2012 (11) TMI 68 - AT - Income Tax

Reopening of assessment - unaccounted Foreign travel expenses - disallowance of 1/4th of claim - Held that - Considering the decision taken in CIT, Delhi Versus M/s. Kelvinator of India Limited 2010 (1) TMI 11 - SUPREME COURT OF INDIA there was no tangible material before A.O. to come to conclusion that there was escapement of income. The Assessing Officer has no power to review and has the power to re-assess. CIT (A) has also given a finding that the reasons for issuing notice u/s. 148 are the same which were considered by the A.O. during the original assessment proceedings and therefore it amounts to change of opinion - apart from recommendation of audit party, the A.O. was not having any fresh information so as to form belief that the income has escaped assessment. The Ld. D.R. could not controvert the findings of CIT (A) by bringing any contrary material on record - in favour of assessee.

Summary

Issues:
1. Validity of reopening assessment based on change of opinion.
2. Applicability of legal precedents in determining the validity of reassessment proceedings.

Issue 1: Validity of reopening assessment based on change of opinion:
The appeal was filed by the Revenue against the order of Ld. CIT (A)- XVI, Ahmedabad for the assessment year 2003-04. The original return of income declared a loss, which was determined at a lesser amount due to various additions and disallowances, including 1/4th of foreign travel expenses. The Assessing Officer (A.O.) reopened the assessment under section 147 due to lack of compliance by the assessee regarding foreign travel expenses. The A.O. disallowed the expenses and determined the income at a different amount. The assessee contended that the reassessment was based on the recommendation of the revenue audit party, which amounted to a change of opinion and was not valid. CIT (A) agreed with the assessee, stating that the notice issued for reassessment was based on a mere change of opinion, annulling the reassessment order for the year in question.

Issue 2: Applicability of legal precedents in determining the validity of reassessment proceedings:
During the appeal, the Revenue argued that the reassessment proceedings were not based on a change of opinion, citing a legal precedent. However, the assessee maintained that the reopening was solely due to the query raised by the audit party and did not involve any new information leading to the belief of income escapement. The Tribunal analyzed the facts and legal precedents presented by both parties. It distinguished a previous case where a factual error pointed out by the audit party validated reassessment, emphasizing the need for tangible material to support the belief of income escapement. Referring to another legal precedent, the Tribunal highlighted that reasons for reassessment must have a live link with the formation of belief. Ultimately, the Tribunal upheld the order of CIT (A), dismissing the ground of the Revenue and affirming the decision to annul the reassessment order for the year in question.

In conclusion, the Tribunal found that the reassessment proceedings were invalid as they were based on a mere change of opinion without any tangible material supporting the belief of income escapement. The legal precedents cited emphasized the importance of having a live link between reasons for reassessment and the formation of belief regarding income escapement.