2023 (12) TMI 647 - AT - Income Tax

Reopening of assessment - notice beyond period of four years - reason to believe - HELD THAT - It is a well settled law that re-assessment proceedings cannot be initiated after beyond a period of four years unless the Department is able to demonstrate that such proceedings have been initiated on account of any failure on part of the assessee to truly and fully disclose all the material facts at the time of framing the assessment. In the instant case re-assessment proceedings were initiated on the ground that remuneration and interest are not allowable to the assessee in view of the provisions of Section 184(5) of the Act. In the case of CIT vs. Bhanji Lavji 1971 (1) TMI 6 - SUPREME COURT held that when primary facts necessary for assessment are fully and truly disclosed, the Assessing Officer is not entitled on change of opinion to commence proceedings for reassessment. In the case of CIT vs. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT held that the concept of 'change of opinion' must be treated as an in-built test to check abuse of power by AO - The Hon ble Supreme Court held that Assessing Officer has no power to review. In this case it was held that the AO can re-open the case only when there is tangible material would come to the conclusion that there is escapement of income from assessment. In the case of Jindal Photo Films Ltd. 1998 (5) TMI 20 - DELHI HIGH COURT held that when between the date of orders of assessment sought to be reopened and the date of forming of opinion by the AO, nothing new had happened, there was no new material which had come on record or no new information had been received by the AO, it was held that this was a case of mere change of opinion which did not provide jurisdiction to the Assessing Officer to initiate proceedings under Section 147 of the Act. In the case of CIT vs. Soh Kisan Cold Storage 1993 (4) TMI 20 - PATNA HIGH COURT held that since the AO had initiated re-assessment proceedings on the same set of facts which were present before him while making the original assessment and therefore, it was not permissible for him to initiate re-assessment proceedings u/s 147 of the Act. In the instant facts we observe that re-assessment proceedings have been initiated beyond the period of four years from the end of the relevant assessment year. Further, it has also not the case of the Department that any fresh or new material had been unearthed which would lead to the conclusion that income had escaped assessment in the original assessment proceedings on account of failure on part of the assessee to fully and truly disclose all material facts during the course of original assessment proceedings. In this case, it is observed that the Assessing Officer is only seeking to make a disallowance on account of re-appreciation of law with respect to the same set of facts which were present before him during the course of original assessment proceedings. This is a case of mere change of opinion, which is not permissible in law. Accordingly, we are of the considered view that the 147 proceedings are liable to be set-aside, looking into the instant facts. Decided in favour of assessee.

Summary

Issues involved:
The issues involved in this judgment are the validity of re-assessment proceedings initiated by the Revenue under Section 147 of the Income Tax Act, 1961, and the applicability of Section 184(5) in disallowing remuneration and interest paid by the assessee to its partners.

Validity of Re-assessment Proceedings:
The appeal was filed by the Revenue against the order passed by the Ld. Commissioner of Income Tax (Appeals)-IV, challenging the quashing of re-assessment proceedings initiated under notice u/s 148 of the Act. The Revenue contended that the assessee did not raise any objection before the completion of re-assessment proceedings, and the sanction for re-assessment was obtained from a higher authority than prescribed by the Act. The Tribunal observed that re-assessment proceedings cannot be initiated beyond four years unless there is a failure on the part of the assessee to disclose all material facts. It was held that the case was a mere change of opinion without any new material, leading to the dismissal of the appeal.

Applicability of Section 184(5):
The original assessment order allowed certain deductions to the assessee, which were later disallowed by the Assessing Officer under Section 184(5) of the Act during re-assessment proceedings. The Ld. CIT(A) had allowed relief to the assessee on technical grounds, leading to the Department's appeal. The Tribunal noted that the re-assessment was based on a re-appreciation of the law without any new material, constituting a mere change of opinion. Citing legal precedents, it was held that re-assessment cannot be initiated solely on the basis of a change in opinion and that the Assessing Officer must have tangible material to conclude income escapement. Consequently, the Tribunal dismissed the Department's appeal against the order passed by the Ld. CIT(A).