2022 (10) TMI 1050 - HC - Income Tax

Reopening of assessment u/s 147 - Eligibility of reasons to believe - HELD THAT - Having noticed the issue, raised a specific query, received a reply and thereafter passed an order of assessment, a clear opinion has formed by the Assessing Officer in regard to the vitality of the assessee's claim. In such an event, the impugned re-assessment proceedings are nothing but a review in the guise of re-assessment, which is impermissible in law. We draw support in this regard from the celebrated decision of the Full Bench of the Delhi High Court in the case of Kelvinator India Ltd. 2002 (4) TMI 37 - DELHI HIGH COURT that settles the proposition that re-assessment must be based on new and tangible material that has come to the note of the Assessing Authority after completion of the original assessment. In the present case, a perusal of the reasons would indicate clearly that there is nothing new and it is, in fact, the very note filed by the assessee as well as material that was available on record that has been invoked by the Assessing Officer to reopen the assessment. The counter filed by the Department makes a lukewarm attempt to defend the impugned proceedings by stating that only a 'half page note' had been filed by the assessee which would not suffice. This defence is only stated to be rejected. It is not the length of the note that would determine the integrity of the procedure, but the contents thereof as well as other tests, such as, whether new or tangible material that has come to the possession of the Department. Since respondents have failed in the test as aforesaid, the brevity of the note does not come to their rescue. Notice set aside - WP allowed.

Summary

Issues:
Assessment under the Income Tax Act, 1961 for AY 2013-14; Re-assessment under Section 148 based on school cost written off; Application of Explanation (2) to Section 147 for escaped assessment; Legality of re-assessment proceedings.

Analysis:
1. The petitioner was assessed under the Income Tax Act, 1961 for AY 2013-14, and the return of income was selected for scrutiny. The petitioner provided details of school cost written off in response to a notice issued under Section 142(1) of the Act, which was accepted during assessment.

2. Subsequently, a re-assessment notice was issued under Section 148, citing school cost written off as a reason. The officer mentioned that the school cost was debited in the profit and loss accounts for multiple years, but re-assessment was only initiated for AY 2013-14, creating inconsistency in approach.

3. The re-assessment was justified under clause (c) of Explanation (2) to Section 147, alleging under-assessment of income chargeable to tax. However, the court found that the issue was already addressed during the original assessment, rendering the re-assessment redundant and impermissible.

4. Referring to a previous decision, the court emphasized that re-assessment should be based on new and tangible material, not a mere review of existing information. In this case, the reasons for re-assessment did not present any new grounds, relying solely on previously available data.

5. The court concluded that the re-assessment proceedings lacked legal basis and set aside the notice and consequential proceedings. The Department's argument regarding the brevity of the petitioner's note was dismissed, emphasizing the importance of substantive content over length in determining the validity of procedures.

In summary, the court ruled in favor of the petitioner, finding the re-assessment proceedings invalid due to lack of new material and the absence of a legal basis for reopening the assessment.