2012 (5) TMI 133 - HC - Income Tax

Notice issued u/s 148 - unutilized CENVAT credit to be included in the value of closing stock - Held that - The condition precedent for exercising power of reopening the assessment as provided in Section 147 and issue of notice u/s 148 is absent and the AO acted illegally in issuing notice of reassessment by forming a second opinion without having any tangible material to exercise jurisdiction - only the difference of opinion of the successor-in-office which has been the basis for reopening of the assessment cannot be accepted the meaning of the expression reason to believe needs to be given a schematic interpretation, otherwise Section 147 giving arbitrary powers to the AO to reopen assessments on the basis of mere change of opinion which cannot be per se reason to reopen - in favour of assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Justification for reopening the assessment under Section 147 of the Income Tax Act, 1961.
3. Whether the reopening was based on a mere change of opinion.
4. Compliance with the provisions of Section 145A regarding the accounting method.
5. Applicability of the Supreme Court's decisions in similar cases.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The petitioner challenged the notice dated 29th March 2011 issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the Assessment Year 2006-07. The petitioner argued that the notice was based on a mere change of opinion and lacked any new tangible material.

2. Justification for Reopening the Assessment:
The petitioner contended that the reopening of the assessment was unjustified as the Assessing Officer had already scrutinized the relevant details during the original assessment. The petitioner provided detailed responses to the Assessing Officer's queries regarding the unutilized cenvat credit, which were accepted, and no additions were made based on those details.

3. Change of Opinion:
The petitioner argued that the reopening was based on a mere change of opinion, which is not a valid ground for reassessment. The Supreme Court in the case of Kelvinator of India Limited (320 ITR 561) emphasized that reassessment should not be based on a mere change of opinion but requires tangible material indicating escapement of income.

4. Compliance with Section 145A:
The Assessing Officer's reason for reopening the assessment was that the petitioner followed the exclusive method of accounting for excise duty, which led to the understatement of profit by not including the unutilized cenvat credit in the closing stock. The petitioner had clarified this during the original assessment, and the Assessing Officer was satisfied with the explanation provided.

5. Applicability of Supreme Court Decisions:
The petitioner relied on the Supreme Court's decision in Kelvinator of India Limited, which held that reassessment should not be based on a mere change of opinion. The Revenue cited the Supreme Court's decision in PVS Beedies Private Limited (237 ITR 13), which allowed reopening based on factual errors pointed out by the audit party. However, the court found that the facts of the present case were different, as the original assessment had already scrutinized and accepted the petitioner's explanations.

Conclusion:
The court concluded that the reopening of the assessment was not justified as it was based on a mere change of opinion without any new tangible material. The Assessing Officer had already scrutinized and accepted the petitioner's explanations during the original assessment. Therefore, the notice issued under Section 148 and the subsequent order rejecting the petitioner's objections were set aside. The Special Civil Application was allowed, and the reassessment notice and order were quashed.

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