2024 (12) TMI 1264 - HC - Income Tax

Reopening of assessment - reason to believe - disallowance in accordance with Rule 8D r/w Section 14A as well as the depreciation claimed by the petitioner on various assets - HELD THAT - AO has issued the notice for re-opening only on the basis of perusal of the assessment records for the year under consideration and in absence of any new tangible material available with him. It is therefore apparent that it is the case of mere change of opinion. AO during the regular course of assessment has called for the details of depreciation as well as the dis-allowance to be made u/s 14A - assessee has also dis-allowed the interest qua MSME in the return of income which is also stated in the objections raised by the petitioners. Therefore AO had no jurisdiction to re-open the assessment on the basis of the above details which were already scrutinised during the course of the regular assessment. The impugned notice is issued beyond the period of four years for the Assessment Year under consideration and in absence of any allegation to the effect that the assessee has failed to disclose truly and fully all material facts relevant for the assessment as per the provisio to Section 147 AO would not have jurisdiction to re-open the assessment. See M/S. Kelvinator of India Ltd 2010 (1) TMI 11 - SUPREME COURT AO has no power to review; he has the power to re-assess. But reassessment has to be based on fulfillment 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. One must treat the concept of change of opinion as an in-built test to check abuse of power by the AO. Hence after 1st April 1989 AO has power to re-open provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief.

Summary

Issues Involved:

1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment.
2. Allegation of change of opinion without new tangible material.
3. Jurisdiction to reopen assessment beyond four years.

Issue-wise Detailed Analysis:

1. Legality of the Notice Issued Under Section 148:

The petitioner challenged the notice dated 27th March 2021, issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment for the Assessment Year 2014-15. The petitioner argued that the notice was based solely on the perusal of existing assessment records without any new tangible material, thus constituting a mere change of opinion. The petitioner contended that all material facts necessary for the assessment were fully and truly disclosed during the original assessment proceedings. The court found that the Assessing Officer issued the notice for reopening based on the assessment records without any new information, deeming it a case of change of opinion.

2. Allegation of Change of Opinion Without New Tangible Material:

The petitioner argued that the reopening was initiated due to a mere change of opinion, as the issues raised in the reasons for reopening were already scrutinized during the original assessment. The petitioner highlighted that details regarding depreciation and disallowance under Section 14A, as well as the provision for interest under the MSME Act, were provided during the original assessment. The court agreed with the petitioner, stating that the reopening was based on the same details scrutinized earlier, and no new tangible material was presented to justify the reopening.

3. Jurisdiction to Reopen Assessment Beyond Four Years:

The petitioner also contended that the notice was issued beyond the four-year period stipulated for reopening assessments, without any allegation of failure to disclose material facts fully and truly. The court noted that the impugned notice was indeed issued beyond the four-year period, and in the absence of any allegation of non-disclosure of material facts, the Assessing Officer lacked jurisdiction to reopen the assessment as per the proviso to Section 147 of the Act.

Conclusion:

The court concluded that the notice for reopening the assessment was issued based on a mere change of opinion without any new tangible material, thus lacking the jurisdictional foundation required under the Income Tax Act. The court quashed the impugned notice dated 27th March 2021, holding that the reopening was not justified under the circumstances, and allowed the petition. The decision emphasized the need for tangible material to justify reopening assessments and reinforced the legal principle that a mere change of opinion does not suffice for such actions.