2025 (12) TMI 300 - HC - Income Tax

Reassessment under Section 147 quashed as mere change of opinion without new material or nondisclosure by assessee

Rao Tradelink Private Limited Versus Income Tax Officer Ward 3 (1) (2) Ahmedabad.

HC quashed the reassessment proceedings initiated u/s 147 on the ground that the AO's 'reasons to believe' were based solely on a change of opinion. The ... Reopening of assessment u/s 147 - Reasons to believe - change of opinion - Ingenuine business transaction through a colourable device, made the purchases - HELD THAT:- If there is no failure on the part of the assessee as to full and true disclosure, and the assessment has been threadbare examined and approved after calling for detailed explanation, the reopening of the assessment can be said to be premised on a change of opinion. In our considered opinion, the petitioner cannot be subjected to further reassessment in view of such vague observations recorded by the AO, particularly when the return of the petitioner had been accepted after detailed scrutiny of the documents presented by the petitioner, disclosing the purchases with Ruchita Chemicals LLP. Thus, we are of the opinion that the reopening of the assessment is nothing but a change of opinion by the AO and hence, the petitioner cannot be subjected to further scrutiny of reassessment. Decided in favour of assessee. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the pre-conditions for reopening the assessment under Sections 147 and 148 of the Income Tax Act, 1961 for AY 2017-18 were satisfied, particularly the requirement of 'reason to believe' that income had escaped assessment. 1.2 Whether the impugned reopening was vitiated as being based on a mere 'change of opinion' after a completed scrutiny assessment under Section 143(3) of the Act. 1.3 Whether the material derived from a search under Section 132 in the case of a third party (Invent Assets Securitization and Reconstruction Private Limited) constituted tangible material or a live link to justify reopening the petitioner's assessment. 1.4 Whether the Assessing Officer's own uncertainty regarding the existence and quantum of alleged escapement of income rendered the assumption of jurisdiction under Section 147 invalid. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Validity of reopening under Sections 147/148; allegation of 'change of opinion' Legal framework (as discussed by the Court) 2.1 The Court referred to the settled legal principle, including the decision in Lambda Therapeutic Research Limited, that reopening under Section 147 is not permissible where: (i) there is no failure on the part of the assessee to make a full and true disclosure; and (ii) the original assessment has been thoroughly examined and accepted after detailed scrutiny. In such circumstances, reopening is treated as based on a mere change of opinion, which is impermissible. Interpretation and reasoning 2.2 The assessment for AY 2017-18 had been completed under Section 143(3), after issuance of notices under Sections 143(2) and 142(1), and after the assessee furnished detailed replies and documents, including ledger of Ruchita Chemicals LLP, contra ledger, sample bills and details of purchases and trade payables. 2.3 The Court recorded that the original Assessing Officer had accepted the return of income after detailed scrutiny of the very transactions with Ruchita Chemicals LLP, including purchases amounting to Rs. 58,05,69,466/-, and that there was no dispute about the assessee having furnished all relevant particulars. 2.4 It was specifically noted that in the reopening proceedings, the purchases of Rs. 58,05,69,466/- from Ruchita Chemicals LLP had not been questioned; only the payment of Rs. 7,00,00,000/- to the same party was being doubted, even though it formed part of the same set of business transactions already examined in the original assessment. 2.5 Relying on the rationale in Lambda Therapeutic Research Limited, the Court held that once the claim/transaction has been examined in detail in the original assessment after calling for and considering all relevant material, the Assessing Officer cannot reopen the assessment merely because he now takes a different view on the same facts; such reopening is a prohibited change of opinion. Conclusions 2.6 The Court concluded that there was no failure on the part of the assessee to make a full and true disclosure and that the assessment had been 'threadbare examined' and approved under Section 143(3). Accordingly, the attempt to reopen the assessment in respect of the same set of transactions with Ruchita Chemicals LLP amounted to a mere change of opinion and was impermissible in law. Issue 3: Sufficiency and nexus of material arising from search under Section 132 on a third party Interpretation and reasoning 2.7 The reopening was purportedly based on information obtained in a search under Section 132 carried out in the case of Invent Assets Securitization and Reconstruction Private Limited, where a statement of its CEO allegedly disclosed a modus operandi of fund diversion using group entities, including reference to Ruchita Chemicals LLP and Pioneer Management and Finance Consultancy. 2.8 The Court noted that the entire case of the revenue rested on presumptions drawn from the search on Invent Assets, and on the fact that, as per the bank statement of Ruchita Chemicals LLP, credits from the petitioner were followed on the same day by transfers to Pioneer Management and Finance Consultancy. 2.9 The Court held that the respondents had 'miserably failed' to point out any concrete material connecting the petitioner with Invent Assets or establishing that the petitioner was part of the alleged dubious or colourable arrangements described in the search material. 2.10 It was emphasized that purchases of Rs. 58,05,69,466/- from Ruchita Chemicals LLP were not questioned, and the allegation regarding Rs. 7,00,00,000/- was based purely on presumption without any specific incriminating material linking the petitioner to the alleged modus operandi. Conclusions 2.11 The Court found that there was no tangible material or live link between the search in the case of Invent Assets and any alleged escapement of income in the hands of the petitioner. The reliance on such presumptive material could not justify the assumption of jurisdiction under Section 147. Issue 4: Effect of Assessing Officer's uncertainty about existence and quantum of escapement Interpretation and reasoning 2.12 In the communication dated 03.02.2025 disposing of the assessee's objections, the Assessing Officer stated that the information/documents from the search 'revealed that income of the assessee has escaped assessment. However, exact quantum of escapement, if any will be finalized only upon completion of assessment proceedings.' 2.13 The Court considered this language and held that the Assessing Officer was himself unsure whether any income had actually escaped assessment, as evidenced by the use of the phrase 'if any' and the postponement of determination of escapement to the completion of the reassessment. 2.14 The Court reasoned that such a state of uncertainty showed that the formation of 'reason to believe' was not firm or founded on concrete material but was in a 'state of flux', and that initiation of reassessment on this basis could not be sustained. Conclusions 2.15 The Court held that, particularly in light of the completed detailed scrutiny and acceptance of the assessee's return, such vague and tentative observations by the Assessing Officer could not justify reopening. The absence of a clear, definite belief of escapement rendered the assumption of jurisdiction invalid. Overall conclusion on all issues 2.16 On an overall appreciation of the facts and material on record, the Court held that: (i) there was no concrete nexus between the search material in the case of Invent Assets and any escapement of income in the hands of the petitioner; (ii) the transactions with Ruchita Chemicals LLP, including the impugned payment, had already been scrutinized in the original assessment; and (iii) the reopening was based on presumptions and a mere change of opinion, with the Assessing Officer himself being unsure of any escapement. 2.17 Consequently, the impugned notice dated 31.03.2024 issued under Section 148 of the Income Tax Act, 1961 was quashed and set aside, and the writ petition was allowed without any order as to costs.