Taxpayer succeeds against reassessment under s.147/s.148; reopening lacked fresh tangible material and was change of opinion

HC allows taxpayer's challenge to reopening under s.147/s.148. Court finds revenue lacked fresh tangible material and relied on information available during original assessment; issue of s.14A disallowance read with Rule 8D was already considered at s.143(3) assessment. Reopening after four years therefore amounted to change of opinion and contravened proviso to s.147 since the assessee had truly and fully disclosed material facts. Notice under s.148 quashed and reassessment held impermissible; relief granted to the assessee.

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Issues Involved: Jurisdiction of reopening assessment u/s 148 of the Income Tax Act, 1961, based on change of opinion and absence of new tangible material.

Summary:

Jurisdiction of Reopening Assessment u/s 148:

The petitioner challenged the notice dated 30th March 2021 for Assessment Year 2014-15 issued u/s 148 of the Income Tax Act, 1961, on grounds of it being without jurisdiction and based on a change of opinion by the Assessing Officer. The petitioner argued that the issue of disallowance under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962, was already scrutinized during the original assessment proceedings. The Assessing Officer had issued notices on 18th August 2016 and 3rd October 2016, to which the petitioner responded, explaining why no disallowance was required. The assessment order dated 26th December 2016 did not make any disallowance under Section 14A.

Change of Opinion and Absence of New Tangible Material:

The petitioner contended that the reopening was based on a mere change of opinion, as no new tangible material had come to the respondent's possession after the original assessment. The reasons for reopening stated that the petitioner had claimed exempt income and various expenses, which were already examined during the original assessment. The petitioner also argued that the reopening was based on an audit objection, which is not permissible, and that the required sanction from the competent officer u/s 151 was not obtained.

Respondent's Argument:

The respondent argued that the petitioner had an alternative remedy and that the reopening was justified as the petitioner had claimed exempt income and expenses, necessitating a disallowance under Section 14A. The respondent maintained that the notice was issued following due process and with the approval of the competent authority u/s 151. Reliance was placed on the decision in Lalita Ashwin Jain vs. Income Tax Officer, which justified reopening when income escaping assessment exceeded Rupees One Lakh.

Court's Findings:

The court found that the issue of disallowance under Section 14A read with Rule 8D was thoroughly scrutinized during the original assessment proceedings. The respondent failed to assume jurisdiction to issue the notice based on material already available during the original assessment. In the absence of any fresh tangible material, the reopening amounted to a mere change of opinion, which is not tenable in law, especially after four years from the assessment year. The court referred to the Supreme Court's decision in CIT, Delhi vs. Kelvinator of India, which held that reopening based on a change of opinion is not permissible.

Conclusion:

The petition was allowed, and the impugned notice dated 30th March 2021, issued by the Assessing Officer for reopening the Assessment Year 2014-15, was quashed and set aside. Consequently, the order rejecting the petitioner's objections was also quashed. Rule was made absolute to the aforesaid extent, with no order as to costs.

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