2012 (4) TMI 455 - HC - Income Tax

Jurisdictional pre-conditions for reopening under Section 147 ITAT held that conditions were not satisfied in the present case - Revenue submitted that if the by mistake or lapse he does not examine a particular entry or a note in the return and overlooks it, there is no application of mind and thus it is not a case of mere change of opinion Held that - The matter should be examined by a larger Bench for elucidation and examination as the proposition clearly envisages a formation of opinion by the Income-tax Officer on the basis of material already on record provided the formation of such opinion is consequent on information in the shape of some light thrown on aspects of facts or law which the Income-tax Officer had not earlier been conscious of - it is a case where the Income-tax Officer looked at the facts and accepted the assessee s contention that the surplus was not taxable - referred to a larger Bench.

Issues Involved:

1. Jurisdictional pre-conditions for reopening under Section 147 of the Income Tax Act, 1961.
2. Whether the reassessment was based on a change of opinion.
3. Applicability of the principle of change of opinion.
4. Role of fresh material in reopening assessments.
5. Impact of audit objections on reopening assessments.

Detailed Analysis:

1. Jurisdictional Pre-conditions for Reopening under Section 147:

The court examined whether the Assessing Officer (AO) had a valid "reason to believe" that income had escaped assessment, which is a prerequisite for reopening under Section 147. The AO must form a tentative or prima facie opinion based on material evidence, record this opinion in writing, and ensure that this opinion is not based on mere suspicion. The tribunal found that the AO's reasons for reopening the assessment did not refer to any new or undisclosed facts or fresh material, implying a change of opinion rather than a valid reason to believe income had escaped assessment.

2. Whether the Reassessment was Based on a Change of Opinion:

The court noted that the AO had referred to the Notes on accounts, which were available during the original assessment. The tribunal held that this indicated a change of opinion, as no fresh material had come to the AO's notice. The court referred to the Full Bench decision in CIT vs. Kelvinator of India Ltd., which established that reopening based on a change of opinion is not permissible.

3. Applicability of the Principle of Change of Opinion:

The court discussed the principle of change of opinion, emphasizing that if the AO had already considered the material during the original assessment, reopening the assessment on the same material constitutes a change of opinion. The tribunal found that the AO had not raised any queries regarding the Rs. 173 lakhs during the original assessment, indicating a lapse on the AO's part, which cannot justify reopening the assessment.

4. Role of Fresh Material in Reopening Assessments:

The tribunal and the court highlighted that for reopening an assessment, fresh material must come to the AO's notice after the original assessment. Since the AO's reasons for reopening were based on the Notes on accounts available during the original assessment, the tribunal concluded that no fresh material justified reopening the assessment.

5. Impact of Audit Objections on Reopening Assessments:

The court noted that the AO's reasons for reopening the assessment were influenced by audit objections. However, according to the Supreme Court's decision in Indian & Eastern Newspaper Society vs. CIT, audit objections on points of law do not constitute "information" for reopening assessments. The court emphasized that reopening based on audit objections without fresh material is not valid.

Conclusion:

The court concluded that the tribunal correctly held that the jurisdictional pre-conditions for reopening under Section 147 were not satisfied. The reassessment was based on a change of opinion, and no fresh material justified reopening the assessment. The court referred the matter to a larger bench for further examination of the substantial questions of law related to the principle of change of opinion and the conditions for validly reopening assessments under Section 147.

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