2007 (10) TMI 58 - HC - Income Tax

Reassessment - Assessee contended that AO is not entitle for the reassessment proceeding on the basis of change of opinion until or unless having any other bases for reassessment, hence reassessment proceedings were rejected

Summary

Issues:
Challenge to notice under section 148 of the Income Tax Act, 1961 for the assessment year 2003-04 based on provision for deferred taxation in determining book profit under section 115 JB.

Analysis:
1. The assessing officer sought to reopen the assessment based on the provision for deferred taxation made by the assessee in the profit and loss account. The assessee argued that the provision was made in accordance with accounting standard 22 and not covered by the clauses in the Explanation to Section 115JB. The original assessment was completed without any additions to the book profit based on this provision.

2. The assessing officer's reasons for reopening the assessment included under-assessment of book profit due to the provision for deferred tax. The assessee objected to the reopening, citing a decision by the Income-tax Appellate Tribunal, Kolkata Bench. The assessing officer rejected the objection without providing reasons, leading to the petition challenging the reopening.

3. The court analyzed the situation and concluded that the assessing officer cannot reopen an assessment merely on a change of opinion without any new material or basis. The court emphasized that once an explanation is accepted during the original assessment, reopening the assessment on the same issue requires new material indicating an error in the original assessment.

4. The court highlighted that the assessing officer should consider relevant decisions, such as the one from the Kolkata Bench, which held that the provision for deferred taxation should not increase the book profit under section 115 JB. Ignoring such a decision without providing a valid reason for doing so is not justified.

5. The court further explained that the belief that income has escaped assessment due to excessive relief must be based on a definite basis. In this case, the provision for deferred taxation was not considered an unascertained liability during the original assessment, and no new reasons were provided to challenge this conclusion.

6. Consequently, the court ruled in favor of the petitioner, quashing and setting aside the notice issued under section 148 of the Act. The court found that the jurisdictional requirements for reopening the assessment were not fulfilled, leading to the success of the petition.