2013 (8) TMI 81 - HC - Income Tax

Notice u/s 148 - Change of opinion - Held that - When the earlier Assessing Officer had framed scrutiny assessment and examined certain deductions thoroughly, it was, thereafter, simply not open to the latter Assessing Officer to re-open the assessment on the basis that the earlier Assessing Officer committed a legal error. Once the claim was examined, scrutiny assessment was framed and Assessing Officer came to the conclusion with or without recording reasons in the assessment order, such an assessment could not have been subjected to the process of reopening - it is not a case where the Assessing Officer, while framing original scrutiny assessment, did not examine the petitioner s claim of deduction. He was acutely conscious of such a claim and was also of the opinion that the entire claim was not required to be granted. He called for explanation of the assessee and after taking into consideration the explanation, made disallowance to the extent he was convinced to do. If, in the process, he made a legal error, the succeeding Assessing Officer cannot correct such an error, through the process of re opening of the assessment - Following decision of Commissioner of Income Tax Vs. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA - Decided in favour of assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Examination of non-deduction of tax at source on labor payment charges.
3. Allegation of "mere change of opinion" for reopening the assessment.
4. Applicability of the principle of merger and the third proviso to Section 147 of the Act.
5. Jurisdiction of the Assessing Officer to reopen the assessment.

Comprehensive Issue-wise Detailed Analysis:

1. Validity of the Notice Issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 24.08.2012 issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961. The petitioner argued that the entire issue of non-deduction of tax at source on the total labor payment charges was already examined by the Assessing Officer in the original assessment order. The Assessing Officer had disallowed 20% of the expenditure, and any attempt to reopen the assessment on this basis would constitute a "mere change of opinion."

2. Examination of Non-Deduction of Tax at Source on Labor Payment Charges:
During the original scrutiny assessment for the Assessment Year 2008-09, the Assessing Officer examined the requirement of tax deduction at source on a total labor charge payment of Rs. 16.09 crores. The Assessing Officer disallowed a sum of Rs. 3.21 crores, which was 20% of the total labor payment charges, due to non-deduction of tax at source. The petitioner appealed this disallowance, and the CIT (Appeals) allowed the objection, deleting the entire disallowance.

3. Allegation of "Mere Change of Opinion" for Reopening the Assessment:
The petitioner contended that the reopening of the assessment was based on a "mere change of opinion" by the succeeding Assessing Officer. The original Assessing Officer had thoroughly scrutinized the claim and made a conscious decision to disallow only 20% of the expenditure. The court observed that once the claim was examined and a scrutiny assessment was framed, it was not open to the succeeding Assessing Officer to reopen the assessment on the basis that the earlier Assessing Officer committed a legal error.

4. Applicability of the Principle of Merger and the Third Proviso to Section 147 of the Act:
The petitioner argued that the CIT (Appeals) had already given an opinion on the disallowance, and therefore, it would be impermissible for the Assessing Officer to re-examine the entire issue. The court noted that the principle of merger and the third proviso to Section 147 of the Act would prevent the Assessing Officer from reopening the assessment when the CIT (Appeals) had already addressed the issue.

5. Jurisdiction of the Assessing Officer to Reopen the Assessment:
The court emphasized that the succeeding Assessing Officer cannot doubt the legality of a conclusion recorded by the earlier Assessing Officer in his assessment order, which was framed after scrutiny. The court referred to the case of Transwind Infrastructure (P.) Ltd. v. Income Tax Officer, where it was held that any re-examination of a thoroughly scrutinized claim would amount to a change of opinion, and the remedy of reopening the assessment would not be available. The court also cited the Supreme Court's decision in Commissioner of Income Tax Vs. Kelvinator of India Ltd., which stated that reopening of assessments based on "mere change of opinion" is not permissible.

Conclusion:
The court concluded that the notice dated 24.08.2012 was invalid and quashed it. The court did not delve into the additional ground of merger as per the third proviso to Section 147 of the Act, as it was not necessary for the decision. The petition was allowed, and the impugned notice was quashed.

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