2005 (3) TMI 388 - AT - Income Tax

Income Escaping Assessment - lottery business - Whether on a mere change of opinion the revenue is entitled to reopen the assessment made u/s 143(3) - HELD THAT - In the present case, the issues raised by the Assessing Officer for reopening of assessments are on the basis of original return filed by the assessee. The Assessing Officer had not issued notice u/s 143(2) for verification of the return. Thus, the assessment in respect of the return had become final. There was no fresh information available to the Assessing Officer on the basis of which it could be said with some amount of certainty that income of the assessee had escaped assessment. The issues raised by the Income-tax Officer were such that inquiries could be made and issues determined after consideration of the material on record, the evidence, if any, furnished by the assessee and submissions made by the assessee. As per the Hon'ble Punjab Haryana High Court's decision in the case of Vipan Khanna 2000 (7) TMI 2 - PUNJAB AND HARYANA HIGH COURT , such a course is not open u/s 147. Before a notice u/s 148 is issued for reopening of assessment under section 147, the Assessing Officer has to form an opinion on the basis of material on record that income of the assessee has escaped assessment. As already pointed out, on the basis of material available to the Assessing Officer at the time of the assessment u/s 143(3) or 143(1), the Assessing Officer cannot change his opinion for the purpose of making reassessment. There has got to be some material on the basis of which the Assessing Officer could have reasons to believe that the income of the assessee has escaped assessment. Such a belief is not permissible on the basis of mere change of opinion. The Assessing Officer in this case had not issued any notice u/s 143(2) considering the return as correct. Thus, we are of the considered view that reopening of assessments for all the three assessment years is not valid. The same are accordingly cancelled. In the result, whereas the appeals of the assessee are allowed the appeals of the Revenue are dismissed as infructuous.

Issues Involved:
1. Reopening of assessments under Section 147.
2. Validity of reassessment notices under Section 148.
3. Application of net profit rate and rejection of the method of accounting.
4. Validity of additions made by the Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)].

Detailed Analysis:

1. Reopening of Assessments under Section 147:
The assessee challenged the reopening of assessments for the years 1995-96, 1996-97, and 1997-98. The primary contention was that the reopening was based on a mere change of opinion, which is not permissible under Section 147. The assessee argued that all material facts were disclosed during the original assessments, and there was no failure to comply with notices or disclose necessary information. The Tribunal agreed, citing the proviso to Section 147, which restricts reopening after four years unless there is a failure to disclose fully and truly all material facts. The Tribunal referenced multiple judicial precedents, including the Supreme Court's decision in Foramer France, which supports the view that reopening on a mere change of opinion is not valid.

2. Validity of Reassessment Notices under Section 148:
The Tribunal examined the validity of notices issued under Section 148 for the assessment years in question. For the years 1995-96 and 1997-98, the original assessments were completed under Section 143(3), and the notices under Section 148 were issued after four years. The Tribunal found that the reasons for reopening did not demonstrate any failure by the assessee to disclose material facts. Hence, the notices were invalid. For the year 1996-97, the return was processed under Section 143(1) without scrutiny, and the notice was issued after four years. The Tribunal held that the AO did not have definite material to conclude that income had escaped assessment, making the notice invalid.

3. Application of Net Profit Rate and Rejection of the Method of Accounting:
The AO invoked Section 145(3) to reject the assessee's method of accounting and applied a net profit rate of 3% on the turnover. The assessee contended that their method of accounting was consistent and recognized, and there were no defects in their books of account. The Tribunal noted that the AO had accepted the method of accounting in the original assessments, and the reassessment was based on a mere change of opinion. The Tribunal found the rejection of the accounting method and the application of the net profit rate to be unjustified.

4. Validity of Additions Made by the AO and CIT(A):
The AO made significant additions to the assessee's income during reassessment, which were partly upheld by the CIT(A). The Tribunal scrutinized the basis for these additions, particularly concerning advance sales and purchases not reflected in the profit and loss account. The Tribunal concluded that the additions were based on a change of opinion rather than any new material facts or evidence. Consequently, the reassessments and the resultant additions were deemed invalid.

Conclusion:
The Tribunal held that the reopening of assessments for all three years was invalid due to the lack of failure on the part of the assessee to disclose material facts and the impermissibility of reopening based on a mere change of opinion. The reassessments were canceled, the appeals of the assessee were allowed, and the appeals of the Revenue were dismissed as infructuous.

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