Khurana Constructions Vs ACIT (Rajasthan High Court)
Reassessment Is Not a Second Innings: Rajasthan HC Quashes Reopening on Examined TDS Discrepancy
The Rajasthan High Court quashed reassessment proceedings initiated beyond four years where the Department sought to revisit a receipts discrepancy specifically examined during the original scrutiny assessment. The Court held that neither failure to disclose material facts nor fresh material supporting reopening had been established.
In M/s Khurana Constructions vs. Assistant Commissioner of Income Tax, D.B. Civil Writ Petition Nos. 198 and 199 of 2014, the Division Bench held that the reopening was barred by limitation and founded on a change of opinion.
Justices Arun Monga and Yogendra Kumar Purohit delivered the reportable order on 7 October 2026, bearing neutral citation 2026:RJ-JD:48915-DB.
Original Assessment Examined Difference in Receipts
Khurana Constructions, a partnership firm engaged in civil construction, underwent scrutiny assessment for Assessment Year 2006-07.
During those proceedings, the Assessing Officer specifically questioned the difference between contract receipts in the profit and loss account and receipts appearing in TDS certificates.
The firm furnished its explanation through a letter dated 6 November 2008. The assessment was subsequently completed under Section 143(3) on 24 December 2008.
The Court treated this sequence as significant: the disputed issue was not merely discoverable somewhere in the accounts. It had been directly raised, answered and considered before assessment was completed.
Department Reopens Same Issue Years Later
Reasons for reopening were recorded on 14 March 2013, followed by a Section 148 notice dated 26 March 2013.
The firm objected, but the Department rejected its objections on 4 December 2013.
According to the Revenue, TDS certificates reflected receipts of ₹30,48,68,411, whereas the profit and loss account disclosed ₹28,85,97,728, leaving a difference of ₹1,62,70,683.
It also argued that retention money had not been shown as receivable in the balance sheet, preventing verification of whether amounts claimed to be received later were actually offered to tax.
The firm challenged the jurisdiction to reopen.
Historical Four-Year Restriction Applied
The Court examined Section 147 as applicable at the relevant time, including its first proviso.
Where scrutiny assessment had already been completed, reopening beyond four years required escaped income attributable to the assessee’s failure to file the required return or fully and truly disclose material facts.
For AY 2006-07, the four-year period expired on 31 March 2011. For the connected AY 2007-08, it expired on 31 March 2012.
The March 2013 notice was therefore beyond four years for both assessment years.
The Department had to establish the additional statutory condition before invoking the extended period.
No Material Fact Shown to Be Withheld
The High Court found no failure of full and true disclosure.
The receipts discrepancy was the precise subject of the original Assessing Officer’s query, and the firm had specifically answered it.
The Revenue did not identify any material fact that had been withheld.
The Court also rejected reliance on Explanation 1 to Section 147, which addresses situations where relevant facts remain buried in books or evidence and require discovery through diligence.
Here, there was a direct query and direct answer, making the explanation inapplicable to the Department’s argument.
On limitation alone, the notice lacked jurisdiction.
Same Material Cannot Support Change of Opinion
The Court independently examined the recorded reasons and found no fresh material.
The reopening relied on information already available when the original assessments were completed. The Revenue’s reply likewise relied on the same receipts difference.
The Bench held that reassessment cannot provide an opportunity to reconsider evidence already examined. An opinion formed expressly or by necessary implication cannot be displaced through reopening merely because a successor officer views the facts differently.
It described reassessment as not being a second innings for the Assessing Officer.
Kelvinator Principle Reinforced
The High Court relied on CIT vs. Kelvinator of India Ltd., (2010) 320 ITR 561 (Supreme Court).
It reiterated that the power to reassess is distinct from a power to review. The change-of-opinion restriction operates as a safeguard against abuse, and tangible material must support the conclusion that income escaped assessment.
Applying that principle, the Court found that the original officer had asked the question, received the explanation and completed assessment. The subsequent officer’s different conclusion on identical material was a classic change of opinion.
Alternative Appeal Remedy Does Not Cure Jurisdictional Defect
The Revenue argued that the firm should participate in reassessment and pursue statutory appeals if dissatisfied.
