2013 (7) TMI 383 - HC - Income Tax

Validity of order - Reassessment - change of opinion - The petitioner contended that without even supplying the reasons for reopening recorded the AO assumed jurisdiction and proceeded with the reassessment proceedings - the assessee made full disclosure about expenditure - the AO called upon the assessee to explain all expenses. The sum was a sizable expenditure which the assessee claimed by way of business expenditure - He gave detailed reply to the queries raised by the AO in this respect - He pointed out that the assessee had received various deposits from the co-operative societies - Such deposits were retained without paying any interest - Against that the assessee had the responsibility to meet with part of the maintenance expenditure of the society - The expenses which were the petitioner borne in six months of the year were less than 4 per cent. of the deposit amount - after examining details the AO had framed his original assessment - in such assessment, he had not made any specific mention of accepting such expenditure. Held that - Without there being anything additional on record any attempt on the part of the AO to disallow expenditure by reopening the assessment would be based on mere change of opinion and thus not permissible in law order of the AO quashed - decided in the favour of assessee.

Issues Involved:
1. Validity of the notice under section 148 of the Income-tax Act, 1961, for reopening the assessment.
2. Jurisdiction of the Assessing Officer to reopen the assessment based on a change of opinion.
3. Compliance with procedural requirements for reopening the assessment, including the supply of reasons for reopening.
4. Examination of the expenditure claimed by the petitioner and its allowability under section 37 of the Income-tax Act.

Detailed Analysis:

1. Validity of the Notice under Section 148:

The petitioner challenged the notice dated April 19, 2010, issued by the respondent-Assessing Officer under section 148 of the Income-tax Act, 1961, seeking to reopen the assessment for the assessment year 2006-07. The petitioner argued that the notice was not valid as the reasons recorded did not establish that any income chargeable to tax had escaped assessment. The court noted that the Assessing Officer issued the notice within four years from the end of the relevant assessment year, but the reasons for reopening were based on a mere change of opinion, which is not permissible.

2. Jurisdiction of the Assessing Officer:

The petitioner contended that the Assessing Officer had no jurisdiction to reopen the assessment as the entire aspect of the expenditure of Rs. 7,50,771 was examined during the original assessment. The court observed that the original assessment was framed after scrutiny and thorough inquiry, and the expenditure was allowed after detailed examination. Therefore, reopening the assessment based on a change of opinion was not permissible. The court referred to the Supreme Court's decision in CIT v. Kelvinator of India Ltd., which held that the power to reopen assessments post-1st April 1989, must be based on "tangible material" and not on a mere change of opinion.

3. Compliance with Procedural Requirements:

The petitioner argued that the Assessing Officer did not supply the reasons for reopening the assessment as required by the decision of the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO. The court noted that the Assessing Officer blatantly disregarded the apex court's decision by not disposing of the objections separately before finalizing the assessment. The court held that this procedural lapse could not be used to compel the petitioner to seek appellate remedies, as it would allow the Assessing Officer to capitalize on his own wrong.

4. Examination of the Expenditure:

The court examined the facts closely and noted that during the original assessment, the petitioner had provided detailed explanations regarding the expenditure of Rs. 7,50,771. The expenditure was related to maintenance contributions made to various societies in exchange for retaining maintenance deposits without paying interest. The Assessing Officer had accepted this explanation during the original assessment. The court held that without any new material, the attempt to disallow the expenditure by reopening the assessment was based on a change of opinion and thus not permissible.

Conclusion:

The court quashed the notice dated April 19, 2010, and invalidated the assessment framed by the Assessing Officer. The rule was made absolute with no order as to costs. The court emphasized that reopening an assessment based on a change of opinion is not permissible and that procedural requirements for reopening must be strictly followed.

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