2015 (4) TMI 635 - HC - Income Tax

Reopening of assessment - whether Tribunal was justified in upholding the legality of reassessment u/s.147 which sought to reopen a completed scrutiny assessment u/s.143(3) on the basis of audit objection and mere change of opinion on the same set of evidence and record - Held that - If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under subsection (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. The aforesaid provisions are clear and unambiguous. We find that by invoking the provision of Section 147 of the Act, the successor Assessing Officer has simply sat over the decision of the earlier Assessing Officer passed u/s.143(3) with respect to the issues sought to be covered u/s.147 of the Act. Hence, the CIT(A) was completely justified in anulling the order of the successor Assessing Officer. Decided in favour of the assessee.

Summary

Issues Involved:
1. Legality of reassessment under Section 147 of the Income Tax Act, 1961.
2. Validity of reassessment based on audit objections and change of opinion.

Issue-Wise Detailed Analysis:

1. Legality of reassessment under Section 147 of the Income Tax Act, 1961:

The appeal was filed under Section 260A of the Income Tax Act, 1961, against the judgment and order dated 28.08.2002 by the Income Tax Appellate Tribunal, Ahmedabad 'A' Bench. The original assessment was completed under Section 143(3) on 26.03.1992, determining a total income of Rs. 24,18,150/-. Subsequently, it was noticed that certain income chargeable to tax had escaped assessment, leading to the reopening of the assessment under Section 147, pursuant to a notice issued under Section 148 on 31.12.1992. The reassessment order under Section 143(3) read with Section 147 was passed on 28.02.1995.

The Tribunal allowed the Revenue's appeal, stating that the CIT(A) was not justified in cancelling the assessment, relying on the decision in Praful Chunilal Patel v. M.J. Makwana, [1999] 236 ITR 832 (Guj). The substantial question of law admitted for consideration was whether the Tribunal was justified in upholding the legality of reassessment under Section 147, which sought to reopen a completed scrutiny assessment under Section 143(3) based on audit objection and mere change of opinion on the same set of evidence and record.

2. Validity of reassessment based on audit objections and change of opinion:

The assessee's counsel argued that the reassessment proceedings were invalid as they were based on audit objections and a mere change of opinion on the same set of evidence already processed during the original scrutiny assessment. The counsel relied on a decision by a coordinate Bench in Special Civil Application No.8754 of 2014, which held that reassessment proceedings initiated solely on audit objections were a colorable exercise of jurisdiction.

The Revenue's counsel argued that the reassessment was justified based on the decision of the Apex Court in Calcutta Discount Co. Ltd. v. Income-Tax Officer, Companies District, Calcutta and Another, [1961] 41 ITR 191. The counsel contended that the reassessment was initiated within four years and was permissible even with complete disclosure of material facts, as held in Praful Chunilal Patel's case.

The Tribunal observed that the reassessment was initiated within four years, and the reasons for reopening were duly recorded. The Tribunal held that the power to make reassessment within four years of the relevant assessment year is attracted even in cases of complete disclosure of all relevant facts, as per the decision in Praful Chunilal Patel. The Tribunal concluded that the CIT(A) was not justified in annulling the reassessment order.

The High Court, however, found that the reassessment proceedings were initiated solely based on audit objections and a mere change of opinion. The Court noted that the details of payments, audit reports, and the assessee's claim under Section 80-HHC were already available with the Assessing Officer during the original assessment. The Court referred to the provisions of Sections 143(1), 143(3), and 147, emphasizing that the successor Assessing Officer simply reviewed the decision of the earlier Assessing Officer, which is not permissible.

Conclusion:

The High Court held that the CIT(A) was justified in annulling the reassessment order. The appeal was allowed, and the impugned judgment and order dated 28.08.2002 were quashed and set aside. The question raised in the appeal was answered in favor of the assessee and against the Revenue.