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Re-opening within four years

  1. In the course of Appellate proceedings it is submitted that as all the details were provided at the time of assessment u/s 143(3) and assessment was completed based on such details, hence the question of re-opening of the case does not arise. It is submitted that reopening of assessment can be made only when there is new or fresh information available with assessing officer. However in the instant case there is no such new or fresh information available on record and reopening of assessment is made only on the basis of existing facts. Again there has to be a live nexus between information in possession of the Assessing Officer and the assessee and escapement of income in respect of assessment year sought to be reopened, which is absent in this case. Hence, re-opening of the case is not valid.
  2. In this case, the AO issued notice u/s. 148 of the Act dated 05.09.2013 and vide letter dated 15.10.2013, assessee, required reasons for reopening of the assessment u/s. 148 of the Act and AO vide letter dated 28.10.2013 supplied the reasons, which read as under: 
    "In view of the above facts, I have reason to believe that the expenditure to the tune of Rs. 6,72,000/- was required to be disallowed u/s 40(a)(ia) and therefore, income to the tune of Rs. 6,72,000/- has escaped assessment for AY 2009-10 by reason of failure on the part of the assessee to deduct TDS while making such payment. In view of the same, the case is required to be reopened u/s 147 of the I T Act."
  3. There is no dispute that during the course of original assessment proceeding under section 143(3), the details of the expenses was duly furnished by the assessee  along with the copy of the audit report. Thus when a regular order of assessment is passed in terms of section 143 (3) of the Act, a presumption can be raised that such an order has been passed on application of mind. Here the original assessment order was passed on 27.12.2011. The copy of the same is filed herewith for your perusal. Further it is evident from the assessment order passed under section 143(3) of the Act, that books of accounts and requisitioned details were examined by the A.O with reference to the details of account filed along with the return. Copy of expenses ledger and details of TDS deducted were also produced. The issue of expenses claimed and TDS deducted was specifically looked into and accepted u/s 143(3) by your learned Predecessor. In fact the original assessment order clearly states that the AO has verified all the expenses and its nature and also the fact that the audit report was well on records and the AO has scrutinised the same. Hence it is evident that the disclosure of the payment made to Pandesara Green Environment and Water Welfare Co-op. Society Ltd. was very much on record and the same was duly considered by the A.O while passing the assessment order under section 143(3) of the Act. Hence there is no new material in the possession of the A.O as evident from the reason recorded, which could lead to the conclusion that the income has escaped assessment. Now it is a settled law that AO deemed to have applied his mind if facts are on record and reopening u/s 147 on change of opinion is not permissible even within 4 years.
  4. Reference may now be made to the leading judgment of the Supreme Court in the case of CIT v/s. Kelvinator of India Ltd. (2010) 320 ITR 561(SC) on the issue of change of opinion negativing Department’s contention that after omission of Section 147 clause (b) requiring “information” even the change of opinion is permissible ground for reopening of assessment, the Supreme Court laid down that even after the amendment of 1989 the Assessing Officer has to have reason to believe that income has escaped assessment but this does not imply that on mere change of opinion assessment can be reopened. The AO has no power to review; he has the power to re-assess. But re- assessment has to be based on fulfilment of certain pre-condition 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. The concept of “change of opinion” must be treated as an in-built test to check abuse of power. Hence, after 1st April 1989 the Assessing Officer has power to reopen an assessment provided there is tangible material to come to the conclusion that there was escapement of income from assessment. The reasons must have a live link with the formation of belief.
  5. Similarly, in the present case also there is no whisper in the reasons recorded of any tangible material which has come to the possession of AO subsequent to the assessment. Hence it is submitted that in the very first place, the payment made of Rs. 6,72,000/- as CEPT work (shown as a separate line-item in Schedule-4 of the Audit Report) is not any new information in possession of the AO subsequent to the original assessment u/s 143(3) and even if it is deemed as new information, it has no live nexus with the formation of belief that the income has escaped assessment. The AO has gathered information about the nature of expenses by issuing notice u/s 133(6) after the initiation of re-assessment proceedings and hence, it is submitted that without carrying out any inquiry prior to the formation of belief, it cannot be said that the information in possession of the Assessing Officer has any relationship with any income chargeable to tax or escapement of income. Reliance is placed on the latest decision of Delhi High Court dated 14.08.2014 in case of Madhukar Khosla vs ACIT [ W.P(C) 1320/2014, C.M 2744/2014 & 2745/2014] wherein it was held that
    “The foundation of the AO’s jurisdiction and the raison d’etre of a reassessment notice are the “reason to believe”. Now this should have a relation or a link with an objective fact, in form of information or facts external to the materials on the record. Such external facts or material constitute the driver, or the key which enables the authority to legitimately re-open the completed assessment. In absence of this objective “trigger:, the AO does not possess jurisdiction to reopen the assessment. It is at the next state that the question, whether the reopening of assessment amount to “review” or change of opinion” arise. In other words, if there are no “reason to believe based on new, “tangible materials”, then the reopening amount to an impermissible review.”
  6. Reliance is further placed on the decision of Gujarat High Court in the case of Prasad Koch Technik Tech Private Limited (Special Civil Application No. 16074 0f 2011 and 16076 of 2011) wherein it was held that “In view of the above legal position, it is indisputable that the assessee was required to deduct tax at source on the payment made to foreign supplier, if any such payment to the foreign supplier incorporated any tax liability under the Indian Income Tax Act. In the reasons recorded, there is not even a prima facie belief or disclosure that on what basis, the Assessing Officer has formed his reason to believe that such payment to the foreign supplier attracted tax in India. In absence of any live link with the reasons recorded and the belief formed, we are of the opinion that the notice was wholly invalid.”
  7. In ITO vs. Lakhmani Mewal Das [(1976) 103 ITR 437 (SC)], the Supreme Court held that the powers of the ITO to reopen the assessment, though wide are not plenary. The words used by the statute are “reasons to believe” and not “reasons to suspect”. In CIT vs. Kelvinator Of India Ltd [(2010) 228 CTR (SC) 488], Honourable Supreme Court held that after 01.04.1989, Assessing Officer has power to re-open the assessment u/s 147 provided there is tangible material to come to the conclusion that there is escapement of income from assessment, reasons must have link with the formation of the belief. In CIT vs. Atlas Cycle Industries [(1989) 180 ITR 319 (P&H)], it was held that Assessing Officer will not have jurisdiction to proceed with the reassessment the moment he finds the ground mentioned in the reassessment notice as incorrect or non-existent.