2016 (6) TMI 1045 - HC - Income Tax

Reopening of assessment - claim of additional depreciation and also in respect of claim for grant of deduction under Section 80 IA - Held that - The assessee had made true and full disclosure of all relevant facts relating to the claim of additional depreciation and also in respect of claim for grant of deduction under Section 80 IA. A separate audit report in the prescribed form 10CCB in support of the claim for deduction under Section 80IA/80IB was also duly submitted. The assessee had also submitted reply pursuant to all queries made by AO during the assessment proceedings under Section 143(3) of the Act. In this view of the matter, the contention sought to be raised by the Revenue about non-disclosure on the basis of the failure on the part of the assessee in mentioned bifurcated amount of additional depreciation allowable in the depreciation chart is absolutely baseless. It is to be noticed that all that has been said by the AO is that after scrutiny assessment, it was observed that assessee has made incorrect claim of additional depreciation on CPP whereas, the claim for additional depreciation on CPP was allowed by the AO while framing the assessment under Section 143(3) after conscious consideration of the material on record. It is not even the case of the Revenue that the formation of the belief regarding the escapement of the assessment by the AO is based on any new material coming on record. Apparently, the formation of the belief by the AO regarding escapement of the assessment is based on re-appreciation of the material already available on record at the time of scrutiny assessment which amounts to mere change of opinion. Obviously, in the garb of purported exercise of the power to reassess, the AO cannot be permitted to review his own order or the order passed by his predecessor. Thus, the finding arrived at by the ITAT that the reassessment proceedings initiated by the AO by mere change of opinion is patently illegal, cannot be faulted with. The ITAT having arrived at the categorical finding that reopening of the completed assessment without any fresh material, merely on the basis of change of opinion of the AO, is without jurisdiction and erroneous, the appeal preferred by the Revenue has rightly been dismissed as having become infructuous. - Decided in favour of assessee

Issues Involved:
1. Validity of re-assessment proceedings initiated by the Assessing Officer (AO) based on a change of opinion.
2. The requirement of new material for reopening an assessment under Section 147/148 of the Income Tax Act.
3. The duty of the assessee to disclose all material facts necessary for assessment.
4. Jurisdiction of the AO to reopen assessments based on previously available information.

Detailed Analysis:

1. Validity of Re-assessment Proceedings Initiated by the AO Based on a Change of Opinion:
The primary issue in this case was whether the re-assessment proceedings initiated by the AO were valid, given that they were based on a change of opinion. The court emphasized that the AO must have a "reason to believe" that income has escaped assessment, which should be based on new material and not merely a reappraisal of existing information. The court referenced the Supreme Court's rulings in cases like "Calcutta Discount Co. Ltd. vs. Income-tax Officer" and "CIT vs. Kelvinator of India Ltd.," which state that reassessment based on a mere change of opinion is not permissible. The court concluded that the AO's action was based on reappreciation of already available material, amounting to a change of opinion, and thus, the re-assessment proceedings were invalid.

2. The Requirement of New Material for Reopening an Assessment Under Section 147/148 of the Income Tax Act:
The court highlighted the necessity for new material to justify the reopening of an assessment under Sections 147 and 148. It was noted that the AO must record reasons based on new information that suggests income has escaped assessment. The court reiterated the principles laid down by the Supreme Court in "S. Narayanappa vs. CIT" and "Sri Krishna Pvt. Ltd. vs. ITO," which mandate a rational connection between the new material and the belief that income has escaped assessment. In this case, the court found that no new material had come to light to justify the AO's belief, rendering the reassessment proceedings invalid.

3. The Duty of the Assessee to Disclose All Material Facts Necessary for Assessment:
The court examined whether the assessee had fulfilled their duty to disclose all material facts necessary for the assessment. It was established that the assessee had made a true and full disclosure of all relevant facts, including submitting the required audit report in form 10CCB for the claim under Section 80IA/80IB. The court referenced the Supreme Court's decision in "Income Tax Officer vs. Lakhmani Mewal Das," which clarified that once an assessee discloses all primary facts, their duty ends, and it is the AO's responsibility to draw correct inferences. The court concluded that the assessee had met their disclosure obligations, and the AO's claim of non-disclosure was baseless.

4. Jurisdiction of the AO to Reopen Assessments Based on Previously Available Information:
The court scrutinized the jurisdiction of the AO to reopen assessments based on information that was already available during the original assessment. Citing "CIT vs. Kelvinator of India Ltd.," the court emphasized that the AO does not have the power to review their own order or that of their predecessor under the guise of reassessment. The court found that the AO's belief regarding the escapement of income was based on previously available information, amounting to a mere change of opinion, which does not confer jurisdiction to reopen the assessment.

Conclusion:
The court upheld the ITAT's decision, affirming that the reassessment proceedings initiated by the AO were invalid due to being based on a change of opinion without any new material. Consequently, the appeal by the Revenue was dismissed as infructuous. The judgment reinforces the principle that reassessment must be grounded in new material and not on re-evaluation of existing information, ensuring protection against arbitrary use of reassessment powers by the AO.

← Previous Next →