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Income Tax Appellate Tribunal, SMC “A” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV
O R D E R This appeal is preferred by the assessee against the order dated 07.11.2006 of the CIT(Appeals)-I, Bangalore for the assessment year 2001-02 inter alia on the following grounds:-
“1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The order of re-assessment is bad in law and void-ab-initio for want of requisite jurisdiction especially, the mandatory requirements to assume jurisdiction u/s 148 of the Act did not exist and have not been complied with and consequently, the re-assessment requires to be cancelled.
3. Without prejudice to the above, the learned CIT[A] is not justified in upholding the addition of Rs.10,12,000/- as the alleged excess stock discovered during the course of Survey under the facts and in the circumstances of the appellant's case.
4. The learned CIT[A] failed to appreciate that the appellant has clearly shown the closing stock correctly in the Profit & Loss account and Balance Sheet filed along with the return of income and therefore, there was no justification to make the impugned addition. 5. Without prejudice to the above, the addition made on account of excess stock is highly excessive and unreasonable and the same deserves to be reduced substantially. 6. Without prejudice to the right to seek waiver with the Hon'ble C.C.I.T/D.G. the appellant denies itself liable to be charged to interest u/s.234-B and 234C of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled. 7. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
Besides assailing the order of CIT(Appeals) on merits, the assessee has challenged the validity of reopening of assessment on the ground that all information were available before the Assessing Officer while completing the original assessment, therefore reopening of assessment is simply on account of change of opinion and therefore not sustainable in the eyes of law.
This aspect was examined by the CIT(Appeals) in his order in the light of the fact that survey u/s. 133A(1) of the Income-tax Act, 1961 [“the Act”] was conducted wherein the assessee admitted to offer the excess stock of Rs.10,12,000 in the return. Thereafter, a search was conducted on 24.1.2001. A return for AY 2001-02 was filed on 31.10.2001 declaring income of Rs.79,090 and assessment was completed on 1.3.2004 at Rs.89,090 against the returned income of Rs.79,090, against which an appeal was filed, but the same was dismissed by the CIT(Appeals) and thereafter no further appeal was filed.
On 16.2.2006, the AO formed a view to reopen the assessment u/s. 148 of the Act and accordingly reasons were recorded and notice u/s. 148 was issued on 17.2.2006 to which the assessee has filed objections to the notice u/s. 148 of the Act. Thereafter, notice u/s. 143(2) was issued on 13.7.2006 and in response thereto, the assessee sought a copy of the reasons recorded vide letter dated 31.7.2006. Through this letter, it was also stated that the return filed on 31.10.2001 be treated as a return filed in response to notice u/s. 148. Copy of the reasons recorded was served on the assessee on 1.8.2006. The assessee sought time to file objections on 14.8.2006, but no objections were filed by the assessee. Accordingly on subsequent dates fixed for hearing on 10.7.06 and 1.8.06, none appeared on behalf of the assessee. Again on 14.8.06 and 10.10.06, when the matter was listed for hearing before the AO, none appeared on behalf of the assessee. Accordingly assessment was completed vide order dated 7.11.2006 u/s. 143(3) r.w.s. 147 of the Act. The AO has also completed the assessment in search proceedings including an income of Rs.10,12,000 admitted by the assessee during the course of survey towards investment in excess stock, but the same was deleted by the Tribunal in appeal, having observed that in block assessments only that income can be added which has accrued on account of seized material or documents. Thereafter, the AO has formed a view that during the course of survey conducted on 8.1.2000, the assessee has admitted the excess stock as representing from undisclosed source of income to the extent of Rs.10,12,000, but he has not declared the said sum of Rs.10,12,000 in the return of income filed for the AY 2001-02. Consequently, notice u/s. 148 was issued and assessment was completed u/s. 143(3) r.w.s. 147 of the Act at Rs.11,01,090 by making an addition of Rs.10,12,000 as undisclosed investment in excess stock.
This order of the AO was challenged before the CIT(Appeals) on the legal ground, but no explanation was furnished with regard to source of investment in excess stock. The CIT(Appeals) has dealt with this issue in detail in his order in the light of the aforesaid facts and was of the view that since assessee has not offered the agreed undisclosed investment towards the excess tock in the return of income filed on 31.10.2001, the AO has rightly made the addition. Accordingly, the appeal of the assessee was dismissed by the CIT(Appeals).
