Re-opening of assessment on the basis of change in opinion is not permissible 

Brief Facts:

• The assessee is a company incorporated u/s 617 of the Companies Act, 1956. The primary objective of the assessee company is to work towards welfare and upliftment of ex-servicemen of state of Uttarakhand.
• The assessee claimed exemption u/s 10(26BBB) of the Income Tax Act, 1961 in its ITR. The original assessment was completed u/s 143(3) of the Act vide order dated 28-12-2011 wherein the claim of exemption u/s 10(26BBB) was partially disallowed to the extent of Rs. 41,68,140/- by holding that the assessee company had provided services to person other than ex-servicemen and their dependents.
• Subsequently, the case was reopened u/s 147 of the Act after expiry of 4 years from the end of the assessment year vide notice dated 22/01/2015. The reopening u/s 147 was made on the ground that the assessee had not fulfilled the pre-condition for claim u/s 10(26BBB) and the entire claim needs to be disallowed.
• During re-assessment, thus entire claim of exemption was disallowed and in first appeal, it was again denied by CIT(A).

Submission by assessee:

• The issue of exemption u/s 10(26BBB) was examined in great detail by the A.O. at the time of original assessment u/s 143(3) wherein partial disallowance of exemption was made. The subject matter of original assessment proceedings was the very same issue of exemption u/s 10(26BBB).
• It was further submitted that the notice u/s 148 has been issued after the expiry of 4 years and that in absence of any failure on the part of the assessee in disclosing true and full particulars, the notice is barred by limitation in terms of proviso to section 147 of the Act.
• Once, the issue of exemption u/s 10(26BBB) has been examined in the course of original assessment, the A.O. loses his jurisdiction to reopen the proceedings on the very same issue without any fresh tangible material.
• Reliance was placed on the Apex Court decision in Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1: for failure of the A.O. in assessing the taxable income, recourse to section 147 of the Act cannot legally be taken. The duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of original assessment. Once he has done this his duty ends. If an Income-Tax officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action of reopening assessment.

ITAT Observations:

• As per the law laid down by the Hon’ble Apex Court in the case of CIT vs. Kelvinator India Ltd. 320 ITR 561 (SC), it is evident that power under section 147 cannot be exercised for correcting the wrong committed in the original assessment.
• The action u/s 147 is not in the nature of review but to bring into tax net income which has escaped assessment due to factors beyond the control of the A.O. at the time of framing the original assessment.
• The use of term ‘Change in Opinion’ by the Hon’ble Supreme Court makes it clear that the A.O. has no power to initiate re-assessment proceedings u/s 147 in respect of issues which have been dealt with and considered in the original assessment.
• In case of reassessment beyond 4 years from the end of the assessment year, the satisfaction of essential condition of failure on part of the assessee in disclosing true and full particulars become relevant in deciding the expiry date of action u/s 147 of the Act.
• In case of Sun Pharmaceuticals Industries Limited v. DCIT [2016] 381 ITR 387 (Delhi), the Delhi High Court held that once there is full disclosure of facts and in absence of tangible material, no action can be taken u/s 147 of the Act.
• On perusal of reasons recorded for issue of notice, it is noted that the basis for assuming jurisdiction u/s 147 is claim of exemption u/s 10(26BBB) of the Act. It is found that the issue of exemption u/s 10(26BBB) has been extensively dealt with by the A.O. and assessment was ultimately completed after making proportionate disallowance of claim of exemption. The A.O. had specifically asked the assessee to prove with documentary evidences the conditions for claiming exemption u/s 10(26BBB).
• Further, the reasons recorded in the case fails to show that there was any failure in terms of first proviso to section 147 of the Act at the part of assessee to disclosed true and full particulars.
• No Fresh tangible material is available which may form the basis for re-assessment u/s 147. The entire re-assessment proceedings is based on existing material which was already part of the record.
• Thus, it is apparent that action u/s 147 was solely for the purpose of enhancing disallowance of the exemption u/s 10(26BBB) already made in the original assessment u/s 143(3) of the Act. This is not in accordance with the spirit of section 147 of the Act.

Tribunal Verdict:

• The principles laid down squarely apply to the facts of the instant case and on the pretext that there was no conscious consideration of the pointed facts at the time of assessment, reopening of the assessment is not legally permissible by virtue of section 147 of the Act.
• A re-assessment cannot be initiated on the basis of a change of opinion. In view of the above discussion, we are of considered view that notice u/s 148 is vitiated on dual count of change of opinion as well as first proviso to section 147 of the Act and the same is hereby quashed.

ITAT Order

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