AO cannot reopen assessment under section 147 based on mere change of opinion without fresh evidence

ITAT Mumbai held that reopening of assessment under section 147 after four years was invalid where AO sought to deny section 80IB(10) deduction for housing project. The original AO had examined and accepted the deduction claim after due verification. The reopening AO relied solely on existing assessment records without any new tangible material, constituting impermissible review rather than reassessment. Following CIT v. Kelvinator of India Ltd., the tribunal ruled that reopening based on mere change of opinion without fresh evidence amounts to review, which AO lacks power to conduct. Assessment reopening quashed in assessee's favor.

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Issues Involved:

1. Validity of notice issued u/s 148 of the Income Tax Act, 1961.
2. Conditions precedent for re-opening assessment u/s 147 of the Act.
3. Examination of "Reasons Recorded" by AO for re-opening assessment.
4. Application of the principle of "Change of Opinion" in re-assessment.

Summary of Judgment:

1. Validity of Notice Issued u/s 148:
The assessee challenged the notice issued u/s 148 of the Income Tax Act, 1961, arguing that the conditions precedent as provided by u/s 147 of the Act were not satisfied. The Tribunal examined the "Reasons Recorded" by the AO for re-opening the assessment and found that the AO had issued the notice on the basis of records already available from the original assessment.

2. Conditions Precedent for Re-opening Assessment u/s 147:
The Tribunal noted that the original assessment for AY 2009-10 was completed u/s 143(3) on 23.12.2011, and the notice for re-opening u/s 148 was issued on 30.03.2016, which was after the expiry of four years from the end of the relevant assessment year. Therefore, the AO had to satisfy two pre-conditions: recording "Reasons to believe, escapement of income" and ensuring that the assessee had not fully and truly disclosed all material facts necessary for the assessment.

3. Examination of "Reasons Recorded" by AO:
The Tribunal found that the AO had re-opened the assessment based on verification of records already available during the original assessment. There was no new/tangible material other than the documents already in the original assessment records. The Tribunal concluded that the AO had re-opened the assessment on a mere change of opinion, which is not permissible as per the Supreme Court's ruling in CIT v/s Kelvinator of India Ltd., [2010] 320 ITR 561 (SC).

4. Application of the Principle of "Change of Opinion" in Re-assessment:
The Tribunal emphasized that the AO does not have the power to review but only to re-assess, and such re-assessment must be based on tangible material indicating escapement of income. The Tribunal found that the AO's action was based on a re-appraisal of the same material considered during the original assessment, amounting to a change of opinion. Consequently, the re-opening of the assessment was deemed invalid.

Conclusion:
The Tribunal quashed the notice u/s 148 dated 30.03.2016 and declared the re-assessment framed by the AO as null and void. Since the assessee succeeded on the legal issue, other grounds became academic and were not adjudicated. The appeal of the assessee was allowed.

Order pronounced in the open court on 22/03/2024.

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