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TMI Blog2005 (3) TMI 388X X X X Extracts X X X X X X X X Extracts X X X X ..... le Punjab Haryana High Court's decision in the case of Vipan Khanna [ 2000 (7) TMI 2 - PUNJAB AND HARYANA HIGH COURT] , such a course is not open u/s 147. Before a notice u/s 148 is issued for reopening of assessment under section 147, the Assessing Officer has to form an opinion on the basis of material on record that income of the assessee has escaped assessment. As already pointed out, on the basis of material available to the Assessing Officer at the time of the assessment u/s 143(3) or 143(1), the Assessing Officer cannot change his opinion for the purpose of making reassessment. There has got to be some material on the basis of which the Assessing Officer could have reasons to believe that the income of the assessee has escaped assessment. Such a belief is not permissible on the basis of mere change of opinion. The Assessing Officer in this case had not issued any notice u/s 143(2) considering the return as correct. Thus, we are of the considered view that reopening of assessments for all the three assessment years is not valid. The same are accordingly cancelled. In the result, whereas the appeals of the assessee are allowed the appeals of the Revenue are dismissed as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of the financial year. (3) Advance purchases and advance sales have not been taken to the profit loss account. The Assessing Officer completed the reassessment on 31-3-2003 at Rs. 15,12,97,910/-. The Assessing Officer had invoked the provisions of section 145(3) and applied net profit rate of 3 per cent on the turnover. 3. Assessee appealed to the CIT(A) challenging the reopening of the assessment as well as the additions made. The CIT(A) has upheld the action of the Assessing Officer in reopening the assessment. So, however, the income determined by the Assessing Officer has been reduced. The CIT(A) has applied the GP rate in respect of the advance sales thereby sustaining the addition of Rs. 14,47,247/-. The addition of Rs. 5 lakhs on account of disallowance of expenses in respect of Jaipur business has also been upheld by the CIT(A). 4. For the assessment year 1996-97, the assessee had filed the return of income on 31-10-1996 declaring loss of Rs. 60,620/-. The return had been processed under section 143(1). Subsequently, rectification under section 154 was carried and the loss restricted to Rs. 47,619/-. Subsequently, Assessing Officer issued notice under section 148 on 7-3-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92,343/- by applying a net profit of 0.83 per cent. In respect of regular sales, addition of Rs. 54,63,957/- has been made by applying the same profit rate. It may also be pertinent to mention that for the assessment year 1996-97, the CIT(A) applied the net profit rate of Delhi business and for the assessment years 1995-96 and 1997-98, the CIT(A) adopted the net profit rate of Pune and Delhi businesses. 9. The ld. Counsel for the assessee contended that reopening of assessment in this case for all the assessment years is invalid. It was contended that for the assessment year 1995-96, the original assessment had been made under section 143(3). As per proviso to section 147, the reopening of assessment is not permissible if there was no failure on the part of the assessee in compliance with any notices or to disclose fully and truly all material facts necessary for assessment. It was fairly conceded that the Assessing Officer could reopen the assessment within the period of four years if conditions provided under section 147 are satisfied. After the expiry of four years from the end of the relevant assessment year, the proviso to section 147 makes it difficult for the revenue authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel for the assessee also contended that the assessee was reflecting the sales as well as purchases on the basis of the date of draw of the lottery. The sales and purchases were considered as advance sales and purchases. There was no defect in the method of accounting or in the books of account maintained by the assessee. Therefore, the additions made by the revenue authorities were uncalled for and unjustified. It was accordingly pleaded that the appeals of the assessee may be accepted. 12. The learned D.R., on the other hand, contended that from 1-4-1989, provisions of section 147 had undergone a change and the reopening of assessment was permissible if there was escapement of income for any reason. It was contended that for the assessment years 1995-96 and 1997-98, the assessments were completed under section 143(3). For the assessment year 1995-96, the assessee had not disclosed any profit in respect of advance sales. There was thus non-disclosure of material facts by the assessee as a result of which the Assessing Officer was entitled to issue notice under section 148. For the assessment year 1996-97, no assessment was made under section 143(3). Therefore, the proviso to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.