Case Law Details
1. We find that the assessee filed the return on 30/10/2005 and the case was, subsequently, on scrutiny assessment, completed u/s 143(3) r.w.s 148 of the Act on 01/03/2013, thus, reopening is beyond a period of four years, more specifically when the material facts were fully and truly disclosed by the assessee. Before adverting further it is noted that the Assessing Officer while disposing off the application made u/s 154 of the Act, due to enhancement of disallowance u/s 40(a)(ia) of the Act, the matter travelled upto the Tribunal, wherein, it was held that while passing order u/s 154 of the Act, no enquiry can be made as no debatable issue dealt with and thus the Tribunal dismissed on same lines. Even otherwise, the assessee vide letter dated 09/11/2012 pointed out that 154 notice, issued earlier was still alive and proceedings initiated u/s 148 was bad in law. In the aforesaid order, we find that no disallowance was held to be justified u/s 40(a)(ia) of the Act as the assessee had already deposited the TDS before the due date of filing of return u/s 139(1) of the Act, therefore, we find no justification to reopen the assessment beyond four years.
2. However, in the present appeal undisputedly, the assessment was framed u/s 143(3) r.w.s. 148 of the Act, meaning thereby, a opinion was formed by the Assessing Officer. In such situation, we observe that there is change of opinion by the Assessing Officer. Reassessment proceedings will be invalid in a case where assessment order itself records that the issue was raised, facts were examined, necessary details were filed by the assessee and the Assessing Officer decides in favour of the assessee, thus, reassessment proceedings in such cases will be hit by the principle of “change of opinion” as in the assessment order an opinion was formed by the Assessing Officer. The expression “change of opinion” postulates formation of opinion and then a change thereof. In the context of assessment proceedings, it means formation of belief by an Assessing Officer resulting from what he thinks on a particular question. It is a result of understanding, experience and reflection. A distinction must be drawn between erroneous application/ interpretation/ understanding of law and cases where fresh or new factual information comes to the knowledge of the Assessing Officer subsequent to the passing of the assessment order. The reason is that “opinion” is formed on facts. “Opinion” formed or based on wrong and incorrect facts or which are belied and untrue do not get protection and cover under the principle of “change of opinion”. Factual information or material which was incorrect or was not available with the Assessing Officer at the time of original assessment would justify initiation of reassessment proceedings. The requirement in such cases is that the information or material available should relate to material facts. The expression “material facts” means those facts which if taken into account would have an adverse effect on the assessee by a higher assessment of income than the one actually made. They should be proximate and not have a remote bearing on the assessment. The omission to disclose may be deliberate or inadvertent. However, in such cases, the onus will be on the Revenue to show that the assessee had stated incorrect and wrong material facts resulting in the Assessing Officer proceeding on the basis of facts, which are incorrect and wrong. The reasons recorded and the documents on record are of paramount importance and will have to be examined to determine whether the stand of the Revenue is correct. There is a difference between “change of opinion” and “failure or omission” of the Assessing Officer to form an opinion on a subject-matter, entry, claim, deduction, etc. When the Assessing Officer fails to examine a subjectmatter, entry, claim or deduction, he forms no opinion. It is a case of no opinion. Whether or not the Assessing Officer had applied his mind and examined the subject-matter, claim, etc., depends upon factual matrix of each case. The Assessing Officer can examine a claim or subject-matter even without raising a written query. There can be cases where an aspect or question is too apparent or obvious to hold that the Assessing-Officer did not examine a particular subject-matter, claim, etc. The stand and stance of the assessee and the Assessing Officer in such cases are relevant.
3. Section 114 of the Evidence Act, 1872, is permissive and not a mandatory provision. Nine situations by way of illustrations are stated, which are by way of example or guidelines. As a permissive provision it enables to judge to support his judgment but there is no scope of presumption when facts are known. Presumption of facts under section 114 is rebuttable. The presumption raised under illustration (e) to section 114 of the Act means that when an official act is proved to have been done, it will be presumed to have been regularly done but it does not raise any presumption that an act was done for which there is no evidence or proof.
(i) Section 114(e) of the Act can be applied to an assessment order framed under section 143(3) of the Act, provided that there has been a full and true disclosure of all material and primary facts at the time of original assessment. In such a case if the assessment is reopened in respect of a matter covered by the disclosure, it would amount to change of opinion.
4. For reopening an assessment made under section 143(3) of the Act, the following conditions are required to be satisfied:
(i) the Assessing Officer must form a tentative or prima facie opinion on the basis of material that there is underassessment or escapement of income ;
(ii) he must record the prima facie opinion into writing ;
(iii) the opinion formed is subjective but the reasons recorded or the information available on record must show that the opinion is not a mere suspicion.
(iv) reasons recorded and/or the documents available on record must show a nexus or that in fact they are germane and relevant to the subjective opinion formed by the Assessing Officer regarding escapement of income.
(v) In cases where the first proviso applies, there is an additional requirement that there should be failure or omission on the part of the assessee in disclosing full and true material facts. The Explanation to the section stipulates that mere production of books of account or other documents from which the Assessing Officer could have, with due diligence, inferred material facts, does not amount to “full and true disclosure of material facts” (the proviso is not applicable where reasons to believe for issue of notice are recorded and notice is issued within four years from the end of assessment year).
5.The term and facets of the term “change of opinion”. The expression “change of opinion” postulates formation of opinion and then a change thereof. In the context of section 147 of the Act it implies that the Assessing Officer should have formed an opinion at the first instance, i.e., in the proceedings under section 143(3) and now by initiation of the reassessment proceeding, the Assessing Officer proposes or wants to take a different view.
6. The word “opinion” is derived from the latin word “opinari” which means “to believe”, “to think”. The word “opinion” as per the Black’s Law Dictionary means a statement by a judge or a court of a decision reached by him incorporating cause tried or argued before them, expounding the law as applied to the case and, detailing the reasons upon which the judgment is based. Advanced Law Lexicon by P. Ramanatha Aiyar (third edition) explains the term “opinion” to mean “something more than mere retaining of gossip or hearsay ; it means judgment or belief, that is, a belief or a conviction resulting from what one thinks on a particular question . . . An opinion is a conviction based on testimony . . . they are as a result of reading, experience and reflection”.
7. In the context of assessment proceedings, it means formation of belief by an Assessing Officer resulting from what he thinks on a particular question. It is a result of understanding, experience and reflection to use the words in Law Lexicon by P. Ramanatha Aiyar. The question of change of opinion arise when an Assessing Officer forms an opinion and decides not to make an addition or holds that the assessee is correct and accepts his position or stand. In Hari Iron Trading Co. v. CIT [2003] 263 ITR 437 (P&H), a Division Bench of the Hon’ble Punjab and Haryana High Court observed that an assessee has no control over the way an assessment order is drafted. It was observed that generally, the issues which are accepted by the Assessing Officer do not find mention in the assessment order and only such points are taken note of on which the assessee’s explanations are rejected and additions/disallowances are made. Applying the principles laid down by the Full Bench of this court as well as the observations of the Punjab and Haryana High Court, we find that if the entire material had been placed by the assessee before the Assessing Officer at the time when the original assessment was made and the Assessing Officer applies his mind to that material and accepted the view canvassed by the assessee, then merely because he did express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment and, therefore, the assessment needed to be reopened. On the other hand, if the Assessing Officer did not apply his mind and committed a lapse, there is no reason why the assessee should be made to suffer the consequences of that lapse.
