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Judgment
PER MANISH AGARWAL, AM:
This appeal is filed by the Assessee against the order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [Ld. CIT(A)] dated 10.11.2025 u/s 250 of the Income Tax Act, 1961 (“the Act” in short) arising out of the assessment order passed u/s 143(3) of the Act dated 29.11.2016 for Assessment Year 2014-15.
Brief facts of the case are that the assessee is a partnership firm engaged in the business of rice shelling (paddy milling) for last 30 years. The return of income was filed on 19.07.2014 declaring total income of Rs.1,01,620/-. The case was selected for scrutiny and assessment order passed u/s 143(3) dated 29.11.2016 wherein disallowance of Rs.1,07,620/- was made u/s 36(1)(iii) of the Act and trading addition of Rs.1,00,000/- was made besides making disallowance out of various expenses of Rs. 8,820/- and accordingly, the total income was assessed at Rs. 3,18,060/-. Thereafter, notice u/s 154/155 dated 25.09.2017 was issued stating that there was a difference in the valuation of closing stock therefore, a rectification was proposed for undervaluation of stock of Rs.49,05,625/- in term of the notice issued u/s 154/155 of the Act dt. 25.09.2017. Thereafter, the case of the assessee was reopened for the reason that assessee has undervalued its closing stock Rs.84,26,262/- and therefore, after recording the reasons, case of the assessee was reopened by issue of notice u/s 148 of the Act. The reassessment order passed on 14.03.2022 by holding that the assessee has undervalued the closing stock of Rice Grade ‘A” to the extent of Rs.84,26,262/- and addition was made for the said amount. Against the said order, the assessee preferred an appeal before the Ld. CIT(A) who vide impugned order dated 10.11.2025 has confirmed the order of the AO.
Aggrieved by the said order, the assessee is in appeal before the Tribunal by taking following grounds of appeal:
“1.That the order of Ld. Commissioner of Income-tax (Appeals) is arbitrary, illegal and against the facts.
2.That the re-opening of assessment u/s 147 is against the law & facts.
3.That the Ld. Commissioner of Income-tax (Appeals) erred in law in confirming the addition of Rs.84,26,262/- of undervalued stock is against the law & facts.”
Ground of appeal No.1 is general in nature needs no adjudication.
Ground of appeal No. 2 is with respect to reopening of assessment u/s 147 without brining any fresh materials on record and based on the information already available on record thus is a mere change of opinion. 6. Before us, Ld. AR of the assessee submits that the case of the assessee was reopened clause (c) sub clause (i) of Explanation 2 to section 147 of the Act. Ld. AR submits that it is not the case of the revenue that the assessee has failed to disclose all materials facts truly and fully necessary for the assessment. The Ld. AR submits that in the instant case, assessment order was passed u/s 143(3) wherein after considering the entire facts of the case, trading additions of Rs.1,00,000/- was made by observing as under:
“3.The assessee has shown G.P rate is 2.95% and N.P. rate is 0.06% as compared to G.P. rate is 3.02% and N.P. rate is 0.10% as compared to the preceding year. The assessee has stated that the GP/NP rate are low in this year as compared to previous year is due to the slump in the market. During the course of assessment proceedings. the assessee was asked to file the detail of the closing stock alongwith documentary evidence of valuation in shape of the bills and vouchers. The assessee has filed the details of the closing stock. Valuation of closing stock shown by the assessee is not fully verifiable with the bills produced. After discussion with the A.R. addition of Rs. 1,00,000/- has been made to cover up the all possible leakages.”
In the current proceedings, notice u/s 148 of the Act was issued after recording the satisfaction that the assessee has undervalued its closing stock to the extent of Rs. 84,26,262/-. The Ld. AR submits that for this satisfaction no fresh material was brought on record nor referred and on the basis of the material already available on record, it was observed that the assessee has undervalued the stock. He further submits that the Revenue has earlier tried to rectified the assessment order by issue of notice u/s 154/155 on the same issue and after considering the submissions no order was passed. It appears that the proceedings initiated u/s 154/155 of the Act vide notice dated 25.09.2017 were dropped. The Ld. AR submits that during the course of reassessment proceedings, assessee has objected to the reopening of completed proceedings however, the same was rejected in terms of order dated 05.03.2022, placed in PB pages 21 to 28. The Ld. AR drew our attention to page para 5.4 of the appellate order wherein the reasons for reopening were reproduced . The AO in the reasons clearly observed that “Further from the perusal of the assessment records it has been noticed ……”. It is thus clear that the AO has referred the assessment record already available on record and further reference was made to the audit report. The Ld. AR submits that it is a mere change of opinion, no new fact/ material was brought on record and reliance was placed on the same material which was considered while framing the assessment order passed u/s 143(3) of the Act and therefore, the reopening is incorrect. For this, reliance is placed on the judgment of the Hon’ble Supreme Court in the case of ITO vs. Tech Span India (P.) Ltd. reported in [2018 92 taxmann.com 361 (SC) wherein the Hon’ble Supreme Court has held in para 12 to 14 of the order that the reopening based only change of opinion is not correct. The Ld. AR further placed reliance on the judgment of the Hon’ble jurisdictional Court in the case of CIT vs. Kelvinator of India Ltd. reported in [2002] 123 Taxman 433 (Delhi Full Bench) wherein the Hon’ble Jurisdictional High Court has held that the reasons to believe must be based on the fresh information received after completion of assessment. He submits that in the instant case no fresh information was brought on record and based on the material already available on record, the case of the assessee was reopened. He therefore, submits that the reopening is not based on the fresh material is bad in law and requested to quashed the reassessment order so passed.
