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Re-assessment proceedings are unsustainable where based on same set of facts already available during original assessment, hence leading to change of opinion of AO: ITAT

2019-TIOL-1611-ITAT-CUTTACK

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘SMC’ CUTTACK

ITA No.397/Ctk/2017
Assessment Year: 2007-08

M/s G N MOHANTY AND COMPANY
PLOT NO 2060/2061, 2062
S, SAMATARPUR CHHAK, BHUBANESWAR
PAN NO:AAEFG3478J

Vs

INCOME TAX OFFICER
WARD 1(2), BHUBANESWAR

Chandra Mohan Garg, JM

Date of Hearing: July 10, 2019
Date of Decision: July 24, 2019

Appellant Rep by: Shri B K Mohapatra, AR
Respondent Rep by:
 Shri Subhendu Dutta, DR

Income Tax – Sections 147 & 148

Keywords – Reassessment proceedings

The assessee had filed its return showing total income of Rs 2.12 lacs. The assessment was completed by the AO u/s.143(3) determining the total income at Rs 2.44 lacs. Thereafter, order was rectified and total income was determined at Rs 2.24 lacs. Subsequently, the AO issued notice u/s.148 on the ground that “on verification of the assessment details, it was noticed during the assessment proceedings, the assessee firm has filed statements of gross commission/brokerage, contract receipts, of Rs 31.58 lacs with claim of TDS credit of Rs 1.74 lacs. But on going through the profit and loss account, it was seen that a sum of Rs.19.88 lacs has been shown as its gross receipt/income with TDS credit of Rs 1.74 lacs. So the assessee firm has suppressed balance receipt/income amounting to Rs 11.70 lacs”. In response to notice u/s.148 the assessee requested to treat the return filed u/s.139(1) as valid return. Thereafter, the AO issued notice u/s.143(2) and the assessee appeared and matter was discussed. The AO passed an order u/s.143(3)/147 determining the total income by making various disallowances. On appeal, the CIT(A) upheld the action of the AO.

On appeal, the Tribunal held that,

Whether reopening of assessment u/s 147 is justified, when it is based merely upon change of opinion of AO on same set of facts which were already available on record before him during original assessment – NO: ITAT

++ the argument of the Authorized Representative of the assessee is the reassessment order was nothing but a change of opinion and there was no fresh information available on record to justify the reopening of assessment. This Tribunal observed the order u/s.143(3)/154 through which the AO rectified the discrepancy in the order u/s.143(3). So the argument is the revenue department wanted to initiate the proceedings both u/s.147 as well as u/s.154, which itself has established the information as well as the accounts were very much on record. Which were in the notice of the AO as he wanted to invoke the provisions of section 154 to rectify the mistake. Because the AO had issued notice u/s.154. Considering the peculiar situation under which the proceedings were started u/s.147/148. Thus, this Tribunal holds the law does not permit a settled issue to get unsettled by reopening it. Tribunal also find that law relating to change of opinion being not permissible for invoking proceedings u/s 147 is now well settled by Supreme Court in the case of CIT v. Kelvinator of India Ltd. In this case, on the basis of change of opinion, the AO has resorted to section 147 in reopening of assessment and therefore, this Tribunal quash the reassessment proceedings u/s.147.

Assessee’s appeal allowed

ORDER

Per: Chandra Mohan Garg:

This is an appeal filed by the assessee against the order of the Commissioner of Income Tax(Appeals)-1, Bhubaneswar dated 10.3.2017 for the assessment year 2007-08.

2. In Ground No.1 of appeal, the issue involved is that the Commissioner of Income Tax(Appeals), Cuttack was not justified in confirming the reopening of assessment u/s.147 of the Act.

3. Brief facts of the case are that the assessee is a firm and derives income from trading in fertilisers and pesticides and commission income. The assessee filed the return of income on 31.10.2017 showing total income of Rs.2,12,292/-. The assessment was completed u/s.143(3) of the Act on 26.10.2009 determining the total income at Rs.2,44,290/- and thereafter, order was rectified and total income was determined at Rs.2,24,290/-. Hence, notice u/s.148 of the Act was issued on 17.6.2011 on the ground that “on verification of the assessment details, it was noticed that during the assessment proceedings, the assessee firm has filed statements of gross commission/brokerage, contract receipts, etc. of Rs.31,58,934/- with claim of TDS credit of Rs.1,74,926/-. But on going through the profit and loss account, it was seen that a sum of Rs.19,88,231.01 has been shown as its gross receipt/income with TDS credit of Rs.1,74,926/-. So the assessee firm has suppressed balance receipt/income amounting to Rs.11,70,702.99 (Rs.31,58,934. – Rs.19,88,231.01).

