2023 (12) TMI 647 - AT - Income Tax

Reassessment beyond four years quashed as impermissible change of opinion without new material facts under Section 147

ITAT Ahmedabad quashed reassessment proceedings initiated beyond four years, ruling the action constituted impermissible change of opinion. The department ... Reopening of assessment - notice beyond period of four years - reason to believe - HELD THAT:- It is a well settled law that re-assessment proceedings cannot be initiated after beyond a period of four years unless the Department is able to demonstrate that such proceedings have been initiated on account of any failure on part of the assessee to truly and fully disclose all the material facts at the time of framing the assessment. In the instant case re-assessment proceedings were initiated on the ground that remuneration and interest are not allowable to the assessee in view of the provisions of Section 184(5) of the Act. In the case of CIT vs. Bhanji Lavji [1971 (1) TMI 6 - SUPREME COURT] held that when primary facts necessary for assessment are fully and truly disclosed, the Assessing Officer is not entitled on change of opinion to commence proceedings for reassessment. In the case of CIT vs. Kelvinator of India Ltd. [2010 (1) TMI 11 - SUPREME COURT] held that the concept of 'change of opinion' must be treated as an in-built test to check abuse of power by AO - The Hon’ble Supreme Court held that Assessing Officer has no power to review. In this case it was held that the AO can re-open the case only when there is “tangible material” would come to the conclusion that there is escapement of income from assessment. In the case of Jindal Photo Films Ltd. [1998 (5) TMI 20 - DELHI HIGH COURT] held that when between the date of orders of assessment sought to be reopened and the date of forming of opinion by the AO, nothing new had happened, there was no new material which had come on record or no new information had been received by the AO, it was held that this was a case of mere change of opinion which did not provide jurisdiction to the Assessing Officer to initiate proceedings under Section 147 of the Act. In the case of CIT vs. Soh Kisan Cold Storage [1993 (4) TMI 20 - PATNA HIGH COURT] held that since the AO had initiated re-assessment proceedings on the same set of facts which were present before him while making the original assessment and therefore, it was not permissible for him to initiate re-assessment proceedings u/s 147 of the Act. In the instant facts we observe that re-assessment proceedings have been initiated beyond the period of four years from the end of the relevant assessment year. Further, it has also not the case of the Department that any fresh or new material had been unearthed which would lead to the conclusion that income had escaped assessment in the original assessment proceedings on account of failure on part of the assessee to fully and truly disclose all material facts during the course of original assessment proceedings. In this case, it is observed that the Assessing Officer is only seeking to make a disallowance on account of re-appreciation of law with respect to the same set of facts which were present before him during the course of original assessment proceedings. This is a case of mere change of opinion, which is not permissible in law. Accordingly, we are of the considered view that the 147 proceedings are liable to be set-aside, looking into the instant facts. Decided in favour of assessee. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether re-assessment under section 147 can be validly initiated beyond four years from the end of the relevant assessment year where the Assessing Officer relies on the same facts as available at original assessment (i.e., whether the reopening amounts to mere change of opinion). 2. Whether the reasons recorded for reopening, relying on a re-appreciation of applicability of a substantive provision disallowing certain deductions (remuneration and interest to partners), constitute 'new' or 'tangible' material justifying initiation of proceedings under section 147 beyond four years. 3. Whether the Assessing Officer's re-assessment based on a different legal view of allowances already considered and granted in the original assessment is permissible absent a demonstration of failure to disclose material facts by the assessee. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of reopening beyond four years where facts were before the AO at original assessment (change of opinion) Legal framework: Section 147 empowers reopening where the Assessing Officer has reason to believe income has escaped assessment; time limits restrict reopening after four years unless prescribed exceptions apply. Legislative and judicial principles require that reopening beyond statutory period be predicated on an undisclosed material or new tangible information indicating escapement, not mere re-appreciation of facts. Precedent treatment: The Court applied settled judicial principles that reopening cannot be used as a device to revisit an assessment merely because the assessing authority forms a different view later; reopening