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TMI Blog2014 (3) TMI 213X X X X Extracts X X X X X X X X Extracts X X X X ..... he amendment of sec. 147, mere change of opinion does not confirm jurisdiction on the ITO to initiate proceeding for reassessment merely by resorting to explanation 1 to sec. 147. The AO is not justified in reopening the assessment on mere change of opinion - The assessee filed explanation and evidences before the AO at original assessment stage explaining the investment in the properties – thus, the seized material which is basis of reopening of assessment was considered at the original assessment stage in the light of the explanation of the assessee supported by evidences. The propriety demands that the AO should not have resorted to proceedings to reopen assessment on identical facts - All facts were all along were within the knowledge of the AO at original assessment stage, therefore, re-appreciation of evidence at subsequent re-assessment proceedings is not permitted on mere change of opinion by subsequent AO - The re-assessment proceedings have been initiated again on similar issue and totally on identical facts regarding investment in property which have already been considered in the original assessment proceedings - It is a case of change of opinion and such a change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s order dated 20.05.2009 and this decision of the then ld. CIT(A)-I has been further confirmed by the Hon ble ITAT Agra vide its order dated 21st April, 2011. Meanwhile, the assessment proceeding of the assessee (appellant) has been reopened u/s.147 after recording reason to believe on 10.09.2009 and the same is reproduced as under: A search was conducted at the premises of the assessee on 16.09.2004 in which several books of account, documents etc. was seized including Annexure A-1. Annexure A-1 is a binded ledger which contains details of expenditure made by the assessee in various properties. In this book, property wise ledger account has been maintained and amount and dates of making payments in respect of each property is clearly mentioned. Such details contain payment made towards purchase of land, stamp, dalali expenses, registration expenses and construction expenses. The details of expenditure made as per entries in this ledger are as under: Payment/expenditure made during F.Y. 2003-04 (A.Y. 2004-05) Page no. of Annexure A-1 Description of property Amount paid on different dates Period of payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure / investment in property and addition of Rs.15,00,000/- on account of extra profit from contract business. In the assessment order also, no specific finding has been given that the expenditure of Rs.96,17,600/- was explained or any explanation in this regard was filed by assessee. Any evidence of taking loans by the assessee is also not there on record nor from perusal of reply of assessee the same appears to be furnished. On the contrary, it has been observed that in the asst. order itself that the books of a/c produced by assessee, did not give correct picture to explain invests made in above properties. Precisely, on examination of records including seized material, no evidence or explanation to justify the source of expenditure of Rs.96,17,600/- is found. Thus at the most addition of Rs.13,11,000/- only was made on a/c of unexplained expenditure as against total unexplained expenditure of Rs.96,17,600/- made during A.Y. 2004-05 2005-06 in above properties. In view of the above discussion, it is clear that amount of at least Rs.37,92,600/- for A.Y. 2004-05 Rs.45,14,000/- for A.Y. 2005-06 being unexplained expenditure in properties as mentioned above, have es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceeding for the assessment year under consideration, a notice u/s.148 was issued to the assessee on 30.03.2010 and the same was sent by post on 31.03.2010. Thereafter, after examination of all the facts and taking into account the recordings made in the seized document, the AO has made addition of Rs.30,13,800/- on the basis of the seized document Annexure A-1(pages 8, 20, 21, 30 31) and finding of the AO as discussed in the assessment order is given as under: In this book, property wise ledger account has been maintained and amount and dates of making payments in respect of each property is clearly mentioned. Such details contain payment made towards purchase of land, stamp, dalali expenses, registration expenses and construction expenses. The details of expenditure made as per entries in this ledger are as under: Payment/expenditure made during F.Y. 2004-05 (A.Y. 2005-06) Page no. of Annexure A-1 Description of property Amount paid on different dates Period of payments 8 Bayu Vihar Patholi Rs.14,84,000 20.07.2004 to 20.10.2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 at income of Rs.33,05,640/-. However, in A.Y. 2005-06 addition of Rs.13,11,200/- was made on account of unexplained expenditure / investment in property and addition of Rs.15,00,000/- on account of unexplained investment. In the assessment order also, no specific finding has been given that the expenditure of Rs.58,25,000/- was explained or any explanation in this regard was filed by assessee. Any evidence of taking loans by the assessee is also not there on record nor from perusal of reply of assessee the same appears to be furnished. On the contrary it has been observed that in the assessment order itself that the books of a/cs produced by assessee, did not give correct picture to explain investments made in above properties. Precisely, on examination of records including seized material, no evidence or explanation to justify the source of expenditure of Rs.8,25,000/- is found. Thus, at the most addition of Rs.28,11,000 (15,00,000 + 13,11,200) was made on a/c of unexplained expenditure / investment as against total unexplained expenditure / investment of Rs.58,25,000/- made during A.Y. 2005-06 in above properties. In view of the above discussion, it is clear that amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er accounts to explain the issue. It is, therefore, abundantly clear that the original assessment was framed after careful consideration of the seized material and explanations and records of the assessee. Assessment was completed on the basis of complete records