2007 (4) TMI 257 - HC - Income Tax

Initiation of proceedings u/s 147(4) - the Department has sought to widen the scope of reopening the assessment by arguing that reopening should be allowed where there has been any error in the original assessment which has led to income escaping assessment held that - Because there was no such material or information, therefore, the case was one where upon a review of the original assessment order, the Income-tax Officer was of the changed opinion on the same material that some income had escaped assessment. This could not have justified re opening of assessment

Summary

Issues Involved:
Validity of reopening assessment under section 147(b) of the Income Tax Act.

Detailed Analysis:

Issue 1: Reopening assessment under section 147(b)
The case involved a question regarding the legality of the Income-tax Officer's decision to reopen assessments under section 147(b) of the Income Tax Act. The Officer reopened the assessments based on the belief that relief under section 35B was wrongly allowed for certain expenditures. The law regarding section 147/148 states that reopening cannot be done solely on a change of opinion by the assessing authority on the same material available during the original assessment. It is established through various decisions that for reopening, the Assessing Officer must have a "reason to believe" that income has escaped assessment based on new information not part of the original assessment record.

Issue 2: Scope of reopening assessment
The Department's argument to widen the scope of reopening assessments based on errors in the original assessment leading to income escaping assessment was rejected. It was emphasized that reopening presupposes an error in the original assessment, but the pre-condition for reopening requires more than just an error. There must be factual material or information forming the basis of the "reason to believe" that income has indeed escaped assessment. In this case, the Income-tax Officer's decision was based on a changed opinion without any new material or information, which did not justify the reopening of the assessment.

Issue 3: Rectification of error under section 254
The judgment clarified that the question of whether rectification of error under section 254 was permissible was not being examined in this case. The focus remained on the legality of initiating proceedings under section 147(b) based on the facts and circumstances presented.

Conclusion:
The Tribunal's decision was deemed legally correct in holding that the Income-tax Officer was not justified in initiating proceedings under section 147(b) due to the lack of new factual material or information supporting the "reason to believe" that income had escaped assessment. The reference was answered in favor of rejecting the reopening of the assessment in this case.