2013 (8) TMI 839 - HC - Income Tax

Deduction claimed u/s 10B - Reassessment - notice u/s 148 - reason to believe - change of opinion - Held that - when there was intensive examination in the first instance in respect of the issue, which was the basis for re-opening of assessment, it was necessary for the AO to indicate, what other material, or objective facts, constituted reasons to believe that the assessee had failed to disclose a material fact, necessitating reassessment proceedings. That is precisely the tangible material which have to exist on the record for the reasons . When the assessment is completed, as in the present instance, under Section 143 (3), after the AO goes through all the necessary steps of inquiring into the same issue, the reasons for concluding that reassessment is necessary, have to be strong, compelling, and in all cases objective tangible material - There is no such tangible materials which have a live link that can validate a legitimate formation of opinion - It is not enough that the AO in the previous instance followed a view which no longer finds favour, or if the latter view is suitable to the revenue; those would squarely be change in opinion. Perhaps, in given fact situations, they can be legitimate grounds for revising an order of assessment under Section 263; but not for re-opening it, under proviso to Section 147 - assessee cannot be held to have failed to disclose truly and fully all the material facts. It is also not a case where fresh tangible material has come to the knowledge of the Assessing Officer. The Assessing Officer, at the time of original assessment, clearly formed an opinion on both the issues and a notice under Section 148 seeking to reopen the assessment is clearly an instance of change of opinion, which is impressible in law - Following decision of MOSER BAER INDIA LIMITED Versus DEPUTY COMMISSIONER OF INCOME TAX & ORS 2012 (12) TMI 456 - DELHI HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Whether the reassessment proceedings initiated were barred by limitation under the proviso to Section 147.
3. Whether there was a failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment.
4. Whether the reassessment proceedings were based on a change of opinion.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The petitioner challenged the notice dated 04.05.2011 issued under Section 148 of the Income Tax Act, 1961, which proposed to reassess the income for the Assessment Year 2005-06. The reasons recorded for the said notice were related to the deduction under Section 10B and deferred revenue expenditure on technical know-how. The court found that the reasons to believe did not suggest any fresh or further tangible material had come to the knowledge of the Assessing Officer that could justify the reopening of the assessment. It was determined that the notice was issued merely based on a change of opinion, which is impermissible in law.

2. Limitation Under Proviso to Section 147:
The reassessment notice was issued on 04.05.2011, which was beyond the stipulated period of four years from the end of the relevant assessment year (2005-06). According to the proviso to Section 147, reassessment after four years is permissible only if there is a failure on the part of the assessee to disclose fully and truly all material facts. The court found that the petitioner had made full and true disclosure of all material facts, thus making the issuance of the notice barred by limitation.

3. Full and True Disclosure of Material Facts:
The petitioner had enclosed the profit and loss account of both units and the computation of deduction under Section 10B in the return of income. Specific queries were raised by the Assessing Officer regarding the units eligible for deduction under Section 10B, which were duly responded to by the petitioner. The court noted that the original assessment order passed under Section 143(3) and subsequent rectification under Section 154 indicated that the Assessing Officer had formed a definite opinion on the claim of deduction under Section 10B. Similarly, the petitioner had disclosed the deferred revenue expenditure on technical know-how in the notes appended to the return of income, and the Assessing Officer had raised specific queries on this issue during the original assessment proceedings. The court concluded that there was no failure on the part of the petitioner to disclose fully and truly all material facts.

4. Reassessment Based on Change of Opinion:
The court emphasized that the original assessment involved an intensive examination of the issues related to deductions under Section 10B and deferred revenue expenditure. The Assessing Officer had formed an opinion on these issues during the original assessment. The reasons recorded for reopening the assessment did not indicate any new material or facts that had come to the knowledge of the Assessing Officer. The court held that the reassessment proceedings were initiated merely to reappraise the material on record and change the opinion formed earlier, which is not permissible under law.

Conclusion:
The court set aside the impugned order dated 01.02.2013 and quashed the notice dated 04.05.2011 and the proceedings initiated consequent thereto. The writ petition was allowed with costs of Rs.10,000/-. The court reiterated that reassessment based on a change of opinion is impermissible and that there must be tangible material with a direct nexus to the formation of belief for income to have escaped assessment.