2017 (11) TMI 1033 - HC - Income Tax

Reopening of assessment - reasons to believe - change of opinion - Held that - What is the tangible material which compelled the AO, in all these four cases, to issue the impugned reassessment notices? None absolutely. This is not a case of the kind visualized, in Phoolchand (1993 (7) TMI 1 - SUPREME Court), where something relating to a past year comes to light in the course of assessment in a later assessment year; nor is the revenue arguing that some new and significant information about concealment of income brought to light. The revenue is indulging in fishing, by way of scrutinizing again, something that had been specifically gone into, i.e the character of income and the extent of deduction claimed. Now, Usha International (2012 (9) TMI 767 - DELHI HIGH COURT) referred to by the revenue itself points out that if some aspect, vital or important, is overlooked during assessment, per se the remedy are not reassessment, but rather, the corrective jurisdiction under Section 263. That such jurisdiction cannot be exercised for some reasons, would not entitle the revenue to resort to reassessment, which in this case, is nothing but impermissible review. Considering that the reassessment is premised on reasons which were explicitly gone into (evident from queries to the assessee during the original assessment) for previous years, in the three writ petitions, the notices are clearly unsustainable. Non issue of notice - As far as one year, goes additionally, the court notices that reassessment is not permissible, for the reasons articulated in Silverline (2015 (11) TMI 809 - DELHI HIGH COURT). There is no dispute that the revenue had issued a notice under Section 143 (2) but failed to complete the assessment. In these circumstances, the notice is not sustainable on this ground as well. Assessee appeal allowed.

Issues Involved:
1. Legitimacy of reassessment notices under Section 147/148 of the Income Tax Act.
2. Requirement of "fresh tangible material" for reopening assessments.
3. Whether reassessment can be based on re-examination of existing records.
4. Applicability of the principle of "change of opinion."
5. Validity of reassessment notices issued after the lapse of the statutory period.
6. Impact of non-issuance of notice under Section 143(2) on reassessment.

Issue-wise Detailed Analysis:

1. Legitimacy of reassessment notices under Section 147/148 of the Income Tax Act:
The court examined the legitimacy of the reassessment notices issued by the Assessing Officer (AO) under Section 147/148. The AO proposed to reopen completed assessments for previous years, citing reasons such as incorrect claims of deductions under Section 80IB and the inclusion of interest income as business income. The court scrutinized whether these reasons provided a valid basis for reopening the assessments.

2. Requirement of "fresh tangible material" for reopening assessments:
The court emphasized the necessity of "fresh tangible material" for the AO to justify reopening assessments. The Supreme Court's decision in Commissioner of Income Tax v Kelvinator India Ltd (2010) 320 ITR 561 (SC) was cited, which mandates that reassessment must be based on new and tangible material that provides a "live link" to the formation of a legitimate belief that reassessment is warranted.

3. Whether reassessment can be based on re-examination of existing records:
The court found that in the present cases, the AO's reasons for reassessment were based on a re-examination of existing records rather than new material. The court held that reassessment cannot be justified merely by re-evaluating the same materials that were considered during the original assessment. This approach was deemed impermissible as it amounted to a review rather than a reassessment.

4. Applicability of the principle of "change of opinion":
The court discussed the principle of "change of opinion," which restricts reassessment if it is based on the same facts and materials that were previously considered. The court referenced the decision in Income Tax Officer v Lakhmani Mewal Dass (1976) 103 ITR 437 (SC), which requires a rational connection between the material and the belief of income escapement. The court concluded that the AO's actions were not supported by new information, thus falling under the prohibited "change of opinion."

5. Validity of reassessment notices issued after the lapse of the statutory period:
For the assessment year 2005-06, covered in W.P.(C) 2795/2008, the court noted that the reassessment notice was issued after the statutory period had lapsed. The court referenced Principal Commissioner v. Silver Line (2016) 383 ITR 455 (Delhi)(HC), which held that reassessment is impermissible if the notice under Section 143(2) was not issued within the prescribed time frame. Consequently, the reassessment notice for this year was deemed invalid.

6. Impact of non-issuance of notice under Section 143(2) on reassessment:
In W.P.(C) 8177/2008, the court highlighted that the revenue had issued a notice under Section 143(2) but failed to complete the assessment. Citing the decision in Silverline (supra), the court ruled that reassessment is not permissible in such circumstances, further invalidating the reassessment notice for this year.

Conclusion:
The court quashed the impugned reassessment notices and all subsequent proceedings, ruling that the AO's actions were unsustainable due to the lack of new tangible material and the impermissible re-examination of existing records. The writ petitions were allowed without any order on costs.

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