Reopening of assessment invalid if based on “change of opinion”

Rajarathnam’s Jewels Vs ACIT (ITAT Bangalore)

The Ld A.R also invited our attention to the assessment order passed for AY 2005-06 u/s 143(3) of the Act. The Ld A.R submitted that the assessee had entered into an agreement with family members titled as “Bilateral understanding for deposit of gold and diamond jewellery” before taking the gold as metal loan. He submitted that these agreements were entered into way back in 1998 itself and the assessee is holding the gold belonging to family members since that date. He submitted that the assessee has been paying “user fees” to two of the family members for taking their gold as metal loan. He submitted that the user fees so paid have been allowed as deduction by the AO in AY 2005-06.

The above said facts would show that the assessing officer is well aware of the fact of receipt of gold by the assessee as metal loan from its family members. This fact has been accepted in AY 2005-06 and in the earlier years. Hence, we are of the view that the AO does not have any reason to doubt the genuineness of explanations given by the assessee with regard to the un-reconciled gold of 17.319 kgs of gold. In our view, the expression “un­reconciled” itself is a misnomer, since the revenue is aware of the receipt of gold from family members since 2001 itself, i.e., from the date of earlier survey operations.

Under these set of facts, we are of the view that the AO has re-opened the assessment on mere change of opinion, because it is the assessing officer who took a different view at the time of reopening of assessment, i.e., he has entertained an opinion that the family members should have transferred the gold to the assessee firm and then the assessee firm should have held the gold on its own account. There should not be any dispute that there is no material brought on record to support the above said view of the AO. Under these circumstances, we have no other option but to hold that the assessing officer does not have any reason to believe that there was escapement of income in any of the years under consideration.

In view of the foregoing discussions, we hold that the reopening of assessment of all the years under consideration is on account of “change of opinion” and hence the reopening is not valid. Accordingly we quash the orders passed by the tax authorities for all the years under consideration.

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