8. The Hon’ble Delhi High Court in Consolidated Photo and Finvest Ltd. [2006] 281 ITR 394 (Delhi) held as under:
“In the light of the authoritative pronouncements of the Supreme Court referred to above, which are binding upon us and the observations made by the High Court of Gujarat with which we find ourselves in respectful agreement, the action initiated by the Assessing Officer for reopening the assessment cannot be said to be either incompetent or otherwise improper to call for interference by a writ court. The Assessing Officer has in the reasoned order passed by him indicated the basis on which income exigible to tax had in his opinion escaped assessment. The argument that the proposed reopening of assessment was based only upon a change of opinion has not impressed us. The assessment order did not admittedly address itself to the question which the Assessing Officer proposes to examine in the course of reassessment proceedings. The submission of Mr. Vohra that even when the order of assessment did not record any explicit opinion on the aspects now sought to be examined, it must be presumed that those aspects were present to the mind of the Assessing Officer and had been held in favour of the assessee is too far-fetched a proposition to merit acceptance. There may indeed be a presumption that the assessment proceedings have been regularly conducted, but there can be no presumption that even when the order of assessment is silent, all possible angles and aspects of a controversy had been examined and determined by the Assessing Officer. It is trite that a matter in issue can be validly determined only upon application of mind by the authority determining the same. Application of mind is, in turn, best demonstrated by disclosure of mind, which is best done by giving reasons for the view which the authority is taking. In cases where the order passed by a statutory authority is silent as to the reasons for the conclusion it has drawn, it can well be said that the authority has not applied its mind to the issue before it nor formed any opinion. The principle that a mere change of opinion cannot be a basis for reopening completed assessments would be applicable only to situations where the Assessing Officer has applied his mind and taken a conscious decision on a particular matter in issue. It will have no application where the order of assessment does not address itself to the aspect which is the basis for reopening of the assessment, as is the position in the present case. It is in that view inconsequential whether or not the material necessary for taking a decision was available to the Assessing Officer either generally or in the form of a reply to the questionnaire served upon the assessee. What is important is whether the Assessing Officer had based on the material available to him taken a view. If he had not done so, the proposed reopening cannot be assailed on the ground that the same is based only on a change of opinion.”
9. From the foregoing discussion, the clear position emerges as under:
(1) Reassessment proceedings can be validly initiated in case return of income is processed under section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion.
(2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by the principle of “change of opinion”.
(3) Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons.
10. Thus, where an Assessing Officer incorrectly or erroneously applies law or comes to a wrong conclusion and income chargeable to tax has escaped assessment, resort to section 263 of the Act is available and should be resorted to. But initiation of reassessment proceedings will be invalid on the ground of change of opinion. Here a distinction has to be drawn between erroneous application/interpretation /understanding of law and cases where fresh or new factual information comes to the knowledge of the Assessing Officer subsequent to the passing of the assessment order. If new facts, material or information comes to the knowledge of the Assessing Officer, which was not on record and available at the time of the assessment order, the principle of “change of opinion” will not apply. The reason is that “opinion” is formed on facts. “Opinion” formed or based on wrong and incorrect facts or which are belied and untrue do not get protection and cover under the principle of “change of opinion”. Factual information or material which was incorrect or was not available with the Assessing Officer at the time of original assessment would justify initiation of reassessment proceedings. The requirement in such cases is that the information or material available should relate to material facts. The expression “material facts” means those facts which if taken into account would have an adverse effect on the assessee by a higher assessment of income than the one actually made. Correct material facts can be ascertained from the assessment records also and it is not necessary that the same may come from a third person or source, i.e., from source other than the assessment records. However, in such cases, the onus will be on the Revenue to show that the assessee had stated incorrect and wrong material facts resulting in the Assessing Officer proceeding on the basis of facts, which are incorrect and wrong. The reasons recorded and the documents on record are of paramount importance and will have to be examined to determine whether the stand of the Revenue is correct. A decision from Hon’ble Delhi High Court dated September 26, 2011 in Dalmia P. Ltd. v. CIT [2012] 348 ITR 469 (Delhi) and another decision from Hon’ble jurisdictional High Court dated November 8, 2011, in Indian Hume Pipe Co. Ltd. v. Asst. CIT [2012] 348 ITR 439 (Bom) are two such cases, which throws light on the issue. In the first case, the Assessing Officer in the original assessment had made addition of Rs. 19,86,551 under section 40(1) on account of unconfirmed sundry creditors. The reassessment proceedings were initiated after noticing that unconfirmed sundry creditors, of which details, etc., were not furnished, were to the extent of Rs. 52,84,058 and not Rs. 19,86,551. In Indian Hume Pipe Co. Ltd. (supra), after verification the claim under section 54EC was allowed but subsequently on examination it transpired that the second property was purchased prior to the date of sale. The aforesaid decisions/ facts cases must be distinguished from cases where the material facts on record are correct but the Assessing Officer did not draw proper legal inference or did not appreciate the implications or did not apply the correct law. The second category will be a case of “change of opinion” and cannot be
reopened for the reason that the assessee, as required, has placed on record primary factual material but on the basis of legal understanding, the Assessing Officer has taken a particular legal view. However, as stated above, an erroneous decision, which is also prejudicial to the interests of the Revenue, can be made subject-matter of adjudication under section 263 of the Act.
