1998 (11) TMI 108 - HC - Income Tax

Notices under section 148 quashed as reassessment arose from mere change of opinion; section 43B and Explanation 1 insufficient

Garden Silks Mills Pvt. Ltd. Versus Deputy Commissioner Of Income-Tax

HC quashed notices issued under section 148 and set aside reassessment proceedings for the relevant year, holding that the AO's recorded reasons amounted ... Reassessment - challenges notices under section 148 - reason to believe - escaped assessment - Applicability of Section 43B Adjustments - adjustment in the value of closing stock - Revised Return - Actual Payment - HELD THAT:- The case of the Revenue was that the erroneous nature of the original assessment order and reason to believe about underassessment of the income of the relevant assessment year was entertained as a result of detection about its erroneous nature on the facts which have been referred to in the assessment order of the firm. It was also the case disclosed in the reasons that it was a case of the assessee, who by appending a note to his return, has tried to mislead the Assessing Officer at the time of the original assessment about the nature of transaction. The first premise which the court took into consideration is that the cases of underassessment or excessive relief which are deemed cases of escapement of income leave no scope for an argument that they are not cases of income, having escaped assessment. There cannot be any doubt about this proposition. It arises in every case where an assessment results in lesser collection of revenue than what it ought to be. But, as it is noticed, reason to believe that there has been escapement of assessment must not be a pretence for change of opinion but must be founded on material having reasonable nexus to the formation of opinion about escapement of income. No return has been filed. However, the reasons recorded by the Assessing Officer has been placed on record which are identical in all the three cases except for the amount and the name of the assessee. As noticed while narrating the facts, the assessee has sought adjustment in the valuation of stock-in-trade as disclosed in the audited books of account on the ground of applicability of section 43B of the Income-tax Act as the assessee is maintaining his books of account on the mercantile system. It is on that premise the enquiry was made and claim was investigated and allowed. Camouflaging language of framing reasons the Assessing Officer cannot confer upon himself jurisdiction which does not exist. The consistent view of this court is that even after the amendment of section 147 mere change of opinion does not confer jurisdiction on the Income-tax Officer to initiate proceedings for reassessment merely by resorting to Explanation 1 on the basis of change of opinion. On the facts of this case the reasons recorded by the Assessing Officer disclose no more than a mere change of opinion. As a result, these petitions succeed. The impugned notices in each case for initiating reassessment proceedings for the assessment year 1986-87 are quashed. Issues Involved:1. Validity of notices u/s 148 for reassessment.2. Applicability of section 43B adjustments.3. Change of opinion by the Assessing Officer.4. Jurisdiction of the Assessing Officer under section 147.Summary:1. Validity of Notices u/s 148 for Reassessment:The petitioner, a private limited company and an assessee under the Income-tax Act, 1961, challenged the notices issued u/s 148 for reassessment of its income for the assessment year 1986-87. The notices were issued on March 7, 1990, and subsequently on March 27, 1991, after the initial notice was withdrawn. The petitioner contended that the question about the operation of section 43B had been duly considered by the Assessing Officer during the original assessment, and the claim was allowed after application of mind, supported by the decision in Lakhanpal National Ltd. v. ITO [1986] 162 ITR 240.2. Applicability of Section 43B Adjustments:The petitioner had adjusted the value of opening and closing stock by excluding the component of customs duty as a consequence of its treatment under section 43B. This adjustment was in line with the decision in Lakhanpal's case, which had not been reversed or overruled. The Assessing Officer had allowed this adjustment during the original assessment after making inquiries and considering the petitioner's claims.3. Change of Opinion by the Assessing Officer:The court opined that section 147 does not confer jurisdiction on the Assessing Officer to review his own order on a mere change of opinion. The reasons recorded by the Assessing Officer for issuing the notice disclosed that the case was nothing but a mere change of opinion on facts already before the Assessing Officer during the original assessment. The court reiterated that mere change of opinion does not confer jurisdiction to initiate reassessment proceedings.4. Jurisdiction of the Assessing Officer under Section 147:The court emphasized that for the Assessing Officer to have jurisdiction u/s 147, there must be material having a reasonable nexus to the formation of the opinion about escapement of income. The reasons recorded by the Assessing Officer did not disclose any new material or error that would justify reopening the assessment. The reference to the decision in CIT v. British Paints India Ltd. [1991] 188 ITR 44 was found to be irrelevant to the controversy at hand.Conclusion:The court quashed the impugned notices for initiating reassessment proceedings for the assessment year 1986-87, holding that the reasons recorded by the Assessing Officer disclosed no more than a mere change of opinion. The petitions succeeded, and the rule was made absolute in each case, with no order as to costs.