2022 (10) TMI 1061 - HC - Income Tax

Reopening of assessment u/s 147 - Assessment regarding about royalty and surface rent expenses - HELD THAT - When the respondent had called for details of the regular assessment and had examined the quantity of the marble rubbles, produced and sold, at that time, satisfying the query, the petitioner had given complete details of quantity of marble rubble in tax audit report in Form 3-CD at serial No.28. The details were also produced in Part-A-QD of prescribed return of income in Form ITR-6. In the course of regular assessment proceedings, as stated above, the respondent had asked relevant details under item No.22 which was furnished by the petitioner in reply dated 18.8.2015 detailing ledger account with complete narration relating to the royalty paid on the relevant quantity of sale of marble rubble was shown. The respondent had fully examined the rubble aspect and the royalty removal. Therefore it is clear that factual details on the basis of which the power to reasses was sought to be exercised was already furnished by the petitioner and considered by AO in the course of regular assessment. The Assessing Officer was within the know of such facts and details. Reassessment notice was acted upon basing the formation of reasons on very facts. It amounted to change of opinion on part of the Assessing Officer which is not permissible in law. Also on facts, it was the case of clear change of opinion on part of the Assessing Officer in exercising powers to reopen the assessment but he misguided himself in law in seeking to reassess the income on the ground of mined and produced. It could not have acted on the same material which was examined by him in the regular assessment, in addition that the erring Officer erred in law too. Thus the present petition deserves to be allowed. It is accordingly allowed.

Issues Involved:

1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Jurisdiction of the Assessing Officer to reopen the assessment under Section 147 of the Income Tax Act, 1961.
3. Whether the reopening of the assessment was based on a mere change of opinion.

Detailed Analysis:

1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961:

The petitioner challenged the notice dated 23.9.2018 issued under Section 148 of the Income Tax Act, 1961, which sought to reopen the assessment for the assessment year 2013-14. The petitioner argued that the notice and the subsequent order disposing of the objections were without jurisdiction. The Assessing Officer had stated that the income chargeable to tax for the assessment year 2013-14 had escaped assessment within the meaning of Section 147 of the Act.

2. Jurisdiction of the Assessing Officer to reopen the assessment under Section 147 of the Income Tax Act, 1961:

The petitioner contended that for reopening the assessment under Section 147, the Assessing Officer must form a tentative opinion that there was an escapement of income during the year under consideration and must record such prima facie opinion in writing. It was emphasized that the opinion so formed should not be based on mere suspicion and must show a nexus to the opinion and the factum of escapement of income. The petitioner maintained that the words "reason to believe" do not grant arbitrary powers to the Assessing Officer to reopen the assessment.

3. Whether the reopening of the assessment was based on a mere change of opinion:

The petitioner argued that the reopening of the assessment was based on a mere change of opinion, which is not permissible in law. The details relating to royalty and rubble expenses were already examined by the Assessing Officer during the regular assessment. The petitioner had provided complete details of the quantity of marble rubble produced and sold, as well as the royalty paid, during the regular assessment proceedings. The Assessing Officer had fully examined these details and completed the regular assessment accordingly.

The respondent contended that the assessee had underreported the mining production of marble rubble by 25,612 MT, leading to an underreporting of profit by Rs.1,90,29,716/-. This formed the basis for issuing the notice under Section 148.

The court noted that the factual details on which the power to reassess was sought to be exercised were already furnished by the petitioner and considered by the Assessing Officer during the regular assessment. The Assessing Officer was aware of these facts and details. The reassessment notice was based on the same facts, amounting to a change of opinion, which is not permissible in law.

The court referred to the Supreme Court's decision in Commissioner of Income Tax Vs. Kelvinator of India Limited, emphasizing that there must be "tangible material" available with the Assessing Officer to conclude that there was an escapement of income from assessment. The concept of "change of opinion" serves as an inbuilt test to check the abuse of power by the Assessing Officer.

The court also referred to the Division Bench's decision in Inductotherm (India) Private Limited, which held that even for reopening an assessment accepted under Section 143(1) without scrutiny, the Assessing Officer must have tangible material to form a reason to believe that income chargeable to tax had escaped assessment.

Judgment:

The court concluded that the reopening of the assessment was based on a mere change of opinion and that the Assessing Officer had misguided himself in law. The court allowed the petition, setting aside the notice dated 29.3.2018 issued under Section 148 and the order dated 28.9.2018 rejecting the objections.

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