11. A division Bench of Hon’ble Delhi High Court in New Light Trading Co. v. CIT [2002] 256 ITR 391 (Delhi), referred to the decision of the Hon’ble Apex Court in CIT v. P. V. S. Beedies P. Ltd. [1999] 237 ITR 13 (SC) and made following observations. (page 392) :
“In the case of CIT v. P. V. S. Beedies P. Ltd. [1999] 237 ITR 13 (SC), the apex court held that the audit party can point out a fact, which has been overlooked by the Income-tax Officer in the assessment. Though there cannot be any interpretation of law by the audit party, it is entitled to point out a factual error or omission in the assessment and reopening of a case on the basis of factual error or omission pointed out by the audit party is permissible under law. As the Tribunal has rightly noticed, this was not a case of the Assessing Officer merely acting at the behest of the audit party or on its report. It has independently examined the materials collected by the audit party in its report and has come to an independent conclusion that there was escapement of income. The answer to the question is, therefore, in the affirmative, in favour of the Revenue and against the assessee.”
“As recorded above, the reasons recorded or the documents available must show nexus that in fact they are germane and relevant to the subjective opinion formed by the Assessing Officer regarding escapement of income. At the same time, it is not the requirement that the Assessing Officer should have finally ascertained escapement of income by recording conclusive findings. The final ascertainment takes place when the final or reassessment order is passed. It is enough if the Assessing Officer can show tentatively or prima facie on the basis of the reasons recorded and with reference to the documents available on record that income has escaped assessment.”
This brings us to the observations of the Delhi High Court in Kelvinator of India Ltd. [2002] 256 ITR 1 (Delhi) [FB] which read as under (page 18):
“The Board in exercise of its jurisdiction under the aforementioned provisions had issued the circular on October 31, 1989. The said circular admittedly is binding on the Revenue. The authority, therefore, could not have taken a view, which would run counter to the mandate of the said circular.”
From a perusal of clause 7.2 of the said circular it would appear that in no uncertain terms it was stated as to under what circumstances the amendments had beencarried out, i.e., only with a view to allay the fears that the omission of the expression ‘reason to believe’ from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessment on mere change of opinion. It is, therefore, evident that even according to the CBDT a mere change of opinion cannot form the basis for reopening a completed assessment.
