2018 (3) TMI 578 - AT - Income Tax

Reopening of assessment - validity of reasons to believe - Held that - Recording reasons there must be tangible material/information in possession of assessing officer, and he has to record reasons, why this tangible material/information makes him believe that income has escaped assessment. In the case, a conscious decision not to effect the disallowance of ₹ 49,97,704/- was taken by AO at the stage of assessment u/s 143(3). CIT(A) further observed that the AO after 4 years from the end of assessment year has changed his opinion, and when the opinion was changed, there were no new material before him except an audit objection. Moreover, the material/subject matter available in the audit objection was already examined by AO during the regular assessment under section 143(3) of the Act, by taking an affidavit from the assessee to satisfy the requirement of obtaining Form No. 15-I. CIT(A) rightly held that since the AO has changed his opinion and there were no new material before him except an audit objection, therefore, reopening u/s 147/148 was erroneous. - Decided in favour of assessee

Summary

Issues Involved:
- Validity of reassessment proceedings under section 147/148 of the Income Tax Act, 1961
- Requirement of tangible material for reopening assessment
- Impact of change of opinion on reassessment validity

Analysis:

Issue 1: Validity of reassessment proceedings under section 147/148
The appeal filed by the Revenue and the Cross-Objection filed by the assessee pertained to Assessment Year 2006-07, challenging an order passed by the CIT(A) in Appeal No.110/CIT(A)/Asl/Cir2/Asl./13-14. The original assessment was completed under section 143(3) of the Income Tax Act, 1961. Subsequently, the case was reopened under section 147/148 due to audit objections regarding non-deduction of TDS on payments to sub-contractors. The AO disallowed certain expenses, leading to the appeal before the CIT(A).

Issue 2: Requirement of tangible material for reopening assessment
The CIT(A) observed that for a valid reassessment under section 147/148, there must be tangible material or information justifying the belief that income has escaped assessment. In this case, the AO changed his opinion after four years from the original assessment, relying solely on an audit objection. The CIT(A) emphasized the need for a live link between the reasons recorded and the belief of income escapement, citing the Supreme Court judgment in CIT vs. Kelvinator India Ltd. The absence of fresh material and the presence of all facts during the original assessment indicated a mere change of opinion, rendering the reopening invalid.

Issue 3: Impact of change of opinion on reassessment validity
The ITAT Kolkata, comprising Shri S.S. Viswanethra Ravi and Dr. A.L. Saini, upheld the CIT(A)'s decision, emphasizing that there was no new material before the AO to justify reopening the assessment. The tribunal noted that the AO had failed to disallow expenses during the original assessment despite non-compliance with TDS requirements. The absence of tangible material for reassessment, coupled with the AO's change of opinion without fresh evidence, rendered the reopening under section 147/148 legally untenable. Consequently, the tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order and rendering the Cross-Objection redundant.

In conclusion, the ITAT Kolkata's judgment highlighted the importance of tangible material for reassessment under section 147/148, emphasizing the need for a valid reason and a live link to income escapement. The decision underscored that a mere change of opinion without new evidence does not warrant reassessment, ensuring procedural fairness and legal compliance in income tax proceedings.