2016 (11) TMI 597 - AT - Income Tax

Validity of reopening of assessment - Held that - The assessing officer has recorded the reasons for re-opening, he has not alleged that there is a failure on the part of the assessee to disclose fully, truly all material facts relevant to complete the assessment in that assessment year. Therefore, as per the proviso to section 147 of the Act when the assessment is re-opened beyond 4 years, it is necessary to allege that there is a failure on the part of the assessee to disclose fully and truly all the material facts to complete the assessment of such assessment year. The A.O. has not alleged that there is a failure on the part of the assessee. No doubt that each case has to be examined by considering the facts and circumstances of the case and also reasons recorded. In the present case, by considering facts and circumstances and also reasons recorded by the A.O. and by following the judicial precedents, we hold that the notice issued by the A.O. by recording the reasons not in accordance with the proviso to section 147 of the Act, thus, the notice is quashed and consequently held that the assessment is invalid. It is to be noted whether full and true disclosure of the facts was done by the assessee, the department cannot re-open the assessment even after there is a loss of revenue or even after legal inference drawn by the assessing authority was erroneous in the first place. Even mere change of opinion by the assessing authority is not enough to re-open the assessment - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of notice issued under Section 148 of the Income Tax Act, 1961.
2. Alleged failure of the assessee to disclose fully and truly all material facts.
3. Change of opinion by the Assessing Officer (A.O.).
4. Estimation of income by the A.O.

Detailed Analysis:

1. Validity of Notice Issued Under Section 148:
The primary issue was whether the notice issued under Section 148 of the Income Tax Act, 1961, was valid. The notice was issued beyond four years from the end of the relevant assessment year. According to the proviso to Section 147, no action shall be taken after four years unless there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Tribunal found that the A.O. did not allege any such failure by the assessee in the reasons recorded for reopening the assessment. This omission rendered the notice invalid. Various judicial precedents, including cases like General Motors India (P) Ltd. Vs. DCIT and Dynacraft Air Controls Vs. Smt. Sneha Joshi, supported this view.

2. Alleged Failure to Disclose Fully and Truly All Material Facts:
The Tribunal examined whether the assessee had failed to disclose all material facts necessary for the assessment. The A.O. had not recorded any satisfaction that the income had escaped assessment due to such a failure. The Tribunal referred to several judgments, including Mahalakshmi Motors Ltd. Vs. DCIT and Sri Sena Vaibagh Sahakari Vs. DCIT, which emphasized that the absence of such an allegation invalidates the reopening of the assessment.

3. Change of Opinion by the A.O.:
The assessee argued that the reopening of the assessment was based on a mere change of opinion, which is not permissible under the law. The A.O. had initially estimated the income based on the details provided by the assessee and other similar cases. The subsequent notice under Section 148 was issued on the same material, indicating a change of opinion rather than new tangible material. The Tribunal cited the Supreme Court's judgment in CIT Vs. Kelvinator of India Ltd., which held that a mere change of opinion cannot justify the reopening of an assessment.

4. Estimation of Income by the A.O.:
The A.O. had initially estimated the assessee's income at ?80 lakhs based on the details provided and comparisons with similar businesses. However, in the reassessment, the A.O. assessed the income at ?3,35,51,689/-. The Tribunal found that this reassessment was based on the same information available during the original assessment, reinforcing the conclusion that the reopening was due to a change of opinion.

Conclusion:
The Tribunal quashed the notice issued under Section 148 and declared the reassessment invalid. Consequently, the cross-objection filed by the assessee was allowed, and the appeal filed by the revenue was dismissed as academic. The judgment emphasized the importance of adhering to the legal requirements for reopening assessments and the impermissibility of reopening based on a mere change of opinion.