12. Another aspect of the matter also cannot be lost sight of. A statute conferring an arbitrary power may be held to be ultra virus article 14 of the Constitution of India. If two interpretations are possible, the interpretation which upholds constitutionality, it is trite, should be favoured. In the event it is held that by reason of section 147 if the Income-tax Officer exercises its jurisdiction for initiating proceeding for re-assessment only upon mere change of opinion, the same may be held to be unconstitutional. We are, therefore, of the opinion that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceeding upon his mere change of opinion. The Hon’ble Apex Court thereafter referred to the subsequent decision in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC) wherein it was observed that some of the observations made in Kalyanji Mavji (supra) were far too wide and the statute did not permit reappraisal of material considered by the Assessing Officer during the original assessment. The observations in Kalyanji Maviji (supra) that reopening would cover a case “where income has escaped assessment due to the oversight, inadvertence or mistake” was too broadly expressed and did not lay down the correct law. It was clarified and observed at page 1004 in Indian and Eastern Newspaper Society [1979] 119 ITR 996 (SC) as under :
“Now, in the case before us, the Income-tax Officer had, when he made the original assessment, considered the provisions of sections 9 and 10. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on material already considered by him. The Revenue contends that it is open to him to do so, and on that basis to reopen the assessment under section 147(b). Reliance is placed on Kalyanji Mavji and Co. v. CIT [1976] 102 ITR 287 (SC), where a Bench of two learned judges of this court observed that a case where income had escaped assessment due to the ‘oversight, inadvertence or mistake’ of the Income-tax Officer must fall within section 34(1)(b) of the Indian Income-tax Act, 1922. It appears to us, with respect, that the proposition is stated too widely and travels farther than the statute warrants in so far as it can be said to lay down that if, on reappraising the material considered by him during the original assessment, the Incometax Officer discovers that he has committed an error in consequence of which income has escaped assessment it is open to him to reopen the assessment. In our opinion, an error discovered on a reconsideration of the same material (and no more) does not give him that power. That was the view taken by this court in Maharaj Kumar Kamal Singh v. CIT [1959] 35 ITR 1 (SC), CIT v. A. Raman and Co. [1968] 67 ITR 11 (SC) and Bankipur Club Ltd. v. CIT [1971] 82 ITR 831 (SC), and we do not believe that the law has since taken a different course. Any observations in Kalyanji Mavji and Co. v. CIT [1976] 102 ITR 287 (SC) suggesting the contrary do not, we say with respect, lay down the correct law.”
13. In A. L. A. Firm (supra), the Hon’ble Apex Court explained that there was no difference between the observations of the Supreme Court in Kalyanji Maviji [1976] 102 ITR 287 (SC) and Indian and Eastern Newspaper Society case [1979] 119 ITR 996 (SC), as far as proposition (4) is concerned. It was held that (page 297 of 189 ITR) :
“We have pointed out earlier that Kalyanji Maviji’s case [1976] 102 ITR 287 (SC) outlines four situations in which action under section 34(1)(b) can be validly initiated. The Indian Eastern Newspaper Society’s case [1979] 119 ITR 996 (SC) has only indicated that propo sition (2) outlined in this case and extracted earlier may have been somewhat widely stated ; it has not cast any doubt on the other three propositions set out in Kalyanji Mavji’s case. The facts of the present case squarely fall within the scope of propositions 2 and 4 enunciated in Kalyanji Maviji’s case [1976] 102 ITR 287 (SC). Proposition (2) may be briefly summarized as permitting action even on a ‘mere change of opinion’. This is what has been doubted in the Indian and Eastern Newspaper Society case [1979] 119 ITR 996 (SC) and we shall discuss its application to this case a little later. But, even leaving this out of consideration, there can be no doubt that the present case is squarely covered by proposition (4) set out in Kalyanji Maviji’s case [1976] 102 ITR 287 (SC). This proposition clearly envisages a formation of opinion by the Income-tax Officer on the basis of material already on record provided the formation of such opinion is consequent on ‘information’ in the shape of some light thrown on aspects of facts or law which the Income-tax Officer had not earlier been conscious of. To give a couple of illustrations ; suppose an Income-tax Officer, in the original assessment, which is a voluminous one involving several contentions, accepts a plea of the assessee in regard to one of the items that the profits realised on the sale of a house is a capital realisation not chargeable to tax. Subsequently, he finds, in the forest of papers filed in connection with the assessment, several instances of earlier sales of house property by the assessee. That would be a case where the Income-tax Officer derives information from the record on an investigation or enquiry into facts not originally undertaken. Again, suppose the Income-tax Officer accepts the plea of an assessee that a particular receipt is not income liable to tax. But, on further research into law he finds that there was a direct decision holding that category of receipt to be an income receipt. He would be entitled to reopen the assessment under section 147(b) by virtue of proposition (4) of Kalyanji Mavji. The fact that the details of sales of house properties were already in the file or that the decision subsequently come across by him was already there would not affect the position because the information that such facts or decision existed comes to him only much later.
