2011 (12) TMI 70 - HC - Income Tax

Validity of reopening the assessment u/s 148- change of opinion of assessing officer which has also not been based on any tangible material - Held that - In the present case, it is apparent that the Assessing Officer taking a view from the communication dated 21 February 2006 of CBDT to the Chairman of IRDA had applied his mind to the claim of the assessee to exemption under clauses (15), (23G), (33) and (38) of Section 10. The exemption under clause (38) was specifically denied. The reasons for reopening the assessment merely postulate that the exemption under Section 10 was wrongly allowed. This is clearly a situation where there is a change in opinion by the Assessing Officer. There is no tangible material for the Assessing Officer to reopen the assessment. Consequently, it is held that the reopening of the assessment is contrary to law. - The Petition of the assessee is allowed.

Issues Involved:
1. Reopening of assessment under Section 148 of the Income Tax Act, 1961.
2. Validity of exemptions claimed under Section 10 of the Income Tax Act, 1961.
3. Application of Section 44 and the First Schedule of the Income Tax Act, 1961.
4. Concept of "change of opinion" in the context of reopening assessments.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 148:
The case involves a notice issued by the First Respondent on 17 March 2011 under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the Assessment Year 2006-07. The Petitioner, engaged in the business of general insurance, had filed a return of income declaring a loss and claimed exemptions under various clauses of Section 10. The Assessing Officer initially allowed some exemptions but later issued the notice to reopen the assessment, indicating that the exemptions were wrongly allowed.

2. Validity of Exemptions Claimed under Section 10:
The Petitioner claimed exemptions under clauses (15), (23G), (33), and (38) of Section 10. The Assessing Officer, during the original assessment, allowed exemptions under clauses (15), (23G), and (33) but denied the exemption under clause (38), stating that the Petitioner was engaged in trading shares as a business activity, not as an investor. The reopening notice contended that the claims under Section 10 were not in accordance with the law, suggesting that no other sections of the Act apply to insurance companies except for the provisions in Rule 5 of the First Schedule.

3. Application of Section 44 and the First Schedule:
Section 44 and the First Schedule of the Income Tax Act, 1961, were central to the dispute. The Assessing Officer argued that the computation of profits for insurance companies should be strictly as per Rule 5 of the First Schedule, excluding other sections of the Act. However, the Petitioner relied on a CBDT communication clarifying that exemptions under Section 10 are available to non-life insurance businesses, subject to fulfilling specific conditions.

4. Concept of "Change of Opinion":
The Court examined whether the reopening of the assessment was based on a "change of opinion" by the Assessing Officer. It was argued that the Assessing Officer had already applied his mind to the exemptions during the original assessment, and the reopening was merely a review of the earlier decision without any new tangible material. The Supreme Court's ruling in Commissioner of Income-Tax v. Kelvinator of India Ltd. was cited, emphasizing that reopening based on a mere change of opinion is not permissible.

Judgment:
The Court found merit in the Petitioner's contention that the reopening of the assessment was based on a mere change of opinion without any tangible material. The Assessing Officer had previously considered the exemptions and allowed them based on the CBDT's communication. The Court held that the reopening was contrary to law and quashed the notice dated 17 March 2011 under Section 148. The rule was made absolute, and there was no order as to costs.

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