2008 (2) TMI 464 - AT - Income Tax

Summary

Issues Involved:
1. Validity of notices issued u/s 148 of the IT Act, 1961.

Summary:

Validity of Notices Issued u/s 148 of the IT Act, 1961:

The appeal concerns the validity of notices issued u/s 148 of the IT Act, 1961. The original assessment was completed u/s 143(3) at an income of Rs. 3,61,830. The AO issued a notice u/s 148, believing that income chargeable to tax had escaped assessment due to an excess claim of deduction u/s 80-IA. The assessee argued that the notice was issued due to a change of opinion, which is against the provisions of s. 147. The CIT(A) upheld the AO's action, stating that the excess deduction granted was not due to a change of opinion but a detection of excess deduction.

The Tribunal examined whether the jurisdictional conditions for issuing a notice u/s 148 were met. It was noted that under the substituted s. 147 (w.e.f. 1st April, 1989), the AO must have reason to believe that income has escaped assessment. However, if the case falls within the proviso to s. 147, both conditions must be fulfilled: the AO must have reason to believe that income chargeable to tax has escaped assessment and that this occurred due to the assessee's failure to disclose fully and truly all material facts necessary for the assessment.

The Tribunal found that the assessment for the year 1998-99 was made u/s 143(3) and the notice u/s 148 was issued after the expiry of four years from the end of the relevant assessment year. The AO's action was based on an audit party's opinion, which cannot be regarded as 'information' for the purpose of reopening the assessment. The Tribunal referred to the decision in CIT vs. Kelvinator of India Ltd., which held that a mere change of opinion cannot form the basis of reopening a completed assessment.

It was concluded that the initiation of reassessment proceedings u/s 147/148 based on the audit report and change of opinion was not legally sustainable. Consequently, the notice issued u/s 148 and the subsequent assessment were quashed. The appeal filed by the assessee was allowed.