2021 (6) TMI 825 - HC - Income Tax

Court invalidates reassessment based on change of opinion without new material.

The High Court dismissed the Revenue's appeal, ruling the reassessment invalid due to being based on a mere change of opinion without new tangible ... Reopening of assessment u/s 147 - ALV estimation - income from house property - whether Tribunal was right and justified quashing the reassessment when the assessment has been re-opened even before the expiry of 4 years from the end of the relevant assessment year? - excess relief was allowed by way of deduction of interest on housing loan - HELD THAT:- As the provisions rendered by Hon'ble Supreme Court in the case of Kelvinator of India Ltd.[2010 (1) TMI 11 - SUPREME COURT] is applicable in favour of the assessee and consequently, we hold that the AO proceeded to initiate reassessment proceedings u/s. 147 of the Act and issuance of notice u/s. 148 of the Act without any new tangible material and without application of mind merely on the strength of direction of Ld. CIT(A) that the suitable course of action available to the AO under the Act is application of provisions of section 147 of the I.T. Act as to the appellant excess relief was allowed by way of deduction of interest on housing loan. But there was no new or tangible material before the AO to initiate reassessment proceedings u/s. 147 of the Act. We are unable to see application of mind by the AO of the materials available before him. The AO has not recorded any basis or factum gathered by him after application of mind of the assessment already completed which could reflect that before initiation of reassessment proceedings u/s. 147 of the Act, he applied his mind and thereafter reached to a conclusion that he had reasons to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the Act empowering him to issue notice u/s. 148 - Decided in favour of assessee. Issues Involved:1. Validity of reassessment within four years.2. Alleged change of opinion by the Assessing Officer.3. Applicability of the Supreme Court decision in M/s. Kelvinator India Ltd.4. Deduction under Section 24(b) beyond the monetary ceiling.5. Applicability of the High Court decision in Usha International Ltd.Detailed Analysis:1. Validity of Reassessment within Four Years:The primary issue was whether the reassessment was validly done within four years from the end of the relevant assessment year. The Revenue argued that the reassessment was justified, but the Tribunal quashed it. The Tribunal's decision was based on the Supreme Court ruling in Commissioner of Income-Tax, Delhi Vs. Kelvinator of India Ltd., which held that the concept of 'change of opinion' was not obliterated post-1-4-1989. The Supreme Court emphasized that reassessment must be based on 'tangible material' and not merely on a change of opinion. The High Court followed this precedent, deciding against the Revenue.2. Alleged Change of Opinion by the Assessing Officer:The Tribunal and the High Court found that the reassessment was based on a mere change of opinion, which is not permissible. The Supreme Court in Kelvinator of India Ltd. clarified that the Assessing Officer has no power to review but only to reassess based on new tangible material. The High Court reiterated this, stating that the reassessment was invalid as it was based on the same facts and figures available during the original assessment, with no new material presented.3. Applicability of the Supreme Court Decision in M/s. Kelvinator India Ltd.:The High Court relied heavily on the Supreme Court's decision in Kelvinator of India Ltd., which provided a detailed interpretation of Section 147 of the Income Tax Act. The Supreme Court held that reassessment requires 'reason to believe' that income has escaped assessment, which must be based on tangible material. The High Court applied this principle, concluding that the reassessment in the present case was invalid as it lacked new tangible material.4. Deduction under Section 24(b) Beyond the Monetary Ceiling:This issue was not directly addressed in the judgment as the primary focus was on the validity of the reassessment. However, it was implied that since the reassessment itself was invalid, any deductions or adjustments made during such reassessment would also be invalid.5. Applicability of the High Court Decision in Usha International Ltd.:The High Court also referenced its own decision in Commissioner of Income-Tax, Chennai Vs. India Cements Ltd., which followed the principles laid down in Kelvinator of India Ltd. This case reiterated that reassessment must be based on new tangible material and not merely a change of opinion. The High Court found that the reassessment in the present case did not meet these criteria, thus deciding in favor of the assessee.Conclusion:The High Court dismissed the Revenue's appeal, holding that the reassessment was invalid as it was based on a mere change of opinion without any new tangible material. The Court followed the Supreme Court's decision in Kelvinator of India Ltd. and its own precedent in India Cements Ltd., emphasizing the need for tangible material to justify reassessment. The questions of law (ii) to (v) were left open for future consideration.