2024 (8) TMI 1303 - HC - Income Tax

Reopening of assessment - Gross Profit (GP) rate determination on unrecorded transactions - HELD THAT - The petitioner had disclosed all his undisclosed sale transactions of both years, but the Assessing Authority has assessed the gross profit @ 8%, thus, there was no failure on the part of the petitioner which can give reasons to believe to the AO to reopen the assessment, hence, relying on a judgment of Kelvinator of India 2010 (1) TMI 11 - SUPREME COURT that Section 147 would give arbitrary power to the AO to reopen the assessment on the basis of mere change of opinion which cannot be per se reasons to reopen. A similar view has been taken in the case of CEAT Ltd. 2023 (1) TMI 73 - SC ORDER and well as in Financial Software Systems 2021 (9) TMI 200 - MADRAS HIGH COURT Reassessment proceedings set aside. Decided in favour of assessee.

Issues Involved:
1. Reopening of assessment under Section 148 r/w 147 of the Income Tax Act, 1961.
2. Validity of the notice issued after four years from the relevant assessment year.
3. Alleged suppression of material facts by the petitioner.
4. Application of Gross Profit (GP) rate on unrecorded transactions.
5. Availability of alternative remedies.

Issue-wise Detailed Analysis:

1. Reopening of assessment under Section 148 r/w 147 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 30.03.2006 issued by respondent No.1 under Section 148 r/w 147 of the Income Tax Act, 1961, for reopening the assessment of the years 1999-2000 and 2000-2001. The petitioner argued that the reassessment was based on a mere change of opinion, which is not permissible under the law. The court referred to the judgment in *Commissioner of Income Tax v/s Kelvinator of India Limited & Another*, which emphasized that reassessment must be based on the fulfillment of certain preconditions and not merely on a change of opinion.

2. Validity of the notice issued after four years from the relevant assessment year:
The petitioner contended that the notice was issued after the expiry of four years from the relevant assessment year, which is not permissible unless there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The court noted that there was no allegation of suppression of material facts by the petitioner and that the petitioner had disclosed all unrecorded transactions and profits. The court held that the reopening of the assessment was not justified as there was no failure on the part of the petitioner to disclose material facts.

3. Alleged suppression of material facts by the petitioner:
The petitioner had disclosed all unrecorded sales and submitted a separate computation sheet disclosing its profit from unrecorded transactions. The assessing authority had accepted the petitioner's explanation and assessed the profit at 8%. The court found that there was no suppression of material facts by the petitioner and that the reassessment was not justified on this ground.

4. Application of Gross Profit (GP) rate on unrecorded transactions:
The assessing authority had initially assessed the GP rate on unrecorded transactions at 8%, which the petitioner accepted and paid the taxes. However, the reassessment notice was issued on the ground that the GP rate should have been 12.5%. The court held that the reassessment based on the change of GP rate was not permissible as it amounted to a change of opinion. The court relied on the judgment in *Assistant Commissioner of Income-Tax & Others v/s CEAT Limited*, which held that reassessment on a change of opinion is not permissible.

5. Availability of alternative remedies:
The respondents argued that the writ petition was not maintainable due to the availability of alternative remedies. However, the court noted that the issue of alternative remedy was kept open for decision after hearing both sides. Given the lapse of 14-15 years, the court decided not to relegate the petitioner to file an appeal before the appellate authority and proceeded to hear the matter.

Conclusion:
The court concluded that the reassessment notice and the final assessment order were not justified as they were based on a mere change of opinion and there was no failure on the part of the petitioner to disclose material facts. The court set aside the impugned notice dated 30.03.2006 issued under Section 148 of the Income Tax Act and the final assessment orders for the assessment years 1999-2000 and 2000-2001. The writ petitions were allowed.

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