- For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (c) where an assessment has been made, but- (i) income chargeable to tax has been under-assessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 debars the Assessing Officer from reopening of assessments. While making the assessments under section 143(3), the Assessing Officer had full facts available for determination of income of the assessee. The Assessing Officer has made assessments under section 143(3) after due-application of mind. For the assessment year 1995-96, the reasons for reopening of assessment, as indicated elsewhere in this order, are that the prize winning tickets reflected in the balance sheet had not been taken into account to the profit and loss account; that the assessee had shown opening stock at Rs. 61,72,240/- but no closing stock was disclosed at the end of the financial year and that advance purchases and advance sales were not taken to the profit and loss account. The CIT(A) has upheld the reopening of assessment on the sole ground that the accounting treatment given by the assessee in respect of purchase and sale of lottery tickets pertaining to the lottery draws next year through advance purchases and advance sales account was not correct. In our considered view, it is a question of opinion. The Assessing Officer while framing assessments under section 143(3) impliedly accepted the method of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um to an authority exercising quasi-judicial function to take benefit of its own wrong. Hence, it is clear that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceedings upon a mere change of opinion. 16. Similar view has been expressed by the Hon'ble Supreme Court in the case of Foramer France. In the said case, their Lordships of the Supreme Court held as under:- From the decision of the High Court that (i) section 147 substituted in the Income-tax Act, 1961, by the Direct Tax Laws (Amendment) Act, 1987, had made a radical departure from the original section 147, inasmuch as clauses (a) and (b) had been deleted and under the proviso thereto notice for reassessment would be illegal if issued more than four years after the end of the assessment year, if the original assessment were make under section 143(3); (ii) section 153 related to the passing of an order of assessment and not to the issuing of a reassessment notice under section 147/148; (iii) the direction or finding contemplated by section 153(3)(ii) had to be a finding in relation to the particular assessee and the particular year and to be a finding it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... system of accounting adopted by the assessee has not been considered to be appropriate. It is, therefore, evident that there has been a change of opinion on the basis of which reassessment has been made. In the light of the law laid down by the Hon'ble Supreme Court in the case of Foamer France, the reopening of assessment on a mere change of opinion, especially when there is no non-disclosure of material facts by the assessee, is not permissible. Respectfully following the aforesaid decision of the Hon'ble Supreme Court, the reassessments made by the AO for the assessment years 1995-96 and 1997-98 are held to be illegal and the same are accordingly cancelled. 18. For the assessment year 1996-97, no assessment was made under section 143(3). The return of income had been processed by the Assessing Officer under section 143(1). Notice under section 148 was issued after the expiry of four years from the end of the previous year. The reasons for reopening of assessment are that capital gain on sale of land was liable to be assessed in the assessment year 1996-97 as against the assessment year 1997-98; that mercantile system of accounting is not followed and that advance purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d issues determined after consideration of the material on record, the evidence, if any, furnished by the assessee and submissions made by the assessee. As per the Hon'ble Punjab Haryana High Court's decision in the case of Vipan Khanna, such a course is not open under section 147. Before a notice under section 148 is issued for reopening of assessment under section 147, the Assessing Officer has to form an opinion on the basis of material on record that income of the assessee has escaped assessment. As already pointed out, on the basis of material available to the Assessing Officer at the time of the assessment under section 143(3) or 143(1), the Assessing Officer cannot change his opinion for the purpose of making reassessment. There has got to be some material on the basis of which the Assessing Officer could have reasons to believe that the income of the assessee has escaped assessment. Such a belief is not permissible on the basis of mere change of opinion. The Assessing Officer in this case had not issued any notice under section 143(2) considering the return as correct. 20. Taking the totality of the facts and circumstances of this case into consideration and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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