2025 (3) TMI 307 - HC - Income Tax

Reopening Assessment Under Section 148 Denied Without New Evidence of Income Escape

VIP Housing and Properties, Represented by its Partner Mr. J. Kishore Versus The Deputy Commissioner of Income Tax, Central Circle-2, Chennai, The Principal Commissioner of Income Tax (Central), Chennai

The HC held that reopening the assessment under Section 148 of the IT Act was unjustified as there was no failure on the petitioner's part to disclose ... Validity of reopening of assessment - reasons to believe - search proceedings and the seizure made pursuant to the search conducted - HELD THAT:- The assessment order that was passed on 31.03.2016 u/s 143(3) of Income Tax Act, 1961, may have given rise to an option either to invoke the machinery of revision under Section 263 of the Income Tax Act, on the ground that the assessment order dated 31.03.2016, passed under Section 143(3) of the Income Tax Act, was both erroneous and prejudicial to the interests of the revenue, or that there was income that had escaped assessment. Although there was no suppression of fact in the return that was filed on 22.02.2016, merely because amounts were recovered from the petitioner, the associate firms, and related party, itself would not justify the conclusion that there was failure on the part of the petitioner to fully disclose all materials that were required for passing the assessment order dated 31.03.2016, and there should have been a live link between the information that was surfaced for issuance of notice under Section 148 of the Income Tax Act, 1961, to reopen the assessment and to pass fresh re-assessment order under Section 147 of the Income Tax Act, 1961. To invoke the machinery under Section 148 of the IT Act as it stood till 31.03.2021, the Courts have repeatedly held that the term “reason to believe” means that Assessing Officer must have some tangible material passing before assuming jurisdiction under Section 147 of the IT Act. A reference is made to Commissioner of Income Tax, Delhi Vs. Kelvinator of India Ltd. [2010 (1) TMI 11 - SUPREME COURT] The dispute in the present case pertains to the Assessment Year 2014-2015. It can therefore hardly be said that the Assessing Officer was unaware of the search proceedings and the seizure made pursuant to the search conducted on 03.09.2013 resulting in seizure of a sum of Rs. 1,77,50,045/- from the petitioner Firm, and a sum of Rs. 50,00,000/- from the petitioner's partner, and gold worth of Rs. 38,69,168/-, which was recovered from M/s.VIP City. Writ Petition is allowed. ISSUES PRESENTED and CONSIDEREDThe primary issue considered by the Court was whether the reopening of the assessment for the Assessment Year 2014-2015 under Section 148 of the Income Tax Act, 1961, was justified. Specifically, the Court examined whether the reopening was based on tangible material or merely a change of opinion, which is impermissible under the law. The Court also considered whether the assessment completed on 31.03.2016 was erroneous or prejudicial to the interests of the Revenue, thereby justifying the reopening of the assessment.ISSUE-WISE DETAILED ANALYSIS1. Legal Framework and Precedents:The legal framework for reopening assessments is governed by Section 148 of the Income Tax Act, 1961, which requires the Assessing Officer to have 'reason to believe' that income has escaped assessment. The Court referenced several precedents, including the Supreme Court's decision in Commissioner of Income Tax, Delhi Vs. Kelvinator of India Limited, which emphasized that reopening based on a mere change of opinion is not permissible. The Court also cited other cases, such as Kalyanji Mavji and Co. Vs. Commissioner of Income Tax and Indian and Eastern Newspaper Society Vs. CIT, to elucidate the scope of 'reason to believe' and the impermissibility of reopening assessments based on a change of opinion.2. Court's Interpretation and Reasoning:The Court found that the reopening of the assessment was based on a change of opinion rather than any new tangible material. The Court observed that the Assessing Officer had already considered the material facts during the original assessment completed on 31.03.2016. The search conducted on 03.09.2013 and the subsequent proceedings under Section 153A had already been accounted for in the assessment, and the amounts seized were considered in the returns filed by the petitioner.3. Key Evidence and Findings:The Court noted that during the search conducted on 03.09.2013, cash and gold were seized from the petitioner and associated entities. The petitioner had filed a return on 22.02.2016, declaring an income of Rs. 2,34,86,595/-, which was accepted in the assessment order dated 31.03.2016. The Court found no evidence of any failure by the petitioner to disclose material facts necessary for the assessment.4. Application of Law to Facts:The Court applied the legal principles established in the precedents to the facts of the case, concluding that the reopening of the assessment was not justified. The Court emphasized that the Assessing Officer had already formed an opinion based on the available material during the original assessment, and the reopening was prompted by a mere change of opinion.5. Treatment of Competing Arguments:The petitioner argued that the reopening was based on a change of opinion, supported by precedents that prohibit such action. The respondents contended that the income had escaped assessment and cited various cases to support their position. However, the Court found the petitioner's arguments more persuasive, noting that the original assessment had already considered the relevant material and that the reopening was not based on any new information.6. Conclusions:The Court concluded that the reopening of the assessment was unjustified and based on a change of opinion. The Impugned Order dated 11.02.2022 and the Notice dated 31.03.2021 were quashed.SIGNIFICANT HOLDINGS1. Core Principles Established:The Court reiterated the principle that reopening an assessment under Section 148 of the Income Tax Act, 1961, requires tangible material and cannot be based on a mere change of opinion. The Court emphasized the need for a 'live link' between the new information and the belief that income has escaped assessment.2. Final Determinations on Each Issue:The Court determined that the reopening of the assessment for the Assessment Year 2014-2015 was not justified, as it was based on a change of opinion. The Court quashed the Impugned Order and Notice, allowing the writ petition.