2022 (4) TMI 803 - AT - Income Tax

Reopening of assessment u/s 147 - eligibility of reasons to believe - undisclosed sundry creditors - whether there was any fresh tangible material in the possession of the AO at the time of recording of the 'reasons to believe'? - HELD THAT - In the present case, it is noticed by us that the case of the assessee is that there was no fresh tangible material in the possession of Ld. AO at the time of recording of impugned reasons which starts with On examination of the financial statements annexed to the Income tax return along with submissions filed by the assessee for the AY 2013-14, the following issues emerge- emphasis supplied by us . A perusal of the 'reasons to believe' recorded by the Ld. AO in this case reveals that at the time of recording of these 'reasons', the Ld. AO had examined the original assessment records only and no fresh material had come in his possession. In response to our specific query and based on case records produced before us, DR could not point out any fresh material available with the AO at the time of reopening of the case of the assessee. Thus, assertion of the assessee that there was no fresh material with AO for reopening of this case, remained uncontroverted. The original assessment, the Ld. AO had asked the assessee to clarify the issue of large sundry creditors and furnish the details. It is true that in the order of assessment u/s 143(3) of the Act, the Ld. AO had not elaborated much on this aspect but had not made any disallowance or addition in the hands of the assessee which would not by itself mean that the same was not scrutinized or that the Ld. AO had not formed an opinion with respect to the same. We refer to decision in the case of Gujarat Power Corpn. Ltd. 2012 (9) TMI 69 - GUJARAT HIGH COURT which observed that if after detailed scrutiny during the assessment, the AO examines a claim but does not reject the claim of the assessee which had come up for scrutiny, would not enable the Revenue to argue that the AO had not formed any opinion on such issue and, therefore, reopening of the assessment would be permissible without there being any new or additional material available to the AO. In the judgment of Hon'ble Supreme Court in the case of CIT v. Kelvinator India Ltd. 2010 (1) TMI 11 - SUPREME COURT it is laid down that for reopening of the assessment, the AO should have in his possession 'tangible material'. The term 'tangible material' has been understood and explained by various courts subsequently. There has been unanimity of the courts on this issue that in absence of fresh material indicating escaped income, the AO cannot assume jurisdiction to reopen already concluded assessment. In the present case before us, it is clear that the action of the Ld. AO tantamount to reviewing the action of the earlier AO who has verified the claim of sundry creditors for which the case of the assessee was selected for scrutiny assessment u/s 143(3) of the Act. We find that in the instant case, original assessment order was passed after the examination of issue under consideration and the same has been reopened for reassessment without bringing any new and fresh tangible material on record which amounts to nothing but a mere change of opinion. The reopening shall be made only if new tangible material is available on record. Accordingly, this being the case of change of opinion , the Ld. AO lacks jurisdiction u/s 147 of the Act to reopen the completed assessment u/s 143(3) of the Act dated 02.02.2016. Thus we hold that the Ld. CIT(A) has rightly appreciated the contentions raised by the assessee in respect of legal ground taken by the assessee on the validity of reopening of the completed assessment and has rightly held the action of the Ld. AO to be bad in law. - Decided in favour of assessee.

Issues Involved:
1. Legality of the CIT(A)'s order.
2. Consideration of the Delhi High Court decision in CIT Vs. M/s. Usha International Limited.
3. Consideration of the Supreme Court decision in Kalyanji Mavji & Company Vs. Commissioner of Income Tax.
4. Validity of the reopening of assessment under Section 147 of the Income Tax Act, 1961.

Detailed Analysis:

1. Legality of the CIT(A)'s Order:
The Department argued that the CIT(A)'s order was "bad in law and contrary to the facts of the case." The CIT(A) found merit in the assessee's submission that the trade creditors had already been verified during the original assessment and were part of the purchases in the profit and loss account. The CIT(A) relied on judicial precedents and concluded that reopening the case on the same issue without new information amounted to a "change of opinion," which is not permissible under the law. The Tribunal upheld this view, stating that the AO lacked jurisdiction under Section 147 to reopen the completed assessment without fresh tangible material.

2. Consideration of the Delhi High Court Decision in CIT Vs. M/s. Usha International Limited:
The Department contended that the CIT(A) failed to consider the Delhi High Court's decision in CIT Vs. M/s. Usha International Limited. However, the Tribunal focused on whether there was any fresh tangible material available to the AO at the time of recording the reasons for reopening. The Tribunal found that the AO had only reviewed the original assessment records without any new material, thereby constituting a "change of opinion." The Tribunal did not specifically address the relevance of the Delhi High Court decision in its analysis.

3. Consideration of the Supreme Court Decision in Kalyanji Mavji & Company Vs. Commissioner of Income Tax:
The Department argued that the CIT(A) erred by not considering the Supreme Court's decision in Kalyanji Mavji & Company, which allows reopening of assessment on new facts that came to notice subsequently. The Tribunal referred to the Supreme Court's later judgment in Indian & Eastern Newspaper Society v. CIT, which clarified that an error discovered on reconsideration of the same material does not justify reopening. The Tribunal concluded that the reopening in this case was based on a reassessment of the same material, not new facts, thus invalidating the Department's reliance on Kalyanji Mavji & Company.

4. Validity of the Reopening of Assessment under Section 147:
The Tribunal examined whether there was any fresh tangible material in the AO's possession at the time of recording the reasons for reopening. The reasons recorded by the AO were based on the original assessment records, and no new material had come to the AO's possession. The Tribunal noted that the original assessment had already scrutinized the issue of large sundry creditors. Therefore, reopening the assessment without new tangible material amounted to a "change of opinion," which is not permissible under Section 147. The Tribunal upheld the CIT(A)'s decision to annul the reassessment.

Conclusion:
The Tribunal dismissed the Department's appeal, upholding the CIT(A)'s order that the reassessment proceedings under Section 143(3) read with Section 147 were "bad in law" due to the lack of fresh tangible material and the improper change of opinion by the AO. The Tribunal emphasized the necessity of new tangible material for valid reopening under Section 147, consistent with judicial precedents.

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