2014 (7) TMI 1061 - AT - Income Tax

Reopening of assessment u/s 147 Change of opinion Held that - The assessee has furnished the details of the sub-contractor expenses and work expenses which had included the payment made to sub-contractors - the basic information was very much available with the AO - The onus was on the AO to further investigate - during the course of Appellate Proceedings, it cannot be judge that how all accounts and related evidences were examined by the AO during the assessment proceedings - The only thing which can be judged is that the basic information was available on record before him and on the scrutiny of the same the AO had not made any disallowance - the possibility of forming an opinion about the expenditure claimed by the assessee could not be ruled out - the AO is not entitled to change the opinion even after the reopening has been done within four years. Following the decision in GUJARAT POWER CORPORATION LTD Versus ASSISTANT COMMISSIONER OF INCOME TAX 2012 (9) TMI 69 - Gujarat High Court -there was no evidence in possession of the AO that the assessee in fact was involved in such practice - AO had reason to believe that to verify the identity of sub-contractors and genuineness of the work, examination is required - It was not the reason to believe that an income had escaped assessment but he has reason to believe that an examination is required - There should be a definite reason so as to form a belief that some income had escaped assessment - Then only reopening is permissible it was presumptive in nature and proceeded merely to further investigate the case on the point on which an inquiry had already conducted by the AO during the course of original assessment order - Such an action of reopening cannot be approved thus, the order of the CIT(A) is upheld Decided against revenue.

Summary

Issues:
1. Validity of reopening assessment under section 147 of the Income Tax Act.
2. Application of the principle of "change of opinion" in assessment proceedings.

Detailed Analysis:

Issue 1: Validity of reopening assessment under section 147 of the Income Tax Act
The case involved an appeal filed by the Revenue challenging the order of the learned CIT(A)-I, Baroda, annulling the re-opened assessment under section 147. The Revenue contended that the Assessing Officer (AO) had the power to reassess income under section 147, as per the Supreme Court's decision in Shri Krishna Pvt. Ltd. vs ITO. The AO had reopened the assessment due to discrepancies in subcontract receipts, suspecting diversion of funds. However, the CIT(A) found that all details regarding subcontract expenses had been provided during the original assessment under section 143(3). The CIT(A) held that the AO lacked valid reasons to reopen the assessment, as the issue had already been addressed during the original assessment. The CIT(A) cited legal precedents emphasizing that a change of opinion without new relevant facts does not warrant reopening. The Tribunal upheld the CIT(A)'s decision, annulling the reassessment as void ab initio.

Issue 2: Application of the principle of "change of opinion" in assessment proceedings
The respondent assessee argued that the AO had already formed an opinion during the original assessment regarding subcontract expenses, which was supported by documentary evidence submitted in compliance with the AO's queries. The respondent contended that the AO's decision not to disallow the expenses was based on a valid opinion formed during the assessment. The respondent further argued that the reasons recorded for reopening the assessment were vague and presumptive, lacking concrete evidence of income escapement. The Tribunal agreed with the respondent, emphasizing that the AO's reasons for reopening were based on presumptions and lacked specific evidence of income escapement. The Tribunal noted that the AO's intention was to further investigate without clear grounds for believing income had escaped assessment. Citing legal precedents, the Tribunal affirmed that a valid reason to believe income escapement is necessary for reopening an assessment. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to annul the reassessment.

In conclusion, the Tribunal's judgment centered on the validity of reopening assessments under section 147 and the application of the "change of opinion" principle in assessment proceedings. The decision highlighted the importance of concrete reasons and new facts to justify reassessment, emphasizing that a mere change of opinion without fresh evidence does not warrant reopening assessments. The Tribunal's detailed analysis and reliance on legal precedents underscored the significance of adherence to procedural requirements and substantive grounds in income tax assessments.