Now the assessee has preferred the appeal before the Tribunal and reiterated its contentions. The ld. counsel for the assessee has contended that since all information was available before the AO, the AO should have made the addition while completing the original assessment u/s. 143(3) of the Act on 1.3.2004, but he did not make any addition of the alleged investment in excess stock; meaning thereby, during the course of assessment proceedings he was convinced with the explanation furnished by the assessee with regard to investment in excess stock. The AO, however, made the addition of this alleged investment in excess stock while completing the assessment consequent to search on 10.10.2006 and the addition made therein was rightly deleted by the Tribunal as the alleged investment in excess stock was not found during the course of search.
Now the AO has recorded reasons for reopening the assessment on 16.2.2006 stating therein that despite having admitted the investment in excess stock during the course of survey, assessee has not declared the said sum of Rs.10,12,000 in the return of income filed for AY 2001-02 and issued notice u/s. 148 of the Act. The ld. counsel for the assessee further contended that information with regard to the investment in excess stock found during the course of survey, was available with the AO while completing the assessment, but he did not make any addition in this regard only for the simple reason that he was convinced with the explanation of the assessee. Therefore, the same evidence which was available before the AO while completing the assessment cannot be used for reopening the assessment, as it amounts to change of opinion of the AO on a particular issue, which is not permissible in law. Therefore, the reopening is bad in law and assessment framed consequent thereto deserves to be quashed.
The ld. DR, besides placing reliance upon the order of CIT(Appeals) has emphatically argued that during the course of survey, the assessee has admitted the unexplained investment in excess stock, but while filing the return of income, he did not include the investment in excess stock.
Therefore, the AO has rightly reopened the assessment u/s. 147 of the Act, having recorded the reasons for doing so.
Having carefully examined the orders of lower authorities in the light of rival submissions, I find that undisputedly a survey was conducted in the business premises of the assessee before a search was conducted and assessee has offered the investment in the excess stock. It is also evident from the record that while submitting the return, assessee did not include the said unexplained investment in excess tock in its return of income, but the surrender statement of the assessee with regard to unexplained investment in excess stock of Rs.10,12,000 was available with the AO and if the assessee failed to retract his earlier statement and also failed to explain the source of investment, the AO could have made an addition on the same while completing the assessment u/s. 143(3) of the Act, but he did not do so. Therefore it is a possibility that AO might have been convinced with the explanation on addition made on account of unexplained investment in excess stock to the tune of Rs.10,12,000, because no addition was made in this regard while completing the assessment u/s. 143(3) of the Act.
Later on, when he was completing the assessment pursuant to the search, he included this unexplained investment in the assessed income, but it was set aside by the Tribunal on the ground that this unexplained investment in excess tock was not found during the course of search. Now the AO wants to add that unexplained investment in excess stock by reopening the assessment which was originally completed on 1.3.2004.
Having carefully examined the facts of the case, I find that while completing the original assessment, the facts with regard to surrender statement of the assessee during the course of survey of Rs.10,12,000 as unexplained investment in excess tock was available before the AO, but he did not act on it for the reasons best known to him. But once he has already applied his mind to these facts and has opted not to make an addition in this regard, he cannot make addition of the same by resorting to the procedure for reopening of assessment u/s. 147 of the Act. If it is allowed to be done, it would amount to reopening on account of change of opinion which is not permissible in the eyes of law. It has also been held by the various High Courts that once the AO has applied his mind on particular facts, the same facts cannot be used for reopening of the assessment. Therefore, I find no merit in reopening of the assessment.
Accordingly I hold that since the reopening of assessment is on account of change of opinion, it is bad in law and is not sustainable in the eyes of law. Since we have knocked down the reopening of assessment, the assessment framed consequent thereto deserves to be quashed. I accordingly set aside the order of CIT(Appeals) and that of the Assessing Officer by quashing the assessment.
In the result, the appeal of the assessee is allowed.
Pronounced in the open court on this 26th day of August, 2016.