Invalid reassessment notice quashed for lack of fresh material, time bar, change of opinion without new facts.

The court held that the notice issued under Section 148 of the Income Tax Act, 1961, proposing reassessment for the Assessment Year 2005-06 was invalid as it was based on a change of opinion without fresh material. Additionally, the reassessment notice was barred by limitation as the petitioner had fully disclosed all material facts. The court quashed the notice and proceedings, emphasizing that reassessment cannot be solely based on a change of opinion. The writ petition was allowed with costs awarded to the petitioner.

---

---

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Whether the reassessment proceedings initiated were barred by limitation under the proviso to Section 147.
3. Whether there was a failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment.
4. Whether the reassessment proceedings were based on a change of opinion.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The petitioner challenged the notice dated 04.05.2011 issued under Section 148 of the Income Tax Act, 1961, which proposed to reassess the income for the Assessment Year 2005-06. The reasons recorded for the said notice were related to the deduction under Section 10B and deferred revenue expenditure on technical know-how. The court found that the reasons to believe did not suggest any fresh or further tangible material had come to the knowledge of the Assessing Officer that could justify the reopening of the assessment. It was determined that the notice was issued merely based on a change of opinion, which is impermissible in law.

2. Limitation Under Proviso to Section 147:
The reassessment notice was issued on 04.05.2011, which was beyond the stipulated period of four years from the end of the relevant assessment year (2005-06). According to the proviso to Section 147, reassessment after four years is permissible only if there is a failure on the part of the assessee to disclose fully and truly all material facts. The court found that the petitioner had made full and true disclosure of all material facts, thus making the issuance of the notice barred by limitation.

3. Full and True Disclosure of Material Facts:
The petitioner had enclosed the profit and loss account of both units and the computation of deduction under Section 10B in the return of income. Specific queries were raised by the Assessing Officer regarding the units eligible for deduction under Section 10B, which were duly responded to by the petitioner. The court noted that the original assessment order passed under Section 143(3) and subsequent rectification under Section 154 indicated that the Assessing Officer had formed a definite opinion on the claim of deduction under Section 10B. Similarly, the petitioner had disclosed the deferred revenue expenditure on technical know-how in the notes appended to the return of income, and the Assessing Officer had raised specific queries on this issue during the original assessment proceedings. The court concluded that there was no failure on the part of the petitioner to disclose fully and truly all material facts.

4. Reassessment Based on Change of Opinion:
The court emphasized that the original assessment involved an intensive examination of the issues related to deductions under Section 10B and deferred revenue expenditure. The Assessing Officer had formed an opinion on these issues during the original assessment. The reasons recorded for reopening the assessment did not indicate any new material or facts that had come to the knowledge of the Assessing Officer. The court held that the reassessment proceedings were initiated merely to reappraise the material on record and change the opinion formed earlier, which is not permissible under law.

Conclusion:
The court set aside the impugned order dated 01.02.2013 and quashed the notice dated 04.05.2011 and the proceedings initiated consequent thereto. The writ petition was allowed with costs of Rs.10,000/-. The court reiterated that reassessment based on a change of opinion is impermissible and that there must be tangible material with a direct nexus to the formation of belief for income to have escaped assessment.

---