sugars Ltd., [(2014) 367 ITR 195]. The ld. CIT(A) by considering the submissions of the assessee quashed the notice issued by the Assessing Officer on the ground that it is clearly amounting to change of opinion and by relying on the judgment of the Hon’ble Supreme Court in the case of M/s. Kelvinator of India Ltd. (supra) decided the appeal in favour of the assessee.
6. On being aggrieved, revenue carried the matter in appeal before the Tribunal.
7. Ld.DR strongly supported the order passed by the Assessing Officer.
8. On the other hand, ld. counsel for the assessee has relied on the order passed by the ld. CIT(A) and also placed strong reliance on the judgment of the Hon’ble Supreme Court in the case of M/s.Kelvinator of India Ltd. (supra). On merits he placed reliance on the decision of the Hon’ble Jurisdictional High Court in the case of Andhra Sugars Ltd. (supra).
9. In this case, the assessee has filed original return of income on 30/09/2013 without claiming interest paid on service tax. Subsequently, the assessee has filed revised return on 18/04/2014 by claiming deduction towards interest on service tax and admitted total income of Rs. 21,82,34,890/-. The Assessing Officer after considering the revised return filed by the assessee he has completed the scrutiny assessment u/sec. 143(3) dated 24/03/2016. In the assessment order, it was clearly mentioned that notice and questionnaire was issued and assessee submitted all the details as called for. It is also evident from the revised return of income that revision was solely for the purpose of claiming deduction towards interest on service tax, the same was taken up for scrutiny and assessment was completed without making any disallowance. From the above, it is very clear that the Assessing Officer consciously allowed the interest paid on the service tax by considering the revised return of income. Subsequently, a notice u/sec. 148 was issued on 28/03/2018 on the ground that interest on service tax relates to A.Y. 2011-12 and not allowable in A.Y. 2013-14 is clearly a change of opinion which is not permissible u/sec. 147 of the Act. The Hon’ble Supreme Court has considered the issue of change of opinion in the case of M/s. Kelvinator of India Ltd., (supra) and observed that concept of “change of opinion” on the part of the Assessing Officer to reopen the assessment does not stand obliterated by substitution of Section 147 of the Income Tax Act, 1961 by Direct Tax Laws (Amendment) Act, 1987 & 1989 after the amendment the Assessing Officer has a reason to believe that income has escaped assessment but it does not mean that simply the Assessing Officer can reopen the case, one must treat the concept of “change of opinion” as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to re-open, provided there is “tangible material” to come to the conclusion that there is an escapement of income from assessment. Reasons must have a live link with the formation of the belief. In the present case, the assessee has claimed interest on service tax paid as allowable deduction relates to the present A.Y. 2011-13, for that purpose he filed revised return, the same is examined by the Assessing Officer and completed the assessment u/sec. 143(3), therefore the Assessing Officer has already firmed opinion that the deduction claimed by the assessee is allowable deduction and accordingly allowed. Subsequently, on the basis of very same revised return and on the very same claim the Assessing Officer came to a conclusion that the expenses claimed by the assessee relates to the earlier year i.e. A.Y. 2011-12 and not relating to the assessment year under consideration, in our opinion is merely a change of opinion and is not permissible as per the decision of the Hon’ble Supreme Court in the case of M/s.Kelvinator of India Ltd. (supra). We, therefore, respectfully following the decision of the Hon’ble Supreme Court in the above referred to case, are of the opinion that reopening of assessment is not valid, therefore notice issued by the Assessing Officer has to be quashed. In view of the above, we find no infirmity in the order passed by the ld. CIT(A).
10. So far as merits of the case is concerned, the ld. CIT(A) gave a finding by following the judgment of the Hon’ble Jurisdictional High Court in the case of Andhra Sugars Ltd., (supra) that whether service tax paid has to be allowed in the year of payment or irrespective of the year allowablility incurred. For the sake of convenience, the relevant portion of the order is extract as under:-
“The only ground for the disallowance was that the expenditure incurred related to the earlier years. On a careful perusal of the provisions of section 43B of the Act, I find that the method of accounting has no relevance with regard to the expenses covered by this section. Service tax is undoubtedly an expenditure squarely covered by the provisions of section 43B of the Act. There is no dispute with regard to the fact that the appellant has paid this amount during the previous year relevant to the impugned assessment year. Once the payment is made during the corresponding previous year, it does not matter to which year the expenditure relate. I do not find any justification in the action of the Assessing Officer in making the disallowance.”
11. The ld. CIT(A) by following the decision of the Hon’ble Jurisdictional High Court in the case of Andhra Sugars Ltd. (supra) deleted the addition made by the Assessing Officer. We find no reason to interfere with the order passed by the ld. CIT(A). Thus, this appeal filed by the Revenue is dismissed.
12. The cross objection filed by the assessee is only supportive to the order of the ld. CIT(A). As no grievance against the order of the ld. CIT(A), this cross objection has become infructuous and is dismissed accordingly.
13. In the result, appeal filed by the Revenue and the cross objection filed by the assessee are dismissed.
Order Pronounced in open Court on this 05th day of June, 2020.
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