2023 (10) TMI 1501 - AT - Income Tax

Validity of reopening of assessment - reassessment beyond four years - reasons to believe - Revenue appeal was dismissed on the ground of Low Tax Effect and then recalled by order in M.A on the ground that though the tax effect is less than Rs. 50 lacs because of the audit objection involved in this case which is exclusion clause 8(c) of the CBDT Circular No. 3/2018. Whether the CIT(A) is erred in holding the reopening of the assessment is bad in law without appreciating the fact that the Revenue has reopened the case based on some materials/information available which is within the meaning of clause (ca) of explanation 2 of section 147? - HELD THAT - As in the case of CIT Vs. Kelvinator of India Ltd. 2002 (4) TMI 37 - DELHI HIGH COURT clearly held that the AO does not have any jurisdiction to review his own order his jurisdiction is confined only to rectification of mistake as contained in section 154 of the Act that too mistake apparent on record and not on debatable issues. Thus the only remedy left with the department is to invoke Revision proceedings u/s. 263 of the Act to revise the assessment order by the Commissioner of Income Tax on the ground that the assessment order is erroneous and prejudicial to the interest of Revenue. Wherever a regular assessment order is passed by AO it is presumed that the order was passed after application of mind thereby AO are not given powers to reopen the assessment on the same set of facts in the absence of tangible material. We have no hesitation in holding that when there is no failure on the part of the assessee in disclosing the income and No new tangible material on record the reopening of assessment after 4 years period amounts to change of opinion only. Therefore the reopening of assessment invalid in law. Thus the finding arrived by the Ld. CIT(A) does not require any interference. Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issue considered in this judgment is whether the reopening of the assessment for the Assessment Year 2008-09 was valid under Section 147 of the Income Tax Act, 1961. This issue revolves around the question of whether there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, which would justify the reassessment beyond four years from the end of the relevant assessment year.

ISSUE-WISE DETAILED ANALYSIS

Reopening of Assessment Beyond Four Years

Relevant Legal Framework and Precedents: The legal framework for reopening assessments is governed by Section 147 of the Income Tax Act, 1961. The first proviso to this section stipulates that if an assessment under Section 143(3) has been completed, no action can be taken after four years from the end of the relevant assessment year unless there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The judgment also references the Supreme Court's decision in CIT Vs. PVS Beedies Pvt. Ltd., which discusses the conditions under which reopening is permissible.

Court's Interpretation and Reasoning: The Tribunal examined whether the reopening of the assessment was justified based on the materials available at the time of the original assessment. It noted that the materials used to justify the reopening were already on record during the original assessment proceedings. The Tribunal emphasized that there was no new tangible material that came to light after the original assessment that would justify reopening the case.

Key Evidence and Findings: The Tribunal found that the reasons recorded for reopening the assessment were based on the same materials that were available during the original assessment. It was noted that the assessee had disclosed all relevant facts in its original return, and there was no failure on its part to disclose material facts fully and truly.

Application of Law to Facts: Applying the legal principles from the case of CIT Vs. Kelvinator of India Ltd., the Tribunal held that the Assessing Officer does not have the power to review an assessment order unless there is tangible material indicating that income has escaped assessment. The Tribunal found that the reopening was based on a mere change of opinion rather than new tangible material.

Treatment of Competing Arguments: The Revenue argued that the reopening was valid due to an audit objection and the Supreme Court's decision in PVS Beedies Pvt. Ltd. However, the Tribunal noted that the Gujarat High Court in Sandesh Ltd. had distinguished the PVS Beedies case, holding that reopening cannot be based solely on an audit objection without the Assessing Officer forming an independent belief.

Conclusions: The Tribunal concluded that the reopening of the assessment was invalid as it was based on a change of opinion without any new tangible material. The Tribunal upheld the decision of the CIT(A) that the reopening was bad in law.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal quoted the Supreme Court in Kelvinator of India Ltd., emphasizing that "the Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment 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."

Core Principles Established: The Tribunal reinforced the principle that reopening of assessments beyond four years is not permissible without new tangible material indicating that income has escaped assessment. It also highlighted that reopening based on a mere change of opinion is not valid.

Final Determinations on Each Issue: The Tribunal determined that the reopening of the assessment was invalid and dismissed the Revenue's appeal. It held that there was no failure on the part of the assessee to disclose fully and truly all material facts, and the reopening was based on a change of opinion rather than new tangible material.