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Whether reopening of assessment u/s 147 amounts to an impermissible review if “reasons to believe” are not based on new “tangible materials”?

Court :
Delhi High Court

Brief :
The respondent AO re-opened the assessment by notice u/s 147 after sending a notice of scrutiny and questionnaire. The petitioner responded to notice requesting reasons for reopening the assessment be furnished. The Revenue acceded to the petitioner’s request. The petitioner objected to reasons for reopening the assessment contending that all true and material facts were disclosed and that the revenue was forming an opinion of case of escapement of income.The assessee argued that the expression “reasons to believe”under Section 147 refers to objective circumstances. In the present case, the assessment was completed under Section 143 (3) after notice was issued under Section 142 (1) was issued and explanation sought in respect of all relevant matters. The assessee could not be faulted for the omission to discuss the materials on record stressing that “reasons” were to be on the basis of “tangible materials”which must be in possession of the revenue, which alone can result in a valid re-opening.Held that if there are no“reasons to believe” based on new, “tangible materials”, then the reopening amounts to an impermissible review.

Citation :
Madhukar Khosla – Petitioner – Versus – Assistant Commissioner of Income Tax - Respondent


W.P.(C) 1320/2014, C.M. NO.2744/2014 & 2745/2014



Through : Sh. SalilKapoor with Sh. Vikas Jain and

Sh. Varun Gupta, Advocates.




Through : Sh. SanjeevSabharwal, Sr. Standing

Counsel with Sh. Ruchir Bhatia, Jr. StandingCounsel.





Reserved on: 12.05.2014

Pronounced on: 14.08.2014

C.M. NO. 2745/2014 (for exemption)

Allowed, subject to all just exceptions.

W.P.(C) 1320/2014, C.M. NO.2744/2014

1. The petitioner challenges the notice dated 25.03.2013 under Section 148 of the Income Tax Act (“the Act”) proposing to re-open the assessment for Assessment Year 2006-07 @ `1,12,760/-completed under Section 143 (3) by the Assessing Officer (“AO”).

2. The brief facts are that the petitioner filed income tax returns on30.10.2006 for AY 2006-07. The returns were selected for scrutiny; a notice was issued on 28.02.2008 along with a questionnaire. The required details were furnished by the petitioner on 07-03-2008. The AO, accepting the explanations, framed the assessment on 28-03-2008. In this background of circumstances, the respondent AO sought to re-open the assessment by the impugned notice, under Section 147of the Act. Responding to this notice, the assessee, on 22-04-2013stated that it stood by the returns filed originally (and accepted by the AO on 28-03-2008); it also requested that the reasons for re-opening the assessment be furnished.

3. The Revenue acceded to the petitioner’s request; the reasons furnished are extracted below:

“In this case assessment was completed under section143(3) vide order dated 28.3.2008 on an income of Rs.1,12,760/-.

2. On perusal of the records and the details filed by the assessee it came to the notice that the assessee has added an amount of Rs.25,31,003/- to its capital account of his proprietorship concern M/s Madhukar Khosla & Co.(Rs.14,31,000/- as gift and Rs.11 ,00,003/- addition).During the course of assessment proceedings the assess offered no explanation to the above addition to the capital account.

3. In the absence of the source of the addition with documentary evidence on records, the same is required to be brought on tax net as per provisions of section 68 of the Income tax Act, 1961 as the assessee had offered no explanation about the nature and source of the said additions

4. I have therefore, reasons to believe that omission/failure on the part of the assessee to disclose fully and truly all material/facts necessary for assessment, income to the extent of Rs.25,31,003/- has escaped assessment for the assessment year 2006-07 and hence issue notice under section 148.”

4. On 28-11-2013 the assessee objected to re-opening of assessment, stating, inter alia, that:

“In this case, the assessee disclosed fully and truly all material facts relating to the said issue. In the Balance Sheet said amounts showing the nature thereof have been clearly shown. During assessment, the books of A/c were produced and were verified by the AO. The findings to this effect are available in Para - 3 of the Assessment Order. Hence, since, the conditions of first proviso to Section 147are not fulfilled, Section 147 cannot be invoked.” and further that:

“there is no new information with your good self which was not available earlier. It is only on the basis of earlier existing Information and details that your good self has been forming an opinion that it is a case of escapement of income. Under the facts, it is a clear cut case of change of opinion. Section 147, cannot be resorted to in case of change of opinion…”

5. By the letter dated 20-12-2013, the assessee’s objections to there opening of assessment were rejected; the AO in his letter, stated as follows:

…you have raised the issue that section 147 has been resorted to due to a change of opinion. It may be reiterated that the issues on which the case has been reopened, had not been discussed earlier. Thus the issue of change of opinion does not arise. The onus was upon the assessee to provide full and complete details during the earlier proceedings which he failed to do so and therefore Section147 is being resorted to. It is for the A.O to draw inferences from the facts and apply the law determining the liability of the assessee. If there are sufficient reasons to believe that income has escaped assessment, then it is the discretion of the A.O to reopen the case. Various case laws also substantiate the same….”

6. The assessee argues that the expression “reasons to believe” under Section 147 refers to objective circumstances. In the present case, the assessment was completed under Section 143 (3) after notice was issued under Section 142 (1) was issued and explanation sought in respect of all relevant matters. The assessee could not be faulted for the omission to discuss the materials on record. Learned counsel stressed that “reasons” were to be on the basis of “tangible materials” which must be in possession of the revenue, which alone can result in a valid re-opening. There was no such tangible material; the AO, argued counsel, acted without any jurisdiction in merely seeking to revisit the matter, which in effect amounts to a review or an impermissible change of opinion. Learned counsel relied on CIT, Delhi v. Kelvinator of India Ltd., (2010) 2 SCC 723 and CIT-V v. Orient Craft Ltd., [2013] 354 ITR 536 (Delhi).

7. Learned counsel for the Revenue supports the re-opening of assessment in this case and urges that the Court should dismiss the petition. It was submitted that there was no explanation how the assessee added the amount to the capital account. The original assessment shows that the AO did not direct his mind to the issue at although a questionnaire might have been issued. He relied on the decision in CIT-VI v Usha International Ltd. (2012) 348 ITR 485 and contends that having regard to the following observations of the majority (in that case), the notice issued by the AO is valid:-

“23. The said observations do not mean that even if the Assessing Officer did not examine a particular subject matter, entry or claim/deduction and therefore had not formed any opinion, it must be presumed that he must have formed an opinion. This is not what was argued by the assessee or held and decided. There cannot be deemed formation of opinion even when the particular subject matter, entry or claim/deduction is not examined”.

To read the full judgment, please find the attached file:

Attached file:


Hetvi Sheth
on 20 August 2014
Published in Others
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