2024 (3) TMI 1154 - AT - Income Tax

Reopening of assessment u/s 147 - Reasons to believe for escapement of income - power of reopening v/s review - notice issued after expiry of four (4) years - assessee claim of deduction u/s 80IB(10) - HELD THAT - As in the original assessment the AO had noted about the housing project in question and noted that the assessee had claimed deduction u/s 80IB(10) and after verification of the claim has accepted the claim after due application of mind. And it is further noted from perusal of the reasons recorded AO had belief of escapement of income only after verifying the records of the assessee viz assessment folder wherein original assessment proceedings would be available including assessee s submission on this issue. Therefore we find that there was no new/tangible material other than the documents already available in the original assessment records. In such a scenario it can be safely inferred that AO has re-opened the assessment on mere change of opinion which impugned action AO is not permitted to do because he doesn t enjoy the power of review as held in the case of CIT v/s Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT wherein after taking note of the amendment brought to section 147 of the Act w.e.f. 1st April 1989 has held that though post amendment the power to re-opening is much wider however a schematic interpretation to the words reason to belief has to be given otherwise the AO would exercise arbitrary power by re-opening the assessment on mere change of opinion. The Hon ble Court clarified that the AO has no power to review but has power to re-assess and such power to re-assess has to be based on fulfilment of certain pre-conditions one of which is such re-assessment cannot be on the basis of a mere change of opinion. The Hon ble Court held even after 1st April 1989 the AO has power to re-open provided there is tangible material to come to the conclusion that there is escapement of income from assessment. In the present case AO only on re-appraisal of the material available at the time of original assessment has re- opened the assessment under section 147 of the Act by forming a belief that the assessee is not eligible to claim deduction under section 80IB(10) of the Act due to non-completion of the project within the stipulated time. Thus considering the facts and material on record in the light of well settled legal principle leads to the irresistible conclusion that the AO has re-opened the assessment on mere change of opinion without having in his possession any tangible material. Therefore it amounts to review of the original assessment order passed in case of the assessee which is legally impermissible. Therefore re-opening assessment un/s147 of the Act in the instant case is not valid - Decided in favour of assessee.

Issues Involved:

1. Validity of notice issued u/s 148 of the Income Tax Act, 1961.
2. Conditions precedent for re-opening assessment u/s 147 of the Act.
3. Examination of "Reasons Recorded" by AO for re-opening assessment.
4. Application of the principle of "Change of Opinion" in re-assessment.

Summary of Judgment:

1. Validity of Notice Issued u/s 148:
The assessee challenged the notice issued u/s 148 of the Income Tax Act, 1961, arguing that the conditions precedent as provided by u/s 147 of the Act were not satisfied. The Tribunal examined the "Reasons Recorded" by the AO for re-opening the assessment and found that the AO had issued the notice on the basis of records already available from the original assessment.

2. Conditions Precedent for Re-opening Assessment u/s 147:
The Tribunal noted that the original assessment for AY 2009-10 was completed u/s 143(3) on 23.12.2011, and the notice for re-opening u/s 148 was issued on 30.03.2016, which was after the expiry of four years from the end of the relevant assessment year. Therefore, the AO had to satisfy two pre-conditions: recording "Reasons to believe, escapement of income" and ensuring that the assessee had not fully and truly disclosed all material facts necessary for the assessment.

3. Examination of "Reasons Recorded" by AO:
The Tribunal found that the AO had re-opened the assessment based on verification of records already available during the original assessment. There was no new/tangible material other than the documents already in the original assessment records. The Tribunal concluded that the AO had re-opened the assessment on a mere change of opinion, which is not permissible as per the Supreme Court's ruling in CIT v/s Kelvinator of India Ltd., [2010] 320 ITR 561 (SC).

4. Application of the Principle of "Change of Opinion" in Re-assessment:
The Tribunal emphasized that the AO does not have the power to review but only to re-assess, and such re-assessment must be based on tangible material indicating escapement of income. The Tribunal found that the AO's action was based on a re-appraisal of the same material considered during the original assessment, amounting to a change of opinion. Consequently, the re-opening of the assessment was deemed invalid.

Conclusion:
The Tribunal quashed the notice u/s 148 dated 30.03.2016 and declared the re-assessment framed by the AO as null and void. Since the assessee succeeded on the legal issue, other grounds became academic and were not adjudicated. The appeal of the assessee was allowed.

Order pronounced in the open court on 22/03/2024.

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