before the AO. The AO, however, did not accept part of the source of investment and made addition of Rs.15,00,000/- on account of unexplained investment in the above properties. Thus, the total addition of Rs.28,11,200/- was made and further addition of Rs.1,00,000/- was made on account of unexplained investment in jewellery. The assessee preferred appeal against the original assessment order dated 29.12.2006 before the ld. CIT(A) and the ld. CIT(A)-II, Agra was pleased to allow the appeal of the assessee vide order dated 20.05.2009. The department preferred appeal before the ITAT, Agra Bench against this order of the ld. CIT(A) and the Tribunal dismissed the departmental appeal vide order dated 21.04.2011. It was, therefore, explained that re-assessment proceedings have been initiated again on the similar issue and on identical facts which have already been considered in the original assessment proceedings. It is a clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has to be based on fulfilment of certain pre-condition and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of change of opinion as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989, Assessing Officer has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987 , Parliament not only deleted the words reason to believe but also inserted the word opinion in section 147 of the Act. However, on receipt of representations from the Companies against omission of the words reason to believe , Parliament re-introduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No. 549 , dated 31-10-1989, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and relevant to the subjective opinion formed by the Assessing Officer regarding escapement of income. In cases where the first proviso applies, there is an additional requirement that there should be failure or omission on the part of the assessee in disclosing full and true material facts. Explanation to section stipulates that mere production of books of account or other documents from which the Assessing Officer could have, with due diligence, inferred material facts, does not amount to full and true disclosure of material facts. [Para 5] Expression 'Change of opinion' The expression 'change of opinion' postulates formation of opinion and then a change thereof. In the context of section 147 it implies that the Assessing Officer should have formed an opinion at the first instance, i.e., in the proceedings under section 143(3) and now by initiation of the reassessment proceeding, the Assessing Officer proposes or wants to take a different view. [Para 6] The word 'opinion' is derived from the latin word 'opinari' which means 'to believe', 'to think'. The word 'opinion' as per the Blacks Law Dictionary means a stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 263. [Para 14] Thus, where an Assessing Officer incorrectly or erroneously applies law or comes to a wrong conclusion and income chargeable to tax has escaped assessment, resort to section 263 is available and should be resorted to. But initiation of reassessment proceedings will be invalid on the ground of change of opinion. [Para 15] Erroneous application/interpretation understanding of law A distinction is drawn between erroneous application/interpretation/understanding of law and cases where fresh or new factual information comes to the knowledge of the Assessing Officer subsequent to the passing of the assessment order. If new facts, material or information comes to the knowledge of the Assessing Officer, which was not on record and available at the time of the assessment order, the principle of 'change of opinion' will not apply. The reason is that 'opinion' is formed on facts. 'Opinion' formed or based on wrong and incorrect facts or which are belied and untrue do not get protection and cover under the principle of 'change of opinion'. Factual information or material which was incorrect or was not available with the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction is not examined. [Para 23] Distinction between disclosure on facts and effects thereof Distinction between disclosure/declaration of material facts made by the assessee and the effect thereof and the principle of change of opinion is apparent and recognized. Failure to make full and true disclosure of material facts is a precondition which should be satisfied if the reopening is after four years of the end of the assessment year. The Explanation stipulates that mere production of books of account and other documents, from which the Assessing Officer could have with due diligence inferred facts does not amount to full and true disclosure. Thus in cases of reopening after 4 years as per the proviso, conduct of the assessee and disclosures made by him are relevant. However, when the proviso is not applicable, the said precondition is not applicable. This additional requirement is not to be satisfied when re-assessment proceedings are initiated within four years of the end of the assessment year. The sequitor is that when the proviso does not apply, the reassessment proceedings cannot be declared invalid on the ground that the full and true disclosure of material facts was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated. These are by way of example or guidelines. As a permissive provision it enables the Judge to support his judgment but there is no scope of presumption when facts are known. [Para 29] The assessee had submitted that the reference should be declined and not answered in view of doctrine of merger as the decision of the Full Bench of this Court in the case of CIT v. Kelvinator of India Ltd. [2012] 256 ITR 1 / 123 Taxman 433 has merged and was approved by the Supreme Court. The Supreme Court in their decision in CIT v. Kelvinator of India Ltd. [2010] 187 Taxman 312 had examined the question whether 'change of opinion' can justify reopening of assessing. The Supreme Court has not stated or made any observation with reference to section 114 of the Evidence Act. The doctrine of merger, if applied, would require that one will accept and apply the reasoning and ratio given by the Supreme Court. By applying the 'doctrine of merger' it cannot be held that the reasoning or the ratio given by the Supreme Court is the reasoning given by the High Court. The Supreme Court in the present case has given detailed