The Court rejected that objection because the challenge concerned the very assumption of jurisdiction.
An assessee could not be compelled to undergo proceedings barred by limitation and based on an impermissible change of opinion merely to challenge them later.
Given these findings, the Court did not examine the separate contention concerning ₹2,32,686 of interest income.
Notices and Consequential Proceedings Set Aside
Both writ petitions were allowed.
The High Court set aside the 26 March 2013 Section 148 notice and proceedings initiated pursuant to it, with consequential effects.
The decision turns on the historical reassessment provisions, specific disclosure during scrutiny and absence of fresh material supporting reopening.
List of Cases Discussed
1. Commissioner of Income Tax Vs Kelvinator of India Ltd. — (2010) 320 ITR 561 (SC); (2010) 2 SCC 723. The Supreme Court held that the Assessing Officer’s power to reassess cannot be used as a power to review an earlier assessment. Reopening on a mere change of opinion is impermissible, and tangible material must support the belief that income escaped assessment. The Rajasthan High Court applied this principle to the reassessment based on an already examined receipts discrepancy.
2. Commissioner of Income Tax Vs Eicher Ltd. — (2007) 294 ITR 310 (Delhi High Court). The Delhi High Court held that reassessment on material already examined and accepted during the original assessment is impermissible merely because the original assessment order did not expressly discuss the Assessing Officer’s reasoning. The Rajasthan High Court referred to this authority in support of the prohibition against reopening on the same material.
3. Praful Chunilal Patel Vs M.J. Makwana — (1999) 236 ITR 832 (Gujarat High Court). The Rajasthan High Court cited this judgment while discussing the restriction against reopening an assessment on information already available during the original proceedings and accepted the principle stated in its judgment.
4. Ashok Kumar Vs Joint Commissioner — Rajasthan High Court, D.B. Civil Writ Petition No. 8724/2026, judgment dated 01.05.2026. The assessee relied on this decision in support of its challenge to the reassessment notice on grounds of limitation and absence of fresh material.
FULL TEXT OF THE JUDGMENT/ORDER OF RAJASTHAN HIGH COURT
1. The petitioner seeks quashing of the notice dated 26.03.2013 issued under Section 148 of the Income Tax Act, 1961 (hereinafter, ‘the Act’). The notice seeks to reopen the assessment for the assessment year 2006-07. The petitioner also assails the order dated 04.12.2013, which rejected its objections to the reopening. The challenge rests on two grounds. The reassessment is barred by limitation. It is also founded on a mere change of opinion.
2. The issues arising in both the above titled petitions are substantially similar. They have, therefore, been heard together. They are being decided by this common order.
3. For the sake of brevity, the facts are taken from D.B. Civil Writ Petition No. 198/2014, titled M/s. Khurana Constructions v. Assistant Commissioner of Income Tax.
4. The petitioner is a partnership firm. It carries on the business of civil construction. Its assessment for the assessment year 2006-07 was completed under Section 143(3) of the Act by order dated 24.12.2008.
4.1. During those assessment proceedings, the Assessing Officer specifically raised a query. He asked the petitioner to explain the difference between the contract receipts shown in its profit and loss account and those appearing in the TDS certificates. The petitioner furnished its explanation by letter dated 06.11.2008. The assessment was then completed.
4.2. Over four years later, reasons were recorded in a satisfaction note dated 14.03.2013 (Annexure-4). On that basis, the notice dated 26.03.2013 was issued under Section 148 of the Act. The petitioner raised objections. The respondent rejected them by order/letter dated 04.12.2013. The reassessment was sought to be continued on the same material.
4.3. Hence, this writ petition.
5. The respondents have filed a reply. They state that the proceedings under Sections 147 and 148 of the Act were initiated by the competent authority. Reasons to believe were duly recorded. The action is in accordance with law. The reasons were communicated to the petitioner. The Assessing Officer acted within his jurisdiction. According to the respondents, the petitioner has shown no illegality or lack of jurisdiction. They further contend that a reassessment notice cannot ordinarily be challenged in writ jurisdiction when the statutory remedy under the Act has not been exhausted.
