2025 (7) TMI 1298 - AT - Income Tax

Reopening of assessment - Reasons to believe - change of opinion - Disallowance of claim of right liability payment u/s 37(1) and Tax liability of long term capital gains arising on slump sale. HELD THAT - We find that the original assessment in the present case was completed u/s 143(3) of the Act. The subsequent reopening has been initiated on an issue which was already examined and verified by the then AO during the original scrutiny proceedings. Importantly there is no reference to any fresh tangible material that would justify the reopening under section 147. Primary contention of the AR is that the reassessment has been initiated merely on a change of opinion which is impermissible under the law and renders the proceedings invalid and without jurisdiction - During the original assessment proceedings under section 143(3) the Ld. AO had specifically raised a query vide notice under section 142(1) dated 17.10.2019. At serial no. 12 of the said notice the Ld. AO had sought details and justification in respect of the claim made under any other amount allowable as deduction . In response the assessee vide submission dated 05.12.2019 furnished a detailed justification for the allowability of the expenditure towards Claim Right Liability amounting to Rs. 400 crores. It is also noted that the issue was discussed in detail during the personal hearing with the Ld. AO who upon consideration of the assessee s submissions and documents accepted the claim and framed the assessment under section 143(3) vide order dated 18.12.2019. Significantly AO in the recorded reasons for reopening has admitted that the basis for such reopening was the very same note and revised computation of income furnished by the assessee during the original proceedings. AO had already examined the issue in question. The assessee had submitted detailed explanations and supporting documentation during the original assessment which were duly considered and accepted. Thus the formation of a different view on the same material amounts to a mere change of opinion which cannot be a valid ground for reopening under section 147. Thus reopening of the assessment is vitiated by the absence of any new tangible material and is based solely on a change of opinion rendering it invalid and bad in law. Assessee appeal allowed.

Summary

ISSUES:

Whether reopening of assessment under section 147 of the Income-tax Act, 1961, is valid in the absence of any new tangible material and based solely on a change of opinion.Whether the proviso and Explanation 1 to section 147, relating to "full and true disclosure" of material facts by the assessee, were correctly applied in validating or invalidating the reassessment notice.Whether judicial precedents, including Raymond Woollen Mills Ltd. and ACIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd., support the validity of reassessment in the present facts.Whether the Assessing Officer had "reason to believe" that income chargeable to tax had escaped assessment on the basis of prima facie material.Whether the reopening notice issued under section 148 was issued following proper procedure, including disposal of objections and providing statutory time to the assessee.

RULINGS / HOLDINGS:

Reopening of assessment under section 147 without any new tangible material and based on the same material already examined during original assessment constitutes a mere "change of opinion" and is "bad in law" and invalid.The proviso and Explanation 1 to section 147 provide additional safeguards but were not relied upon by the CIT(A) to grant relief; the invalidity arose from the absence of fresh material and reliance on change of opinion.The decisions in Raymond Woollen Mills Ltd. and Rajesh Jhaveri Stock Brokers Pvt. Ltd. are distinguishable and do not apply where the issue was fully examined during original assessment and no fresh material emerges; thus, reliance on these precedents by the revenue was misplaced.The Assessing Officer must have "reason to believe" based on fresh tangible material with a "live link" to escapement of income; mere production of documents or existing material does not suffice for valid reassessment.The reopening notice was issued without following procedural requirements such as disposing objections before issuance and providing four weeks' time thereafter, violating established guidelines and law.

RATIONALE:

The Court applied the statutory framework of section 147 of the Income-tax Act, 1961, emphasizing that reassessment powers are exercisable only when there is "reason to believe" that income chargeable to tax has escaped assessment, supported by fresh tangible material not previously considered.Judicial precedents such as CIT vs. Kelvinator of India Ltd. and recent High Court decisions (e.g., Shri Sai Baba Sansthan Trust (Shirdi), Marico Ltd., Union Bank of India) were relied upon to affirm that reassessment cannot be initiated on a mere "change of opinion" or reappraisal of the same material.The Court distinguished the revenue's reliance on Raymond Woollen Mills Ltd. and Rajesh Jhaveri Stock Brokers Pvt. Ltd., noting that those cases involved situations where the Assessing Officer had prima facie material not considered earlier, unlike the present case where the issue was fully adjudicated in original assessment.The Court recognized the role of Explanation 1 to section 147 as an additional safeguard requiring "full and true disclosure" of material facts by the assessee but clarified that the present case's invalidity was grounded on lack of fresh material rather than non-disclosure.The Court underscored the procedural safeguards mandated by law, including the necessity to dispose objections to reopening before issuing a notice under section 148 and to provide the assessee with adequate time thereafter, which were not complied with.