2024 (3) TMI 729 - HC - Income Tax

Reopening of assessment - reasons to believe - admissibility of deduction u/s 80G - as argued jurisdictional pre-conditions have not been fulfilled in the present case as the belief formed by the AO is based on an audit objection without fulfilling an objective criteria - HELD THAT - It is seen that prior to the passing of the original assessment order, AO has raised queries, each of which were duly responded by Petitioner. Petitioner has explained that no deduction was claimed by it except that under Section 80G of the Act. Copies of receipts of donations were also provided as proof of donation. All these details were also included in the computation of income. It is seen from the revised statement of income that an amount as shown as inadmissible expenses under Section 37 in Schedule 1. Schedule 7 specifies the donee s details showing the 50% deductible amount of the qualifying amount. Petitioner has, thus, submitted detailed explanation along with supporting documents. The documents on record also indicate that the Audit Wing of the Department raised certain objections to the original assessment order including the issue of deduction under Section 80G of the Act. It is seen that the AO justified the original assessment order to the audit party without accepting any adjustment to the same. The notice providing the reasons to believe itself is based on verification of the profit and loss account and computation of income showing the amount of CSR expenses debited under the head other expenses and the said amount being added back and claimed as deduction under Chapter VA as donation. The notice further goes on to say that during the course of original assessment proceedings, neither the AO has asked for any details and information on this issue from Assessee nor has Assessee volunteered any details. From the perusal of the documents, two glaring facts emerge. One is that all material/documents necessary for computing the income were disclosed and submitted by Petitioner during the course of assessment proceedings leading to an irrefutable conclusion that there was no failure on the part of Petitioner to disclose fully and truly all material facts. Secondly, there is a notable absence of any fresh tangible material coming to the knowledge of the AO and the reopening of assessment is purely on a re-examination of the very same material on the basis of which the original assessment order was passed. It is a well-settled principle of law that an AO has no power to review and this power is not to be confused with the power to reassess. The Apex Court in Commissioner of Income Tax, Delhi v. Kelvinator of India Ltd. ( 2010 (1) TMI 11 - SUPREME COURT ) has reiterated that mere change of opinion cannot be a ground for reopening concluded assessment. Thus the reopening of the assessment, in our view, is merely on the basis of change of opinion of the AO from that held earlier during the course of assessment proceedings and this change of opinion does not constitute justification and/or reason to believe that income chargeable to tax has escaped assessment - reasons to believe notice itself indicates that the AO was already seized with information prior to passing of the original assessment order and as such, there is no tangible information on the basis of which he has allegedly formed the requisite belief. Decided in favour of assessee.

Issues Involved:
1. Legality of reopening a concluded assessment under Section 147 of the Income Tax Act, 1961.
2. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
3. Whether the Assessing Officer (AO) can reopen an assessment based on an audit objection and without fresh tangible material.
4. Whether the reopening of assessment constitutes a change of opinion.

Summary:

Issue 1: Legality of Reopening a Concluded Assessment
The court examined whether the reopening of a concluded assessment under Section 147 of the Income Tax Act, 1961, following the issuance of a notice under Section 148 of the Act, is legally sustainable. The Petitioner challenged the notice dated 27th March 2021 and the subsequent order dated 21st December 2021, arguing that the jurisdictional pre-conditions for reopening the assessment were not fulfilled. The court noted that the original assessment had fully allowed the deduction claimed by the Petitioner and that the reopening was based on an audit objection without fresh tangible material.

Issue 2: Validity of the Notice Issued Under Section 148
The Petitioner contended that the notice issued under Section 148 was invalid as it was based on an audit objection and not on fresh tangible material. The court observed that all material facts necessary for computing the income were disclosed during the original assessment proceedings, leading to the conclusion that there was no failure on the part of the Petitioner to disclose fully and truly all material facts. The court held that the reopening of the assessment was based on a re-examination of the same material on which the original assessment order was passed.

Issue 3: Reopening Based on Audit Objection
The court addressed whether the AO could reopen an assessment based on an audit objection without an independent application of mind. The Petitioner argued that the AO had initially refused to accept the audit objection and that the reopening was based on the same material considered during the original assessment. The court agreed, noting that the AO's belief regarding escapement of income was based on an audit objection without any fresh tangible material.

Issue 4: Change of Opinion
The court reiterated the principle that an AO has no power to review an assessment and that a mere change of opinion cannot be a ground for reopening a concluded assessment. Citing the Supreme Court's decision in Commissioner of Income Tax, Delhi v. Kelvinator of India Ltd., the court emphasized that reassessment must be based on fresh tangible material. The court found that the reopening of the assessment in this case was merely based on a change of opinion, which does not constitute a valid reason to believe that income chargeable to tax had escaped assessment.

Conclusion:
The court held that the notice dated 27th March 2021 under Section 148 and the order dated 21st December 2021 rejecting the Petitioner's objections were untenable and could not be sustained in law. The Petition was allowed, and the impugned notice and order were quashed and set aside. The court made the rule absolute in terms of prayer clause (A) and did not award any costs.

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