2019 (2) TMI 659 - HC - Income Tax

Reopening of assessment - proceedings under section 154 were also initiated against the petitioner on the same set of facts - reason to believe - Held that - The Hon'ble Supreme Court in the case of State of Uttar Pradesh and others vs. Aryaverth Chawal Udyog and others 2014 (11) TMI 1095 - SUPREME COURT has held that mere change of opinion while perusing the same material cannot be a reason to believe that a case of escaped assessment exists requiring assessment proceedings to be reopened. Even if, at the time of passing of the original assessment order, there is a mistake or nonapplication of mind, it would not justify the respondent Department to re-initiate the proceedings of reassessment. In the case, in hand, the Assessing Authority had applied its mind and passed the original assessment order and there is no fresh material on record permitting the respondent Department to initiate re-assessment proceedings. The impugned notice dated 29.03.2014 amounts to change of opinion on the same set of facts, which were available at the time of passing the original assessment order. This Court is of the opinion that the initiation of the re-assessment proceedings is bad in law and is liable to be set aside. - Decided in favour of assessee

Summary

Issues:
Challenge to re-assessment proceedings for Assessment Year 2007-08 under section 148 of the Income Tax Act, 1944.

Analysis:
The petitioner, an individual assessee running a Proprietorship concern, challenged re-assessment proceedings initiated against him for the Assessment Year 2007-08. The original assessment order assessed a total income of ?6,54,620/-. A survey under section 133-A revealed the petitioner's involvement in a partnership concern and a Proprietorship run by him. The case was selected for scrutiny as per CBDT guidelines. Subsequently, proceedings under section 154 were initiated due to unverified sundry credits of ?79,88,253/-. Allegations of fake liabilities led to an alleged tax escapement of ?24,44,404. After initiating proceedings under section 154 and then dropping them, re-assessment proceedings under section 148 were initiated based on unverified sundry creditors' declarations, leading to the present challenge.

The petitioner argued that re-assessment was based on a change of opinion without fresh material, as all facts were disclosed during the original assessment and previous section 154 proceedings. Citing various Supreme Court judgments, the petitioner contended that re-assessment requires the assessee's failure to disclose material facts, not a mere change of opinion by the tax authority. The respondent countered these arguments.

Upon review, the Assessing Authority noted discrepancies in creditors' accounts during the original assessment but accepted the petitioner's explanation supported by documentary evidence. Re-assessment was initiated based on alleged non-genuine creditors, similar to the dropped section 154 proceedings. Referring to the Supreme Court's stance on "change of opinion," the Court held that re-assessment without fresh material due to a mistake or non-application of mind during the original assessment is impermissible.

Consequently, the Court quashed the re-assessment notice dated 29.03.2014 under section 148 of the Income Tax Act, 1944, deeming it a change of opinion without legal basis. The writ petition was allowed in favor of the petitioner, declaring the initiation of re-assessment proceedings as legally flawed and setting aside the impugned notice.