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2022 (8) TMI 569 - AT - Income TaxReopening of assessment u/s 147 - validity of reassessment proceedings twice passed in this case - Reopening beyond period of four years - first reopening of assessment was initiated for the reason that the assessee has not deducted tax on the expenses such as, professional charges, interest others, interest on machinery finance charges, advertisement charges paid and remuneration to name lenders debited in the profit and loss account, which are required to be disallowed under section 40(a)(ia) - Case second time reopened the assessment on the ground that the profit admitted by the assessee on the sale of agricultural lands was not an agricultural land and the profit on sale of land earned by the assessee for the assessment year 2008-09 is to be brought to tax - as per CIT-A AO has not established what was the default on the part of the assessee to face the reassessment proceedings - HELD THAT - On perusal of the first reassessment order under section 143(3) r.w.s. 147 of the Act dated 30.03.2013, as reproduced hereinabove, the assessee has furnished detailed submissions towards realizing net profit on sale of lands. In the assessment order, the AO has elaborately discussed on the sale of the impugned agricultural lands, scrutinized the documents and evidences submitted by the assessee and arrived at the findings that the profits from the sale of land being agricultural in nature are exempt from tax. Thereafter, having different opinion on the sale of land is not an agricultural land, AO again reopened the assessment, which is mere change of opinion and not permissible as per the law laid down in the case of CIT v. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT wherein, it was held that an assessment cannot be reopened on a mere change of opinion; reason to believe that the income chargeable to tax has escaped assessment is one of the conditions precedent for invoking the jurisdiction of the Assessing Officer to reopen the assessment under section 147 - The Hon'ble Supreme Court further observed that the Assessing Officer had power to re-assess but no power to review. If the concept of change of opinion is removed, review would take place in the garb of reopening of assessment. Thus, applying the ratio of the above judgment of the Hon'ble Supreme Court to the instant case, since no new material was brought on record after completion of assessment under section 143(3) r.w.s.147 of the Act dated 30.03.2013, the second reopening of assessment was not on account of any fresh material and it is only on a mere change of opinion, we are of the considered view that the reopening of assessment is liable to be quashed. Once the assessment was reopened beyond four years from the end of the relevant assessment year under consideration, the provisions of section 147 of the Act applies. Once the proviso to section 147 applies, it is the duty of the Assessing Officer to prove that the assessee has failed to furnish fully and truly all material facts to complete the assessment. In this case the Assessing Officer was not able to establish that there is failure on the part of the assessee to disclose fully and truly all materials. We, therefore, considering the entire facts and circumstances of the case, hold that the reopening is invalid beyond four years from the end of the relevant assessment year. As decided in the case of Fenner (India) Ltd. 1998 (11) TMI 66 - MADRAS HIGH COURT , the Hon'ble Jurisdictional High Court has held that the reasons recorded by the Assessing Officer did not establish even prima facie, a failure on the part of the assessee to fully and truly disclose the material fact for the assessment and accordingly quashed the notice. Thus, the service of notice under section 148 of the Act 11.03.2015 is liable to be held as bad in law. - Decided in favour of assessee.
Issues Involved
1. Validity of reassessment proceedings under section 143(3) read with section 147 of the Income Tax Act, 1961. 2. Determination of income from the sale of agricultural lands as exempt or taxable. 3. Application of the principle of "change of opinion" in reassessment. Detailed Analysis 1. Validity of Reassessment Proceedings under Section 143(3) read with Section 147 of the Income Tax Act, 1961 The primary issue in this case was the validity of the reassessment proceedings initiated by the Assessing Officer (AO). The initial return filed by the assessee was processed under section 143(1) of the Act, and the AO subsequently reopened the assessment twice under section 143(3) read with section 147 of the Act. The first reassessment was initiated by issuing a notice under section 148 of the Act on 14.02.2012, concluding with an assessment order dated 30.03.2013. The AO reopened the assessment again by issuing another notice under section 148 on 11.03.2015, concluding with an assessment order dated 30.03.2016. The Ld. Commissioner of Income Tax (Appeals) [CIT(A)] held that the reassessment proceedings were bad in law based on the decision of the Hon'ble Supreme Court in CIT v. Kelvinator of India Ltd. 320 ITR 561 (SC). The CIT(A) observed that the AO did not establish any default on the part of the assessee to justify the reassessment proceedings, especially since the notice was served after the expiry of four years. The CIT(A) emphasized that the AO must satisfy the stipulation of the first proviso to section 147 of the Act, which was not done in this case. 2. Determination of Income from the Sale of Agricultural Lands as Exempt or Taxable The AO initially assessed the total income of the assessee at Rs. 1,40,79,997/- after making various disallowances. The AO concluded that the profits from the sale of agricultural lands were exempt from tax, as the lands were classified as agricultural in nature (Nanjai and Punjai) and situated beyond the stipulated distance from municipal limits. However, in the second reassessment, the AO treated the profit on the sale of lands amounting to Rs. 4,83,65,624/- as business income, arguing that the lands were not agricultural. The CIT(A) found that the AO had not provided any new material facts or evidence to support this change, and the reassessment was based on a mere change of opinion, which is not permissible under the law. 3. Application of the Principle of "Change of Opinion" in Reassessment The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's second reassessment was a mere change of opinion. The Hon'ble Supreme Court in CIT v. Kelvinator of India Ltd. (supra) held that an assessment cannot be reopened on a mere change of opinion. The AO has the power to reassess but not to review. The Tribunal noted that no new material was brought on record after the completion of the first reassessment, and the second reopening was not based on any fresh material. The Tribunal also referenced several judgments, including Fenner (India) Ltd. v. DCIT 241 ITR 672 (Mad), Hindustan Lever Ltd. v. R.B. Wadkar, ACIT (1) 268 ITR 332, and Sadbhav Engineering Ltd. v. DCIT [2011] 333 ITR 483 (Guj), which support the principle that reassessment beyond four years requires the AO to prove that the assessee failed to disclose fully and truly all material facts necessary for the assessment. Conclusion The Tribunal concluded that the reassessment proceedings were invalid and quashed the second reopening of the assessment. The appeal filed by the Revenue was dismissed, and the order of the CIT(A) was upheld. The Tribunal emphasized that the AO's action was a mere change of opinion, which is not permissible under the law, and the reassessment proceedings initiated beyond four years were not justified.
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