2016 (3) TMI 734 - HC - Income Tax

Reopening of assessment - escapement of income proved or not? - Held that - Whether it was a case of change of opinion or the non-disclosure of true and correct facts, if considered in light of the report, one may say that such may fall in the arena of question of fact which may include the consideration of the earlier proceedings of the assessment. The Tribunal having found that the relevant material including that of transfer by the assessee to PEPL was on record and therefore it was not a case where there was non-disclosure of true and correct facts. The aforesaid finding, in our view, could be said to be rather pertaining to the questions of fact to be examined on the basis of the material on record which would fall outside the judicial scrutiny in the present appeal. On the questions of law, the Tribunal has gone by the decision of the Apex Court in case of CIT Vs. Kelvinator of India Ltd. (2010 (1) TMI 11 - SUPREME COURT OF INDIA ) as held one needs to give a schematic interpretation to the words reason to believe failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of mere change of opinion , which cannot be per se reason to re-open - The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of change of opinion is removed, as contended on behalf of the Department, then,in the garb of re-opening the assessment, review would take place - to reopen an assessment tangible material should be there. - Decided in favour of assessee

Issues Involved:
1. Whether the Tribunal was correct in holding that the reasons recorded by the assessing officer did not spell out that escapement of income was due to the assessee not fully and truly disclosing all material facts necessary for completion of assessment for the relevant assessment year.
2. Whether the Tribunal was correct in holding that the initiation of reassessment has been merely on the basis of change of opinion without appreciating that no opinion was formed in the original assessment on the issue.

Detailed Analysis:

Issue 1: Non-disclosure of Material Facts

The Tribunal examined whether the reasons recorded by the Assessing Officer (AO) indicated that the escapement of income was due to the assessee's failure to fully and truly disclose all material facts. The Tribunal noted that the proceedings under Section 147 of the Income Tax Act were initiated after four years from the end of the relevant assessment year. Since an order of assessment under Section 143(3) had already been made for the assessment year 2005-06, the proviso to Section 147 applied.

The Tribunal observed that the facts recorded by the AO in the reasons for initiating proceedings under Section 147 were already within the AO's knowledge during the original assessment. The AO had noted the joint development agreement (JDA) between the assessee and PEPL in the original assessment order. The Tribunal highlighted that the AO did not invoke the provisions of Section 45(2) during the original assessment, either because he overlooked them or because he thought the taxable event had not occurred.

The Tribunal emphasized that the AO's reasons for reassessment did not allege any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Tribunal referred to judicial precedents, including the Karnataka High Court's decision in CIT v. Hewlett Packard Digital Global Solutions Ltd., which required the AO to explicitly state any such failure in the reasons recorded.

The Tribunal concluded that the initiation of reassessment proceedings was invalid as the AO did not record any specific allegation of non-disclosure by the assessee. The Tribunal also noted that all relevant facts were disclosed by the assessee during the original assessment, and no new material was brought to light to justify the reassessment.

Issue 2: Change of Opinion

The Tribunal addressed whether the reassessment was initiated merely on a change of opinion. The Tribunal noted that the AO was fully aware of the facts regarding the conversion of the Whitefield property into stock-in-trade and the JDA with PEPL during the original assessment. The AO did not consider the JDA as giving rise to a transfer under Section 45(2) in the original assessment.

The Tribunal referred to the Supreme Court's decision in CIT v. Kelvinator of India Ltd., which held that reassessment based on a mere change of opinion is not permissible. The Tribunal observed that the AO did not refer to any new material that came into his possession after the original assessment to justify the reassessment. The Tribunal concluded that the reassessment was based on a change of opinion, which is not a valid reason for initiating reassessment proceedings.

Conclusion:

The Tribunal held that the initiation of reassessment proceedings was invalid on both counts: the AO did not record any failure on the part of the assessee to disclose fully and truly all material facts, and the reassessment was based on a change of opinion. The Tribunal's decision was based on established judicial precedents, including the Supreme Court's decision in Kelvinator of India Ltd. and the Karnataka High Court's decisions.

The High Court affirmed the Tribunal's decision, noting that the Tribunal's findings were based on factual examination and established legal principles. The High Court dismissed the appeal, concluding that no substantial questions of law arose for consideration.

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