2022 (3) TMI 136 - AT - Income Tax

Reassessment order u/s 147 - Eligible reasons for reopen the assessment - distinction between the reason to suspect and the reason to believe - default in valuation of stock - HELD THAT - It is important here to note that though the main reason for reopening was in respect of purported accommodation benefit assessee received, (details not discussed because it is evident from a perusal of the reasons recorded supra). It is noted from the reassessment order pursuant to reopen that the AO has not made any addition on this score. In other words no adverse view has been taken by the AO in respect of allegation of accommodation benefit as alleged in the reasons recorded to re-open. Therefore, it is seen that AO dropped this issue while framing reassessment after being satisfied with the explanation given by the assessee and after verifications. So this issue loses its significance and need to be ignored for further adjudication of the legal issue as if it was not part of the reasons recorded by the AO to justify re-opening the assessment of the assessee. The issue regarding valuation of stock was duly enquired into by the earlier AO in the original assessment proceedings which culminated in the assessment order u/s 143(3) Since the AO has reopened this issue (valuation of stock) merely on perusal of the assessment records and not on the basis of any fresh materials, the Ld. CIT(A) has rightly opined that action of the AO to examine this issue again by resorting to re-opening, can at best to be termed as change of opinion . And it is settled position of law that change of opinion cannot confer jurisdiction on the AO to reopen the duly completed assessment u/s 143(3) of the Act. The reason is that the AO does not enjoy the power of review. Therefore in the present case it is clear that the action of the present AO tantamount to review the action of the earlier AO who has accepted the valuation of stock in his scrutiny assessment u/s 143(3) of the Act dated 16.03.2015. Therefore, the present AO lacks jurisdiction u/s 147 of the Act to reopen the completed assessment u/s 143(3) of the Act dated 16.03.2015 merely on change of opinion . In the light of the aforesaid discussion, we hold that the Ld. CIT(A) has rightly appreciated the contentions raised by the assessee regarding the legal ground raised by the assessee against the validity of the reopening and has rightly held the action of the AO to be bad in law - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the reopening of assessment under Section 147/148 of the Income Tax Act, 1961.
2. Merits of the addition made by the Assessing Officer (AO) on account of unexplained discrepancy in stock.

Issue-wise Detailed Analysis:

1. Validity of the reopening of assessment under Section 147/148 of the Income Tax Act, 1961:

The primary contention was whether the reopening of the assessment by the AO was valid under Section 147/148 of the Income Tax Act, 1961. The AO issued a notice under Section 148 on 31.03.2018, intending to reassess the income for AY 2012-13 due to alleged discrepancies, including an unexplained discrepancy in stock valuation amounting to ?14.70 crores.

The Tribunal examined the provisions of Section 147, which allows the AO to reassess income if there is "reason to believe" that income has escaped assessment. The Tribunal emphasized the need for a "reason to believe" rather than a "reason to suspect," highlighting that the AO must have a foundation based on information and belief based on reason.

The Tribunal noted that the reopening was initiated after four years from the end of the relevant assessment year. Therefore, the additional condition in the first proviso to Section 147 applied, requiring the AO to record that the escapement of income was due to the assessee's failure to disclose fully and truly all material facts necessary for assessment. The Tribunal found that the AO did not mention any such failure by the assessee in the reasons recorded for reopening, which is a jurisdictional requirement.

The Tribunal referred to several judicial precedents, including the Hon'ble Supreme Court's decision in Ganga Saran and Sons P. Ltd. v. ITO and the Hon'ble Bombay High Court's decision in Hindustan Lever, which stressed that the reasons for reopening must be self-explanatory and based on relevant material.

The Tribunal also observed that the AO's reasons for reopening included an alleged accommodation entry of ?25 lakhs, which was dropped during the reassessment. Hence, the only remaining issue was the discrepancy in stock valuation, which the AO identified from the assessment records without any fresh tangible material.

The Tribunal concluded that the AO's action to reopen the assessment based on a mere "change of opinion" was invalid. The original scrutiny assessment had already examined the stock valuation issue, and reopening it without fresh material amounted to a review, which the AO is not empowered to do.

2. Merits of the addition made by the AO on account of unexplained discrepancy in stock:

Given that the Tribunal upheld the Ld. CIT(A)'s decision that the reopening was invalid, it did not delve into the merits of the addition made by the AO regarding the unexplained discrepancy in stock. The Tribunal stated that since the reopening itself was held to be bad in law, examining the merits of the case would be academic.

Conclusion:

The Tribunal upheld the Ld. CIT(A)'s order quashing the reassessment order under Section 147/143(3) as invalid. The appeal of the revenue was dismissed, and the order was pronounced in the open court on 23rd February 2022.