On the other hand, the Ld. Sr. DR vehemently supported the orders of the lower authorities and submits that the addition was made on the basis of information available that stock was under valued and ample opportunities were provided to the assessee to explain the same, however, in absence of any details, the AO has made the addition. The Ld. Sr. DR submits that the Ld. CIT(A) has dealt the issue of reopening of assessment in para 5.1 to 5.7 of its order in detailed manner and observed that the case of the assessee was reopened in accordance with law and, therefore, requested for the confirmation of the orders of the lower authorities.
Heard the parties and perused the materials available on record. In the instant case, the assessment was already completed u/s 143(3) of the Act wherein as observed above, vide para 3 of the order, the AO has estimated the income of the assessee after considering the fact that the assessee as undervalued closing stock and, trading addition of Rs.1,00,000/- was made. Thereafter based on the same information which was already available on records, an attempt was made for rectification of the said order in terms of the notice issued u/s 154/155 dated 25.09.2017 placed at PB 18 which read as under:
In the aforesaid notice, the AO alleged that the closing stock was under-valued by Rs.49,05,626/- and proposed to rectify the assessment order. In response, assessee filed replies on 23.09.2018 and further on 29.09.2018 explaining that majority of stock includes Naku and broken rice which has very low value and accordingly the stock was correctly valued by the assessee. It is further observed that in the order passed disposing the objections raised by the assessee against the reopening of the case u/s 147 of the Act dated 10.03.2022, the reasons for reopening were reproduced. From perusal of the same, it is observed that in para 2 of the reasons recorded, the AO has referred the assessment records for recording the satisfaction of escapement of income on account of under valuation of closing stock. Once this issue has been discussed and examined in the assessment proceedings completed u/s 143(3) and trading results were rejected and income was estimated, based on the same books of accounts and for the same reasons no proceedings could be initiated u/s 147 of the Act. It is not of the case of the Revenue that any fresh information or material was brought on record subsequent to the completion of the assessment and admittedly, same material was used for reopening of assessment which is mere change of opinion. The Hon’ble Jurisdictional High Court in the case of Kelvinator of India (supra) has discussed the issue of change of opinion and held as under:
“Section 147 of the Income-tax Act, 1961-Income escaping assessment - Position After 1-4-1989-Assessment year 1987-88 - Whether even after amendment of section 147 with effect from 1-4-1989, a mere change in opinion would not confer jurisdiction upon Assessing Officer to initiate a proceeding under section 147 - Held yes -Whether Circular No. 549 allay fears that omission of expression 'reason to believe' from section 147 would give arbitrary powers to Assessing Officer to reopen past assessments on mere change of opinion Held, yes - Whether by reason of section 147 if ITO exercises its jurisdiction for initiating a proceeding for reassessment only upon mere change of opinion, same may be held to be unconstitutional Held, yes Whether, however, if 'reason to believe' of Assessing Officer is founded on an information which might have been received by Assessing Officer after completion of assessment, it may be a sound foundation for exercising power under section 147, read with section 148 - Held, yes”
It is further observed that Ld. CIT(A) in para 5.6 while rejecting the claim of the assessee has wrongly observed that where the order was passed u/s 143(1) though the order u/s 143(3) was already passed in the case of the assessee nor it is the case where no discussion on this issue was made or no details were called for by the AO. Rather in the instant case, it is observed that the assessee has already filed complete details and thereafter, the AO has taken one of the plausible view of rejecting the books of accounts and estimate the income of the assessee. The Hon’ble Supreme Court in the case of ITO vs. TechSpan India (P.) Ltd. (supra) in para 9 to 14 has made the following observations:
“9.Section 147 of the IT Act does not allow the re-assessment of an income merely because of the fact that the assessing officer has a change of opinion with regard to the interpretation of law differently on the facts that were well within his knowledge even at the time of assessment. Doing so would have the effect of giving the assessing officer the power of review and Section 147 confers the power to re-assess and not the power to review.
