2016 (12) TMI 1858 - AT - Income Tax

Reopening of assessment u/s 147 - reason to believe - HELD THAT - Nothing has been recorded by the AO in the Reasons about any failure on the part of the assessee to disclose fully and truly all material facts necessary for the impugned assessment. It has nowhere been mentioned by him that which fact or material was not disclosed by the assessee. Thus, vital link between Reasons and his findings has not been established by him. This vital link is the safeguard against arbitrary reopening of the concluded assessment. The Reasons recorded cannot be supplemented by way of further observations in the assessment order or in any other manner. The validity of the reopening can be examined on the basis of Reasons alone and not in supplementary material. Thus, taking into account all the facts and circumstances of the case, we find that the reopening has been done without complying with the mandatory jurisdictional condition precedent as stipulated in first proviso to section 147. Thus, reopening is invalid on this ground. Reopening as based upon change of opinion of the AO - deduction u/s 80IA available to the Mithapur power plant - HELD THAT - Perusal of reasons recorded by the AO reveals that as per belief of the AO, deduction u/s 80IA available to the Mithapur power plant of the assessee was wrongly determined in the original assessment proceedings completed u/s 143(3) on 10-01-2005 for impugned assessment year i.e. AY 2002-03. As noted by us on the basis of information provided by both the parties to us that the year before us, i.e. A.Y 2002-03 is the second year of claiming the benefit of deduction u/s 80-IA on the income of new power plant located at Mithapur. The deduction was claimed for the first time in the year AY 2001-02. The assessment order was framed u/s 143(3) for AY 2001-02 vide order dated 29-03-2004 wherein the claim of the assessee was examined in detail and thereafter only the benefit of deduction was allowed after re-computing the same as was allowable to the assessee. It is clear that requisite material was obtained by the AO which was duly considered and only thereafter, the benefit of deduction was allowed to the assessee as was available in the assessment order passed u/s 143(3). Under these circumstances, it is not legally permissible to reopen the case merely reappraising same material and reviewing the decision already taken by the AO. It is well settled law that reopening based upon change of opinion of the AO is not permissible in the eyes of law. Thus, on this ground as well, the reopening has been rightly held as invalid by Ld. CIT(A). We would like to make reference to a recent judgment of Hon ble Delhi High Court in the case of Principal CIT vs Samcor Glass Ltd 2015 (12) TMI 773 - DELHI HIGH COURT wherein it was held by the Hon ble High Court that where the reopening is done beyond 4 years and original assessment was done u/s 143(3) and yet, the Reasons for reopening did not categorically state that there was failure by the assessee to disclose any material particulars on the basis of which there were reasons to believe that income had escaped assessment, then, the reopening would be without authority of law. We believe that concerned Chief Commissioners have already taken requisite steps under guidance from the CBDT to formulate and issue the requisite set of instructions to the AO so as to enable the AOs to reopen the cases only in desired and deserving cases so as to build up the faith of the taxpayers on the working of Income-tax department which will, in turn, increase voluntary compliance by the taxpayers. Decided against revenue.

Summary

Issues Involved:
1. Validity of reassessment proceedings under section 147 of the Income-tax Act, 1961.
2. Alleged failure on the part of the assessee to disclose material facts.
3. Reassessment based on a change of opinion.

Detailed Analysis:

I. Validity of Reassessment Proceedings under Section 147:

The primary issue in this appeal is whether the reopening of the assessment under section 147 was valid. The original assessment was completed under section 143(3) on 10-01-2005, and the reassessment notice under section 148 was issued on 26-05-2008, beyond the four-year period from the end of the relevant assessment year. The Commissioner of Income Tax (Appeals) [CIT(A)] quashed the reassessment, holding it invalid on two grounds: there was no failure on the part of the assessee to disclose material facts, and the reopening was based on a change of opinion.

II. Alleged Failure on the Part of the Assessee to Disclose Material Facts:

The Assessing Officer (AO) must comply with the first proviso to section 147 when reopening an assessment after four years from the end of the relevant assessment year. This proviso requires that the AO must demonstrate that income has escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for the assessment. The AO's reasons for reopening did not include any such allegation against the assessee. The AO also failed to address this issue in the interim order disposing of the assessee's objections. The Tribunal emphasized that the AO must record a finding in the reasons that there was a failure on the part of the assessee to disclose material facts. This failure to comply with the mandatory jurisdictional condition precedent renders the reopening invalid.

III. Reassessment Based on a Change of Opinion:

The Tribunal further held that the reassessment was based on a change of opinion, which is not permissible under section 147. The original assessment had already considered the claim for deduction under section 80-IA for the Mithapur power plant, and the AO had allowed the deduction after examining the relevant material. Reopening the case merely to reappraise the same material amounts to a review, which is not allowed. The Tribunal cited the Supreme Court's decision in CIT vs Kelvinator India Ltd, which held that the AO has the power to reassess but not to review, and that there must be tangible material to justify the belief that income has escaped assessment.

The Tribunal also referenced several judgments, including those of the Bombay High Court, which consistently held that reopening based on a mere change of opinion is invalid. The Tribunal concluded that the AO's reasons for reopening lacked the necessary link between the material considered and the formation of the belief that income had escaped assessment.

Conclusion:

The Tribunal upheld the CIT(A)'s decision to quash the reassessment order, finding that the reopening was invalid due to the absence of any failure on the part of the assessee to disclose material facts and because it was based on a change of opinion. The appeal filed by the Revenue was dismissed.

Order Pronounced:

The order was pronounced in the court on the 23rd day of December, 2016.