2017 (3) TMI 110 - HC - Income Tax

Validity of reopening of assessment - eligibility to claim exemption under Section 10 - Held that - The assessee has placed on record the replies made to the queries on each of the aspects as well as the documentary evidence spanning several Annexures to the letter. It is quite evident that the AOs, upon proper inquiry and investigation into these materials, were satisfied as to the nature of the petitioner‟s activities and it was eligible to claim exemption under Section 10 of the Act. It has been repeatedly held in several decisions, both before and after the ruling of the Supreme Court in Commissioner of Income Tax v. Kelvinator of India Ltd (2010 (1) TMI 11 - SUPREME COURT OF INDIA) that a notice for re-opening the assessment is permissible only when it (i) does not amount to change of opinion ; (ii) is based on tangible material/evidence but is not opposed to the existing record and (iii) points to suppression of material facts by the assessee in the original return. In the present case, none of these elements ex facie exist to justify the impugned notice. It is therefore quashed as are all proceedings emanating from the impugned notice. - Decided in favor of assessee.

Summary

Issues:
1. Validity of re-assessment notice issued under Section 148 of the Income Tax Act, 1961 for Assessment Year 2009-10.
2. Whether there was escapement of income due to non-disclosure of material facts by the assessee.
3. Justifiability of re-assessment notice as not being a change of opinion.

Analysis:

1. The judgment concerns the challenge to a re-assessment notice issued under Section 148 of the Income Tax Act, 1961 for Assessment Year 2009-10. The notice proposed re-assessment based on the claim that the assessee had wrongly treated a certain amount as agricultural income, which should have been considered normal business income. The notice referred to findings in subsequent years and a decision of the Karnataka High Court regarding similar issues.

2. The assessee contended that all relevant materials were furnished during the scrutiny assessment, and there was no concealment. It was argued that the re-assessment notice was a mere change of opinion, which is impermissible under Section 147/148 of the Act unless there is tangible material indicating escapement of income due to non-disclosure of facts. The AO had conducted a detailed inquiry during the scrutiny assessment, supported by documentary evidence and queries.

3. The revenue sought to justify the re-assessment notice by claiming that the subsequent year's findings provided tangible material to believe there was escapement of income. However, the Court held that the notice did not meet the criteria for valid re-assessment as it did not show tangible material, was akin to a change of opinion, and did not point to suppression of material facts by the assessee in the original return. Citing precedents, the Court emphasized that re-opening assessments is permissible only under specific conditions, none of which were met in this case.

4. The Court concluded that the re-assessment notice was unsupported in law, as all necessary materials had been disclosed during the scrutiny assessment. Therefore, the notice was quashed along with all proceedings stemming from it, and the writ petition was allowed in favor of the assessee.

This judgment highlights the importance of adhering to legal requirements for re-assessment notices under the Income Tax Act and the need for tangible material to support such actions, emphasizing that re-opening assessments should not be based on a mere change of opinion but on specific grounds of non-disclosure of material facts.