5.1. The respondents further submit that the reopening followed a verification of the contractual receipts in the TDS certificates as against those in the profit and loss account. As per the TDS certificates, the receipts were Rs.30,48,68,411/-. The petitioner disclosed Rs.28,85,97,728/- in its profit and loss account. The difference was Rs.1,62,70,683/-. The respondents say this discrepancy furnished a valid basis for the belief that income had escaped assessment. They add that the petitioner did not show the retention money as receivables in its balance sheet. The Department, therefore, had no means to verify whether the amounts claimed to be received in later years were in fact received and offered to tax. The respondents maintain that the reasons rest on material on record. They are not founded on suspicion, conjecture or non existent grounds.
5.2. The respondents also contend that the petitioner has an alternative statutory remedy under Sections 246 and 246A of the Act. It ought to have participated in the reassessment proceedings. If aggrieved by the assessment order, it could then have appealed to the Commissioner of Income Tax (Appeals).
6. Learned counsel for the petitioner argues that the very assumption of jurisdiction under Sections 147 and 148 of the Act is bad in law. The notice is barred by limitation. The assessment year 2006-07 ended on 31.03.2007. The notice was issued beyond the period of four years prescribed by the first proviso to Section 147 of the Act. The extended period is not available to the Assessing Officer. The petitioner had disclosed all material facts during the original assessment under Section 143(3) of the Act. There was no failure on its part to disclose fully and truly all material facts necessary for the assessment.
6.1. Learned counsel further submits that the Assessing Officer had specifically sought an explanation on the very difference in receipts during the original assessment. The petitioner duly furnished it. The Assessing Officer considered it, found no infirmity and completed the assessment on 24.12.2008. Explanation 1 to Section 147 of the Act is, therefore, not attracted. The discrepancy was examined in terms. The relevant details, including Form 26AS, were already before the Assessing Officer. Reopening on the same material is nothing but a change of opinion.
6.2. It is further urged that the reopening rests on a non existent basis. The differential receipts had not accrued as income during the relevant year under the mercantile system of accounting. The Assessing Officer also erred in recording that interest income of Rs.2,32,686/- received from Sardar Sarovar Narmada Nigam Ltd. was not disclosed in the profit and loss account. That amount had in fact been taken into account while computing the income of the petitioner. There was, thus, no valid reason to believe that income had escaped assessment.
6.3. Lastly, learned counsel submits that the order dated 04.12.2013 rejecting the objections is arbitrary. It violates Articles 14 and 265 of the Constitution of India. He relies on the judgment of this Court in Ashok Kumar v. Joint Commissioner1. He submits that there is no fresh material and the reopening is beyond limitation. The notice and the proceedings founded on it, therefore, deserve to be set aside.
7. Per contra, learned counsel for the respondents opposes the petition on the lines of the reply. He submits that the reopening rests on the discrepancy between the receipts in the TDS certificates and those in the profit and loss account. The notice is valid and within jurisdiction. Any grievance can be raised in the statutory appeal.
8. In the aforesaid backdrop, we have heard learned counsel for the parties and perused the case file.
9. Two questions arise. The first is whether the notice is within limitation. The second is whether the reopening rests on fresh material or is a mere change of opinion.
10. Before we examine them, it is apposite to notice Section 147 of the Act as it stood at the relevant time. Its relevant part reads as under.
“147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year :
* * *
Explanation 1. Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.”
11. A perusal of the statutory provision, ibid, reveals that its scheme is plain. The power to reopen arises only when the Assessing Officer has reason to believe that income has escaped assessment. Where the original assessment was made under Section 143(3) of the Act, the first proviso imposes a further condition. After four years from the end of the relevant assessment year, the assessment can be reopened only if the escapement is due to a failure of the assessee. The failure must be to file a return, or to disclose fully and truly all material facts necessary for the assessment. Both conditions must be met. If either is absent, the Assessing Officer has no jurisdiction.
