2022 (5) TMI 340 - HC - Income Tax

Reopening of assessment u/s 147 - Eligibility of reason to believe - change of opinion - opinion on the issue of rent payable - HELD THAT - In the present case, during original assessment proceedings, the Assessing Officer had issued notices to the assessee seeking reasons for decline in the gross profit. The Respondent/assessee vide replies dated 22nd January, 2009 and 09 th February, 2009 had stated that decline in gross profit was due to the rent of Mumbai Branch premises and rent of A Barracks and provisions for pay revision. Subsequently, the Assessing Officer had issued notice under Section 154 of the Act on the issue of Other Provisions . The Respondent/assessee, in response to said notice had submitted a break-up of Other Provisions , which included the rent of A Barracks of Rs. 4.19 Crores. Keeping in view the aforesaid facts, this Court is of the view that the issue of rent of A Barracks was within the knowledge of the Assessing Officer when he had passed the original assessment order as well as the subsequent order under Section 154 of the Act. Consequently, this Court is in agreement with the opinion of the ITAT that reassessment proceeding in the present case was based on a change of opinion and the same, therefore, cannot be sustained.

Summary

Issues:
Challenge to ITAT order on reassessment for Assessment Year 2007-08 based on rent payable; Interpretation of "reason to believe" for reassessment; Concept of "change of opinion" post 1989; Validity of reassessment proceedings based on change of opinion; Knowledge of Assessing Officer regarding rent issue during original assessment.

Analysis:
The High Court heard an Income Tax Appeal challenging the ITAT's Order for the Assessment Year 2007-08. The Appellant contended that the ITAT erred in not considering that the original assessment order did not address the rent issue leading to reassessment. The Appellant argued that the ITAT wrongly set aside the assessment proceedings citing change of opinion, which was not expressed during scrutiny, thus, no change of opinion occurred.

The Court referred to the principle that post 1989, reassessment can occur if the Assessing Officer has a "reason to believe" income escaped assessment, emphasizing that this reason cannot be a mere change of opinion but must be based on tangible material. Citing the Supreme Court's ruling in Commissioner of Income Tax vs. Kelvinator of India Limited, the Court highlighted that "change of opinion" acts as a safeguard against abuse of power by the Assessing Officer.

In this case, it was noted that during the original assessment, the Assessing Officer was aware of the rent issue as the assessee had provided explanations regarding the decline in gross profit linked to rent payments. Subsequently, when the Assessing Officer sought clarification on "Other Provisions," the rent issue was again addressed by the assessee. The Court concluded that since the rent issue was known to the Assessing Officer during the original assessment and subsequent proceedings, the reassessment based on this issue amounted to a change of opinion, rendering it unsustainable.

The Court held that no substantial question of law arose in the appeal, and thus, the appeal was dismissed along with any pending applications.