S. 143(1) assessment cannot be reopened u/s 147 in absence of “new material”
The assessee filed a ROI in which it claimed deduction for non-compete fees and depreciation on leased premises which was accepted by the AO vide Intimation u/s 143(1). Thereafter, he issued a notice u/s 148 seeking to reopen the assessment on the ground that the expenses were not allowable. The assessee challenged the reopening on the ground that (a) the AO had not given a copy of the recorded reasons and (b) there was no fresh material to justify the reopening. Before the Tribunal, though the division bench agreed that there was no new material, the AM held that in the case of a s. 143(1) intimation, new material was not required while the JM took the contrary view. On a reference to the Third Member HELD by the Third Member:
(i) If the recorded reasons are not furnished to the assessee, it is fatal to the validity of the s. 148 notice issued for reopening the assessment (Fomento Resorts & Videsh Sanchar Nigam 340 ITR 66 (Bom) (SLP dismissed) followed);
(ii) The law laid down by the Supreme Court in Kelvinator 320 ITR 561 does not cover only a case where a s. 143(3) assessment is passed but also covers a case where only a s. 143(1) intimation is passed. The Supreme Court interpreted the words “reason to believe” and held that the AO did not have the power to review. While in that case of a s. 143(1) intimation, the assessee cannot challenge the reopening on the ground of ‘change of opinion”, he can challenge it on the ground that there were no “reasons to believe” that income had escaped assessment or that the said reasons did not have a live link with the formation of the belief. Even in the case of a s. 143(1) intimation, the AO must have “tangible material” that income has escaped assessment. On facts, there was no “tangible material” to support the belief that non-compete fees and depreciation had resulted in escapement of income chargeable to tax (Rajesh Jhaveri 291 ITR 500 (SC) distinguished).