2021 (10) TMI 1216 - HC - Income Tax

Notice under Section 148 Invalidated: Assessment Reopening Quashed

The Court found that the notice issued under Section 148 of the Income Tax Act for reopening the assessment for AY 2009-10 was based on a mere 'change of ... Validity of reopening of assessment u/s 147 - Proof of new material to justify the re-opening of the assessment - change of opinion - whether the reopening of the assessment was based on mere 'change of opinion' as contended by the Assessee or was there new material which could not have been examined earlier and which justified the reopening of the assessment? - HELD THAT:- In the present case, the reasons for reopening the assessment do not point to any new material that was available with the Department. What appears to have happened is that the same material viz., the accounts produced by the Assessee were reexamined and a fresh opinion was arrived at by the Opposite Party No.1 regarding the claim of the deduction on account of the loss of sale of assets. This had already been disclosed in the detailed accounts filed by the Assessee. In fact, a questionnaire had been issued by the AO in the course of the original assessment proceedings to the Assessee which was responded to by the Assessee - there was conscious application of mind by the AO to the said materials. Therefore, the inevitable conclusion as far as the present case is concerned is that the ‘reason to believe’ of Opposite Party No.1 that income for the AY in question had escaped assessment is based on a mere ‘change of opinion’ The threshold set by the Supreme Court of India in Kelvinator of India Limited [2010 (1) TMI 11 - SUPREME COURT] to justify the reopening of the assessment has not been met in the present case. Consequently, the Court is unable to sustain the reopening of the assessment. Accordingly, for the aforementioned reasons, the impugned notice and all proceedings of the Department pursuant thereto stand hereby quashed. - Decided in favour of assessee. Issues Involved:1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment for AY 2009-10.2. Whether the reopening of the assessment was based on a 'change of opinion' or new material.Issue-wise Detailed Analysis:1. Legality of the Notice Issued Under Section 148:The writ petition challenges a notice dated 16th September 2013 issued by the Deputy Commissioner of Income Tax under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for AY 2009-10. The Court issued an interim stay on the reassessment proceedings under Section 147 of the Act until the disposal of the writ petition.2. Background Facts:The Petitioner, a partnership firm, filed its return for AY 2009-10 on 16th November 2009, disclosing a total income of Rs. 15,30,110/-. The return was picked up for scrutiny, and after examining the documents, the Assessing Officer (AO) passed the assessment order under Section 143 (3) of the Act on 5th December 2011, determining the total taxable income as Rs. 18,43,708/-. The AO disallowed Rs. 3,13,600/- on account of sundry creditors. The Commissioner of Income Tax (Appeals) (CITA) allowed the appeal filed by the Assessee, and the addition was deleted, which attained finality.3. Reasons for Reopening the Assessment:The impugned notice issued on 16th September 2013 stated that the income chargeable to tax for AY 2009-10 had escaped assessment within the meaning of Section 147 of the Income Tax Act. The reasons for reopening included the deduction of Rs. 48,183/- on account of loss on sale of assets and the incorrect classification of certain amounts as assets in the balance sheet.4. Legal Position on Reopening of Assessment:The law regarding the reopening of assessments has been elaborated in various Supreme Court decisions, notably in Commissioner of Income Tax, Delhi v. Kelvinator of India Limited (2010). The Supreme Court emphasized that post-1st April 1989, the power to reopen is wider, but it must be based on 'reason to believe' and not on a 'mere change of opinion.' There must be 'tangible material' to justify the reopening.5. Analysis of the Present Case:The Court examined whether the reopening was based on a 'change of opinion' or new material. The reasons provided for reopening did not point to any new material but were based on the same accounts previously scrutinized by the AO. The Court noted that the AO had consciously applied his mind to the materials during the original assessment proceedings. Therefore, the reopening was based on a mere 'change of opinion.'6. Relevant Judicial Observations:The Court referred to several judgments, including those of the Gujarat High Court in Gruh Finance Ltd. and the Delhi High Court in Consolidated Photo and Finvest Ltd., which support the principle that reopening based on a 'change of opinion' is not permissible. The Court also cited the Supreme Court's dismissal of the Department's appeal in ICICI Securities Primary Dealership Ltd., reinforcing that reopening must be based on new material.7. Conclusion:The Court concluded that the threshold set by the Supreme Court in Kelvinator of India Limited for reopening the assessment was not met. The reasons for reopening were based on a mere 'change of opinion' and not on new material. Consequently, the impugned notice and all subsequent proceedings were quashed.Judgment:The writ petition was allowed, and the notice issued under Section 148 and all proceedings pursuant thereto were quashed. No order as to costs was made, and an urgent certified copy of the judgment was granted as per rules.