2019 (3) TMI 82 - HC - Income Tax

Reopening of assessment - Original assessment u/S. 143(3) - basis of change of opinion - Failure to disclose truly and fully all material facts necessary for assessment - eligible for tax benefits u/s 80IA - HELD THAT - Assessee is a Contractor who is engaged in the construction work in respect of a Project on behalf of the developer and earns profit at various stages of the construction and does not have stakes in the financial viability of the project. AO held that he is being paid regularly for the work done by him and at no stage of work it owns any of the projects. AO held that the assessee is not a developer within the meaning of Sec. 80IA and, therefore, will not be eligible for tax benefits u/S. 80IA. ITAT held that there was no new material before the AO for assumption of valid jurisdiction for initiation of re-assessment proceedings and reopening of assessment u/S. 147/148. As held that reopening was done based upon the same material which was before the Assessing Officer during the regular assessment proceedings and there was no new tangible material. Court has carefully gone through the order passed by the Tribunal. The aforesaid order makes it very clear that reassessment proceedings by issuing notice u/s 148 were done merely on the basis of change of opinion. There was no tangible material to arrive at a conclusion that there was escapement of income by the assessment. AO has the power to reopen assessment provided there is tangible material to come to a conclusion that there is escapement of income from assessment and the reason must have a live link with formation of belief. In the present case as the reassessment proceedings were initiated on the basis of same material which was available before the AO and mere change of opinion led to reassessment. Department has certainly placed reliance upon a judgment case of Kalyanji Mavji Co., Vs. Commissioner of Income Tax West Bengal reported in 1975 (12) TMI 2 - SUPREME COURT however, the apex Court in the case of Indian Eastern Newspaper Society 1979 (8) TMI 1 - SUPREME COURT after taking into account the judgment delivered in the case of Kalyanji Mavji 1975 (12) TMI 2 - SUPREME COURT has held that change of opinion does not empower the AO to reopen the assessment and, therefore, the judgment relied upon by the learned counsel is of no help to the Department.

Summary

Issues Involved
1. Validity of reassessment proceedings under Section 147/148 of the Income Tax Act, 1961.
2. Eligibility of the assessee for deduction under Section 80IA(4) of the Income Tax Act, 1961.

Detailed Analysis

1. Validity of Reassessment Proceedings under Section 147/148 of the Income Tax Act, 1961

The primary issue revolves around the legality of the reassessment proceedings initiated by the Assessing Officer (AO) under Section 147/148 of the Income Tax Act, 1961. The AO issued a notice under Section 148 on 13/01/2014, and the reassessment was completed on 18/03/2015, assessing an income of ?38,16,851/-. The AO made an addition of ?34,22,251/- on account of disallowance under Section 80IA(4), stating that the assessee, being a contractor, was not eligible for the deduction.

The Tribunal quashed the reassessment order, holding that there was no new material before the AO to assume valid jurisdiction for the initiation of reassessment proceedings. The reassessment was based on the same material available during the original assessment proceedings, which the Tribunal deemed a "mere change of opinion." The Tribunal emphasized that a change of opinion does not permit the AO to reopen assessment proceedings.

The High Court upheld this view, citing the Supreme Court's judgment in Commissioner of Income Tax, Delhi Vs. Kelvinator of India Ltd., which mandates that the AO must have "tangible material" to conclude that there is an escapement of income from assessment. The reasons must have a live link with the formation of the belief. The High Court also referenced the case of Indian & Eastern Newspaper Society Vs. Commissioner of Income Tax, which clarified that an error discovered on reconsideration of the same material does not grant the AO the power to reopen assessments.

The High Court concluded that the reassessment proceedings were initiated merely on a change of opinion without any new tangible material, rendering the reassessment invalid and unsustainable in law.

2. Eligibility of the Assessee for Deduction under Section 80IA(4) of the Income Tax Act, 1961

The second issue pertains to the eligibility of the assessee for claiming a deduction under Section 80IA(4). The AO disallowed the deduction, arguing that the assessee, being a contractor engaged in road construction, did not qualify as a "developer" under Section 80IA(4) and thus was not eligible for the tax benefits.

The Tribunal, however, did not delve deeply into this issue as it quashed the reassessment proceedings on the primary ground of lack of new tangible material. The High Court, while dismissing the appeal, did not specifically address the eligibility under Section 80IA(4) but focused on the procedural lapse in the reassessment process.

Conclusion

The High Court dismissed the appeals, affirming the Tribunal's decision that the reassessment proceedings were invalid due to the absence of new tangible material, which constituted a mere change of opinion by the AO. The Court emphasized that reassessment based on the same set of facts and material is not permissible under the law, thereby quashing the reassessment order and rendering the disallowance under Section 80IA(4) moot in this context.