AO has Power to Reassess only on Material Evidence: Gujarat HC dismisses Income Tax Dept’s Appeal [Read Order]

The Gujarat High Court dismissed the appeal of the income tax department citing the Assessing Officer has no power to review, has power to reassess only on tangible material evidence.  

The appeal under Section 260A of the Income Tax Act was filed by the Principal Commissioner of Income Tax. It raised the question of whether the Appellate Tribunal was justified in ruling that reopening the assessment under section 147 was merely a change of opinion and thus invalid in law.  

The Income tax Assessing Officer reopened the assessment under Section 147 of the Income Tax Act. The AO in the reassessment order made an addition disallowing Rs.7,74,069/- towards the depreciation and reduced returned loss.  

The Commissioner of Income Tax (Appeals) [CIT (A) ] allowed the assessee's appeal, ruling that the Assessing Officer's reasons for reopening the assessment were based on information already available in the profit and loss account, which was on record.  

The Income tax commissioner of appeals stated that since the original assessment had been scrutinized under Section 143(3) and more than four years had elapsed, the burden was on the Assessing Officer to prove that there was a failure on the part of the Assessee to fully disclose material facts.  

However, as the materials prompting the reassessment were already documented, and there was no failure in disclosure, the reopening of the assessment was deemed invalid under judicial precedent cited by the Assessee. Therefore, the CIT (Appeals) held the reassessment proceedings as legally unsound, and consequently, did not adjudicate on the merits of the additions made in the reassessment order. 

The Income tax appellate tribunal, following the Supreme Court's decision in CIT vs. Kelvinator of India Ltd., upheld the CIT (Appeals)'s order. It noted that the reasons recorded by the Assessing Officer for reopening the assessment were based on the profit and loss account and balance sheet already available during the original assessment. The Tribunal found no new tangible material on record and concluded that there was no failure on the part of the assessee to disclose material facts.  

Citing judicial precedents, including the Full Bench judgment of the Delhi High Court, the Tribunal ruled that reopening the assessment after four years without new tangible material amounted to a "change of opinion," which is impermissible under law. Therefore, the Tribunal dismissed the Revenue's appeal, affirming that the reassessment was invalid. 

The bench of Justices Bhargav D. Karia and Niral R. Mehta, considering the facts, submissions and observation of the CIT(A) and income tax tribunal, observed that The assessing officer reopened the assessment solely based on details from the assessee's profit and loss account, without any new tangible material on record and no failure by the assessee to disclose all necessary facts.  

According to the High Court bench, the tribunal correctly applied the principles established in the Kelvinator of India case. Consequently, no legal question arises from the Tribunal's decision. The appeal lacked merit and was dismissed.  

To Read the full text of the Order CLICK HERE 

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