2014 (11) TMI 813 - HC - Income Tax

Validity of reopening of assessment u/s 147 Claim u/s 80HHC verified and accepted by AO or not Held that - The Tribunal rightly relied upon Commissioner of Income Tax Vs. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA wherein it has been held that the concept of Change of Opinion on the part of AO to reopen the assessment does not stand obliterated after the substitution of Section 147 of the Income Tax Act, 1961, by the Direct Tax Laws (Amendment) Acts, 1987 and 1989 and that after the amendment, the AO has to have reason to believe that income has escaped assessment, but, this does not imply that the AO can reopen an assessment on mere change of opinion - the concept of Change of Opinion must be treated as an in-built test to check the abuse of power - while allowing the claim of the assessee u/s 80HHC, detailed inquiry was made and only after verifying the assessee s contention, which was found to be correct, the AO had allowed the claim of the assessee - It goes without saying that once a query was raised and it was answered satisfactorily by the assessee at the time of original assessment and when the same attained finality, after the AO gave his clear finding in favour of the assessee, it was not open to the AO to reopen the assessment the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
1. Validity of reopening assessment under Section 147
2. Interpretation of the concept of 'Change of Opinion' post-amendment

Issue 1: Validity of reopening assessment under Section 147

The Commissioner of Income Tax-II challenged the order by the ITAT regarding the respondent-assessee's income tax returns for A.Y. 1995-96 and 1997-98. The respondent-assessee's case was selected for scrutiny, leading to additions to their income and initiation of proceedings under Section 271(1)(c) of the Income Tax Act. The CIT(A) partly allowed the appeals, prompting the respondent to appeal to the ITAT. The ITAT's decision was the subject of the present appeals. Mr. Parikh, representing the appellant, contested the ITAT's decision, arguing that the Tribunal erred in quashing the reassessment order based on the assessee's defense that the issue was previously discussed. The ITAT's reliance on a specific judgment without considering other parts was also highlighted. The High Court, after reviewing the material, including previous orders, found that the AO had already verified and accepted the respondent's claim at the original assessment stage. Therefore, the AO's decision to reopen the assessment was deemed unwarranted, and the appeals were dismissed.

Issue 2: Interpretation of the concept of 'Change of Opinion' post-amendment

The High Court considered the concept of 'Change of Opinion' in the context of the AO's authority to reopen assessments post-amendment. Referring to the decision in "COMMISSIONER OF INCOME TAX VS. KELVINATOR OF INDIA LTD.", the Court emphasized that the AO must have a reason to believe that income has escaped assessment, and mere change of opinion is insufficient grounds for reopening. In this case, the AO had already verified and allowed the respondent-assessee's claim under Section 80HHC after thorough inquiry during the original assessment. The Court held that since the matter had been satisfactorily addressed and finalized in the original assessment, the AO's decision to reopen the assessment was unjustified. The Court affirmed that the concept of 'Change of Opinion' serves as a safeguard against the abuse of power by the AO. Consequently, the appeals were dismissed as lacking merit, with no order as to costs.

This detailed analysis of the judgment from the Gujarat High Court addresses the issues of the validity of reopening assessments under Section 147 and the interpretation of the 'Change of Opinion' concept post-amendment, providing a comprehensive understanding of the legal reasoning and decisions rendered by the Court.