If there are no new “materials” an Assessing Officer cannot re-open an assessment

Re-opening of an assessment completed under Section 143(3) of the Income Tax Act by the Assessing Officer cannot be allowed unless the “reasons to believe” are based on new “materials”. This has been held by the Delhi High Court on 14.08.2014 in the case of Madhukar Khosla vs. Assistant Commissioner of Income Tax, W.P. (C) 1320 of 2014, C.M. NO.2744 of 2014 & 2745 of 2014.

Facts and circumstances of the case:

In the instant case the petitioner challenged the notice dated 25.03.2013 served upon him under Section 148 of the Income Tax Act for re-opening of assessment for the Assessment Year 2006-07 completed under Section 143 (3) by the Assessing Officer.
The petitioner filed his income tax returns on 30.10.2006 for the assessment Year 2006-07. The returns were selected for scrutiny. Notices were issued to him by the department on 28.02.2008. The petitioner filed the required details on 7.3.2008. The Assessing Officer accepted the explanations provided by the assessee and completed the assessment on 28.03.2008. In such circumstances the Assessing Officer sought to re-open the assessment through notice issued under Section 147 of the Act.
The assessee replied to the said notices on 22.4.2013 and stated that the returns filed by him have been accepted by the AO on 28.3.2008. The petitioner also requested the Assessing Officer to furnish the reasons for re-opening the assessment.
The Revenue responded to the petitioner’s request and accordingly furnished the reasons. Through a letter dated 28.11.2013 the assessee raised objection against re-opening of assessment. Through a letter dated 20.12.2013, the assessee’s objections regarding the re-opening of assessment were rejected.
After the expiry of four years from the end of the AY, the Assessing Officer issued a notice under section 148 of the Act for reopening the assessment due to the reason that it appeared that an amount of Rs. 25 lakhs had been added to the capital account for which the assessee did not provide explanation and it constituted undisclosed income under section 68 of the Act. The assessee challenged the re-opening of assessment on the ground that there had been no concealment of income on its part regarding material facts and the reopening was based on mere change of opinion on the part of the Assessing Officer.

Arguments of both the sides:

The Learned counsel for the Revenue supported the re-opening of assessment. The Revenue relied upon the judgment delivered in the case of Usha International, 348 ITR 485, and argued that the AO failed to apply his mind to the questions relating to the said capital contribution, as such there was no “change of opinion” on his part. The Learned Counsel contended that the Court should dismiss the petition.
On the other hand, in the reasons recorded by the Assessing officer for reopening of assessment no details have been provided regarding what new information caught the AO’s attention.
It was argued by the petitioner that the reasons must indicate specifically what new material facts have appeared before the AO on the basis of which he has is initiated reopening of assessment under section 148 of the Act.
It was pointed out by the petitioner’s counsel that the reassessment was clearly not on the basis of new information which appeared before the department but it was a review of the facts that were provided with the returns filed by the assessee.

The judgment:

It is well settled proposition of law that the foundation of the AO’s jurisdiction is presence of “reasons to believe” that the assesee has concealed facts regarding his total income. There should be some objective facts in the form of information relating to the materials on the record. Such facts enable the authority to re-open the earlier assessment. In absence of such facts the AO does not have any jurisdiction to reopen an assessment.
If there are no “reasons to believe” based on new materials or facts, the re-opening of assessment amounts to “review” or “change of opinion”. In other words, it is an impermissible review. In this case there is practically nothing to show what forced the issuance of notice of reassessment.
The impugned notice as well as the AO’s order rejecting the objections was dismissed. For the said reasons, the Delhi high Court held that the impugned reassessment notice cannot be sustained. In view of the said reasons the petition was allowed.