2025 (4) TMI 1669 - AT - Income Tax

Reopening Assessment Under Section 147 Disallowed Without New Material Evidence, Change of Opinion Not Enough

The ITAT Mumbai held that reopening assessment under section 147 was impermissible as it amounted to a mere change of opinion. The assessee had disclosed ... Reopening of assessment - Reasons to believe - as alleged assessee failed to disclose full and true material facts regarding the exclusion of foreign income - change of opinion - HELD THAT:- The reopening of the assessment proceedings u/s 147 of the Act, on the pretext that the assessee failed to disclose full and true material facts regarding the exclusion of foreign income despite detailed explanations and submissions made during the original scrutiny assessment-amounts to an impermissible 'change of opinion.' It is a well-settled position in law that reassessment proceedings cannot be initiated merely because the AO intends to take a different view on the same set of facts that were already examined during the original assessment. The Hon'ble Supreme Court, in CIT v. Kelvinator of India Ltd. [2010 (1) TMI 11 - SUPREME COURT] holding that reassessment must be based on 'tangible material' that was not previously considered during the original assessment. In the present case, the assessee had disclosed all material facts concerning the exclusion of foreign income as per Article 7 of the DTAA between the Government of India and the respective foreign countries. During the reassessment proceedings, the assessee raised objections on the ground that there was no 'tangible material' to justify the reopening. However, AO failed to consider the settled legal position u/s 147 of the Act, which mandates that reassessment can only be initiated when there is a failure to disclose fully and truly all material facts necessary for the assessment. In light of the decisions in Kelvinator of India Ltd.[supra] Godrej Boyce Mfg Co. Ltd [2022 (4) TMI 639 - BOMBAY HIGH COURT] and Hindustan Unilever Ltd.[2021 (10) TMI 466 - BOMBAY HIGH COURT] we hold that the reopening of assessment in the present case is legally unsustainable. The impugned reassessment order is set aside, and the notice issued u/s 148 is quashed. Addition made in the reassessment proceedings is deleted. Assessee appeal allowed. ISSUES: Whether reopening of assessment under Section 147 of the Income-tax Act, 1961 after four years from the end of the assessment year is valid in absence of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.Whether reassessment can be initiated based on a mere change of opinion by the Assessing Officer.Whether the assessee was granted proper and meaningful opportunity to respond to the draft assessment order before finalization under Section 147 read with Sections 144 and 144B of the Act.Whether income of foreign branches located in Dubai and Antwerp can be excluded from taxable income under the provisions of the Double Tax Avoidance Agreement (DTAA) and Section 90 of the Income-tax Act.Whether the Assessing Officer was obliged to compute foreign income in accordance with the foreign country's tax laws and grant credit for foreign taxes as per the DTAA.Whether the reopening notice and reassessment order comply with the statutory requirements and principles of natural justice. RULINGS / HOLDINGS: Reopening of assessment beyond four years without establishing failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment is invalid; the reopening in the present case was held to be based on a 'change of opinion' and therefore not sustainable.Reassessment proceedings cannot be initiated merely on account of a 'mere change of opinion' of the Assessing Officer; it must be based on 'tangible material' not previously considered.The assessee was not given proper and meaningful opportunity to respond to the draft assessment order as the time to file objections was not reasonably allowed and the portal for filing objections was closed before the assessee could respond; hence, principles of natural justice were violated.The income of foreign branches located in Dubai and Antwerp was duly disclosed and claimed for exclusion under Article 7 of the DTAA; the Assessing Officer had examined and allowed this claim in the original assessment, thus the reassessment on the same issue was impermissible.The Assessing Officer failed to direct computation of foreign income in accordance with foreign tax laws or grant credit for foreign taxes as mandated under the DTAA, but since reassessment was quashed on jurisdictional grounds, merits were not adjudicated.The notice issued under Section 148 and the reassessment order passed under Section 147 read with Sections 144 and 144B were quashed due to lack of jurisdiction and failure to provide opportunity to the assessee. RATIONALE: The Court applied the provisions of Section 147 of the Income-tax Act, 1961, particularly the proviso which restricts reopening beyond four years unless there is failure to disclose material facts by the assessee.Precedents from higher judiciary and tribunals including CIT v. Kelvinator of India Ltd. (Full Bench Delhi High Court), Godrej Boyce Mfg Co. Ltd., and Hindustan Unilever Ltd. were relied upon to reaffirm that reassessment cannot be based on mere change of opinion and requires tangible material indicating failure to disclose.The Court emphasized that an order passed under Section 143(3) is presumed to be passed after due application of mind, and reopening on the same grounds without new material violates statutory safeguards.Natural justice principles require that the assessee be given reasonable opportunity to respond to draft assessment orders; failure to do so renders the order invalid.The Court noted that the issue of exclusion of foreign branch income under DTAA was fully disclosed and considered during original assessment, and subsequent reassessment on identical facts was impermissible.No doctrinal shift was made; the Court followed established legal principles and prior authoritative rulings to quash the reassessment.