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AO can not reopen the assessment based on material which was already available at the time of passing the original assessment order.
AO can not reopen the assessment based on material which was already available at the time of passing the original assessment order
Akshaya Souharda Credit Cooperative Ltd Vs ITO
– Assessee’s appeal allowed: BANGALORE ITAT
THE assessee is a cooperative engaged in providing credit facilities and has filed the return of income for the relevant AY. The assessee’s case was selected for scrutiny and the assessment was completed accepting the returned income. A notice was issued by the AO, directing the assessee to file the return of income. In response, the assessee filed a letter requesting the AO to treat the return of income filed as its return filed. The assessee filed its objections to the reasons recorded, which the AO disposed of. During the reassessment proceedings, the AO disallowed the claim of deduction to the extent of interest income earned from deposits kept in Nationalised Banks and Co-operative Banks, relying on the judicial prouncement. The AO held that the assessee was not entitled for deduction on the ground that the assessee was providing services of banking/ credit facility to the associate and non-associate members and hence the principle of mutuality was lacking. The AO further noted that the assessee, in contravention of its own bye-laws was accepting deposits from and extending loans to non associate members. The AO denied the claim of deduction on the basis of the decision of the Supreme Court in precedent. Aggrieved by the order of the AO, assessee carried the matter in appeal before the CIT(A), who confirmed the reopening of assessment and also decided the issue against the assessee. Against this, the assessee was in appeal before the Tribunal.
On appeal, the ITAT held that,
Whether the AO can reopen the assessment based on material which was already available at the time of passing the original assessment order – NO: ITAT
++ the original assessment was framed, assessing the total income at Rs.Nil. Later on, on examination of the financial statement filed before the AO, it was found that the assessee had earned interest income on a fixed deposit parked with Nationalized Bank and had claimed as deduction. According to the AO, this income should be taxed as “income from other sources”. Hence, the assessee’s case was reopened after obtaining approval from Joint Commissioner of Income-tax. The contention of the AR was that it was only a change of opinion as the AO already formed an opinion and allowed deduction. The AR further contended that there was no tangible fresh material on the basis of which assessment was sought to be reopened. In the present case, the original assessment was completed accepting the declared income and the AO examined the deduction and granted the deduction. Therefore, the reassessment in this case was made to withdraw deduction by treating the interest income under the head “income from other sources” instead of “business income”. This was nothing but change of opinion. On mere change of opinion, the concluded assessment cannot be reopened as held by the Supreme Court in a judicial prouncement. Further, it was to be noted that for reopening the concluded assessment, the AO should form an opinion on the basis of same material which was already on record and not from any external sources. For reopening an assessment, the AO cannot consider the information which was already on record and it should be from outside sources as held by the Karnataka High Court in the precedent. Since there was no new material and on the available material the AO had reopened the present assessment. Being so, the tribunal cannot uphold the action of the reopening of assessment. For this proposition, reliance is placed on the following judgments. Accordingly, the tribunal quash the reassessment order. Since the tribunal had decided the issue on merits, it was refrain from going into other grounds raised by the assessee.