must be supported by fresh/tangible material or failure of disclosure by the assessee. Earlier apex and high court authorities have been relied upon to endorse the 'no change of opinion' rule and the need for tangible material. Interpretation and reasoning: The Tribunal scrutinised the reasons recorded for reopening and found they rest solely on the Assessing Officer's revised view that certain amounts allowed earlier were not allowable under the substantive provision. There was no allegation or demonstration of concealment or failure to disclose material facts by the assessee, nor was any new material shown to have come to the AO's notice between original assessment and reopening. The Court reasoned that when all primary facts were fully and truly disclosed and considered at the time of original assessment, a later change in the AO's view does not confer jurisdiction to reopen beyond the four-year limit. Ratio vs. Obiter: Ratio - Reopening beyond four years is impermissible where the AO has no new or tangible material and the reopening is based on a mere change of opinion about allowances already considered in the original assessment. Obiter - Observations on the policy rationale against abuse of reopening power as a general principle. Conclusion: The reopening was invalid as it constituted a mere change of opinion in respect of facts already on record; the re-assessment proceedings initiated beyond four years were set aside. Issue 2: Whether re-appreciation of law on allowability of deductions amounts to new material justifying section 147 proceedings Legal framework: The threshold for reopening beyond four years requires tangible new information or evidence of non-disclosure. A change in legal interpretation alone, absent new facts or concealment, does not satisfy the statutory threshold for reopening. Precedent treatment: The Tribunal relied on authorities establishing that a re-appraisal of legal entitlement to deductions, where the underlying factual matrix was available to the AO at the time of original assessment, cannot serve as fresh material to validate reopening; such reappraisal is treated as change of opinion. Interpretation and reasoning: The reasons for reopening cited only that deductions (remuneration and interest to partners) were incorrectly allowed in view of the substantive rule. No fresh documentary or factual material was identified to show that the assessee omitted or concealed facts. The Tribunal concluded that re-interpretation of applicability of the substantive provision to the same set of facts is insufficient to constitute 'tangible material' necessary to invoke section 147 after the statutory period. Ratio vs. Obiter: Ratio - Re-appraisal of legal entitlement to deductions, without new facts or concealment, is not 'tangible material' permitting re-opening under section 147 beyond the four-year period. Obiter - None relied upon affecting the outcome beyond reinforcing established tests for tangible material. Conclusion: The Assessing Officer's reliance on re-appreciation of law regarding disallowance did not supply the required new material; reopening was therefore unsustainable. Issue 3: Requirement of failure to disclose fully and truly all material facts to justify reopening Legal framework: To justify initiation of re-assessment beyond prescribed time limits, the Department must ordinarily show that income escaped assessment because of failure by the assessee to disclose material facts at the time of original assessment. Precedent treatment: The Tribunal applied established jurisprudence that absence of any allegation or evidence of non-disclosure negates jurisdictional basis for late reopening; prior decisions emphasize that the mere finding of incorrect allowance does not substitute for proof of concealment or omission. Interpretation and reasoning: The reasons recorded and material before the Tribunal contained no allegation that the assessee failed to disclose material facts. The original assessment record demonstrated that the same factual matrix (registered firm status, claim and allowance of remuneration and interest) was before the AO. Consequently, the statutory requirement for reopening beyond four years - demonstrable failure to disclose - was not met. Ratio vs. Obiter: Ratio - Where the Assessing Officer cannot demonstrate failure to disclose material facts, reopening beyond the statutory period is invalid. Obiter - Remarks underscoring the necessity of clear recordation of fresh material when invoking section 147, to prevent abuse of power. Conclusion: In absence of any failure to disclose, the Department failed to meet the statutory requirement for valid reopening; reassessment was therefore quashed. Cross-references and Consolidated Conclusion The issues are interrelated: the absence of new or tangible material and absence of failure to disclose converge to establish that the reopening was a mere change of opinion based on re-appreciation of law applied to facts already considered. On that combined basis, the Tribunal concluded the section 147 proceedings initiated beyond four years were invalid and dismissed the Department's appeal.