What then, is the difference between the situations envisaged in propositions (2) and (4) of Kalyanji Maviji’s case [1976] 102 ITR 287 (SC). The difference, if one keeps in mind the trend of the judicial decisions, is this. Proposition (4) refers to a case where the Incometax Officer initiates reassessment proceedings in the light of ‘information’ obtained by him by an investigation into material already on record or by research into the law applicable thereto which has brought out an angle or aspect that had been missed earlier, for e.g., as in the two Madras decisions referred to earlier. Proposition (2) no doubt covers this situation also but it is so widely expressed as to include also cases in which the Income-tax Officer, having considered all the facts and law, arrives at a particular conclusion, but reinitiates proceedings because, on a reappraisal of the same material which had been considered earlier and in the light of the same legal aspects to which his attention had been drawn earlier, he comes to a conclusion that an item of income which he had earlier consciously left out from the earlier assessment should have been brought to tax. In other words, as pointed out in Indian and Eastern Newspaper Society’s case [1979] 119 ITR 996 (SC), it also ropes in cases of a ‘bare or mere change of opinion’ where the Income-tax Officer (very often a successor officer) attempts to reopen the assessment because the opinion formed earlier by himself (or, more often, by a predecessor Income- tax Officer) was, in his opinion, incorrect. Judicial decisions had consistently held that this could not be done and the Indian and Eastern Newspaper Society’s case [1979] 119 ITR 996 (SC) has warned that this line of cases cannot be taken to have been overruled by Kalyanji Mavji [1976] 102 ITR 287 (SC). The second paragraph from the judgment in the Indian and Eastern Newspaper Society’s case [1979] 119 ITR 996 (SC) earlier extracted has also reference only to this situation and insists upon the necessity of some information which make the Income-tax Officer realise that he has committed an error in the earlier assessment. This paragraph does not in any way affect the principle enumerated in the two Madras cases cited with approval in Anandji Haridas 21 STC 326. Even making allowances for this limitation placed on the observations in Kalyanji Mavji, the position as summarised by the High Court in the following words represents, in our view, the correct position in law (at page 629 of 102 ITR) :
The result of these decisions is that the statute does not require that the information must be extraneous to the record. It is enough if the material, on the basis of which the reassessment proceedings are sought to be initiated, came to the notice of the Income-tax Officer subsequent to the original assessment. If the Income-tax Officer had considered and formed an opinion on the said material in the original assessment itself, then he would be powerless to start the proceedings for the reassessment. Where, however, the Income-tax Officer had not considered the material and subsequently came by the material from the record itself, then such a case would fall within the scope of section 147(b) of the Act’.” (emphasis supplied)
The aforesaid observations are a complete answer to the issue that if a particular subject-matter, item, deduction or claim is not examined by the Assessing Officer, it will nevertheless be a case of “change of opinion” and the reassessment proceedings will be barred.
14. We are conscious of the fact that the aforesaid observations have been made in the context of section 147(b) with reference to the term “information” and conceptually there is difference in scope and ambit of reopening provisions incorporated with effect from April 1, 1989. However, it was observed by the Hon’ble Apex Court in Kelvinator of India Ltd. [2010] 320 ITR 561 (SC) that the amended provisions are wider. What is important and relevant is that the principle of “change of opinion” was equally applicable under the un-amended provisions. The Supreme Court was, therefore, conscious of the said principle, when the observations mentioned above in A. L. A. Firm [1991] 189 ITR 285 were made.
