Invalidating Reassessment Beyond Four Years: ITAT Pune Quashes Reopening Based on Mere Change of Opinion in Lorgan Lifestyle Limited Case

The sanctity of a completed scrutiny assessment is a foundational principle within the framework of the Income Tax Act 1961. While the revenue authorities are empowered to reassess escaped income, this power is heavily circumscribed by statutory limitations and judicial precedents, particularly when invoked after a significant lapse of time.

In a landmark adjudication, the Pune Bench of the Income Tax Appellate Tribunal (ITAT) delivered a decisive ruling in the case of Lorgan Lifestyle Limited Vs DCIT. The Tribunal categorically quashed the reassessment proceedings initiated under Section 147 of the Act, which were triggered beyond the stipulated four-year period. The core of the Tribunal's ruling rested on the premise that the Assessing Officer (AO) attempted to reopen a concluded Section 143(3) assessment relying entirely on the very same "hawala purchase" documentation that had already been meticulously scrutinized during the original proceedings. This, the ITAT held, constituted an impermissible "change of opinion" rather than a valid discovery of escaped income.

Factual Matrix of the Case

The assessee, a partnership firm formerly known as Sri Sidhivinayak Marketing (now Lorgan Lifestyle Limited), filed its return of income for the Assessment Year (A.Y.) 2011-12 on September 29, 2011, declaring a total income of Rs. 34,77,401/-. The case was subsequently selected for a comprehensive regular scrutiny.

During the original assessment proceedings, the AO issued notices under Section 142(1) of the Act, requisitioning voluminous details regarding the assessee's business operations. The assessee fully complied, and the AO ultimately passed an assessment order under Section 143(3) on February 14, 2014, accepting the returned income without any modifications.

The Reassessment Trigger

Years later, on March 30, 2018—well beyond the four-year limitation period from the end of the relevant assessment year—the AO issued a notice under Section 148 of the Act, seeking to reopen the assessment. The primary justification for this drastic step was information suggesting that the assessee had engaged in bogus or "hawala" purchases amounting to Rs. 6,86,16,409/-.

The AO alleged that the assessee procured goods from three specific entities whose registrations had been cancelled by the Sales Tax Department for operating as accommodation entry providers:

  • Sangam Enterprises
  • Citybase Multitrade Pvt. Ltd.
  • Akshata Enterprises

Relying on the judicial rationale in Commissioner of Income Tax Vs. Simit P Seth, the AO concluded that while the sales were genuine, the purchases were sourced from the grey market and supported by accommodation bills. Consequently, the AO finalized the reassessment by making an ad-hoc addition of 12.5% of the alleged bogus purchases, resulting in an income enhancement of Rs. 85,77,051/-. The Commissioner of Income Tax (Appeals) upheld this addition, prompting the assessee to escalate the matter to the ITAT.