2009 (3) TMI 28 - HC - Income Tax

Validity of notice issued u/s 148 to reopen the assessment AO rejecting the objections raised by the petitioner regarding the reopening of assessment - assessment is sought to be reopened on the basis of the material based on which a final decision has already been taken, and therefore, the reopening of the assessment based on the very same materials to take a contrary view constitutes reopening on account of change of opinion which is not permissible u/s 147 - notice is quashed and set aside

Summary

Issues Involved:
1. Validity of the notice issued under section 148 of the Income Tax Act, 1961.
2. Justification of the assessing officer's order rejecting the objections raised by the petitioner regarding the reopening of the assessment.

Issue-wise Detailed Analysis:

1. Validity of the notice issued under section 148 of the Income Tax Act, 1961:

The core issue revolves around whether the notice issued by the assessing officer on 30/3/2007 to reopen the assessment for AY 2002-03 is valid. The petitioner had filed its return of income for AY 2002-03 on 31/10/2002, declaring a loss and claiming deductions for "project launch expenses" and for tools, dies, jigs, and moulds as inventory items. Initially, the assessing officer scrutinized the return, issued a notice under section 143(2), and allowed the claims in the assessment order dated 27/1/2005.

Later, a notice under section 154 was issued on 2/12/2005 to rectify the assessment order, which was contested by the petitioner. Subsequently, without resolving the section 154 notice, the officer issued a notice under section 148 on 30/3/2007 to reopen the assessment, citing reasons that the expenses claimed should have been capitalized and not treated as revenue expenditure.

2. Justification of the assessing officer's order rejecting the objections raised by the petitioner regarding the reopening of the assessment:

The petitioner objected to the reopening of the assessment, but the objections were rejected by the assessing officer on 15/9/2008. The court examined whether the assessing officer had a reasonable basis to believe that income had escaped assessment. The court referred to the Supreme Court's interpretation in ACIT vs. Rajesh Jhaveri Stock Brokers P. Ltd., emphasizing that the "reason to believe" should be based on tangible material and not mere suspicion.

The court noted that the reopening was based on materials already on record during the original assessment. The petitioner had consistently followed the same accounting method for similar expenses in the past, which had been accepted in previous assessments. The court found that the assessing officer had initially considered and allowed the deductions after detailed explanations from the petitioner. Therefore, reopening the assessment based on the same material constituted a change of opinion, which is not permissible under section 147.

Conclusion:

The court concluded that the assessing officer could not reopen the assessment on the basis of the same material that had been previously considered and adjudicated. The reopening amounted to a mere change of opinion, which is not allowed under section 147. Consequently, the court quashed the notice dated 30/3/2007 issued under section 148 and the order dated 15/9/2008, making the rule absolute with no order as to costs.