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TMI Blog2022 (3) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... f stock was duly enquired into by the earlier AO in the original assessment proceedings which culminated in the assessment order u/s 143(3) Since the AO has reopened this issue (valuation of stock) merely on perusal of the assessment records and not on the basis of any fresh materials, the Ld. CIT(A) has rightly opined that action of the AO to examine this issue again by resorting to re-opening, can at best to be termed as change of opinion . And it is settled position of law that change of opinion cannot confer jurisdiction on the AO to reopen the duly completed assessment u/s 143(3) of the Act. The reason is that the AO does not enjoy the power of review. Therefore in the present case it is clear that the action of the present AO tantamount to review the action of the earlier AO who has accepted the valuation of stock in his scrutiny assessment u/s 143(3) of the Act dated 16.03.2015. Therefore, the present AO lacks jurisdiction u/s 147 of the Act to reopen the completed assessment u/s 143(3) of the Act dated 16.03.2015 merely on change of opinion . In the light of the aforesaid discussion, we hold that the Ld. CIT(A) has rightly appreciated the contentions raised by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is brought to our notice that the Ld. CIT(A) on merits also concluded that the addition made by the AO cannot be sustained and was pleased to allow the appeal of the assessee on both legal issue as well as on merits. 5. Aggrieved by the aforesaid action of the Ld. CIT(A), the revenue is before us challenging both the action of the Ld. CIT(A) in allowing the legal ground as well as on merits of the case. 6. We will first examine the impugned action of the Ld. CIT(A) in allowing the legal ground by holding that action of the AO to reopen the assessment was bad in law. 7. Before adverting into the legal issue regarding validity of the reopening u/s 147 of the Act let us look at the relevant provision of the Act which empowers the AO to reopen the assessment which is section 147 of the Act as well as the judicial precedent on the legal issue reads as under: Income escaping assessment. 147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and not in the former case. And the additional condition precedent required as per first proviso u/s 147 for reopening the assessment after four (4) years is that AO should spell out in his reasons recorded to believe escapement of income was due to the failure of the assessee to disclose truly and fully the material facts necessary for assessment. And coming to the present case, admittedly the impugned re-opening is after four (4) years from the end of the relevant Assessment year (AY2012-13) because the notice u/s 148 of the Act has been issued by AO on 31.03.2018 and the Ld CIT(A) has made a finding to that effect at page 9, para 3 of his order, which has not been challenged by the Revenue as a ground of appeal, so this finding crystallizes, so the additional condition as prescribed in first proviso u/s 147 of the Act is applicable. In other words, the AO has to record before re-opening this present case not only the reason to believe escapement of income, but also what was the failure on the part of the assessee to disclose truly and fully the material facts necessary for assessment. 9. The Hon ble Supreme Court in Ganga Saran and Sons P. Ltd. v. ITO, [1981] 130 ITR 1 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment ie, reason to believe escapement of income should be that of the assessee s AO and not that of any other authority. It is settled position of law that satisfaction recorded should be independent and not borrowed or dictated satisfaction. The Hon ble Supreme Court decision reported in (1995) 5 SCC 302 has been held that if a statutory authority has been vested with jurisdiction, he has to exercise it according to its own discretion. If discretion is exercised under the direction or compliance with some higher authorities instruction, then it will be a case of failure to exercise discretion altogether. In this context it would be relevant to note that section 116 of the Act defines the Income Tax Authorities as different and distinct authorities. Such different and distinct authorities have to exercise their powers given to them in specified circumstances. If power conferred in a particular authority is arrogated by other authority without mandate of law, it will create chaos in the administration of law hierarchy of administration will mean nothing. Satisfaction of one authority cannot be substituted by the satisfaction of the other authority. It is trite that when a st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns for the formation of the belief must have a rational connection with or relevant bearing of the formation of the belief . Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of income of the assessee from the assessment in the particular year because of his failure to disclose fully truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material substitute its own opinion for that of the ITO on the point as to whether actions should be initiated for reopening assessment. At the same time we have to bear in mind that it is not that any or every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee . (emphasis given) 13. Since we have to adjudicate as to whether the action of the Ld. CIT(A) to hold the action of the AO to reopen itself as bad in law meaning invalid in the eyes of law, we need to test his action based on the aforesaid judicial precedents. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve reason to believe that ₹ 25,00,000/- is actually undisclosed income of assessee M/s Turtle Ltd. during the FY 2011-12, which was escaped assessment in AY 2012-13, in terms of provisions of section 147 of the Act. Besides certain discrepancy in stock valuation amounting to ₹ 14.70 crores (approx) has been seen in the assessment records, which I have reason to believe to have escaped assessment. Therefore, assessment of the assessee company M/s Turtle Ltd., for the AY 2012-13 is required to be reopened u/s 147 of the Income Tax Act, 1961. 14. From a perusal of the aforesaid reasons recorded by the AO to justify the reopening of the assessment dated 16.3.2015 u/s 143(3) of the Act, the AO has taken note of two (2) issues. One issue is regarding information received from the DDIT(Inv) from which he discerned that the assessee is a beneficiary of an accommodation provider by virtue of which assessee has received ₹ 25 Lacs. It is important here to note that though the main reason for reopening was in respect of purported accommodation benefit assessee received, (details not discussed because it is evident from a perusal of the reasons recorded supra). It is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclose true and full material facts in the original assessment proceedings. Since there is no whisper or mention about this important condition in the reasons recorded before issuing notice u/s 148 of the Act, is fatal to the very jurisdiction of AO to successfully re-open the case of the assessee. Thus we find that the omission on the part of the AO to record in the reasons recorded the satisfaction of the additional condition precedent as stipulated under first proviso to section 147 of the Act, vitiates the very re-opening itself being bad [quorum non judice ie, without jurisdiction]. And consequently the action of AO to reopen the assessment for AY 2012-13 by issue of notice u/s 148 of the Act dated 31.03.2018 is held to be bad in law and so null in the eyes of law. For that legal proposition we rely on the following judicial precedents: 1. Hon ble Delhi High Court in the case of Avtec Ltd vs DCIT reported in 395ITR 434 wherein it was held that the reasons recorded by the AO should where the reopening u/s 147 of the Act is after expiry of four years from the end of the relevant assessment year, specifically state in what manner there was a failure by the assessee to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied may be stated. (iii) Explain whether the prescribed guidelines and the amended provisions of Section 145A has been followed or not? If so, the impact of such adjustments to the profits of the business. (iv) Please furnish the working sheet in respect of valuation of closing stock. The cost price of the goods the direct expenses relating to such goods may be furnished. 18. Further the Ld. CIT(A) has noted that pursuant to the aforesaid query raised by the AO in the earlier/original scrutiny assessment proceedings, the assessee had replied vide letter dated 21.10.2014 and furnished all the details requisitioned by the AO regarding the valuation of stock and to all other queries raised by him regarding the stock. The Ld. CIT(A) has given a finding a fact that the AO after examining the answers/details furnished by the assessee pursuant to his queries (supra) regarding the valuation of stock has accepted the claim of the assessee on this issue and did not draw any adverse inference in the assessment framed u/s 143(3) dated 16.03.2015. In such a scenario, since the AO has reopened this issue (valuation of stock) merely on perusal of the assessment records and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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