Reassessment Based Solely on Audit Objection Constitutes Mere Change of Opinion: ITAT Quashes Reopening in Income Tax Case [Read Order]

The Bench of the Income Tax Appellate Tribunal, Delhi , has ruled that reassessment initiated merely on the basis of an audit objection without any new tangible material amounts to a mere change of opinion and is, therefore, invalid under Section 147 of the Income Tax Act, 1961.

The appellant, Samtel India Limited, is engaged in the business of manufacturing Black & White TV picture tubes and trading activity, filed its return of income for Assessment Year 2007-08 declaring an income of ₹6,22,510 after claiming various deductions and adjustments. The return was scrutinized, and assessment was completed under Section 143(3) of the Income Tax Act, 1961, accepting the returned income.

Subsequently, the Assessing Officer (AO) issued a notice under Section 148 of the Income Tax Act, 1961, and passed a reassessment order under Section 147 read with Section 143(3), disallowing the assessee’s claim of bad debts amounting to ₹3,69,37,000. The Commissioner of Income Tax (Appeals), New Delhi, upheld both the reopening of the assessment and the disallowance. The assessee thereafter approached the Tribunal.

The assessee, represented by D.C. Garg, argued that the reopening of the assessment was invalid as it was based on no new or tangible material but only on information already available in the records during the original assessment under Section 143(3) of the Act. It was submitted that all necessary details, had been furnished and scrutinized by the AO in the original proceedings.

The reasons recorded for reopening began with the expression “Perusal of records revealed that…,” which clearly showed that the satisfaction of the AO was formed solely based on the material already on record.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

It was further submitted that the entire basis for reopening was the audit party’s objection, which had been reproduced verbatim in the reasons recorded by the AO, without any independent application of mind. It was therefore contended that such reopening amounted to a review of the completed assessment on the same facts, which is impermissible in law.

The assessee also pointed out that the audit memo forming the basis of reopening was produced as evidence, and that it was identical in language to the reasons recorded, thus confirming that the reopening was purely audit-driven.

The Department, represented by Sahil Kumar Bansal, contended that the assessee had not furnished complete details regarding the bad debts written off during the original assessment proceedings. Consequently, it was argued that the AO could not have formed an opinion earlier, and therefore, reopening could not be said to be a mere change of opinion.

It was submitted that the audit objection brought to light factual errors in the earlier assessment, and thus constituted fresh information sufficient to justify the reopening. It was further contended that the AO had examined the assessment records after receiving the audit objection, and hence, the reopening was valid.

The Bench comprising Manish Agarwal, Accountant Member and Vikas Awasthy, Judicial Member held that the original assessment had been completed after due scrutiny of all relevant details filed by the assessee, including audited financial statements and particulars of bad debts.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The Tribunal observed that no fresh tangible material had come to the AO’s notice after the original assessment. Relying on the judgment of the Supreme Court in CIT v. Kelvinator of India Ltd. (2010), the Tribunal reiterated that the AO has no power to review a concluded assessment under the guise of reassessment. It was held that reassessment must be based on fresh tangible material, and any attempt to revisit issues already examined amounts to a mere change of opinion, which is not permissible under the law.

The Tribunal further observed that the AO, while disposing of the assessee’s objections, had admitted that factual errors pointed out by the audit party were the basis of reopening, and such an approach amounted to rectification of an earlier view rather than reassessment.

The Tribunal held that the notice issued under Section 148 of the Income Tax Act, 1961, was therefore invalid and liable to be quashed.

Accordingly, the Tribunal allowed the first ground of appeal, declaring the reopening void ab initio.

Thus, the appeal of the assessee was allowed.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates