2018 (8) TMI 1556 - HC - Income Tax

Validity of reopening of assessment - existence of substantial question of law - Held that - hen primary facts were disclosed in the return it cannot be said that income chargeable to tax which had escaped assessment came to the notice only subsequently. There is no infirmity with the order of the learned Tribunal which calls for interference of this Court. In M.Janardhana Rao Vs. Joint Commissioner of Income Tax 2005 (1) TMI 14 - SUPREME COURT the Supreme Court held that the principles contemplated under Section 100 of the Code of Civil Procedure would apply to Section 260-A of the 1961 Act too. Right of appeal is not automatic. Right of appeal is conferred by statute. When statute confers a limited right of appeal restricted only to cases which involve substantial questions of law it is not open to this Court to sit in appeal over the factual findings arrived at by the Appellate Tribunal. The questions raised in this appeal do not meet the tests laid down by the Supreme Court for holding that the questions are substantial questions of law. We are constrained to hold that there is no question of law let alone any substantial question of law involved in this appeal. - Decided against revenue

Issues Involved:
1. Validity of the notice under Section 148 of the Income Tax Act, 1961.
2. Alleged change of opinion by the Assessing Officer.
3. Applicability of Explanation 1 to Section 147 of the Income Tax Act, 1961.
4. Determination of substantial questions of law under Section 260A of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the notice under Section 148 of the Income Tax Act, 1961:
The respondent assessee filed a return of income on 30.9.2008 for the assessment year 2008-2009 showing Nil income. The assessment was completed under Section 143(3) of the Income Tax Act, 1961, accepting the returned income. However, it was later noticed that an advance of ?1,05,93,698/- received by the respondent assessee had not been credited to the profit and loss account but to the software development account. Consequently, a notice was issued under Section 148 of the IT Act, leading to reassessment. The respondent assessee contended that the notice was bad in law as it was based on a change of opinion and was barred by limitation. The Appellate Commissioner upheld the action of reopening the assessment, but the Tribunal found that the reassessment was based on the same set of facts without any fresh material, thus constituting a change of opinion.

2. Alleged change of opinion by the Assessing Officer:
The Tribunal found that the original assessment under Section 143(3) was completed by accepting the return, and during the assessment proceedings, a revised return was filed. The Assessing Officer was aware of the recovery of ?1,05,93,698/- on semi-finished software, and it could not be said that the Assessing Officer had not applied his mind to this amount. The Tribunal relied on the Supreme Court's judgment in CIT v. Kelvinator India Ltd., which held that reopening of assessment without fresh material is purely based on a change of opinion. The Tribunal concluded that the reassessment was invalid as it was based on a change of opinion.

3. Applicability of Explanation 1 to Section 147 of the Income Tax Act, 1961:
Explanation 1 to Section 147 states that the production of account books or other evidence before the Assessing Officer does not necessarily amount to disclosure. However, in this case, the receipts were separately indicated in the income tax returns, and thus, Explanation 1 was not attracted. The Tribunal found that the primary facts were disclosed in the return, and it could not be said that the income chargeable to tax escaped assessment only subsequently.

4. Determination of substantial questions of law under Section 260A of the Income Tax Act, 1961:
Section 260A provides that an appeal to the High Court can be made only if it involves a substantial question of law. The Court referred to the principles laid down by the Supreme Court in Sir Chunilal V. Mehta & Sons Ltd. vs. Century Spg. & Mfg. Co. Ltd. and Hero Vinoth Vs. Seshammal, which state that a substantial question of law must be debatable, not previously settled, and must have a material bearing on the decision of the case. The Court found no substantial question of law in this appeal, as the questions raised did not meet the tests laid down by the Supreme Court. The appeal was dismissed as it did not involve any substantial question of law.

Conclusion:
The High Court dismissed the appeal, holding that there was no substantial question of law involved. The reassessment was invalid as it was based on a change of opinion without any fresh material, and the primary facts had been disclosed in the return. The Court emphasized that the right of appeal is conferred by statute and is limited to cases involving substantial questions of law.

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