2022 (1) TMI 691 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - Existence of reason to believe - eligibility of reasons to believe - allowability of expenses under the head Employee Cost - HELD THAT - There can be no duality of opinion that it is the assessee s duty to disclose all primary facts. Once the assessee discloses all the primary facts the inferences to be drawn thereon is a matter within the exclusive province of authority of the Assessing Officer. This duty of assessee does not extend beyond disclosure of primary facts. The assessee is not expected to suggest an inference on those facts correct or otherwise. In a given case the fact that the assessee had suggested a particular inference which upon reconsideration does not find favour with the Assessing Officer subsequently may not furnish a justifable ground to hold that there was non-disclosure of primary facts. Undoubtedly as pointed out by Shri Sharma the issue has not been specifically dealt with in the assessment order. However the said consideration is not decisive. As laid down in the case of Aroni Commercials Ltd. 2014 (2) TMI 659 - BOMBAY HIGH COURT once a query is raised during the assessment proceedings and the assessee has furnished a reply thereto it implies that the query so raised was a subject matter of consideration of the Assessing Authority. It is not an immutable rule that an assessment order should contain reference and/or discussion on such query. For the foregoing reasons we are satisfied that in the peculiar facts of the case the impugned notice under section 148 of the Act 1961 can be said to be based on a mere change of opinion. In view of the settled legal position that mere change of opinion does not furnish a justification for formation of reason to believe that income chargeable to tax has escaped assessment we find the impugned action legally unsustainable. Respondent attempted to salvage the position by canvassing a submission that for the assessment year 2015-16 the Assessing Officer has rejected the petitioner s contention as regards the employee cost and that constitutes a tangible material for reopening the assessment. We are afraid to accede to this submission - aforesaid submission overlooks the fact that the Assessing Officer who passed the original assessment order for assessment year 2014-15 can be said to have been satisfied with the explanation furnished by the petitioner. Looking at the issue from a slightly different perspective it can be said that the Assessing Officer could have called for the material and information sought by the Assessing Officer who carried out the assessment for the year 2015-16 and yet would have formed the same opinion different from the one formed by the Assessing Officer for the assessment year 2015-16. The issue thus squarely falls in the realm change of opinion . In our view the only reason that in the succeeding assessment years the Assessing Officer has come to a different opinion by itself may not be a ground to reopen the assessment for an earlier year wherein a view was conclusively recorded by the concerned Assessing Officer. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the notice under section 148 of the Income Tax Act, 1961, for reopening the assessment for the assessment year 2014-15.
2. Validity of the order rejecting the petitioner’s objection to the reopening of the assessment.
3. Whether the reopening of the assessment constitutes a mere change of opinion.

Issue-wise Detailed Analysis:

1. Legality of the notice under section 148 of the Income Tax Act, 1961, for reopening the assessment for the assessment year 2014-15:

The petitioner challenged the notice dated 26th February 2019, issued under section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 2014-15. The reopening was based on the belief that income chargeable to tax had escaped assessment. The petitioner argued that all relevant facts, documents, and materials were already considered by the Assessing Officer during the original assessment, and there was no tangible material to warrant reopening. The court noted that the reopening of an assessment within four years requires the formation of a reason to believe that income chargeable to tax has escaped assessment, based on tangible material. The court emphasized that a mere change of opinion cannot justify the reopening of an assessment.

2. Validity of the order rejecting the petitioner’s objection to the reopening of the assessment:

The petitioner filed objections against the reasons for reopening recorded by the Assessing Officer, which were disposed of by an order dated 18th October 2019. The petitioner contended that the reopening was based on a mere change of opinion, as the issue of remittance of employee costs was already considered during the original assessment. The court examined the material on record, including the assessment order, notice under section 148, reasons recorded by the Assessing Officer, objections thereto, and the order disposing of the objections. The court found that the issue of overseas remittances was indeed considered during the original assessment, and the reopening was based on the same set of facts, constituting a mere change of opinion.

3. Whether the reopening of the assessment constitutes a mere change of opinion:

The court referred to the Supreme Court judgment in Commissioner of Income-Tax Vs. Kelvinator of India Ltd., which established that a mere change of opinion cannot justify the reopening of an assessment. The court also cited the Division Bench judgment in Aroni Commercials Ltd. Vs. Deputy Commissioner of Income-tax, which reiterated that the power to reassess cannot be exercised on the basis of a mere change of opinion. The court concluded that the reopening of the assessment for the assessment year 2014-15 was based on a mere change of opinion, as the issue of employee costs was already considered during the original assessment. The court held that the impugned notice under section 148 and the order disposing of the objections were legally unsustainable.

Conclusion:

The court allowed the petition, quashing the notice dated 26th February 2019, issued under section 148 of the Income Tax Act, 1961, and the order dated 18th October 2019, disposing of the objections raised by the petitioner. The court ruled that the reopening of the assessment was based on a mere change of opinion, which does not constitute a valid reason to believe that income chargeable to tax had escaped assessment. The court emphasized that the Assessing Officer's power to reassess must be based on tangible material and not on a mere change of opinion.