2016 (9) TMI 1454 - HC - Income Tax

Reopening of assessment - Section 142A applicability - Held that - In the pre-amended Section 142A had no element of rejection of books and therefore since in view of this change of statutory provision, the ratio laid by the aforesaid two decisions referred to above are not applicable. In fact, on going through the two decisions it is found by this Court that the Court in case of Goodluck has dealt with the effect that both the provisions contained under Section 69 as well as Section 142A of the Act and on analysis of the said two statutory provisions, has propounded that the assessing officer would first be required to record a satisfaction that the assessee had made an investment which are not recorded in the books of accounts. As a necessary corollary, he would then reject the books of accounts as not reflecting the correct position and then to proceed to make assessment on the basis of assessment for which purpose he can refer to provision of Section 142A of the Act and therefore the basic element of formation of belief about incorrect information which are not reflected in the books of accounts which is a condition precedent before referring to Section 142A of the Act. The words of both the provisions pre as well as post are not of much difference and therefore the contention raised by the revenue is meritless and therefore the same is not accepted. The particulars which have been asked for have been sufficiently explained during the assessment proceedings and the assessment proceedings have become final and therefore relying upon solitary report, the only reason which is based upon to exercise powers for reopening of the assessment would be nothing but change of opinion which is not permissible. Therefore the over all circumstances reflected on the record indicates that the action on the part of the respondent authority under reopening of the assessment is impermissible and therefore the petition deserves to be allowed and the impugned notice issued in Section 148 dated 28.4.2010 as well as the order of rejection of objection dated 12.12.2011 are quashed and set aside hereby. Rule is made absolute.

Summary

Issues Involved:
1. Legality and validity of the notice under Section 148 of the Income Tax Act, 1961.
2. Rejection of the petitioner's objections to the reopening of the assessment.
3. Reliance on the District Valuation Officer’s (DVO) report for reopening the assessment.
4. Requirement of rejecting the books of accounts before referring to the DVO’s report.
5. Alleged change of opinion by the Assessing Officer (AO).

Issue-wise Detailed Analysis:

1. Legality and Validity of the Notice under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 28.4.2010 under Section 148 of the Income Tax Act, 1961, which indicated an inclination to reopen the assessment for the year 2006-07. The petitioner argued that all relevant details were submitted during the original assessment, finalized on 26.6.2008, and that the reopening was based solely on a DVO report obtained after the assessment was completed. The court found that the reasons recorded for reopening the assessment were based solely on the DVO’s report, which indicated an underestimation of the building's value by ?1,80,33,044. However, the court noted that the issue related to the construction had been thoroughly examined during the original assessment.

2. Rejection of the Petitioner's Objections to the Reopening of the Assessment:
The petitioner’s objections to the reopening were rejected by an order dated 12.12.2011. The petitioner contended that the reopening was based on a mere change of opinion and that the DVO’s report could not be relied upon without rejecting the books of accounts. The court agreed with the petitioner, citing the settled legal position that reopening of assessment cannot be based on a mere change of opinion.

3. Reliance on the District Valuation Officer’s (DVO) Report for Reopening the Assessment:
The petitioner argued that the DVO’s report could not be the sole basis for reopening the assessment without rejecting the books of accounts. The court referenced previous judgments, including the case of GoodLuck Automobiles (P.) Ltd. v. Asstt. CIT, which held that without rejecting the books of accounts, reliance on the DVO’s report for reopening the assessment is impermissible. The court found that the DVO’s report, obtained after the original assessment, could not be considered tangible material to justify reopening the assessment.

4. Requirement of Rejecting the Books of Accounts Before Referring to the DVO’s Report:
The court emphasized that for the purpose of resorting to Section 142A, the AO must first record a satisfaction that the assessee has made investments not recorded in the books of accounts and reject the books of accounts. The court cited the case of Sargam Cinema v. CIT, where it was held that the AO could not refer the matter to the DVO without rejecting the books of accounts. The court concluded that the AO did not reject the books of accounts before relying on the DVO’s report, making the reopening of the assessment impermissible.

5. Alleged Change of Opinion by the Assessing Officer (AO):
The petitioner contended that the reopening of the assessment was based on a mere change of opinion, which is not permissible. The court agreed, referencing the Supreme Court's decision in CIT v. Kelvinator of India Ltd., which held that the concept of "change of opinion" is an in-built test to check the abuse of power and that reopening an assessment requires tangible material. The court found that the AO’s action was based on a mere change of opinion, as the original assessment had already examined the construction details thoroughly.

Conclusion:
The court allowed the petition, quashing the notice issued under Section 148 dated 28.4.2010 and the order of rejection of objections dated 12.12.2011. The court ruled that the reopening of the assessment was impermissible as it was based on a mere change of opinion and reliance on the DVO’s report without rejecting the books of accounts. The court emphasized the need for tangible material and adherence to the legal requirement of rejecting the books of accounts before referring to the DVO’s report.