2010 (12) TMI 61 - HC - Income Tax

Reopening of assessment - Assessing Officer has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment - Held that - change of opinion cannot clothe the assessing officer with the jurisdiction to initiate the proceeding under Section 147 of the Act - initiation of proceeding is in the realm of change of opinion and the same is not sustainable - writ petition is allowed

Summary

Issues Involved:
1. Whether there has been a change of opinion by the assessing officer.
2. Whether the assessing officer has the jurisdiction to reopen the completed assessment.
3. Whether the error of judgment can confer the assessing officer with the jurisdiction to reopen the assessment.

Issue-wise Detailed Analysis:

1. Change of Opinion:
The primary issue was whether the initiation of proceedings under Section 147 and the issuance of notice under Section 148 of the Income Tax Act, 1961, were based on a change of opinion. The court examined the reasons recorded by the assessing officer for initiating the proceedings, which referenced the judgment of the Hon'ble Apex Court in the case of G. Venkataswami & Co. vs. CIT. The assessing officer believed that the trading activity carried out by the assessee company was an adventure in the nature of trade, leading to the conclusion that income had escaped assessment.

The court noted that the assessing officer had already dealt with the issue of income on account of the transfer of equity shares from stock-in-trade to investments during the original assessment under Section 143(3) of the Act. The officer had considered the details and made a computation, which was subsequently upheld by the CIT(A) and the Income Tax Appellate Tribunal. The court referred to the Full Bench decision in Commissioner of Income-Tax v. Kelvinator of India Ltd., which held that a mere change of opinion cannot form the basis for reopening a completed assessment. The Supreme Court in Commissioner of Income-Tax v. Kelvinator of India Ltd. reiterated that the Assessing Officer has no power to review but only to reassess, and reassessment must be based on tangible material indicating escapement of income.

2. Jurisdiction to Reopen Completed Assessment:
The court emphasized that the assessing officer's jurisdiction to reopen a completed assessment under Section 147 requires the presence of "tangible material" leading to the belief that income has escaped assessment. The court found that the assessing officer's initiation of proceedings was based on a mere change of opinion, which is not permissible. The court cited the decision in Gemini Leather Stores v. Income-Tax Officer, which held that an error resulting from the assessing officer's oversight does not justify reopening under Section 147(a). Similarly, in Indian and Eastern Newspaper Society v. Commissioner of Income-Tax, it was held that an error discovered on reconsideration of the same material does not confer the power to reopen the assessment.

3. Error of Judgment:
The court concluded that an error of judgment does not confer jurisdiction on the assessing officer to reopen a completed assessment. The court reiterated that the initiation of proceedings in this case was based on a change of opinion and an error of judgment, both of which are insufficient grounds for reopening under Section 147.

Conclusion:
The court held that the initiation of proceedings under Section 147 and the issuance of notice under Section 148 were based on a change of opinion and an error of judgment, making them unsustainable in law. Consequently, the initiation of proceedings and the reasons for continuing with them were quashed. The writ petition was allowed without any order as to costs.