S. 147: If “reasons to believe” are not based on new, “tangible materials”, the reopening amounts to an impermissible review

In AY 2006-07 the AO passed an assessment order u/s 143(3). Thereafter, after the expiry of four years from the end of the AY, he issued a notice u/s 148 reopening the assessment on the ground that the records showed that an amount of Rs. 25L had to been added to the capital account for which the assessee had offered no explanation and that the same constituted undisclosed income u/s 68. The assessee challenged the reopening on the ground that there was no failure on its part to make a disclosure of material facts and the reopening was based on change of opinion. The department relied on the Full Bench verdict in Usha International 348 ITR 485 and argued that as the AO did not apply his mind at all to the question regarding the said capital contribution, it could not be said that there was a “change of opinion”. HELD by the High Court allowing the Petition:

(i) In the recorded reasons, no details are provided as to what such information is which excited the AO’s notice and attention. The reasons must indicate specifically what such objective and new material facts are, on the basis of which a reopening is initiated u/s 148. This reassessment is clearly not on the basis of new (or “tangible”) information or facts that which the Revenue came by. It is in effect a re-appreciation or review of the facts that were provided along with the original return filed by the assessee;

(ii) The foundation of the AO’s jurisdiction and the raison d’etre of a reassessment notice are the “reasons to believe”. Now this should have a relation or a link with an objective fact, in the form of information or facts external to the materials on the record. Such external facts or material constitute the driver, or the key which enables the authority to legitimately re-open the completed assessment. In absence of this objective “trigger”, the AO does not possess jurisdiction to reopen the assessment. It is at the next stage that the question, whether the re-opening of assessment amounts to “review” or “change of opinion” arises. In other words, if there are no “reasons to believe” based on new, “tangible materials”, then the reopening amounts to an impermissible review. Here, there is nothing to show what triggered the issuance of notice of reassessment – no information or new facts which led the AO to believe that full disclosure had not been made (Kelvinator of India Ltd 320 ITR 561 (SC) and Orient Craft Ltd 354 ITR 536 (Delhi) followed, Usha International 348 ITR 485 (Del) (FB) referred)