AO after dropping an issue for lack of evidence may re-open it on gathering information

AO after dropping an issue in assessment u/s 143(3) for lack of evidence is competent to re-open such issue upon gathering necessary information – Calcutta High Court

In a recent judgment, Hon’ble Calcutta High Court has held that the jurisdictional assessing officer after having dropped an issue on the ground of lack of evidence was competent to re-open such issue upon gathering necessary information.

ABCAUS Case Law Citation:
4958 (2025) (12) abcaus.in HC

Important Case Laws relied upon by Parties:
Mangalam Publications v. Commissioner of Income Tax (SC)
Seema Gupta v. Income Tax Officer & Ors. (Delhi)
Bajaj Allianz Life Insurance Company Ltd. v. Deputy Commissioner of Income Tax (Bombay)

In the instant case, the petitioner assessee had challenge order passed under Section 148A(3) of the Income Tax Act, 1961 (the Act) along with the notice issued under Section 148 of the Act on the specific ground that the same was based on change of opinion. 

The Petitioner was a limited company. For the relevant Assessment Year the assessment was completed and order was issued under Section 143(3) of the Act. Subsequently, notice was issued under Section 148A(1) of the Act.

The notice was based on information which had been uploaded in the Insight Portal of the Income Tax Department, wherefrom it was deduced that the income chargeable to tax has escaped assessment in respect of the financial transactions made by the assesse concerning a cash purchase from one Business Group.

The Petitioner contended that during the assessment proceedings under section 143(1) when the notice under Section 142(1) of the Act was issued, the above information was obviously within the notice of the assessing officer. Notwithstanding the above and despite noting the aforesaid transactions as would corroborate from the observations made in the said notice, under the head “verification of transactions”, the petitioner was called upon to explain the noted nine several transactions and the cash payments made to the said Business Group.

It was submitted that the aforesaid issue was not only scrutinised before the assessing officer, the assessing officer chose to drop the same. According to assessee, once, an issue is dropped and an assessment order is passed, jurisdictional assessing officer is no longer competent to review his opinion and pass a fresh order so as to re- open the proceedings by issuing a notice under Section 148 of the said Act, which had already been closed.

On the issue of Taxpayers Annual Summary (TAS) report, it was stated that all the transactions as are reported in TAS report are part of regular books of accounts and as such the same cannot be said to be an income escaping assessment and as such the proceeding should be dropped.

On the contrary, the Revenue argued that transactions with said Group had been dropped on the consideration that no data in respect of such Group could be gathered and hence, in absence of documentary evidence, benefit of doubt was given to the petitioner.

It was contended that simply because, the assessing officer had previously refused to interfere by reasons of lack of evidence, the same does not preclude the assessing officer from re-opening a case upon laying its hand on relevant documents.

The Hon’ble High Court noted that for the relevant Assessment Year scrutiny had already been completed in respect of the return filed by the petitioner by issuing a notice under Section 142(1) of the said Act. The transactions under question formed part of the show cause. the petitioner had responded to the notice under section 142(1) of the Act by a communication in writing claiming that it had never entered into any alleged cash transactions and therefore, the allegation was unfounded.

The Hon’ble High Court further noted that the AO though had dropped the issue, in the Assessment order under section 143(3) of the Act he had clearly recorded that no data in respect of said Group could be gathered. Hence, it could not be verified whether these parties have any business relation with the assessee or not.

The Hon’ble High Court observed that it was crystal clear that the issue though scrutinized, the jurisdictional assessing officer could not identify data in respect of said Group and hence, the alleged business relationship between the Group and the assessee could not be verified. It was on such ground this issue was dropped.

The Hon’ble High Court stated that the question falling for consideration in the present writ petition was whether the jurisdictional assessing officer after having dropped the aforesaid issue, though, on the ground of lack of evidence was competent to re-open such issue upon gathering necessary information.

The Hon’ble High Court further observed that on the basis of a change of opinion of the assessing officer, a notice under Section 148 of the said Act cannot be issued as held by the Hon’ble Supreme Court.

The Hon’ble High Court further observed that as held by Hon’ble Supreme Court, there are two most important conditions which authorises the jurisdictional assessing officer to re-open an assessment proceedings. The first of which being that the jurisdictional assessing officer must have reasons to believe that income, profit or gains chargeable to income tax had been under-assessed and secondly, omission or failure on the part of the assessee to make a return of his income, or omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year.

The Hon’ble High Court noted that on “change of opinion” the Hon’ble Supreme Court had observed that 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 words “change of opinion” would imply formulation of opinion and then a change thereof.

The Hon’ble High Court opined that the jurisdictional assessing officer was unable to form an opinion in the said case in absence of data and as such was not in a position to verify whether the parties have any business relationship. It was on such ground, the issue was dropped. The above, would not constitute formation of an opinion by the jurisdictional assessing officer.

The Hon’ble High Court stated that if the assessing officer had earlier made an assessment for a relevant assessment year expressing an opinion on the matter either expressly or by necessary implication, a reassessment proceeding for alleged escapement of income from assessment of tax cannot be initiated, as it would be a case of change of opinion.

The Hon’ble High Court opined that in the instant case, simply because, the transaction details were available at that stage without the available data in relation to said Business Group, the same did not tantamount to an opinion. Especially when the petitioner disclaimed to have any business relationship with the said Group, the verification was not possible. In the order under section 148A(d), a relationship between the petitioner and the Business Group had been identified on the basis of additional materials, which were non-existent at the time when the scrutiny proceedings were initiated under Section 142(1) of the said Act. The subsequent notice issued under Section 148 of the said Act was based on an order, which took note of new and tangible material and is not a mere reference to a financial statement of the petitioner.

Accordingly, the Hon’ble High Court held that the petitioner had failed to make out any case of jurisdictional error committed by the jurisdictional assessing officer, on the ground of change of opinion. 

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