2010 (12) TMI 61 - HC - Income Tax

Court quashes reopening of assessment based on change of opinion

The court held that the assessing officer's initiation of proceedings under Section 147 and issuance of notice under Section 148 were based on a change of ... Reopening assessment - reason to believe - change of opinion - tangible material - error of judgment - adventure in the nature of tradeReopening assessment - change of opinion - reason to believe - tangible material - error of judgment - Validity of initiation of reassessment proceedings under Section 147 read with notice under Section 148 where assessing officer changed view on nature of transaction - HELD THAT: - The Court examined the reasons recorded for reopening and the earlier assessment order and concluded that the assessing officer's action constituted a reassessment based on a change of opinion. Reliance was placed on the Full Bench and Supreme Court rulings which hold that post-amendment power to reopen requires more than a mere change of opinion and must be supported by 'tangible material' linking the reasons to a belief that income has escaped assessment. The Court further noted that an error of judgment or reappraisal of the same material already considered at the time of the original assessment cannot furnish the jurisdictional basis for reopening. Application of these principles to the present facts showed that the assessing officer had considered the issue earlier in the assessment proceedings and subsequently adopted a different view (treating the receipts as an 'adventure in the nature of trade' vis-a -vis short-term capital gain) without new material justifying formation of a fresh 'reason to believe' that income had escaped, and hence the reassessment proceedings were founded on impermissible change of opinion. [Paras 11, 13, 14, 15]Initiation of reassessment proceedings and the reasons for continuing the same were quashed as being founded on a change of opinion/error of judgment and not on tangible material constituting a valid 'reason to believe' under Section 147.Final Conclusion: Writ petition allowed; notice under Section 148 and the continuation of reassessment under Section 147 quashed on the ground that reopening was based on change of opinion/error of judgment and not on fresh tangible material; no order as to costs. Issues Involved:1. Whether there has been a change of opinion by the assessing officer.2. Whether the assessing officer has the jurisdiction to reopen the completed assessment.3. Whether the error of judgment can confer the assessing officer with the jurisdiction to reopen the assessment.Issue-wise Detailed Analysis:1. Change of Opinion:The primary issue was whether the initiation of proceedings under Section 147 and the issuance of notice under Section 148 of the Income Tax Act, 1961, were based on a change of opinion. The court examined the reasons recorded by the assessing officer for initiating the proceedings, which referenced the judgment of the Hon'ble Apex Court in the case of G. Venkataswami & Co. vs. CIT. The assessing officer believed that the trading activity carried out by the assessee company was an adventure in the nature of trade, leading to the conclusion that income had escaped assessment.The court noted that the assessing officer had already dealt with the issue of income on account of the transfer of equity shares from stock-in-trade to investments during the original assessment under Section 143(3) of the Act. The officer had considered the details and made a computation, which was subsequently upheld by the CIT(A) and the Income Tax Appellate Tribunal. The court referred to the Full Bench decision in Commissioner of Income-Tax v. Kelvinator of India Ltd., which held that a mere change of opinion cannot form the basis for reopening a completed assessment. The Supreme Court in Commissioner of Income-Tax v. Kelvinator of India Ltd. reiterated that the Assessing Officer has no power to review but only to reassess, and reassessment must be based on tangible material indicating escapement of income.2. Jurisdiction to Reopen Completed Assessment:The court emphasized that the assessing officer's jurisdiction to reopen a completed assessment under Section 147 requires the presence of 'tangible material' leading to the belief that income has escaped assessment. The court found that the assessing officer's initiation of proceedings was based on a mere change of opinion, which is not permissible. The court cited the decision in Gemini Leather Stores v. Income-Tax Officer, which held that an error resulting from the assessing officer's oversight does not justify reopening under Section 147(a). Similarly, in Indian and Eastern Newspaper Society v. Commissioner of Income-Tax, it was held that an error discovered on reconsideration of the same material does not confer the power to reopen the assessment.3. Error of Judgment:The court concluded that an error of judgment does not confer jurisdiction on the assessing officer to reopen a completed assessment. The court reiterated that the initiation of proceedings in this case was based on a change of opinion and an error of judgment, both of which are insufficient grounds for reopening under Section 147.Conclusion:The court held that the initiation of proceedings under Section 147 and the issuance of notice under Section 148 were based on a change of opinion and an error of judgment, making them unsustainable in law. Consequently, the initiation of proceedings and the reasons for continuing with them were quashed. The writ petition was allowed without any order as to costs.