12. We first take up limitation. The assessment year 2006-07 ended on 31.03.2007. The period of four years from its end expired on 31.03.2011. The assessment year 2007-08 ended on 31.03.2008. The period of four years from its end expired on 31.03.2012. The impugned notice was issued on 26.03.2013. For both years, therefore, it is concededly beyond four years. Since the original assessment was made under Section 143(3) of the Act, the first proviso squarely applies. The notice could survive only if the respondents showed a failure of the petitioner to disclose fully and truly all material facts.
12.1. No such failure is shown. The difference between the receipts in the books and those in the TDS certificates was the very issue raised by the Assessing Officer in the original proceedings. The petitioner answered it by letter dated 06.11.2008. The assessment was completed thereafter. The fact was thus not hidden in the books. It was specifically put to the petitioner and specifically answered. Explanation 1 does not help the respondents either. It covers a case where the material fact lies buried in books or evidence and could be discovered only with due diligence. Here, the Assessing Officer had not merely the books but a direct query and a direct answer on the very point. The reply of the respondents does not point to any material fact that was withheld. The extended period is, therefore, not available. On this ground alone, the notice is without jurisdiction.
13. We now turn to the second question. We have perused the reasons recorded in the satisfaction note dated 14.03.2013 (Annexure-4). They are not based on any fresh material. They rest on the material that was already before the Assessing Officer when he passed the original assessment orders. The respondents, in their reply, also rely only on the same discrepancy in receipts.
13.1. It is a firmly settled position of law that the power under Section 147 of the Act cannot be exercised on a mere change of opinion. Reassessment is not a second innings for the Assessing Officer. It is not a means to reconsider or reappraise evidence that was already before him. If he formed an opinion on an issue during the original assessment, whether expressly or by necessary implication, he cannot reopen the assessment on the same facts. That would be nothing more than a change of opinion. It is not a valid ground to invoke Section 147 of the Act.
13.2. The Hon’ble Supreme Court settled this position in Commissioner of Income Tax v. Kelvinator of India Ltd.2. Section 147 of the Act was substituted with effect from 01.04.1989. The earlier conditions for reopening, namely an omission or failure of the assessee or information in the possession of the Assessing Officer, were then dropped. The power now turns only on reason to believe. The Supreme Court cautioned that this power is not a power to review. It held that the concept of change of opinion survives as an in built test against abuse of the power. The Assessing Officer must have tangible material to conclude that income has escaped assessment. A mere re examination of the same facts cannot justify reopening.
13.3. Other High Courts have also consistently followed this principle. The Delhi High Court in Commissioner of Income Tax v. Eicher Ltd.3 held that where the original assessment was completed after due application of mind to the material on record, a reassessment notice on the same material is impermissible. The Gujarat High Court in Praful Chunilal Patel v. M.J. Makwana4 held that reopening on information already available during the original assessment amounts to a change of opinion and is liable to be quashed. We are in respectful agreement with both views and need add nothing more.
13.4. Applying these principles, the conclusion is inescapable. The Assessing Officer raised the precise question during the original assessment. He received an answer. He accepted it and completed the assessment. His successor has now taken a different view on the same material. That is a classic change of opinion. It does not furnish reason to believe that income has escaped assessment.
14. In view of aforesaid findings, we need not examine the further plea regarding the interest income of Rs.2,32,686/-. The objection of alternative remedy also does not detain us. The challenge here goes to the very jurisdiction of the Assessing Officer. A notice that is barred by limitation and founded on a change of opinion is without jurisdiction. The petitioner cannot be compelled to undergo such proceedings only to challenge them later in appeal.
15. To sum up, it was not open to the subsequent Assessing Officer to reopen the assessment for the reasons that (a) for want of fresh material and (b) because the proceedings were barred by limitation.
16. The writ petitions are accordingly allowed. The notice dated 26.03.2013 issued under Section 148 of the Income Tax Act, 1961 and the proceedings initiated pursuant thereto are set aside, with consequences to follow.
17. All pending applications stand disposed of.
Notes:
1 Ashok Kumar v. Joint Commissioner, judgment dated 01.05.2026 in D.B. Civil Writ Petition No. 8724/2026, rendered by this Court.
2 (2010) 320 ITR 561 (SC), (2010) 2 SCC 723
3 (2007) 294 ITR 310 (Del)
4 (1999) 236 ITR 832 (Guj)
