2013 (8) TMI 249 - HC - Income Tax

Notice u/s 148 - Method of accounting questioned - Held that - The assessing officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain precondition and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place - there is failure on the part of the Assessing Officer to examine the original assessment record and ascertain the method of accounting adopted by the assessee and whether the quantum of receipts disclosed was correct as per the method of accounting and the amount reflected in the TDS certificates was examined by the Assessing Officer in the original assessment proceedings - it is a case of change of opinion because the method of accounting adopted by the assessee and the TDS certificates were examined by the first Assessing Officer - assessee had made full and true disclosure at the time of original proceedings about the method of accounting adopted by him and the quantum of receipts disclosed - 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.

Summary

Issues Involved:
1. Validity of the re-assessment notice issued under Section 148 of the Income Tax Act, 1961.
2. Whether the re-assessment was based on a change of opinion.
3. Full and true disclosure of material facts by the assessee.

Detailed Analysis:

Issue 1: Validity of the Re-assessment Notice
The petitioner challenged the re-assessment notice dated 29th March 2012, issued under Section 148 of the Income Tax Act, 1961, for the assessment year 2006-07. The Assessing Officer (AO) recorded reasons for the notice, citing a discrepancy between the total income shown by the assessee (Rs. 52,36,040/-) and the income as per TDS certificates (Rs. 1,11,65,657/-), resulting in an underassessment of Rs. 59,29,617/-. The AO believed this discrepancy was due to the assessee's failure to fully disclose material facts necessary for assessment, thus justifying the initiation of proceedings under Section 148.

Issue 2: Change of Opinion
The petitioner contended that the re-assessment was based on a mere change of opinion. During the original assessment proceedings, the AO had examined the method of accounting, including TDS certificates and other details provided by the petitioner. The method of accounting adopted by the petitioner involved netting off direct expenses from gross receipts, which was explained in detail during the original assessment. The AO in the original assessment was aware and had accepted this method. The High Court noted that the reasons to believe recorded for re-assessment did not reflect any application of mind to the accounting practice adopted by the petitioner, indicating that the AO ignored this fact. The Court emphasized that reassessment provisions are not plenary and must satisfy statutory requirements, including the recording of "reasons to believe" that income has escaped assessment.

Issue 3: Full and True Disclosure of Material Facts
The petitioner argued that full and true disclosure of material facts had been made during the original assessment. The method of accounting, including the treatment of TDS certificates and the netting off of direct expenses, was clearly explained and accepted by the AO. The High Court found that the AO in the original assessment was fully conscious and aware of the method of accounting followed by the petitioner. The Court observed that the reassessment notice lacked a bona fide belief and was based on vague and irrelevant information. The Court cited the Supreme Court's decision in Commissioner of Income Tax vs. Kelvinator of India Ltd., emphasizing that the AO has no power to review but only to reassess based on tangible material indicating income escapement.

Conclusion:
The High Court quashed the reassessment notice dated 29th March 2012, and the reassessment proceedings initiated thereby, on the grounds that:
1. The AO failed to examine the original assessment record and ascertain the method of accounting adopted by the assessee.
2. The reassessment was a case of change of opinion, as the method of accounting and TDS certificates were examined during the original assessment.
3. The assessee had made full and true disclosure of the method of accounting and the quantum of receipts during the original assessment proceedings.

The writ petition was allowed, and any assessment order passed pursuant to the impugned notice was declared null and void.