AO cannot reopen assessment under section 147 on same issue already examined during regular assessment

Gujarat HC quashed reassessment notice u/s 148 for reopening assessment u/s 147. AO had already examined sundry creditors during regular assessment u/s 143(3) and disallowed 20% of total sundry creditors, which was under appeal before CIT(Appeals). Court held that AO cannot reopen assessment on same issue as it constitutes change of opinion. Violation of merger principle noted since matter was pending before appellate authority. Mere audit objection insufficient to assume jurisdiction for reopening assessment. Petition allowed.

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Issues Involved:
1. Validity of the notice issued under section 148 of the Income Tax Act, 1961 for reopening the assessment.
2. Whether the reopening of assessment is based on a change of opinion.
3. Applicability of the principle of merger.
4. Jurisdiction of the Assessing Officer to issue the notice based on audit objections.

Detailed Analysis:

1. Validity of the notice issued under section 148 of the Income Tax Act, 1961 for reopening the assessment:
The petitioner challenged the notice issued under section 148 of the Income Tax Act, 1961 dated 29.03.2021 for the Assessment Year 2016-2017. The petitioner argued that the notice was issued without any new tangible material and was based on the same facts already considered during the original assessment. The court observed that the issue of sundry creditors amounting to Rs. 10,51,28,281/- was already considered by the Assessing Officer during the regular assessment process, and hence, reopening the assessment on the same issue was not justified.

2. Whether the reopening of assessment is based on a change of opinion:
The petitioner contended that the reopening was based on a mere change of opinion, which is not permissible under the law. It was argued that the Assessing Officer had already considered the sundry creditors during the original assessment and made an addition of 20% of the total sundry creditors. The court agreed with the petitioner, stating that reopening the assessment on the same issue amounts to a change of opinion, which is not allowed. The court emphasized that the belief for reopening must be based on new, tangible material and not on a mere change of opinion.

3. Applicability of the principle of merger:
The petitioner argued that the issue of sundry creditors was already pending before the CIT(Appeals) and hence, the principle of merger applies, preventing the Assessing Officer from reopening the assessment on the same issue. The court concurred, stating that once the issue of sundry creditors is a subject matter of appeal before the CIT(Appeals), the Assessing Officer cannot reopen the assessment for further verification of the same issue. The court highlighted that the principle of merger was violated as the issue of sundry creditors was pending before the CIT(Appeals).

4. Jurisdiction of the Assessing Officer to issue the notice based on audit objections:
The respondent argued that the notice under section 148 was issued based on an audit objection, which indicated an underassessment of income. The court, however, held that merely on the basis of an audit objection, the Assessing Officer could not assume jurisdiction to issue the notice under section 148. The court noted that the audit objection did not provide any new tangible material that could justify the reopening of the assessment.

Conclusion:
The court concluded that the reopening of the assessment was not justified as it was based on a change of opinion and violated the principle of merger. The court quashed and set aside the impugned notice dated 29.03.2021 issued under section 148 of the Act and the order rejecting the objection dated 22.03.2022. The petition was allowed, and the rule was made absolute to the aforesaid extent, with no order as to costs.

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