2022 (6) TMI 892 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - cash deposits under the head income from other sources on the basis of sale agreement copy furnished by the assessee - second round of reopening - HELD THAT - The facts borne out from the record clearly indicate that the present assessment proceedings have been re-opened second time. The assessee has furnished copies of reasons recorded for first re-opening of assessment and second re-opening of assessment. We have perused reasons recorded by the AO for re-opening of assessment on both occasions and we find that the assessment has been re-opened for the first time to verify cash deposits found in bank account. The assessee had offered an explanation and explained source for cash deposits into bank a/c, as per which, the assessee had received cash consideration for sale of property and said consideration received is source for cash deposits into bank a/c. The assessee had also filed copy of agreement between the parties dated 16.09.2011. AO after considering necessary details has completed re-assessment proceedings and accepted returned income. The assessment had been once again re-opened u/s.147 On perusal of reasons recorded by the AO, we find that the basis for reasonable belief of escapement of income formed by the AO, is copy of sale agreement furnished by the assessee at the time of scrutiny assessment proceedings, which is clear from Para No.3 of reasons recorded by the AO dated 23.03.2017. From the above, it is very clear that the AO has formed reasonable belief of escapement of income on the basis of very same materials which was available at the time of first re-assessment proceedings. Therefore, we are of the considered view that re-opening of assessment in the present case is on the basis of change of opinion, but not on the basis of fresh tangible material come to the possession of the AO subsequent to completion of first re-assessment proceedings As in Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT clearly held that the AO has power to re-open the assessment provided, there is tangible material came to the possession of the AO subsequent to completion of original assessment. In this case, from the reasons recorded by the AO what we could notice is that there is no fresh tangible material come to the knowledge of the AO subsequent to completion of first re-assessment proceedings. Therefore, we are of the considered view that this is a classic case of change of opinion, which is not permissible under the law. Appeal of assessee allowed.

Summary

Issues: Re-opening of assessment u/s.147 of the Act, Addition of cash deposits to bank account under 'income from other sources', Validity of re-opening based on change of opinion.

Re-opening of assessment u/s.147 of the Act:
The case involved re-opening of assessment under section 147 of the Act for the assessment year 2012-13. The assessment was re-opened twice, first for verification of cash deposits and later to tax the same cash deposits under 'income from other sources'. The assessee contended that the second re-opening was based on a change of opinion, as the same material was available during the first re-assessment. The Assessing Officer (AO) formed a reasonable belief of escapement of income based on the sale agreement furnished by the assessee during scrutiny proceedings. The Tribunal analyzed the reasons recorded by the AO and held that there was no fresh tangible material for the second re-opening. Citing the decision in CIT v. Kelvinator of India Ltd., the Tribunal concluded that the re-opening was a classic case of change of opinion, not permissible under the law. Consequently, the Tribunal quashed the re-assessment order passed by the AO.

Addition of cash deposits to bank account under 'income from other sources':
The Commissioner of Income Tax (Appeals) had upheld the addition of Rs.54,25,330 towards excess cash deposits into the bank account under 'income from other sources'. The assessee challenged this addition before the Tribunal. The assessee had explained that the cash deposits were from the consideration received for the sale of property, supported by a copy of the sale agreement. However, the AO re-opened the assessment to tax the consideration received under 'income from other sources'. The Tribunal noted that the AO's reasonable belief for re-opening was based on the same material provided during the first re-assessment. As the re-opening was deemed invalid, the addition of cash deposits under 'income from other sources' was also questioned. Ultimately, the Tribunal allowed the appeal filed by the assessee, indicating a favorable decision on this issue.

Validity of re-opening based on change of opinion:
The crux of the matter revolved around the validity of re-opening the assessment based on a change of opinion. The assessee argued that the second re-opening was unjustified as it relied on the same material available during the first re-assessment. On the other hand, the Revenue contended that the re-opening was valid due to fresh tangible material suggesting income escapement. The Tribunal carefully examined the reasons recorded by the AO for both re-openings and concluded that the second re-opening lacked new tangible material post the first re-assessment. Relying on legal precedent, the Tribunal held that re-opening the assessment on the basis of a change of opinion was impermissible. Consequently, the Tribunal ruled in favor of the assessee, deeming the re-opening of assessment as bad in law and quashing the re-assessment order.

In conclusion, the Tribunal's judgment in this case highlighted the importance of tangible fresh material for re-opening assessments and emphasized the prohibition on re-opening based on a mere change of opinion. The decision ultimately favored the assessee, leading to the allowance of the appeal.