10.To check whether it is a case of change of opinion or not one has to see its meaning in literal as well as legal terms. The word change of opinion implies formulation of opinion and then a change thereof. In terms of assessment proceedings, it means formulation of belief by an assessing officer resulting from what he thinks on a particular question. It is a result of understanding, experience and reflection.
11.It is well settled and held by this court in a catena of judgments and it would be sufficient to refer CITV. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312 (SC) wherein this Court has held as under:
“5... where the Assessing Officer has reason to believe that income has escaped assessment, confers irisdiction to re- open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. vever, one needs to give a schematic interpretation to the words "reason to believe"
Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open.
6.We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take
7.One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief'
12.Before interfering with the proposed re-opening of the assessment on the ground that the same is based only on a change in opinion, the court ought to verify whether the assessment earlier made has either expressly or by necessary implication expressed an opinion on a matter which is the basis of the alleged escapement of income that was taxable. If the assessment order is non-speaking, cryptic or perfunctory in nature, it may be difficult to attribute to the assessing officer any opinion on the questions that are raised in the proposed re-assessment proceedings. Every attempt to bring to tax, income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed change of opinion even in cases where the order of assessment does not address itself to given aspect sought to be examined in the re-assessment proceedings.
13.The fact in controversy in this case is with regard to the deduction under Section 10A of the IT Act which was allegedly allowed in excess. The show cause notice dated 10.02.2005 reflects the ground for re-assessment in the present case, that is, the deduction allowed in excess under Section 10A and, therefore, the income has escaped assessment to the tune of Rs. 57,36,811. In the order in question dated 17.08.2005, the reason purportedly given for rejecting the objections was that the assessee was not maintaining any separate books of accounts for the two categories, ie., software development and human resource development, on which it has declared income separately. However, a bare perusal of notice dated 09.03.2004 which was issued in the original assessment proceedings under Section 143 makes it clear that the point on which the re-assessment proceedings were initiated, was well considered in the original proceedings. In fact, the very basis of issuing the show cause notice dated 09.03.2004 was that the assessee was not maintaining any separate books of account for the said two categories and the details filed do not reveal proportional allocation of common expenses be made to these categories. Even the said show cause notice suggested how proportional allocation should be done. All these things leads to an unavoidable conclusion that the question as to how and to what extent deduction should be allowed under Section 10A of the IT Act was well considered in the original assessment proceedings itself. Hence, initiation of the re-assessment proceedings under Section 147 by issuing a notice under Section 148 merely because of the fact that now the Assessing Officer is of the view that the deduction under Section 10A was allowed in excess, was based on nothing but a change of opinion on the same facts and circumstances which were already in his knowledge even during the original assessment proceedings.
14.In light of the forgoing discussion, we are of the view that impugned judgment and order of the High Court dated 24.02.2006 does not call for any interference. The appeal is accordingly dismissed with no order as to costs.”
In the original assessment proceedings, the AO after considering all the material has framed an opinion and estimated the trading results. There was nothing more to disclose and a person cannot be said to have omitted or failed to disclose something when, of such thing, he had no knowledge. Not only material facts were disclosed by the assessee but also they were fully scrutinized by the AO in the original assessment proceedings and figure of income were worked out by the AO. Now on the same material, the AO has tried to cover up the error and omission by way of reopening the assessment without any fresh material which is nothing but mere change of opinion. No new information and/ or tangible material was found and the formation of any opinion based on same facts which were then available with the AO at the time of original assessment is not permissible. The hon’ble Apex court in the case of CIT Vs. Kelvinator of India Ltd (supra) has laid down that “ the assessing officer has no power to review; he has the power to re-assess, but re-assessment has to be based on fulfilment of certain pre -condition and if the concept of ‘change of opinion’ is removed, then, in the garb of re-opening the assessment, the review would take place. One must treat the concept of ‘Change of opinion’ as an in-built test to check abuse of power by the assessing officer.”
Under these circumstances, by respectfully following the judgment of the Hon’ble Jurisdictional High Court and Hon’ble Supreme Court, we are of the view that the AO has reopened the case of the assessee based on the material already considered in the course of original proceedings completed u/s 143(3) and, therefore, again reopening the assessment based on same material is mere change of opinion. Accordingly, notice issued u/s 148 is bad in law and consequent reassessment proceedings completed u/s 147 of the Act is hereby quashed. The grounds of appeal No.2 is allowed.
Since, we have allowed ground of appeal No.2 thus Ground of appeal No.3 taken on the merits is not adjudicated.
In the result, the appeal filed by the assessee is allowed.