4. In response to notice u/s.148 of the Act, the assessee requested to treat the return filed u/s.139(1) dated 31.10.2007 as valid return. Thereafter, the Assessing officer issued notice u/s.143(2) of the Act and the assessee appeared and matter was discussed. The Assessing Officer vide order dated 31.10.2011 u/s.143(3)/147 of the Act, determined the total income at Rs.16,58,990/-, making various disallowances.

5. Aggrieved, the assessee carried the matter in appeal challenging the reopening of assessment u/s.147 and also on merits. However, the CIT(A) upheld the action of the Assessing officer. Hence, this appeal is before the Tribunal.

6. At the outset, ld A.R. of the assessee challenged the reopening of assessment u/s.147 of the Act. Both the parties agreed that the Assessing officer has reopened the assessment u/s.147 of the Act, inter alia, recording the following reasons:

” “on verification of the assessment details, it was noticed that during the assessment proceedings, the assessee firm has filed statements of gross commission/brokerage, contract receipts, etc. of Rs.31,58,934/- with claim of TDS credit of Rs.1,74,926/-. But on going through the profit and loss account, it was seen that a sum of Rs.19,88,231.01 has been shown as its gross receipt/income with TDS credit of Rs.1,74,926/-. So the assessee firm has suppressed balance receipt/income amounting to Rs.11,70,702.99 (Rs.31,58,934. – Rs.19,88,231.01).”

7. It was further submitted by ld A.R. of the assessee that no new material had come to the knowledge of the Assessing Officer after framing of assessment u/s.143(3) of the Act on 26.10.2009 for assessment year 2007-08, which may afford ‘reason to believe’ that income of the appellant had escaped assessment. It is clearly evident from the reasons recorded that no new tangible information/material came to the knowledge of the assessing officer subsequent to the conclusion of the original assessment. The reasons recorded by the assessing officer do not even indicate or allege that any fresh information came to the knowledge of the assessing officer warranting exercise of jurisdiction under section 147/148 of the Act.

8. He relied on the decision of the Hon’ble apex Court in CIT v. Kelvinator of India Ltd.: 320 ITR 561(SC) =2010-TIOL-06-SC-IT. The relevant observations of the apex Court are as under:

“On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the- Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post-lst April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words “reason to believe” failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of “mere change of opinion”, which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to reassess. But re-assessment has to be based on fulfillment of certain precondition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief.”

9. It was further argued that in the present case on the basis of books of account and other materials, the Assessing Officer have examined the issue of disallowance gross commission/brokerage, contract receipts, etc. and, therefore, it is presumed that he applied his mind to the material on record and formed an opinion. Therefore, in the absence of any fresh material, the reappraisal of same material to initiate reassessment proceedings tantamounts to change of opinion and hence bad in law.

10. Replying to above, ld D.R. submitted that production of books of account and other details before the AO in the course of assessment proceedings cannot stand in the way of initiating reassessment proceedings u/s.147 of the Act if all the conditions laid down under law are satisfied. In the instant case, all those conditions appear to have been satisfied for initiating reassessment proceedings. Therefore, the reopening of assessment u/s.147 of the Act is valid.

11. I have heard the rival submissions and perused the record of the case. The argument of ld A.R. of the assessee is that the impugned reassessment order was nothing but a change of opinion and there was no fresh information available on record to justify the reopening of assessment. My attention has also been drawn to the order dated 5.5.2010 u/s.143(3)/154 of the Act, through which the AO rectified the discrepancy in the order u/s.143(3) of the Act. So the argument is that the revenue department wanted to initiate the proceedings both u/s.147 as well as u/s.154 of the I.T.Act, which itself has established that the information as well as the accounts were very much on record, which were very much in the notice of the AO as he wanted to invoke the provisions of section 154 of I.T.Act to rectify the mistake. Because the AO had issued 0notice u/s.154 of I.T.Act, therefore, it was also not in dispute that the alleged discrepancies were nothing but mistake apparent from record. Considering the peculiar situation under which the proceedings were started u/s.147/148 of I.T.Act, I hereby hold that the law does not permit a settled issue to get unsettled by reopening the same. I also find that law relating to change of opinion being not permissible for invoking proceedings u/s 147 of the Act is now well settled by Hon’ble Supreme Court in the case of Kelvinator of India Ltd., (supra). In this case, on the basis of change of opinion, the Assessing officer has resorted to section 147 of the Act in reopening of assessment and, therefore, I quash the reassessment proceedings u/s.147 of the Act and allow this ground of appeal.

12. Since, I have quashed the reassessment proceedings u/s.147 of the Act on legal ground, hence, other grounds taken by the assessee on merits have become infructuous.

13. In the result, appeal of the assessee is allowed.

(Order pronounced on 24.07.2019)

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