Assessing Officer Cannot Reopen Assessment Based on Mere ‘Change of Opinion’ Without New Tangible Material

Introduction

An Assessing Officer (AO) is a representative of the Income Tax Department who has the power to conduct assessments of income tax returns filed by taxpayers. Prior to 01^st April, 1989 amendment, AO had broad powers to reopen assessments under Section 147 of the Income Tax Act, 1961. However, said amendment narrowed the scope of reopening. Now, the AO to reopen assessments needs to have tangible material which wasn’t considered during the original assessment and came to light only after the original assessment.

The Gujarat High Court, in the case of Hareshkumar Bhupatbhai Panchani v/s Income Tax Officer; R/Special Civil Application No. 5851 of 2022, held that reassessment cannot be justified unless new or tangible material emerges after the original assessment. The court reinforced the decision of the Hon’ble Supreme Court held in the case of CIT v/s Kelvinator of India Ltd.; (2010) 187 Taxman 312 (SC), that held that the issuance of a reassessment notice under Section 148 of the Income Tax Act, 1961, based on a mere “change of opinion” is impermissible. This decision affirms the principle that an AO cannot reopen a case simply because they have a different view on the same set of facts examined during the original assessment.

Facts of the Case

1. The petitioner, sold an immovable property along with co-owners, declaring his share of Rs. 2,83,54,388 in the assessment year 2016-17.
2. He claimed a deduction of Rs. 1,33,02,123 under Section 54F of the Income Tax Act for purchasing a new residential property.
3. The petitioner’s case was selected for limited scrutiny, and the AO issued notices under Sections 143(2) and 142(1) of the Act, requesting details on capital gains and the deduction under Section 54F.
4. After examining the petitioner’s response and supporting evidence, the AO passed the assessment order under Section 143(3) in December 2018, accepting the original return.
5. In March 2021, the Revenue Authorities issued a notice under Section 148, seeking to reopen the assessment, broadly for the reasons that the petitioner was not entitled for claiming deduction under Section 54F and the details of sale of immovable property and purchase of new property are without any supporting evidence.
6. The petitioner therefore, challenged said notice before the Hon’ble Gujarat High Court.

High Court’s Decision

The Hon’ble Gujarat High Court quashed the reassessment notice while giving the following observations that:

• the petitioner had already provided all necessary information during the original assessment proceedings, including the sale and purchase details for claiming the Section 54F deduction.
• the reassessment was based on the same facts and circumstances already scrutinized by the AO during the original proceedings.
• there was no new or tangible material that came into the AO’s possession that would justify reopening the case under Section 147.
• the Hon’ble Court also relied on the judgement of the Hon’ble Supreme Court in CIT v/s Kelvinator of India Ltd., to emphasize that reassessment cannot be initiated on a ‘mere change of opinion’ of the AO.

Our Comments

The decision reiterates a fundamental principle in tax law: reassessment proceedings are not a tool to revisit previously scrutinized matters unless fresh evidence emerges. The purpose of Section 147 of the Income Tax Act is to address situations where income has genuinely escaped assessment due to the taxpayer’s failure to disclose material facts, not to allow AOs to review their previous conclusions. This decision provides much-needed clarity for taxpayers, particularly in cases where their financial matters have already undergone thorough scrutiny. For taxpayers, this judgment serves as a safeguard against arbitrary reassessments based on subjective re-evaluations by the tax authorities.

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Author: Dhruvil Singh Rathore, Associate, R & D Law Chambers LLP

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