2014 (6) TMI 223 - HC - Income Tax

Invalid Reassessment based on Change of Opinion, High Court Upholds Precedent

The High Court held that the reassessment proceedings under section 148 of the Income-tax Act, 1961 were invalid as they were based on a change in opinion ... Validity of re-assessment u/s 147/148 of the Act - Mere change of opinion – Held that:- The Tribunal noticed that the assessment order u/s 143(3) of the Act was made after duly considering the materials discovered during the course of the survey - the assessment was made on due application of mind to all the available records - section 147 of the Act did not postulate conferment of power upon the AO to initiate proceedings on the basis of mere change of opinion - section 143(3) of the Act makes it abundantly clear that the AO had not only referred to the impounded documents and records found in the course of the survey u/s 133A of the Act from the business and office premises of the assessee but also those were test checked and evaluated in undertaking that exercise. The endeavour on the part of the AO to initiate a reassessment proceeding u/s 147/148 of the Act on the ground that the same records/documents did disclose that the amount had escaped assessment, is unconvincing and untenable as well - Such a conclusion does certainly stem from a change in opinion - a mere change in the opinion of the AO after completion of the assessment u/s 143(3) of the Act is not a legally approved determinant for valid initiation of reassessment proceeding u/s 147 of the Act the essential and inviolable condition precedent therefor being the reason to believe that any income chargeable to tax has escaped assessment – Relying upon CIT v. Kelvinator of India Ltd. [2010 (1) TMI 11 - SUPREME COURT OF INDIA] - the words 'reason to believe' did not admit of conferment of arbitrary powers to the AO to reopen assessment on the basis of mere change of opinion - the AO had no power to review but to reassess and that reassessment has to be essentially based on the fulfilment of certain pre- conditions, as legislatively ordained – Decided against Revenue. Issues:1. Validity of reassessment proceedings under section 148 of the Income-tax Act, 1961.2. Interpretation of 'reason to believe' for initiating reassessment proceedings.3. Application of the decision in CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC) to the present case.Issue 1: Validity of reassessment proceedings under section 148 of the Income-tax Act, 1961:The case involved a challenge to the reassessment proceedings initiated under section 148 of the Income-tax Act, 1961. The respondent, an assessee under the Act, had undergone a survey under section 133A, leading to the impounding of books of account and documents. Subsequently, a reassessment was initiated, resulting in an addition to the income of the assessee. The Tribunal allowed the appeal of the respondent-assessee and dismissed the one raised by the Revenue. The High Court analyzed the sequence of events, emphasizing that the impounded documents were duly considered during the initial assessment under section 143(3) of the Act. It was concluded that the reassessment was based on a change in opinion, rendering it invalid. The court held that the Assessing Officer lacked the power to initiate proceedings based solely on a change of opinion, and the reassessment should be grounded on new and unexplored sources, not a different interpretation of existing information.Issue 2: Interpretation of 'reason to believe' for initiating reassessment proceedings:The court delved into the interpretation of the term 'reason to believe' for initiating reassessment proceedings under section 147 of the Act. It was highlighted that a mere change in the opinion of the Assessing Officer post the initial assessment under section 143(3) is insufficient grounds for validly initiating reassessment proceedings. The court emphasized that the reason to believe must stem from new and previously undiscovered sources and materials, rather than a reinterpretation of existing information. Citing the decision in CIT v. Kelvinator of India Ltd., the court underscored that the Assessing Officer's power to reassess is not for review but must be based on specific statutory preconditions.Issue 3: Application of the decision in CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC) to the present case:The court applied the principles established in the case of CIT v. Kelvinator of India Ltd. to the present matter. It was clarified that the Assessing Officer's authority to reopen assessments under section 147 of the Act is not arbitrary and cannot be based solely on a change of opinion. The court reiterated that reassessment must be grounded in a valid reason to believe that income chargeable to tax has escaped assessment, necessitating new and unexplored sources and materials. Consequently, the court found no compelling reason to interfere with the impugned judgment and order, ultimately dismissing the appeal.This detailed analysis of the judgment comprehensively covers the issues involved, providing a thorough understanding of the legal intricacies and the court's reasoning in arriving at its decision.