2015 (2) TMI 1267 - AT - Income Tax

Reopening of assessment - change of opinion - validity of reasons to believe - allowability of expenditure - Held that - A detailed disclosure was made by the assessee in relation to the claim of expenditure. Reopening the assessment on the very same set of facts which were very much available at the time of the original assessment proceedings is nothing but a change of opinion. In our considered opinion one needs to give a schematic interpretation of the words reason to believe failing which section 147 would give arbitrary powers to the AO to reopen the assessment on the basis of mere change of opinion which cannot be per se reason to reopen. There is conceptual difference between power to review and power to reassess. The AO has no power to review he has the power to re-assess. But assessment has to be based on fulfillment of certain conditions and if the concept of change of opinion is removed then in the garb of reopening of assessment review would take place. Supreme Court in the case of CIT vs. Kelvinator of India India 2010 (1) TMI 11 - SUPREME COURT OF INDIA has held that the AO must have some tangible material for reopening the assessment. In the case in hand we do not find any new tangible material evidence on the basis of which the AO has reopened the assessment. - Decided in favour of assessee.

Summary

Issues:
1. Reopening of assessment under section 147 of the Income Tax Act, 1961.
2. Validity of the reasons for reopening the assessment.
3. Disclosure of expenditure by the assessee.
4. Change of opinion as a ground for reopening assessment.
5. Interpretation of "reason to believe" under section 147.
6. Power of the Assessing Officer to reassess based on tangible material.

Analysis:

1. The appeal by the Revenue challenges the order of the Ld. CIT(A)-7, Mumbai regarding the reopening of assessment for the assessment year 2002-03 under section 147 of the Income Tax Act, 1961.

2. The Revenue contends that the Ld. CIT(A) erred in law by holding that the reopening of assessment was not correct. The reasons for reopening included the disallowance of certain miscellaneous expenses not routed through the Profit and Loss Account.

3. The assessee argued that complete disclosure was made under the "notes forming part of accounts," and the claim of expenses was detailed. The Ld. CIT(A) observed that the issue was deliberated during the original assessment and the disclosure was proper, leading to the conclusion that the reopening was based on a change of opinion.

4. The Tribunal noted that the AO's power is to reassess, not review, and reopening should be based on tangible material. The Hon'ble Supreme Court's decision in CIT vs. Kelvinator of India emphasized the necessity of tangible material for reopening assessments, which was lacking in this case.

5. The Tribunal agreed with the Ld. CIT(A) and the Hon'ble Bombay High Court's decision in a similar case, which quashed reopening proceedings due to the absence of new tangible material. The concept of "change of opinion" cannot be a sole ground for reopening assessments.

6. Ultimately, the Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s decision that the reopening of the assessment was not justified. The judgment highlighted the importance of tangible material and the limitations on the Assessing Officer's power to reassess based on a mere change of opinion.

This comprehensive analysis covers the issues raised in the legal judgment, providing a detailed examination of the arguments presented and the reasoning behind the final decision.