2023 (10) TMI 1284 - HC - Income Tax

Reopening of assessment u/s 147 - reason to believe - lump sum compensation receipts - HELD THAT - As during the course of assessment proceedings, the petitioner had filed letters - also furnished the orders of the Court and related documents such as memorandum of understanding, entered into between the petitioner and the Ratna developers, ledger, account of the lump-sum compensation and the bank statement showing that the payment was made with regard to the lump sum compensation. AO at the time of original assessment proceedings after satisfying himself about the correctness of the lump-sum compensation had passed an assessment order under section 143(3) of the Act? - there was no reason for the author of the notice u/s 148 to have reason to believe or come to a conclusion that the income had escaped assessment of the year under consideration. Reading of the annual report and the auditor s report indicates that in note 19 of other expenses and entry of lump-sum compensation was made. Even in response to the notice under Section 143(2) of the Act, a specific response was given under the headlump- sum compensation, producing the orders, the Court and relating documents to justify the lump-sum compensation paid by the company. Whereas the letter would indicate that a reference was made to memorandum of understanding between Ratna Bhumi Developers Private Limited and Ratna Developers along with bank statements earmarking the payments made to Ratna Developers for the compensation - during the entire scrutiny assessment, the question of the debit of an amount of Rs. 135.00 lakhs was gone into. In fact, the reasons recorded would indicate the fact that the very records were sought to be claimed as the basis of information for reopening. Reasons recorded indicate that there was no new tangible material or information or fresh evidence which came into the possession of the assessing officer and the entire basis of the reasons to believe was founded on the original assessment proceedings. Having built an opinion on the basis of the original assessment records which did not call for any clarifications and having accepted the same, it was not open for the Assessing Officer to review and recall that opinion and take a different stand based on the same set of facts and having accepted the view after scrutiny, as held by the Supreme Court in the decision in case of Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT . Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of change of opinion as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Apparently, the twin condition i.e. existence of new tangible material and failure on the part of the assessee to disclose all material facts (truly and fully), does not exist. Thus, jurisdiction under Section 148 cannot be exercised. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 148 of the Income Tax Act, 1961.
2. Whether there was a "change of opinion" by the Assessing Officer.

Summary:

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

The petitioner, a company incorporated under the Companies Act, 1956, filed its return of income on 30.09.2012. The case was taken up for scrutiny assessment, and the petitioner provided all necessary documents, including audited accounts and justifications for a lump sum compensation of Rs. 135 lakhs. The original assessment was completed under Section 143(3) without any additions. The assessment was reopened once in 2015, and no additions were made. However, another notice under Section 148 was issued on 30.03.2019 to reopen the assessment for A.Y. 2012-13 without providing reasons until 15.10.2019. The petitioner objected, but the objections were dismissed.

Issue 2: Whether there was a "change of opinion" by the Assessing Officer

The petitioner argued that the reopening was based on the same documents and information already scrutinized during the original assessment, indicating a mere change of opinion. The court noted that the Assessing Officer had no new tangible material or fresh evidence, and the reasons for reopening were based entirely on the original assessment records. The court cited the Supreme Court's decision in Commissioner of Income Tax v. Kelvinator of India Ltd., emphasizing that a mere change of opinion cannot justify reopening an assessment.

Conclusion:

The court held that the reopening of the assessment was invalid as it did not meet the twin conditions of new tangible material and failure by the assessee to disclose all material facts fully and truly. The petition was allowed, and the notice under Section 148 dated 30.03.2019 was quashed and set aside. Rule was made absolute.