2014 (1) TMI 129 - AT - Income Tax

Validity of assessment u/s 143 r.w.s 147 - Held that - The recording of reasons before the issue of notice under section 148 has absolutely no nexus with the assessment made - Even though assessee belongs to Satyam Group of Companies, there is no evidence of siphoning of funds or escapement of income - What the Assessing Officer has done in the assessment is denial of the explanations given by the assessee with reference to various investments made through the books of accounts, various credits and loans obtained and also addition to fixed assets on the reason that the evidences have not been filed - Following Ganga Saran & Sons P. Ltd. vs. ITO and others 1981 (4) TMI 5 - SUPREME Court - If there is no rational nexus between the reasons and the belief , so that on such reasons the A.O. cannot have reason to believe that any part of the income of the assessee has escaped assessment and such escapement was by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts, the notice issued by the A.O. is to be struck as invalid. Following Hindustan Lever Ltd. vs. R.B. Wadkar, ACIT (No.1) 2004 (2) TMI 41 - BOMBAY High Court - The assessment made under sec.143(3) cannot be reopened under sec. 148 beyond period of 4 years as there is no failure on the part of the assessee to disclose fully and truly all the material facts in the original assessment itself. Reopening of the assessment is not permissible as there is no tangible material Following Ranjit Reddy vs. Dy.CIT, Hyderabad (2013) 144 ITD 361 2013 (6) TMI 424 - ITAT HYDERABAD - One needs to give a schematic interpretation to the words reasons to believe failing which, section 147 would give arbitrary power to Assessing Officer to reopen assessments on the basis of mere change of opinion, which cannot be per se reason to reopen. The A.O. has no power to review; he has the power to reassess - The A.O. has power to reopen, 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 Decided in favour of assessee.

Issues Involved:
1. Validity of reopening the assessment under section 147.
2. Nexus between the reasons recorded for reopening and the assessment made.
3. Tangible material for reopening the assessment.
4. Compliance with the four-year limitation period for reopening.
5. The concept of "change of opinion" and its applicability.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:
The primary issue was whether the reopening of the assessment under section 147 was valid. The assessee argued that the reopening was based on the mere statement of Sri B. Ramalinga Raju, Ex-Chairman of Satyam Computers Ltd., without any tangible material. The Tribunal emphasized that the Assessing Officer (AO) must have "reason to believe" that income had escaped assessment, which must be based on tangible material. The Tribunal relied on the Supreme Court's decision in CIT vs. Kelvinator of India Ltd., which held that the AO has no power to review but only to reassess based on tangible material. The Tribunal concluded that the reopening was invalid as it lacked tangible material and was based on suspicion.

2. Nexus Between the Reasons Recorded for Reopening and the Assessment Made:
The Tribunal found that there was no rational nexus between the reasons recorded for reopening the assessment and the actual assessment made. The reasons for reopening were related to the financial implications between the assessee-company and Satyam Computers Services Ltd., which were not established in the reassessment. The Tribunal held that the reasons must have a live link with the formation of the belief that income had escaped assessment. Since the assessment made had no relation to the reasons recorded, the reopening was deemed invalid.

3. Tangible Material for Reopening the Assessment:
The Tribunal emphasized the necessity of tangible material for reopening an assessment. It was noted that the AO did not have any fresh tangible material to justify the reopening. The Tribunal referred to the decision in Telco Dadajee Dhackajee Ltd. vs. Dy. CIT, which held that even for assessments completed under section 143(1), there must be tangible material to support the AO's belief that income had escaped assessment. Since no such material was present, the reopening was invalid.

4. Compliance with the Four-Year Limitation Period for Reopening:
The Tribunal observed that the assessment was reopened beyond the four-year limitation period. According to section 147, an assessment can only be reopened beyond four years if there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Tribunal found that there was no such failure by the assessee, and thus, the reopening beyond the four-year period was invalid.

5. The Concept of "Change of Opinion" and Its Applicability:
The Tribunal reiterated the Supreme Court's stance in CIT vs. Kelvinator of India Ltd., which held that the concept of "change of opinion" must be treated as an in-built test to check the abuse of power by the AO. The AO cannot reopen an assessment based on a mere change of opinion. The Tribunal found that the reopening in this case was based on a change of opinion without any new tangible material, making it invalid.

Conclusion:
The Tribunal allowed the appeals, holding that the reopening of the assessments under section 147 was invalid due to the lack of tangible material, absence of a rational nexus between the reasons recorded and the assessment made, non-compliance with the four-year limitation period, and the improper application of the concept of "change of opinion." The assessments were quashed, and the appeals were allowed.

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