The main legal point established in the judgment is that a valid notice under Section 148 is a prerequisite for reassessment proceedings, and the reasons for re-opening the assessment must be based on 'reason to believe' rather than a change of opinion.

S.J. VAZIFDAR, J.

This is an appeal against the order of the Income Tax Appellate Tribunal dismissing the appellant’s appeal against the order of the CIT (Appeals). The matter pertains to the assessment year 2007-2008.

2. According to the appellant, the following substantial questions of law arise in this case:-

“(a) Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT was right in dismissing appeal of the revenue without appreciating the facts of the case?

(b) Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT was right in treating the re-assessment made u/s 143(3) r.w.s. 147, as bad in law and in holding the re-assessment as null and void when the Assessing Officer has complied with all statutory requirements for issuance of notice and had under amended provision of section reasonable belief on the escapement of income chargeable to tax as held by the Hon’ble Kerala High Court in the case of Innovative Foods Limited Vs Union of India and others (356 ITR 389)?

(c) Whether on the facts and in circumstances of the case and in law, the Hon’ble ITAT was right in annulling the re-assessment made u/s 143 r.w.s. 147 of the Income Tax Act, 1961 on ground that re-opening of the assessment amounted to change of opinion, ignoring the explanation 1 and 2(C) to section 147 of the Income Tax Act, 1961, particularly when the notice for re-assessment was issued before the expiry of four years from the end of the relevant assessment year thus fulfilling the statutory requisites for initiating action u/s 148 as held by the Hon’ble Kerala High Court in the case of CIT Vs National Tyres and Rubber Company of India Limited (202 Taxman 625)?”

3. By CM-25483-CII-2016, the appellant sought to raise the following additional questions of law:-

“(i) Whether the Hon’ble ITAT was correct in law in setting aside and annulling the reassessment proceedings by holding that the reason recorded for re-opining of assessment u/s 147 of the Act did not survive but without addressing the addition made by the A.O. u/s 147 read with explanation 3 of the section which came to his notice during re-assessment proceedings?

(ii) Whether the Hon’ble ITAT on the facts and circumstances of the case and in law was correct in setting aside the notice u/s 147 without adjudicating on the issue covered by explanation 3 to section 147 as the A.O. had made major addition on income not recorded in the reasons?”

4. The appeal is admitted.

5. The questions of law can be dealt with together. The respondent-assessee filed his return of income on 24.10.2007 declaring an income of about Rs. 38.97 lacs alongwith an exempt income of about Rs. 10.34 lacs as his share from the firm M/s Alliance Formulations. He derives income from salary from M/s Imperial Marketing Services (India) (P) Ltd., as the proprietor of Alliance Formulations, and from the trading business of Ram Dita Mal Ganga Ram. He also receives income from house property and from long term and short term capital gains and interest.

It is important to note that the income was initially processed under Section 143(1) of the Income Tax Act, 1961 (in short the Act), but subsequently the case was selected for scrutiny and a notice under Section 143(2) of the Act was issued and served upon the assessee. The notice contained a detailed questionnaire which we will be referring to in some detail.

6. On 05.10.2011, a notice under Section 148 of the Act was issued. At the assessee’s request, the reasons for the same were furnished to the assessee, which read as under:-

“Perusal of the balance-sheet of the concern M/s Alliance Formulations, of which the assessee is the Prop., shows capital work in Progress of Plant-ll at Rs. 65,88,844/-. Evidently the assets of Plant-ll, which was still under construction during the year, were not put to use during the previous year. The assessee has paid bank interest of Rs. 18,89,028/- in this concern on the borrowed funds of Rs. 2,28,26,4