2024 (8) TMI 229 - HC - Income Tax

Reopening of assessment u/s 147 - Reason to believe - AO passing the order u/s 143(3) has disallowed 20% of the total sundry creditors reflected in the balance-sheet - HELD THAT - Considering the submissions made by both the learned advocates for the parties and on perusal of the facts emerging from the material placed on record, it is not in dispute that the issue of sundry creditors was considered by the AO during the regular course of assessment by issuance of notice followed by notice in respect of the sundry creditors appearing in the balance-sheet of the petitioner. As apparent that the very issue of sundry creditors has been considered during the course of regular assessment and therefore, the respondent-AO cannot assume the jurisdiction to reopen the assessment for the year under consideration on the very same issue as it would amount to change of opinion. From the above observation made by the respondent-AO while rejecting the objection it is clear that there is violation of principle of merger as the very issue of sundry creditors is pending before the CIT(Appeals) and the respondent-AO therefore, cannot reopen the assessment on the ground that the remaining 80% is required verification in re-assessment proceedings. AO while framing the regular assessment under section 143(3) after considering the total sundry creditors made addition of 20% thereof which is subject matter of appeal before the CIT(Appeals). Therefore, the very basis of the rejection on the objection by the respondent is fallacious and contrary to the principle of merger. Merely on the basis of the audit objection, the respondent-Assessing Officer could not have assumed the jurisdiction to issue the impugned notice u/s 148 of the Act to reopen the assessment for the year under consideration. The petition succeeds and is accordingly allowed.

Issues Involved:
1. Validity of the notice issued under section 148 of the Income Tax Act, 1961 for reopening the assessment.
2. Whether the reopening of assessment is based on a change of opinion.
3. Applicability of the principle of merger.
4. Jurisdiction of the Assessing Officer to issue the notice based on audit objections.

Detailed Analysis:

1. Validity of the notice issued under section 148 of the Income Tax Act, 1961 for reopening the assessment:
The petitioner challenged the notice issued under section 148 of the Income Tax Act, 1961 dated 29.03.2021 for the Assessment Year 2016-2017. The petitioner argued that the notice was issued without any new tangible material and was based on the same facts already considered during the original assessment. The court observed that the issue of sundry creditors amounting to Rs. 10,51,28,281/- was already considered by the Assessing Officer during the regular assessment process, and hence, reopening the assessment on the same issue was not justified.

2. Whether the reopening of assessment is based on a change of opinion:
The petitioner contended that the reopening was based on a mere change of opinion, which is not permissible under the law. It was argued that the Assessing Officer had already considered the sundry creditors during the original assessment and made an addition of 20% of the total sundry creditors. The court agreed with the petitioner, stating that reopening the assessment on the same issue amounts to a change of opinion, which is not allowed. The court emphasized that the belief for reopening must be based on new, tangible material and not on a mere change of opinion.

3. Applicability of the principle of merger:
The petitioner argued that the issue of sundry creditors was already pending before the CIT(Appeals) and hence, the principle of merger applies, preventing the Assessing Officer from reopening the assessment on the same issue. The court concurred, stating that once the issue of sundry creditors is a subject matter of appeal before the CIT(Appeals), the Assessing Officer cannot reopen the assessment for further verification of the same issue. The court highlighted that the principle of merger was violated as the issue of sundry creditors was pending before the CIT(Appeals).

4. Jurisdiction of the Assessing Officer to issue the notice based on audit objections:
The respondent argued that the notice under section 148 was issued based on an audit objection, which indicated an underassessment of income. The court, however, held that merely on the basis of an audit objection, the Assessing Officer could not assume jurisdiction to issue the notice under section 148. The court noted that the audit objection did not provide any new tangible material that could justify the reopening of the assessment.

Conclusion:
The court concluded that the reopening of the assessment was not justified as it was based on a change of opinion and violated the principle of merger. The court quashed and set aside the impugned notice dated 29.03.2021 issued under section 148 of the Act and the order rejecting the objection dated 22.03.2022. The petition was allowed, and the rule was made absolute to the aforesaid extent, with no order as to costs.

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