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TMI Blog2022 (4) TMI 859X X X X Extracts X X X X X X X X Extracts X X X X ..... bjection on the issue of deduction allowed towards expenses claimed by the assessee. Basis for reopening of assessment is audit objection and further, which is based on note not to the assessee given on assessment records. Except this, there is no fresh tangible material in the possession of the Assessing Officer to form reasonable basis of escapement of income - once it is noted that basis for reopening of assessment is note not to the assessee available on record, then it is implied that the Assessing Officer had very clearly and definitely formed opinion on the issue and thus, reopening of assessment on the very same issue amounts to change of opinion, which is not permissible under the law. Since, there is no fresh tangible material, except note not to the assessee , with the Assessing Officer to form reasonable belief of the escapement, we are of the considered view that the AO had applied his mind to the issue in the original assessment proceedings and has allowed deduction. Therefore, reopening of assessment on the very same issue in absence of any fresh tangible material amounts to clear case of change of opinion, which is not permissible under the law. CIT(A), afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame to the knowledge of employer company. In order to settle dispute with his employer company, the ssessee had entered into settlement agreement to avoid criminal prosecution and as per Memorandum of Understanding dated 03.01.2009 paid a sum of ₹ 1.5 crores as compensation and also surrendered 9000 equity shares of the company held by him. The assessee has claimed compensation paid to his employer company as his business expenditure. The case of the assessee has been assessed u/s.143(3) of the Act, on 20.10.2011 and determined total income of ₹ 1,51,90,898/- after disallowance of ₹ 5,71,168/-. The case has been subsequently reopened u/s.147 of the Income Tax Act, 1961, for the reasons recorded, as per which income chargeable to tax had been escaped assessment and consequently, assessment has been completed u/s.143(3) r.w.s. 147 of the Income Tax Act, 1961, dated 30.03.2016 and determined total income at ₹ 3,01,90,898/- by disallowing compensation paid by the assessee to his employer company u/s.37(1) of the Income Tax Act, 1961. 4. The assessee challenged assessment order before the learned CIT(A). Before the learned CIT(A), the assessee has challenged v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial on record to substantiate his reasons to believe . 5. The Assessing Officer has not established any specific default on the part of the appellant to fully and / or truly disclose all material facts. 6. A diametrically opposite view has been taken in the order under Section 143(3) read with Section 147 of the Act on the same set of facts, circumstances and evidences. 5.7 The Hon ble Karnataka High Court in the case of CIT vs Hardware Trading Co. Ltd. reported in [2001] 248 ITR 673 (Kar), held that Assessing Officer s note on record implied that he had very clearly and definitely formed an opinion on the issue. The relevant excerpt from the decision of the Hon ble Karnataka High Court is reproduced as under: 9. Having summarized the rival contentions and the position in law, the short question that we are required to address ourselves to is as to whether the decision of the Tribunal is justified or not. The legal position is quite unambiguous and there is no dispute about the fact that while a reopening of assessment is justified under circumstances wherein new or additional material is received which concept again is relatively wide, is in the possess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee that the amount could be transferred to the head of capital. It is not for us to examine the correctness or otherwise of what had happened hat, the limited observation that this court needs to make is that the Income tax Officer had very clearly and definitely formed an opinion with regard to this particular head of income as is reflected in the note, and factually it would therefore not be permissible to contend that no opinion had been formed in the first instance. This is the real stumbling block in the way of the Department because this case again is distinguishable from the earlier decision of the Delhi High Court referred to b us wherein the court found that no opinion had been expressed on the first occasion. Furthermore, what we have taken careful cognizance of is the fact that even a meticulous examination of the record before us will indicate that the reassessment was done on the basis of preexisting material and nothing that had come to the notice or possession of the Department at a subsequent point of time. That is one of the essential ingredients that could justify the reopening of an assessment. Barring the cryptic reference in the record that it subsequently c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the initiation of reassessment proceedings The reassessment proceedings therefore stand quashed, and the grounds challenging the validity of reassessment proceedings are allowed. 5. The learned DR submitted that the learned CIT(A) erred in quashing assessment order on the ground of change of opinion without appreciating fact that the Assessing Officer did not apply his mind while completing assessment which is evident from fact that the Assessing Officer has simply allowed expenses claimed by the assessee in the nature of penalty paid for breach of contract as allowable deduction and thus, reopening of assessment on the basis of audit objection amounts to formation of belief on the basis of fresh tangible material and thus, the learned CIT(A) has erred in quashing reassessment order. The learned DR further referring to decision of the Hon'ble Supreme Court in the case of CIT Vs. PVS Beedies Pvt. Ltd. (1999) 237 ITR 13 (SC) submitted that reopening of assessment on the basis of audit objection is valid, because there is no dispute as to factual error committed by the Assessing Officer has been brought out in the audit note. The learned DR further referring to decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een deliberated upon by the Assessing Officer during the scrutiny assessment proceedings. The facts born out from records clearly indicate that the Assessing Officer has examined issue of compensation paid by the assessee for breach of contract with his employer company and has allowed claim which is evident from fact that the Assessing Officer has left a note not to the assessee in the assessment records as per which, it is clearly evident that the Assessing Officer has applied his mind before allowing claim of the assessee. It is also evident from facts on record that reasons recorded by the Assessing Officer to form reasonable belief of escapement is based on audit objection, as per which the audit party also noted that as per note not to the assessee from assessment records, the audit party has raised objection on the issue of deduction allowed towards expenses claimed by the assessee. From the above, it is very clear that basis for reopening of assessment is audit objection and further, which is based on note not to the assessee given on assessment records. Except this, there is no fresh tangible material in the possession of the Assessing Officer to form reasonable basi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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