2012 (7) TMI 521 - HC - Income Tax

Challenging reopening of assessment - notice u/s 148 - Held that - Issuing notice u/s 148 in the present case was based on the ground that the income earned from the non fund based activities of the respondent had been included in the fund based income so as to claim excess deduction u/s 36(1)(viii). The reasons only provide a conclusion and give no material particulars of information obtained during the course of assessment proceedings for the assessment year 1998-99. Therefore the reasons recorded do not indicate any tangible material which has led to a reasonable belief that income has escaped assessment AO while reassessing the assessee by an order has in fact taken a ground different from the grounds in the reasons recorded for reopening the assessment u/s 148 - The reasons furnished for reopening the assessment alleged that non fund income had been shown in fund based income so as to avail of a higher deduction. However, the basis of the order was that 20.1% out of the gross expenses attributed to non fund income was excessive and ought to be restricted to only 10%. Thus, the basis of the order is completely different from the reasons recorded for reopening the assessment which is clearly not permissible - the Tribunal was correct in taking the view that the reopening of assessment by notice u/s 148 is not sustainable in law - case is based on merely change in opinion on the material which was already on record and considered - in favour of assessee.

Issues Involved:
1. Validity of the notice for reopening the assessment under Section 148 of the Income Tax Act.
2. Whether the reopening was based on a mere change of opinion.
3. Adequacy of tangible material for reopening the assessment.
4. Consistency between the reasons for reopening and the reassessment order.
5. Applicability of legal precedents in the context of reopening assessments.

Detailed Analysis:

1. Validity of the Notice for Reopening the Assessment:
The appellant challenged the order of the Tribunal, which held that the notice for reopening the assessment under Section 148 was bad in law. The issue was whether the Tribunal was right in holding that the notice was based on a mere change of opinion, despite being issued within a period of four years. The court emphasized that the power to reopen an assessment under Section 147 of the Income Tax Act is broad but must be based on tangible material, not merely a change of opinion, as established in CIT v. Kelvinator of India Ltd.

2. Whether the Reopening Was Based on a Mere Change of Opinion:
The Tribunal found that the reopening was due to a mere change of opinion. The original assessment and the first reopening did not consider the issue of the expenditure claimed in respect of non-fund income at 20.01%. The appellant argued that the issue was not considered in the original assessment, thus the reopening was not a change of opinion. However, the court upheld the Tribunal's view that the reopening was indeed based on a change of opinion, as the material facts were already available during the original assessment.

3. Adequacy of Tangible Material for Reopening the Assessment:
The court reiterated that any reason to believe that income has escaped assessment must arise from tangible material. The reasons recorded for reopening the assessment were vague and did not provide specific particulars of information obtained during the assessment proceedings for the year 1998-99. The court found that the reasons for reopening were not based on any new tangible material but were instead a re-evaluation of the same material, which constituted a mere change of opinion.

4. Consistency Between the Reasons for Reopening and the Reassessment Order:
The court noted that the reasons for reopening the assessment and the basis of the reassessment order were inconsistent. The reasons recorded for reopening were based on the inclusion of non-fund income in fund-based income to claim excess deduction under Section 36(1)(viii). However, the reassessment order was based on the premise that the expenses attributable to non-fund activity should be 10% instead of 20.1%. This inconsistency rendered the reopening invalid, as established in CIT v. Jet Airways Private Limited.

5. Applicability of Legal Precedents:
The appellant cited the Supreme Court decisions in Kalyanji Mavji & Co. and A.L.A. Firm, arguing that the Tribunal did not consider these precedents. The court clarified that these decisions were not applicable as they dealt with different factual scenarios. The court emphasized that reopening based on a mere change of opinion is not permissible, aligning with the principles established in CIT v. Kelvinator of India Ltd.

Conclusion:
The court upheld the Tribunal's decision, affirming that the reopening of assessment by notice dated 20/3/2001 under Section 148 was not sustainable in law. The question raised for consideration was answered in the affirmative, in favor of the respondent and against the appellant-revenue. The appeal was disposed of with no order as to costs.

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