2023 (10) TMI 657 - HC - Income Tax

Reopening of assessment u/s 147 - Change of opinion - reasons to believe - large increase in cenvat creditors against reduction in business income as compared to the preceding year and that there was mismatch in the amount paid to related persons under section 40A(2)(b) - HELD THAT - The petitioner in detail had furnished copies of audited financial accounts, copy of the assessment order of the year 2013-14, details of payments made to persons specified, copy of the ledger, accounts of the loans taken by the company etc. All this material was considered and an assessment order was passed on 26th of August 2016. All these further indicate that after a notice of demand was issued u/s 156 revenue had raised no demand. After a period of five years, the revenue has thought it fit to reopen the assessment proceedings purportedly under the guise of the same records on the ground that the material embedded in the records could not be discovered. This obviously is the stand taken by the revenue based on change of opinion as the return filed by the petitioner for the Assessment Year 2014-15 was scrutinised u/s 143 (3) of the Act. Once the assessee makes a true and full disclosure of the primary facts at the time of the original assessment and which could have been discovered with due diligence by the Income Tax Officer, drawing an inference which appears subsequently to be alone, is a mere change of opinion with regard to that inference which would not justify the action under the Act. One must read the concept of change of opinion as an inbuilt test to check abuse of power by the AO. AO has power to reopen provided there is tangible material to come to the conclusion that there is an escapement of income from assessment. It is a well settled principle of law that reasons must have a live link with the formation of the belief. What is evident from the facts of the cases in absence of a live link between the reasons to believe and the material on record. This court is of the opinion that when all facts were correctly disclosed and were on record during the assessment proceedings for the relevant assessment year and the assessing officer has not consciously taxed the income which is now sought to be looked into, it is a clear case of change of opinion. Decided in favour of assessee.

Summary

Issues Involved:

1. Legality of the reopening of assessment under Section 148 of the Income Tax Act, 1961.
2. Jurisdiction of the Assessing Officer in reopening the assessment.
3. Whether the reopening was based on a 'Change of Opinion'.

Summary:

Issue 1: Legality of the reopening of assessment under Section 148 of the Income Tax Act, 1961

The petitioner challenged the notice dated 31.03.2021 issued under Section 148 of the Income Tax Act, 1961, proposing to re-assess the income/loss for the Assessment Year 2014-15, and the order dated 27.01.2022 disposing of the objections raised by the petitioner. The petitioner argued that the reopening was based on a 'Change of Opinion' as the return filed for the Assessment Year 2014-15 was scrutinized under Sec. 143(3) and the deductions were duly considered and allowed by the Assessing Officer.

Issue 2: Jurisdiction of the Assessing Officer in reopening the assessment

The petitioner contended that the action of the respondent in reopening the assessment was without jurisdiction as no income had escaped assessment. The petitioner had submitted all relevant documents during the original assessment in 2016, which were duly considered, and an assessment order was passed under Section 143(3). The respondent's counsel argued that the petitioner failed to disclose fully and truly all necessary facts during the assessment proceedings, and the scheme of tax evasion was embedded in the annual report, audited P&L account, balance sheet, and books of account in such a manner that it could be detected only after detailed verification.

Issue 3: Whether the reopening was based on a 'Change of Opinion'

The court observed that the reasons for reopening indicated that the requisite material facts were embedded in such a manner that they could not be discovered by the AO at the time of the original assessment proceedings. The court found that there was no fresh tangible material available with the assessing authorities to assume jurisdiction under Section 148. The reopening was based on the same records and was a clear case of 'Change of Opinion'. The court cited the decision in Parasuram Pottery Works Co. Ltd vs. CIT, emphasizing that once the assessee makes a true and full disclosure of the primary facts, the duty of the assessee ends, and it is for the Income-tax Officer to draw the correct inference.

Conclusion:

The court quashed and set aside the notice dated 31 March 2021 and the order dated 27 January 2022, allowing the petition on the grounds that the reopening of the assessment was based on a 'Change of Opinion' and lacked fresh tangible material, thus constituting an abuse of power by the Assessing Officer.