Madras HC quashes Reassessment Notice Over Change of Opinion, Not New Material [Read Order]

The High Court of Madras quashed the reassessment notice over a change of opinion, ruling that the reopening of the assessment for the Assessment Year(AY)2014-15 was not supported by new material.

VIP Housing and Properties, the petitioner-assessee, challenged the notice dated March 31, 2021, issued under Section 148 of the Act, 1961, for the Assessment Year 2014-15, along with the order dated February 11, 2022, which rejected objections to the reopening of the assessment completed on March 31, 2016, under Section 143(3).

The reopening was based on a search and seizure operation where cash and gold worth ₹3,16,19,213 had been seized from various locations. The case was centralized, and a notice under Section 142(1) was issued. The -assessee had filed a return on February 22, 2016, declaring an income of ₹2,34,86,595, which was accepted without additions for the seized assets. The department claimed this led to an escapement of taxable income.

The assessee argued that the reassessment lacked any tangible material to justify reopening the concluded assessment.

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The petitioner’s counsel argued that a search on September 3, 2013, led to proceedings under Section 153A. The petitioner initially admitted a tax liability of ₹1,98,00,000 but later increased it to ₹2,34,86,595 in the returns filed on February 22, 2016.

It was contended that apart from ₹1,77,50,045, the remaining seized amounts and gold had already been declared by a partner and another firm. Since the assessment was completed on March 31, 2016, after a notice under Section 142(1), there was no basis to reassess the income.

The counsel claimed that the reassessment was based on a change of opinion and cited court rulings to argue that reopening beyond the limitation period was unjustified. The counsel sought to quash the impugned order.

The respondent’s counsel argued that the petitioner’s return was incomplete, as only ₹2,34,86,595 was declared instead of the full seized amount of ₹3,16,19,213. Since the Assessing Officer had not examined this earlier, the escaped income was reassessed under tax provisions. Citing Supreme Court rulings, the counsel sought dismissal of the petition.

Read More: Re-Opening Assessment based on Mere Change of Opinion is not Allowable: Bombay HC

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A single member bench comprising C.Saravanan(Justice) considered both arguments. During the search on September 3, 2013, cash and gold were seized from the petitioner and associates. The Assessing Officer(AO) had likely reviewed all details before passing the assessment order on March 31, 2016.

Citing the Ramachari case (1961), the court held that the notice issued on March 31, 2021, under Section 148 was based on a change of opinion, as the assessment had already been made for AYs 2011-12, 2012-13, and 2013-14.

The Supreme Court in Kalyanji Mavji & Co. (1976) and other rulings held that reassessment could be initiated if new information emerged, including legal interpretations. However, in Indian and Eastern Newspaper Society (1979), the court clarified that reassessment could not be based on a mere change of opinion.

The Supreme Court in A.L.A. Firm ruled that reassessment was valid if a legal precedent was previously overlooked. In this case, the assessment could have been revised under Section 263 for errors, but reopening it under Section 147 required a clear link between new information and escaped income. The assessment for earlier years had already been finalized based on Section 153A notices.

For AY 2014-15, the court found that the AO was already aware of the search and seizures. Since the reassessment was based on a change of opinion rather than new material, the court quashed the reassessment notice dated March 31, 2021, and the order dated February 11, 2022.

In short,the writ petition was allowed.

To Read the full text of the Order CLICK HERE

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