S. 147: S. 143(3) assessment order is not a scrap of paper & AO is expected to have applied his mind. Reopening on ground of "oversight, inadvertence or mistake" is not permissible

CIT vs. Jet Speed Audio Pvt. Ltd (Bombay High Court)

The assessee made a claim for deduction for bad debts which was allowed by the AO u/s 143(3). Subsequently, within four years from the end of the assessment year, the AO reopened the assessment u/s 148 on the ground that the amount written off as bad debts was a capital loss and could not allowed as a deduction. The Tribunal allowed the assessee’s appeal and quashed the reassessment proceedings. Before the High Court, the department urged that the reopening was valid because (a) the AO acted on an audit objection which constitutes “tangible material” and (b) as the AO had not dealt with the issue in the original assessment order, he had jurisdiction as held in Kalyanji Mavji & Co 102 ITR 287 (SC), New Light Trading Co 256 ITR 391 (Del) and Dr. Amin’s Pathology Laboratory 252 ITR 673 (Bom). HELD by the High Court dismissing the appeal:

(i) The Tribunal has rendered a finding of fact that the AO raised a query with regard to the issue which was responded to by the assessee and on satisfaction of the same the AO passed the assessment order. Therefore, reopening of assessment on an issue in respect of which a query was raised and responded to by the assessee would amount to a change of opinion;

(ii) The argument that the tangible material is the audit objections received by the AO is not acceptable because there is no mention of any tangible material in the reasons recorded. A reopening notice can be sustained only on the basis of grounds mentioned in the reasons recorded. It is not open to the Revenue to add and/or supplement later the reasons recorded at the time of issuing reopening notice;

(iii) The argument that the AO has been careless in bringing to tax a particular amount which is chargeable to tax and that the Revenue should not be precluded from issuing notice u/s 148 overlooks the fact that power to reopen is not a power to review an assessment order. At the time of passing assessment order, it expected of the AO that he will apply mind and pass an order. An assessment order is not a mere scrap of paper. To accept the submission of the department would mean to negate the well settled position in law as stated by the Supreme Court in CIT Vs. Kelvinator of India Ltd 256 ITR 1 (Delhi)(FB) that the concept of ‘change of opinion’ brought in so as to have in built test to check abuse of power;

(iv) Kalyanji Mavji & Co 102 ITR 287 (SC), where it was held that “oversight, inadvertence or mistake” in passing assessment order will give the AO jurisdiction to reopen the assessment, is not good law in view of the subsequent decision in Indian and Eastern Newspaper Society Vs. CIT 119 ITR 996. An error discovered on a reconsideration of the same material (and no more) does not give him that power. The aforesaid view on the above proportion has been reiterated by the Apex Court in A.L.A.Firm vs. CIT 183 ITR 285. New Light Trading Co 256 ITR 391 (Del) and Dr. Amin’s Pathology Laboratory 252 ITR 673 (Bom) are also distinguishable on facts.