Tax Authorities Can’t Reopen Assessments Based on Change of Opinion Without New Tangible Evidence

The petitioner, Devang Hiralal Vaghasia, engaged in the business of manufacturing and trading diamonds under a proprietorship. filed its return of income for the Assessment Year 2015-16, declaring a total income of Rs. 24,19,400, which was later selected for scrutiny assessment. During the initial assessment, the Assessing Officer (AO) issued multiple notices and questionnaires inquiring about the petitioner’s capital account, unsecured loans, and business transactions.

The AO passed an order under the Income Tax Act accepting the disclosed income. But after many years, the respondent issued a notice under Section 148 seeking to reopen the assessment, saying that certain unsecured loans were actually unexplained cash credits.

Issue Raised: Whether the Revenue is justified in reopening a completed assessment under Section 147 when the taxpayer had fully and truly disclosed all material facts during the original scrutiny, and no new “tangible material” was discovered.

HC’s Ruling: The High Court ruled in favor of the petitioner, quashing the reassessment notice and the subsequent order rejecting the petitioner’s objections. The Court observed that the AO had specifically scrutinized the issue of unsecured loans during the original assessment proceedings and had accepted the petitioner’s detailed justifications.

The Court held that the department cannot reopen an assessment due to a “change of opinion” by a successor officer on the same set of facts. As no new tangible evidence was presented to show that income had escaped assessment, the jurisdictional requirement for reopening the case was not met.

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