reasons and ratio why 'change of opinion' cannot be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat re-assessment proceeding will be invalid in case, an issue or query is raised and answered by the assessee in original assessment proceeding but thereafter, the AO does not make any addition in the assessment order and in such situation, it should be accepted that the issue was examined but the AO did not found any ground or reason to make addition or reject the stand of the assessee and, therefore, he formed an opinion and the reITA assessment will be invalid because the AO has form an opinion in the original assessment, though he had not recorded his reasons. The Hon ble Court has further clarified that in these two situations, the revenue is not without remedy and in case, the assessment order is erroneous and prejudicial to the interest of revenue, they are entitled to and can invoke the power u/s.263. Therefore, in view of the above two decisions, one by Hon ble Supreme Court in case of CIT vs. Kelvinator India (supra)(relied upon by the ld. AR) and another decision of Hon ble Delhi High Court in case of Usha International Ltd.(supra)(relied upon by the AO), it would depend on the facts of each case whether, there is change of opinion while reopening of the assessment proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has further given deduction of Rs.2,88,800/- on account of income, already disclosed in the return of assessee (appellant) and computed the undisclosed income of the assessee at Rs.13,11,200/-. He has further added Rs.15 lac after taking into account the value of the purchase of properties as found in the seized document and, therefore, the total addition of Rs.28,11,200/- was made as against the investment of properties shown in the seized document. During the course of reopening of the assessment proceeding, the AO computed the total investment in property at Rs.58,25,000/- and out of that amount, he has made addition of Rs.30,13,800/- after deducting the above mentioned estimated addition of Rs.28,11,200/- made in the original assessment order. After examining the decision of the AO in the original assessment order as well as in the re-assessment order passed u/s.147 read with section 143(3), it is very clear that the first AO has applied his mind while completing the original assessment and after examination of the seized documents in which investment in property was recorded, he arrived to the conclusion for making addition of only Rs.28,11,200/- instead of the total amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ening of assessment proceeding u/s.147 is not permitted as per the decision of Hon ble Supreme Court in case of Kelvinator India Ltd. vs. CIT (supra) as well as the decision of Hon ble Delhi High Court in case of CIT vs. Usha International Ltd (supra). Therefore, I agree with the ld. AR as contended by him in the written submission that the impugned assessment order passed after reopening of the assessment proceeding u/s.147 is a clear case of change of opinion as no new material has come on record and no fresh information has been received by the AO because the reopening was done on the basis of a seized document Annexure A-1 which has already been considered by the AO in the original assessment order vide order dated 29.12.2006 and hence, such reopening u/s.147 is invalid. As the reopening of assessment proceeding for passing the impugned order passed u/s.147 read with section 143(3) has itself been found to be invalid, consequent notice issued u/s.148 is also invalid and the subsequent assessment order passed u/s.143(3) is void ab initio and deserves to be quashed. Therefore, the impugned assessment order passed u/s.147 / 143(3) dated 10.12.2010 is annulled. 13. As the reopen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lower rate or for applying other provisions of explanation 2 to sec. 147, it must be on material and it should have nexus for holding such opinion contrary to what has been expressed earlier. Even after the amendment of sec. 147, mere change of opinion does not confirm jurisdiction on the ITO to initiate proceeding for reassessment merely by resorting to explanation 1 to sec. 147. Hon ble Calcutta High Court in the case of Berger Paints India Ltd., 245 ITR 648 held when any particular issue has been considered by the ITO and CIT(A) and when there is no failure to disclose the facts, the reassessment proceedings are not valid. Hon'ble Supreme Court in the case of CIT vs. Foraner France, 264 ITR 566 held reassessment not on basis of mere change of opinion law same before and after amendment by direct tax laws. Hon'ble Supreme Court in the case of Indian Oil Corporation, 159 ITR 956 held that no case u/s 148 is made out when the facts were known all along with to the revenue while making the original assessment. Hon'ble Supreme Court in the case of Associated Stone Industry Ltd., 224 ITR 560 held that the assessee shall have to disclose only the primary facts. Conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age. Further, the same seized material, i.e., Annexure A1, which was the basis of making some additions at original assessment stage, is the document of the department found during the course of search and once the same has been appreciated and considered by the AO, there is no question on the part of the assessee not to disclose fully and truly all material facts necessary for his assessment. The re-appreciation of seized material in subsequent proceedings by the AO is, thus, wholly unjustified particularly when such a seized material was not considered worthy by the ld. CIT(A) in the original appellate proceedings deleting the addition on the same seized material. Therefore, there is no question of re-appreciating the same facts which have been duly considered by the first appellate authority prior to reopening of assessment. The ld. CIT(A), therefore, on proper appreciation of facts and material on record, rightly quashed the reassessment proceedings. We, therefore, do not find any infirmity in the order of the ld. CIT(A) in quashing and annulling the reassessment order. The departmental appeal thus fails and is accordingly dismissed. 6. In the result, the departmental appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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