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Facts
The assessee's original assessment for AY 2009-10 was completed under Section 143(3). Later, the Assessing Officer (AO) initiated reassessment proceedings under Section 147, alleging that income had escaped assessment due to failure to disclose material facts. The AO's reasons for reopening were based on a review of the purchase reconciliation statement and interest on security deposits, which were already available in the records.
Held
The Tribunal held that the reopening was based on a change of opinion and reappraisal of existing evidence, not on any new material. Since the original assessment was completed under Section 143(3) and the reopening was initiated beyond four years, it was impermissible. The Tribunal relied on the decision of the Hon'ble High Court of Orissa in Rama Devi Sabat vs. DCIT.
Key Issues
Whether the reopening of assessment beyond four years, based on a change of opinion and reappraisal of existing material, is valid when the original assessment was completed under Section 143(3).
Sections Cited
143(3), 147, 148
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “CUTTACK BENCH, CUTTACK
Before: SHRI GEORGE MATHAN & SHRI RAJESH KUMAR
ORDER PER BENCH: This is an appeal filed by the assessee against the order of the CIT(Appeal) ADDL/JCIT(A)-1, Visakhapatnam [hereinafter referred to as the ‘CIT(A)’] in appeal no.CIT(A), Sambalpur/10013/2015-16 dated 19.09.2025 for the assessment year 2009-10.
Shri S. K. Sarangi & Bishwa Jyoti Pattnaik, ARs, represented on behalf of the assessee and Shri Shakeer Ahamed, Sr. DR represented on behalf of the revenue.
It was submitted by the ld. AR placed before us the copy of the reasons recorded and the same reads as under:
It was the submission that the original assessment in the case of the assessee was completed on 01.09.2011. The impugned assessment year is 2009-10. It was the submission that the reopening has been proposed by the issuance of notice u/s 148 dated 16.07.2014. It was the submission that the reopening is being proposed beyond the period of four years and there is requirement that there should be fresh material and the assessee has not fully and truly disclose all the material facts necessary for the assessment. It was the submission that on perusal of the reasons recorded it clearly shows that the reopening has been done only on the basis of reappraisal of the evidences as is already available in file of the Assessing Officer. It was the submission that no fresh evidence has come to the knowledge of the Assessing Officer. It was the submission that that on the basis of change of opinion, the reopening is not permissible. The ld. AR placed a decision of the Hon’ble High Court Orissa in the case of Rama Devi Sabat vs. DCIT in W.P (C) NO.13480 of 2014 dated 10.11.2021 wherein the Hon’ble High Court has held as follows:
7. A perusal of the reasons mentioned above for reopening of the assessment reveals that there was no new material available with Opposite Party No.1. The reasons begin with the sentence “On verification of records....
In other words, it is the same statement of accounts already filed by the Petitioner during the original assessment proceedings under Section 143 (3) of the IT Act that have been revisited by Opposite Party No.1.
In respect of each of the lines of business of the Petitioner in the original assessment order, the AO estimated the businesswise profit by observing as under: “IMFL Business During the course of assessment proceedings the assessee filed Trading Profit & Loss account of IMFL Off shop showing sales at Rs.3,98,78,474/- and net profit from such business was disclosed at Rs.12,13,236/-. The assessee has claimed huge expenses under different heads, but could not produce any bills and vouchers or cash book, ledger etc; to substantiate the net profit. Under the above circumstances and keeping in view the nature and volume of business, the net profit is reasonably estimated @ 4% on gross sales which comes to Rs.15,95,138/- [Rs.3,98,78,474/- x 4%] M/s. Sandeep Enterprises The assessee also deals with Mobile Phone Recharge vouchers of Reliance Communications and had received commission. The assessee could not produce any bills and vouchers or books of account in support of the expenses claimed. In absence of regular books of account, the net profit shown from this business cannot be relied upon and the net profit is reasonably taken at Rs.2,00,000/- as against net profit shown by the assessee at Rs.1,68,825/-. M/s. R. D. Constructions The assessee apart from the above two business, executes civil contract works and had received gross contract receipts of Rs.37,00,000/- and disclosed net profit from such business at Rs.2,33,810/-. The assessee could not produce Cash Book, ledger and bills and vouchers in support of the expenses claimed in the profit and loss account. Hence, I have no other alternative but to estimate the income by rejecting the book result shown by the assessee. Therefore, the net profit from such business is reasonably estimated @ 7% on gross contract receipt shown by the assessee which comes to Rs.2,59,000/- [Rs.37,00,000/- x 7%= Rs.2,59,000/-]”
The above analysis reveals that the AO had applied his mind to the documents and records produced before him by the Assessee. This included the balance sheet, P & L Accounts and other relevant documents. It is plain, therefore, that the reopening of the assessment was not based on any new material.
10. The law in relation to the reopening of the assessment, particularly after the original assessment was a scrutiny assessment under Section 143 (3) of the IT Act, has been explained in detail in a number of decisions of the Supreme Court of India. Section 147 of the Act itself has undergone changes over the years. The legal position emerging on an analysis of the decisions and the legislative changes has been summarized succinctly by the Supreme Court of India in Commissioner of Income Tax, Delhi v. Kelvinator of India Limited (2010) 2 SCC 723 as under: “6. 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-1st 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 re-assess. But reassessment 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. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words “reason to believe” but also inserted the word “opinion” in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words “reason to believe”, Parliament re-introduced the said expression and deleted the word “opinion” on the ground that it would vest arbitrary powers in the Assessing Officer. We quote herein below the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows: “7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression ‘reason to believe’ in Section 147.--A number of representations were received against the omission of the words ‘reason to believe’ from Section 147 and their substitution by the ‘opinion’ of the Assessing Officer. It was pointed out that the meaning of the expression, ‘reason to believe’ had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended Section 147 to reintroduce the expression ‘has reason to believe’ in place of the words ‘for reasons to be recorded by him in writing, is of the opinion’. Other provisions of the new Section 147, however, remain the same."
Recently, this Court in similar circumstances in a judgment dated 26th October, 2021 in W.P.(C) No.14603 of 2014 (M/s. Sri Jagannath Promoters & Builders v. Deputy Commissioner of Income Tax) quashed the notice issued under Section 148 of the IT Act.
The facts of the present case being more or less similar, the impugned notice is hereby quashed. The writ petition is allowed in the above terms, but in the circumstances, with no order as to costs. An urgent certified copy of this order be issued as per Rules.” 4.1 It was the submission that the above decision clearly applies to the assessee’s present case.
In reply, the ld. Sr. DR submitted that the assessee has not given all the details and the reopening is valid. He vehemently supported the orders of the authorities below.
We have considered the rival submissions. A perusal of the reasons recorded clearly shows that the reopening was “on going through the return of income and in accompanying with the documents submitted by the assessee”. This clearly shows that no fresh material has come to the possession of the Assessing Officer and the reopening has been done only on the basis of reappraisal of the evidences which was already available with the Assessing Officer. This is a change of opinion. Such reopening is impermissible when an original assessment has been done u/s 143(3) and the reopening is done beyond four years from the end of the impugned assessment year. Under the circumstances and respectfully following the decision of the Hon’ble High Court of Orissa in the case of Rama Devi Sabat vs. DCIT (supra), the notice issued u/s 148 is quashed. Consequently, the assessment order stands quashed.