2018 (10) TMI 73 - HC - Income Tax

Reopening of assessment - reasons to believe - scrutiny assessment on book profits - Held that - The petitioner underwent a scrutiny assessment where, the order passed by the Assessing Officer dealt with the issue of book profits. He arrived at a figure after working on the materials provided to him. However, according to the Assessing Officer in the proceeding under Section 147, the calculation of book profits is incorrect and that, the book profits claimed should be treated in a different way. According to the Assessing Officer, the computation done in the order of assessment is incorrect, resulting in escapement of income for assessment. The same, to my understanding, will constitute change of opinion. He had all the materials at the time of scrutiny assessment to form an opinion. He had done so as appearing in the order of assessment. There is no new material on record to suggest that, the assessee is guilty of suppression. Therefore, it cannot be said that, there are reasons for the Assessing Officer to arrive at a finding that, income has escaped assessment. The Assessing Officer, is trying to review his order of scrutiny assessment. In the facts of the present case, he is seeking to have a different opinion than that expressed in the order of scrutiny assessment, on the basis of the same materials. The same is not permissible. - decided in favour of assessee

Issues Involved:
1. Challenge to the notice under Section 148 of the Income Tax Act, 1961.
2. Validity of the assumption of jurisdiction under Section 147 read with Section 148 of the Income Tax Act, 1961.
3. Whether the Assessing Officer can change his opinion based on existing facts to reopen an assessment.
4. Whether the reasons for invoking Section 148 can be subsequently improved upon.
5. Whether the Assessing Officer had tangible material to believe that income had escaped assessment.

Detailed Analysis:

1. Challenge to the notice under Section 148 of the Income Tax Act, 1961:
The petitioner contested the notice dated April 7, 2010, issued under Section 148, and the subsequent order dated November 26, 2010, rejecting the petitioner's objections. The petitioner argued that the department had no valid reason to invoke Section 148, asserting that all necessary information was available with the Assessing Officer (AO) during the scrutiny assessment under Section 143(3) for the relevant financial year.

2. Validity of the assumption of jurisdiction under Section 147 read with Section 148 of the Income Tax Act, 1961:
The petitioner argued that the AO had no jurisdiction to invoke Sections 147 and 148 as the grounds cited (incorrect claim of depreciation under Section 115JB) were already considered during the original assessment. The AO had formed an opinion based on the materials provided and was not entitled to change this opinion to reopen the assessment. The petitioner cited several legal precedents, including *Amrit Feeds Limited v. Assistant Commissioner of Income Tax* and *Commissioner of Income Tax v. Kelvinator of India Ltd.*, to support their contention.

3. Whether the Assessing Officer can change his opinion based on existing facts to reopen an assessment:
The petitioner maintained that the AO's attempt to reopen the assessment constituted a change of opinion, which is not permissible. The AO had already dealt with the issue of book profits during the original assessment and had all the necessary materials to form an opinion. The court referenced *Kelvinator of India Ltd.*, which emphasized that the concept of "change of opinion" acts as a check against the arbitrary use of power by the AO. The court concluded that the AO's action was indeed a change of opinion and thus invalid.

4. Whether the reasons for invoking Section 148 can be subsequently improved upon:
The petitioner argued that the reasons for invoking Section 148 could not be improved upon through oral submissions or affidavits in opposition. The court agreed, referencing cases like *Ranglal Bagaria (HUF) v. Assistant Commissioner of Income-Tax & Ors.* and *Anil Kumar Bhandari v. Joint Commissioner of Income-Tax & Ors.*, which held that the reasons must be clear and cannot be supplemented later.

5. Whether the Assessing Officer had tangible material to believe that income had escaped assessment:
The court examined whether the AO had tangible material to justify the belief that income had escaped assessment. It was noted that the AO had all relevant materials during the original assessment and had formed an opinion based on these materials. The court found no new material evidence indicating that the petitioner had suppressed information. Consequently, the AO's belief that income had escaped assessment was unfounded and constituted a review rather than a reassessment.

Conclusion:
The court quashed the invocation of Section 147 by the AO, stating that the AO's action was an impermissible change of opinion. All subsequent steps taken based on the invalid invocation were also quashed. The writ petition was disposed of accordingly.

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