2023 (10) TMI 657 - HC - Income Tax

Court quashes assessment reopening based on 'Change of Opinion' without fresh material.

The court quashed the notice and order reopening the assessment under Section 148 of the Income Tax Act for the Assessment Year 2014-15. It held that the ... Reopening under Section 148 of the Income-tax Act - reason to believe - tangible material - change of opinion - live link between reasons and material - disclosure of primary factsReopening under Section 148 of the Income-tax Act - change of opinion - tangible material - reason to believe - live link between reasons and material - disclosure of primary facts - Validity of the notice dated 31.03.2021 under Section 148 and the order dated 27.01.2022 reopening assessment for Assessment Year 2014-15 - HELD THAT: - The Court considered whether the reopening of assessment was based on fresh tangible material giving the Assessing Officer a 'reason to believe' that income had escaped assessment, or was merely a change of opinion arising from inferences drawn from primary facts which were already disclosed and available at the original scrutiny assessment under Section 143(3). The revenue's reasons stated that certain expenditures allowed in the assessment were in contravention of the provisions of Section 35D and that relevant material was 'embedded' in the records and discoverable only after detailed verification. The Court found no fresh tangible material on record; the books, audited accounts, annual report and other documents were produced during the original proceedings and were considered by the Assessing Officer when passing the assessment order dated 26.08.2016. Applying settled precedents (Parasuram Pottery Works Co. Ltd and Kelvinator of India Ltd and consistent Division Bench authority), the Court held that mere subsequent disagreement with an inference drawn by the Assessing Officer - i.e. a change of opinion - does not constitute a valid ground for reopening. Reasons must have a live link with the material relied upon to form the belief that income escaped assessment; that link was absent here. Consequently, the action constituted reopening based on change of opinion and was without jurisdiction.Notice dated 31.03.2021 and order dated 27.01.2022 reopening the assessment for Assessment Year 2014-15 quashed and set aside.Final Conclusion: The petition is allowed; the reassessment notice under Section 148 dated 31.03.2021 and the order disposing objections dated 27.01.2022 are quashed and set aside as the reopening amounted to a change of opinion in the absence of fresh tangible material or a live link between reasons and material. Issues Involved:1. Legality of the reopening of assessment under Section 148 of the Income Tax Act, 1961.2. Jurisdiction of the Assessing Officer in reopening the assessment.3. Whether the reopening was based on a 'Change of Opinion'.Summary:Issue 1: Legality of the reopening of assessment under Section 148 of the Income Tax Act, 1961The petitioner challenged the notice dated 31.03.2021 issued under Section 148 of the Income Tax Act, 1961, proposing to re-assess the income/loss for the Assessment Year 2014-15, and the order dated 27.01.2022 disposing of the objections raised by the petitioner. The petitioner argued that the reopening was based on a 'Change of Opinion' as the return filed for the Assessment Year 2014-15 was scrutinized under Sec. 143(3) and the deductions were duly considered and allowed by the Assessing Officer.Issue 2: Jurisdiction of the Assessing Officer in reopening the assessmentThe petitioner contended that the action of the respondent in reopening the assessment was without jurisdiction as no income had escaped assessment. The petitioner had submitted all relevant documents during the original assessment in 2016, which were duly considered, and an assessment order was passed under Section 143(3). The respondent's counsel argued that the petitioner failed to disclose fully and truly all necessary facts during the assessment proceedings, and the scheme of tax evasion was embedded in the annual report, audited P&L account, balance sheet, and books of account in such a manner that it could be detected only after detailed verification.Issue 3: Whether the reopening was based on a 'Change of Opinion'The court observed that the reasons for reopening indicated that the requisite material facts were embedded in such a manner that they could not be discovered by the AO at the time of the original assessment proceedings. The court found that there was no fresh tangible material available with the assessing authorities to assume jurisdiction under Section 148. The reopening was based on the same records and was a clear case of 'Change of Opinion'. The court cited the decision in Parasuram Pottery Works Co. Ltd vs. CIT, emphasizing that once the assessee makes a true and full disclosure of the primary facts, the duty of the assessee ends, and it is for the Income-tax Officer to draw the correct inference.Conclusion:The court quashed and set aside the notice dated 31 March 2021 and the order dated 27 January 2022, allowing the petition on the grounds that the reopening of the assessment was based on a 'Change of Opinion' and lacked fresh tangible material, thus constituting an abuse of power by the Assessing Officer.