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2023 (4) TMI 197 - HC - Income TaxReopening of assessment u/s 148 - original assessment was completed u/s 143(3) - change of opinion - HELD THAT - We are of the view that reopening of assessment in this case was entirely on account of change of opinion by the assessing officer. In the initial assessment proceedings u/s 143(3) of the Act, he had accepted the claim of the appellant that the outstanding RD Cess was a liability and accordingly did not make addition of the same to the income of the assessee. AO, upon change of opinion, had sought to rectify the assessment under Section 154 of the Act but that was given up when objection was raised. Thereafter, he had issued the notice u/s 148 of the Act and carried out the reassessment under Section 147 of the Act. In our opinion, this is clearly impermissible. Decided in favour of assessee.
Issues Involved:
1. Justification of reopening the assessment under Section 148 of the Income Tax Act, 1961. 2. Treatment of the Rural Development Cess reimbursed by the Food Corporation of India. Issue-wise Detailed Analysis: 1. Justification of Reopening the Assessment under Section 148 of the Income Tax Act, 1961: The appellant, a partnership firm engaged in the rice industry, challenged the reopening of its assessment for the assessment year 1998-1999. Initially, the appellant's income was assessed under Section 143(3) of the Income Tax Act, 1961, with a total income determination of Rs.40,943.00. However, the assessing officer later noticed an outstanding Rural Development Cess (RD Cess) of Rs.11,30,465.00 in the appellant's list of creditors, which was not paid during the relevant year but shown as a liability in the balance sheet. The assessing officer initially issued a notice under Section 154 of the Act to add this amount to the total income but dropped the proposal after the appellant's objection that the amount was neither credited to the profit and loss account nor claimed as expenditure. Subsequently, a notice under Section 148 was issued, and the assessment was reopened and completed under Section 147, adding the RD Cess to the appellant's income. The appellant argued that all material facts were disclosed during the original assessment, and the reopening was based on a mere change of opinion. The revenue authorities contended that since the reopening was within four years from the end of the relevant assessment year, it was permissible regardless of whether full disclosure was made initially. The Court, however, disagreed with the revenue's stance, citing the Supreme Court's decision in CIT v. Kelvinator of India Ltd, which emphasized that reassessment must be based on tangible material indicating income escapement, not merely a change of opinion. The Court also referenced the Gujarat High Court's ruling in Damodar H. Shah v. Asst. CIT, which held that once a proceeding under Section 154 is dropped, it is not open to initiate proceedings under Section 148 for the same issue. Upon thorough examination, the Court concluded that the reopening of the assessment was indeed due to a change of opinion, which is impermissible. The initial assessment had accepted the outstanding RD Cess as a liability, and the subsequent attempt to rectify this under Section 154 was abandoned after the appellant's objection. Therefore, the Court ruled in favor of the appellant, declaring the reopening of the assessment under Section 148 invalid. 2. Treatment of the Rural Development Cess Reimbursed by the Food Corporation of India: Given the Court's decision on the first issue, the second issue regarding the classification of the Rural Development Cess reimbursed by the Food Corporation of India as a trade receipt and its assessability as income was deemed unnecessary to address. The Court did not delve into this matter further. Conclusion: The appeal was allowed, and the reopening of the assessment under Section 148 was invalidated. The Court ruled in favor of the appellant-assessee on the first substantial question of law, rendering the second question moot. Consequently, the assessment order adding the RD Cess to the appellant's income was set aside.
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