2010 (10) TMI 683 - AT - Income Tax

Income escaping assessment - reassessment u/s 147/ 148 - The assessee had objected the reopening of the assessment by the AO on the ground that the same is beyond four years - When the primary facts necessary for assessment are fully and truly disclosed, the ITO will not be entitled on change of opinion to commence proceedings for reassessment Appeal of the revenue is dismissed and the C.O. filed by the assessee is allowed

Summary

Issues:
Reopening of assessment under section 147 beyond four years.

Analysis:
The appeal before the Appellate Tribunal ITAT, Mumbai involved the reopening of assessment for the assessment year 2001-02. The Revenue challenged the order of the CIT(A) which upheld the reopening of the assessment beyond the four-year limit. The key issue was whether the Assessing Officer (AO) was justified in reopening the assessment under section 147 of the Income Tax Act.

The AO had reopened the assessment based on reasons recorded on 27/03/2008, citing that certain income had escaped assessment in the previous year. However, the assessee contended that the reopening was beyond the permissible four-year period. The Tribunal delved into the legal provisions of section 147, emphasizing that the AO must have a valid "reason to believe" that income has escaped assessment. This belief must be rational and based on relevant reasons, not arbitrary or irrational.

The Tribunal highlighted that the basis for initiating reassessment proceedings must solely rely on the reasons recorded by the AO and the material available at the time of initiating such action. It clarified that the AO cannot reopen the assessment merely based on suspicion or for conducting fishing inquiries post-initiation. The scope of section 147 does not allow for a change of opinion by the AO without new material or a different legal inference.

Examining the facts of the case, the Tribunal noted that the AO had already allowed the claims of the assessee after considering detailed explanations during the original assessment under section 143(3). The notice issued under section 148 beyond the four-year limit was deemed invalid as it amounted to a change of opinion without any new material or undisclosed facts by the assessee.

Consequently, the Tribunal held that the AO's belief did not align with the requirements of section 147, rendering the reopening of assessment unlawful. As a result, the Tribunal dismissed the Revenue's appeal and allowed the cross objections raised by the assessee, emphasizing that the legal issue regarding the validity of reopening the assessment was sufficient to quash the AO's order.

In conclusion, the Tribunal's decision centered on the strict adherence to the legal provisions governing the reopening of assessments under section 147, emphasizing the importance of a valid "reason to believe" and prohibiting changes of opinion without substantial new material or undisclosed facts by the assessee.