By TIOL News Service

CHENNAI, NOV 09, 2017: THE issue is - Whether reopening of assessment where no return was filed in relevant previous years and by reason thereof, there was no opportunity to verify the transactions claimed to have made in those years, is change of opinion. NO is the answer.

Facts of the case

The Assessee was a Partnership Firm and engaged in the business of commercial and trading activities, including investing, acquiring and holding shares, stocks, assets and other securities. For the AY in question the Assessee filed returns of income admitting NIL income. The case was selected for scrutiny, and the Assessee offered their explanation to the AO. The assessment was completed u/s 143 (3) of the Act by adding Rs.108,35,05,000/-, as 'unexplained credit' u/s 68 of the Act, and computed the total assessed income at Rs.108,35,05,000/- against the NIL returns filed by the Assessee. On appeal, the CIT(A) allowed the appeal and deleted the additions made by the AO. On further appeal, the Tribunal also dismissed the appeal filed by the Revenue.

However, during the pendency of the Appeal filed by the Revenue before the Tribunal, the Revenue issued a notice u/s 148 of the Act, stating that, the income chargeable to tax for the relevant AY had escaped assessment within the meaning of Section 147 of the Act. Therefore, the Revenue proposed to assess/re-assess the income for the said AY, and requested the Assessee to file returns in the prescribed form. Objections was raised by the Assessee against re-assessment but the same was rejected by the Revenue.

In Writ, the High Court held that,

++ the assessee submitted their objections dated 11.09.2017, in which, it is stated that, that CIT (A) nowhere, directed the Assessing Officer to consider the Partner's capital in the subject assessment years, and there was not even a passing observation to the said effect. Therefore, the assumption on the part of the Revenue that the CIT (A) has directed him to re-open the assessment is factually incorrect, and the very basis, on which, the notice under Section 148 has been issued is incorrect. The Revenue/Assessing Officer, while dealing with the objections filed by the Assessee has pointed out certain aspects, which, in the opinion of this Court are material. That is to say that the assessee did not file returns of income for the assessment years 2010-2011 and 2011-2012, so there was no opportunity to verify the assessee's transactions claimed to have been made in those years; the assessee did not have any bank account and did not furnish any proof to establish the link between the capital introduced and its withdrawals for the purpose of investments. The above factual position would clearly show that there can be no change of opinion in the instant cases, as there was no opinion formed by the Assessing Officer on the said issue for the relevant assessment years.

++ the assessee's contention is that, there was no specific direction issued by CIT (A) to re-open the assessment, and it is a misreading of the order passed by CIT (A), dated 13.10.2016. I do not agree with the said submission in the light of the language and observations made by CIT (A) in his order, dated 13.10.2016. The reasons for deleting the addition made in the hands of the assessee-Firm for the year 2012-13, is because, the capital was required to be introduced in the course of earlier two financial years, i.e. FY 2009-10 and F Y 2010-11. The CIT (A) did not stop with this observations, but made further observation by stating that, the Assessing Officer can only take cognizance of the matter, by way of initiating suitable proceedings for the assessment years 2010-11 and 2011-12. The assessee seeks to interpret the word 'Can' by stating that, it cannot be construed as direction, but the assessee should read the word 'Can' along with next word Only.

++ the CIT(A) has pointed out that the Assessing Officer can only take cognizance of the matter, by way of initiating suitable proceedings for the assessment years 2010-11 and 2011-12. In such circumstances, it cannot be taken, as if, the observation contained in the order passed by CIT(A) is of no consequence. Such plea cannot be raised by the assessee, as it would be fatal to their case, because, it is only on account of such observations, they got relief before CIT (A). The above observations were affirmed by ITAT. Even assuming for the sake of arguments that, there is no specific direction, in the order passed by CIT (A) yet, the Assessing Officer was entitled to exercise his powers under Section 148 of the Act, as there was no opportunity to verify the transactions claimed to have made in those years. Therefore, it is not a case of change of opinion. Consequently, the challenge to the proceedings has to necessarily fail.

(See 2017-TIOL-2359-HC-MAD-IT)