2011 (3) TMI 1555 - HC - Income Tax

Reopening of assessment - items for which assessment is sought as merged with the order of Commissioner (Appeals) - independent existence of reasons to believe - HELD THAT - The assessment order in respect of the items for which assessment is sought to be reopened has merged with the order of Commissioner (Appeals) and as such has no independent existence and therefore the assessment could not be reopened in respect of the said items, Moreover, the reopening of assessment apart from being based on a factually erroneous premise, is also based upon a mere change of opinion without there being any tangible material to come to the conclusion that there is escapement of income from assessment. Hence in view of the law laid down by the Supreme Court in the case of COMMISSIONER OF INCOME TAX, DELHI VERSUS M/S. KELVINATOR OF INDIA LIMITED 2010 (1) TMI 11 - SUPREME COURT the condition precedent for reopening of assessment has not been fulfilled and as such, the assumption of jurisdiction under section 147 of the Act is not valid. The impugned notice issued under section 148 of the Act, therefore, cannot be sustained. The impugned notice is set aside - petition allowed.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment.
2. Whether the reassessment is based on a change of opinion or new tangible material.
3. The merger of the original assessment order with the order of the Commissioner (Appeals).

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued under Section 148:
The petitioner challenged the notice dated 29.3.2001 issued by the respondent under Section 148 of the Income Tax Act, 1961, which sought to reopen the assessment for the assessment year 1996-97. The petitioner argued that the reasons for reopening were not provided despite requests, leading to the filing of the present petition.

2. Reassessment Based on Change of Opinion or New Tangible Material:
The petitioner contended that the reassessment was initiated merely on a change of opinion without any new tangible material. The reasons for reopening included incorrect claims for deductions under Sections 80I/80IA and 80HHC, which were allegedly based on income not derived from industrial undertakings. The petitioner argued that these issues were already considered during the original assessment and that there was no new information or fresh evidence justifying the reassessment.

The court noted that the reasons recorded for reopening included the claim that deductions under Section 80IA were incorrectly allowed on various incomes such as rent, export incentives, and others. However, the court found that the original assessment had specifically considered these issues, and the reassessment was based on an erroneous factual premise and a mere change of opinion.

3. Merger of the Original Assessment Order with the Order of the Commissioner (Appeals):
The petitioner argued that the original assessment order had merged with the order of the Commissioner (Appeals), and thus could not be reopened. The court observed that the issues related to deductions under Sections 80I/80IA and 80HHC were indeed subject to appeal and had been considered by the Commissioner (Appeals). Therefore, the original assessment order had no independent existence and could not be reopened on these grounds.

Conclusion:
The court held that the reassessment was based on a change of opinion without any new tangible material and that the original assessment order had merged with the order of the Commissioner (Appeals). Consequently, the assumption of jurisdiction under Section 147 of the Act was invalid. The impugned notice issued under Section 148 was quashed and set aside. The petition was allowed, and the rule was made absolute with no order as to costs.

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