2014 (8) TMI 568 - HC - Income Tax

Notice for reopening of assessment u/s 148 Full and true disclosure Change of opinion - Held that - In case of an assessment completed u/s 143 (1), the requirement of recording reasons to believe are mandatory Relying upon THE COMMISSIONER OF INCOME TAX-V Versus ORIENT CRAFT LTD. 2013 (1) TMI 177 - DELHI HIGH COURT - The foundation of the AO s jurisdiction and the raison d etre of a reassessment notice are the reasons to believe - it should have a relation or a link with an objective fact, in the form of information or facts external to the materials on the record - external facts or material constitute the driver, or the key which enables the authority to legitimately re-open the completed assessment - In absence of this objective trigger , the AO does not possess jurisdiction to reopen the assessment - if there are no reasons to believe based on new, tangible materials , then the reopening amounts to an impermissible review - there is nothing to show what triggered the issuance of notice of reassessment no information or new facts which led the AO to believe that full disclosure had not been made - The notice of the AO s order rejecting the objections, and the arguments of the Revenue nowhere indicate how the AO was impelled to seek re-opening of the assessee s case the reassessment notice cannot be sustained Decided in favour of Assessee.

Issues Involved:
1. Legality of the notice under Section 148 of the Income Tax Act for reopening the assessment.
2. Validity of the reasons provided by the Assessing Officer (AO) for reopening the assessment.
3. Whether the reopening of assessment constitutes a change of opinion.

Issue-wise Detailed Analysis:

1. Legality of the Notice under Section 148:
The petitioner challenged the notice dated 25.03.2013 under Section 148 of the Income Tax Act, which proposed to reopen the assessment for the Assessment Year (AY) 2006-07. The original assessment was completed under Section 143(3) on 28.03.2008. The petitioner contended that the notice was issued without any new tangible material and was merely a change of opinion, which is not permissible under Section 147.

2. Validity of the Reasons Provided by the AO:
The reasons for reopening the assessment were that the petitioner had added Rs. 25,31,003 to its capital account without providing an explanation during the original assessment proceedings. The AO believed that this amount should be brought to tax under Section 68 of the Income Tax Act due to the absence of documentary evidence for the source of the addition. The petitioner argued that all material facts were fully and truly disclosed during the original assessment, and the reopening was based on the same information, which amounted to a change of opinion.

3. Whether the Reopening Constitutes a Change of Opinion:
The petitioner contended that the reopening was based on the same information that was available during the original assessment, and thus it was a case of change of opinion. The AO, however, argued that the issues on which the case was reopened were not discussed earlier, and therefore, it was not a change of opinion. The AO further stated that the onus was on the assessee to provide full and complete details during the earlier proceedings, which the petitioner failed to do.

Court's Analysis and Judgment:
The court examined the scope of the phrase "reasons to believe" under Section 147, as interpreted by the Supreme Court in various decisions. It was emphasized that the reasons must be based on tangible material and should have a live link with the formation of the belief that income has escaped assessment. The court noted that no new information or tangible material was provided by the AO to justify the reopening. The reasons cited were merely a reappreciation of the facts already available during the original assessment.

The court relied on the Supreme Court's decision in CIT, Delhi v. Kelvinator of India Ltd., which held that the AO has no power to review an assessment and can only reassess based on tangible material indicating escapement of income. The court also referred to its own decision in CIT-V v. Orient Craft Ltd., which reiterated that the requirement of "reasons to believe" applies equally to assessments completed under Section 143(1) and Section 143(3).

The court concluded that the AO's reasons for reopening the assessment did not meet the required standards as they were not based on any new tangible material. The reopening was, therefore, deemed to be an impermissible review or change of opinion.

Conclusion:
The court quashed the impugned reassessment notice under Section 148, holding that it was not based on any new tangible material and amounted to a change of opinion. The writ petition was allowed, and the pending application was disposed of without any order as to costs.

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