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it is well settled that even if an issue is brought to the notice of the Assessing Officer by the audit party, it would not preclude the Assessing Officer from acting on such communication as long as the final opinion to take appropriate action is that of the Assessing Officer and not that of the audit party. Referring to the decision in case of CIT v. P.V.S Beedies (P.) Ltd. [1999] 237 ITR 13, it is equally well settled however that if the Assessing Officer has acted only under compulsion of the audit party and not independently, the action of re-opening would be vitiated.
The argument of the learned counsel for the respondent-assessee that merely participation of the assessee will not validate the reassessment proceeding if the notice is invalid, is of no help, in view of the fact that the question of validity of notice under Section 147 of the Act is not in issue. The only defect which could be pointed out is that the assessment year was not mentioned in the reasons recorded by the Assessing Officer.
There is no scrutiny assessment in the assessment years 2002-03 and 2003-04. Thus, the Assessing Officer has not formed any opinion on these issues, i.e., about the assessability of interest expenses. There is no condition in section 147 that information should have flown from an external source after filing of the return and only then a notice under section 148 can be issued.
From the perusal of the reasons recorded by the Assessing Officer, it is seen that in paragraph 1 the Assessing Officer has mentioned about the receipt of report from the office of the Commissioner of Income-tax indicating that enquiries were initiated by the Directorate of Income-tax (Investigation) to probe into bank account which were used by entry operators for the purpose issue of cheques to beneficiaries against cash paid by them.
This is a clear case where the primary facts were available before the AO, and therefore, the assessee cannot be held to have failed to disclose “fully and truly all material facts”. In our opinion, it was for the AO to draw the appropriate inference. The assessee is/was under no obligation to draw the inference of fact or law based on the primary facts available on record.
For these reasons, we have come to the conclusion that the Petitions would have to be allowed. We accordingly allow the Petitions by quashing and setting aside the notices under section 148 of the Income-tax Act, 1961 purporting to re-open the assessment for A.Ys. 2005-06, 2006-07, 2007-08 and 2008-09. Rule is made absolute in the aforesaid terms. There shall be no order as to costs.
In the present case, the Assessing Officer having examined the entire claim threadbare, any deviation from his decision on the ground that the receipts of the assessee from sale of land should be treated as business income in and not as long term capital gain must be taken to be a change of opinion. It may be that in the assessment order, the Assessing Officer did not elaborate on this aspect of the matter. To our mind the same would be of no consequence.
In the reopened assessment, the AO has taken the view that the amount in fact did not represent any capital gains on sale of shares, but represented the undisclosed income of the assessee brought in by means of an accommodation entry given by My Money Security Pvt. Ltd. Accordingly he brought the amount to tax with the narration undisclosed income introduced under guise of short term capital gains.
The Assessing Officer while reassessing the respondent by an order dated 26/3/2002 has in fact taken a ground different from the grounds in the reasons recorded for reopening the assessment under Section 148 of the said Act. The reasons furnished for reopening the assessment alleged that non fund income had been shown in fund based income so as to avail of a higher deduction.
Though the power of the A.O. to reopen an assessment within a period of four years is indisputably wider than when an assessment is sought to be reopened beyond four years, the power is nonetheless not unbridled. After the amendment which was brought in by the Direct Tax Laws Amendment Act, 1987 with effect from 1 April 1989, the A.O. must have reason to believe that income has escaped the assessment. At the same time, the A.O. is not conferred with the power to review an assessment and he cannot reopen an assessment only because of a mere change in the opinion.
