Income Tax Act | Change of Opinion Does Not Justify Reassessment: Madras High Court Quashes Reopening Against Hyundai Motor India

“Once a Query is Answered, It’s Deemed Considered”,  In a decisive ruling protecting taxpayers from arbitrary reassessment, the Madras High Court dismissed the Income Tax Department’s appeal and invalidated reassessment proceedings initiated against Hyundai Motor India Limited for Assessment Year 2004-05. Delivering the judgment, Chief Justice K.R. Shriram observed, “The reopening is based on mere change of opinion and not on any fresh tangible material; such a reassessment is impermissible under law.”

The Court emphatically upheld the orders of the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT), which had both quashed the reassessment initiated under Section 147 of the Income Tax Act, 1961.

Reassessment Based on Already Examined Facts is Impermissible

The central issue before the Court was whether reopening the assessment under Section 147 within four years was valid when the Assessing Officer had already examined the same facts during the original scrutiny assessment under Section 143(3). The Revenue argued that reassessment was justified since it was within four years and based on “reason to believe.”

However, the Court ruled in favour of the assessee, holding, “The reasons recorded for reopening only reiterate points already raised and examined during the original assessment proceedings. The mere fact that the assessment order does not detail every query raised does not imply non-application of mind.”

The Bench referred to detailed factual findings that during the original scrutiny assessment concluded on 29.12.2006, the Assessing Officer had raised exhaustive queries through questionnaires covering 46 points, including those related to foreign exchange gains, royalty and lump sum payments for technical know-how, and deductions under Section 80HHC. Hyundai had provided comprehensive replies, and the Assessing Officer, after due consideration, had passed the assessment order.

The Court observed, “Even an order passed under Section 154 (rectification) was made post-assessment on the same issue, indicating further application of mind. Reassessing the same issues is nothing but a change of opinion.”

“Change of Opinion is Not a Valid Ground for Reopening” – Reliance on Aroni Commercials Principle

Citing the authoritative decision in Aroni Commercials Limited v. DCIT, the Court reiterated, “Once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query was subject matter of consideration by the Assessing Officer while completing the assessment. Reopening based on the same query amounts to change of opinion.”

The Court dismissed the Department’s contention that the absence of discussion in the final assessment order justified reopening. Quoting from Aroni Commercials, the Bench stated, “It is not necessary that the assessment order should contain reference to every issue considered. The Court cannot insist that every question raised and answered must be discussed in the order.”

Legal Principle Reinforced: Compliance with Time Limit Does Not Permit Mechanical Reassessment

The High Court clarified that even reassessments within four years are not automatically valid. It observed, “The limitation period under Section 147 does not dilute the requirement of ‘reason to believe’ based on new tangible material. The record reveals no failure to disclose material facts by the assessee, thereby invalidating the reassessment.”

Rejecting the Department’s appeal, the Court held, “Reassessment in the present case stems solely from the Assessing Officer’s subsequent change of opinion and is thus legally unsustainable.”

Appeal Dismissed, Reassessment Declared Invalid

Answering both substantial questions of law in favour of the assessee, the Division Bench ruled, “We affirm the findings of the Commissioner (Appeals) and ITAT that the reassessment proceedings were not valid and were purely on a change of opinion. The appeal stands dismissed.”

In a key observation, the Court concluded, “The Income Tax Act does not permit the Assessing Officer to revisit completed assessments just because he later changes his mind about the tax treatment of disclosed facts.”

This judgment is expected to provide significant relief to taxpayers by fortifying the judicial barrier against arbitrary reassessment, especially where there is no new material and the taxpayer has made full disclosures.

Date of Decision: 1 July 2025