Income for the AY in question had escaped assessment is based on a mere ‘change of opinion,’ it does not justify the reopening of the assessment

M/s Sri Jagannath Promoters & Builders, Giri Road Berhampur Ganjam vs Deputy Commissioner of Income Tax, Berhampur Circle, Berhampur, Ganjam & others; W.P.(C) no. 14603 of 2014; High Court of Orissa at Cuttack; 26.10.2021

The challenge in this writ petition is to a notice dated 16th September 2013 issued by the Deputy Commissioner of Income Tax, Berhampur Circle, Berhampur (Opposite Party No.1) under Section 148 of the Income Tax Act, 1961 (Act) seeking to reopen the assessment of the Petitioner for the assessment year (AY) 2009-10.

Facts

• The Petitioner is a partnership firm. It filed its return for the AY in question on 16th November 2009 disclosing a total income of Rs.15,30,110/-. The return was picked up for scrutiny.
• In response to the notices under Sections 142 (1) and 143 (2) of the Act, the Petitioner appeared before the Assistant Commissioner, Income Tax (ACIT) [hereafter the Assessing Officer (AO)], Berhampur Circle, Berhampur and produced its books of account including cashbook ledger, audit report, balance sheet and profit and loss (P & L) account.
• The AO, after examining the documents, issued on 19th October 2011 a detailed questionnaire to the Assessee which again the Assessee responded to.
• On 5th December 2011, the AO passed the assessment order under Section 143 (3) of the Act determining the total taxable income as Rs.18,43,708/-. Accordingly, the tax payable was determined as Rs.1,39,054/-.
• In the assessment order, the AO disallowed Rs.3,13,600/- on account of sundry creditors. However, the appeal filed by the Assessee against the aforementioned assessment order was allowed by the Commissioner of Income Tax (Appeals) (CITA) by order dated 17th July, 2013. The aforementioned addition was deleted. The said order attained finality.
• On 16th September 2013, the impugned notice was issued by the Respondent under Section 148 of the Act stating that income chargeable to tax for the assessment year 2009-10 has escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961 and thereby requiring the delivery of return in prescribed form of the assessee’s income for said assessment year. The present petition has been filed challenging the same.

Observations and Findings:

• The law in relation to the reopening of the assessment has been explained in detail in a number of decisions of the Supreme Court of India.
• The short question, therefore, to be determined in the present case is whether the reopening of the assessment was based on mere “change of opinion” as contended by the Assessee or was there new material which could not have been examined earlier and which justified the reopening of the assessment.
• Judgment of the Hon’ble Supreme Court in Kelvinator of India Limited pronounced in 2010 covers the present facts and circumstances. That judgment requires that there has to be some new material to justify the re-opening of the assessment. It cannot be based on a mere change of opinion on the basis of the same materials.
• In the present case, the reasons for reopening the assessment do not point to any new material that was available with the Department
• What appears to have happened is that the same material viz., the accounts produced by the Assessee were reexamined and a fresh opinion was arrived at by the Opposite Party No.1 regarding the claim of the deduction of Rs.48,183/- on account of the loss of sale of assets.
• This had already been disclosed in the detailed accounts filed by the Assessee.
• In fact, a questionnaire had been issued by the AO in the course of the original assessment proceedings to the Assessee which was responded to by the Assessee. In other words, there was conscious application of mind by the AO to the said materials.
• Therefore, the inevitable conclusion as far as the present case is concerned is that the ‘reason to believe’ of Department that income for the AY in question had escaped assessment is based on a mere ‘change of opinion’.
• The threshold set by the Supreme Court of India in Kelvinator of India Limited to justify the reopening of the assessment has not been met in the present case.

Held:

Consequently, the Ld. High Court was unable to sustain the reopening of the assessment. Accordingly, for the aforementioned reasons, the impugned notice and all proceedings of the Department pursuant thereto were quashed.

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