2017 (12) TMI 740 - AT - Income Tax

Reopening of assessment u/s 147 - Addition u/s 69C - Held that - Details of purchases as well as sundry creditors were provided to the assessing officer at the time of assessment proceedings u/s.143(3) of the act. AO has mentioned in the body of the assessment order itself that the assessee has filed the details of purchases and sales and confirmations and the same have been gone through by him. For the purpose of reopening, there was no fresh material available with the assessing officer and from the very same details, opinion was changed about the alleged cash payments to the purchasers. In this case, the issue relates to cash purchases made from the farmers. Provisions of rule 6DD(e)(i) of the IT Rules, 1962 are squarely applicable for the cash purchases of agricultural produce. One cannot deny the possibility that during the assessment proceedings u/s. 143(3) of the act, assessing officer took a view that even though payments for purchases are made in cash, they are covered by rule 6DD(e)(i) of IT Rules, therefore, no disallowance is called for u/s. 40A(3) of IT Act. Subsequent to the completion of assessment proceedings u/s. 143(3), ld. assessing officer again on going through the very same documents formed an opinion that such cash payments are disallowable u/s. 40A(3). This act of the ld. assessing officer squarely falls under the category of change of opinion and as observed by Hon ble Apex Court, assessment u/s. 143(3) cannot be reopened merely for the change of opinion . Respectfully following the judgment of Hon ble Apex Court in the case of CIT vs. Kelvinator of India (2010 (1) TMI 11 - SUPREME COURT OF INDIA and in the given facts and circumstances of the case, we quash the re-assessment proceedings u/s. 147 r.w.s. 148 of the act and restore the order dated 16-11-2009 passed u/s. 143(3) of the act. In the result, this ground of the assessee challenging the re-assessment proceedings is allowed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147 and notice under Section 148.
2. Sustaining the addition of ?3,45,678 under Section 69C as unexplained purchases.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147 and Notice under Section 148:

The assessee contested the validity of the reassessment proceedings initiated under Section 147 and the notice issued under Section 148, arguing that these actions were illegal, unlawful, and without jurisdiction. The original assessment was completed under Section 143(3), where the returned income was accepted. Subsequently, the assessment was reopened based on the same documents that were previously examined, leading to the addition of ?6,27,007 under Section 69 of the Act.

The Tribunal examined whether the reopening of the assessment was valid, particularly considering the principle of "change of opinion." The Tribunal referred to the Supreme Court's judgment in CIT vs. Kelvinator of India Pvt. Ltd., which clarified that post-1st April 1989, the power to reopen assessments is broader but must be based on "tangible material" and not merely a "change of opinion." The Tribunal noted that during the original assessment, the details of purchases and sundry creditors were provided and reviewed by the assessing officer. The reassessment was initiated without any new material, purely based on a reevaluation of the same documents, which constitutes a "change of opinion."

The Tribunal concluded that the reassessment proceedings were invalid as they were based on a mere change of opinion, thus quashing the reassessment proceedings under Section 147 read with Section 148, and restoring the original assessment order dated 16-11-2009.

2. Sustaining the Addition of ?3,45,678 under Section 69C:

The assessee also challenged the addition of ?3,45,678 sustained by the CIT(A) as unexplained purchases under Section 69C. The CIT(A) had upheld the addition by applying the peak amount principle. However, since the Tribunal quashed the reassessment proceedings, the ground regarding the addition of ?3,45,678 became infructuous and was dismissed.

Conclusion:

The appeal was partly allowed. The reassessment proceedings under Section 147 read with Section 148 were quashed due to the invalidity arising from a mere change of opinion, and the sustained addition of ?3,45,678 under Section 69C was dismissed as infructuous.