15. Under the new provisions of section 147, an assessment can be reopened if the Assessing Officer has “reason to believe” that income chargeable to tax has escaped assessment; but if he wants to do so after a period of four years from the end of the assessment year, he can do so only if the assessee has fallen short of his duty to disclose fully and truly all material facts necessary for his assessment. It does not follow that he cannot reopen the assessment even within the period of four years as aforesaid if he has reason to believe that the assessee has failed to make the requisite disclosure. All that the section says is that in a case where the assessment is sought to be reopened after the period of four years, the only reason available to the Assessing Officer is the non-disclosure of material facts on the part of the assessee. The Act places a general duty on every assessee to furnish full and true particulars along with the return of income or in the course of the assessment proceedings so that the Assessing Officer is enabled to compute the correct amount of income on which the assessee shall pay tax. The position has been further clarified by the proviso itself in a case where assessment under sub-section (3) of section 144 of the Act or this section has been made for the relevant assessment year, no action shall be taken after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such year by the reason of failure on the part of the assessee to make a return u/s 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose truly and fully all material facts necessary for his assessment for that assessment year. It is also noted that the scope of newly substituted (w.e.f. 01/04/1989) section 147 has been elaborated in department circular number 549 dated 31st October, 1989, meaning thereby, on or after 01/04/1989, initiation of reassessment proceedings has to be governed by the provisions of section 147 to 151 as substituted (amended) w.e.f. 01/04/1989. Still, power u/s 147 of the Act, though very wide but no plenary. We are aware that Hon’ble Gujarat High Court in Praful Chunilal Patel: Vasant Chunilal Patel vs ACIT (1999) 236 ITR 82, 840 (Guj.) even went to the extent that action under main section 147 is possible in spite of complete disclosure of material facts. The primary condition of reasonable belief having nexus with the material on record is still operative. However, we are of the view, that mere fresh application of mind to the same set of facts or mere change of opinion does not confer jurisdiction to the Assessing Officer even under the post 1989 section 147 of the Act. Our view find support from following decisions:-
a. Jindal Photo Films Ltd. vs DCIT (1998) 234 ITR 170 (Del.),
b. Garden Silk Mills Pvt. Ltd. vs DCIT (1999) 151 CTR (Guj.) 533,
c. Govind Chhapabhai Patel vs DCIT 240 ITR 628, 630 (Guj.),
d. Foramer vs CIT (2001) 247 ITR 436 (All.), affirmed in CIT vs Foramer Finance (2003) 264 ITR 566, 567 (SC),
e. Ipca Laboratories vs DCIT (2001) 251 ITR 416 (Bom.),
f. Ritu Investment Pvt. Ltd.(2012) 345 ITR 214 (Del.),
g. Ketan B. Mehta vs ACIT (2012) 346 ITR 254 (Guj.),
h. Ms. Praveen P. Bharucha vs DCIT (2012) 348 ITR 325 (Bom.),
i. CIT vs Usha International Ltd. 348 ITR 485 (Del.),
j. Agricultural Produce Market Committee vs ITO (2013) 355 ITR 348 (Guj.),
k. B.B.C. World News Ltd. vs Asst. DIT (2014) 362 ITR 577 (Del.).
16. Identical ratio was laid down in CIT vs Malayala Manorma Company Ltd. (2002) 253 ITR 378 (Ker.) We think this thread runs through the various provisions of the Act. But Explanation 1 to the section confines the duty to the disclosure of all primary and material facts necessary for the assessment, fully and truly. As to what are material or primary facts would depend upon the facts and circumstances of each case and no universal formula may be attempted. The legal or factual inferences from those primary or material facts are for the Assessing Officer to draw in order to complete the assessment and it is not for the assessee to advise him, for obvious reasons. The Explanation, however, cautions the assessee that he cannot remain smug with the belief that since he has produced the books of account before the Assessing Officer from which material or evidence could have been with due diligence gathered by him, he has discharged his duty. It is for him to point out the relevant entries which are material, without leaving that exercise to the Assessing Officer. The caveat, however, is that such production of books of account may, in the light of the facts and circumstances, amount to full and true disclosure ; this is clear from the use of the expression “not necessarily” in the Explanation. Thus, the question of full and true disclosure of primary or material facts is a pure question of fact, to be determined on the facts and circumstances of each case. No general principle can belaid down. It was observed by the Hon’ble Apex Court, in various cases that there should be some “tangible material” coming into the possession of the Assessing Officer in such cases to enable him to resort to section 147 of the Act. Despite being a case of full and true disclosure, tangible material coming to the possession of the Assessing Officer after he made the original assessment under section 143(3), would influence the opinion, formed or presumed to have been formed earlier, by the assessing authority; he can with justification change it, but that would not be a case of a “mere change of opinion” unguided by new facts or change in the legal position. It will be a case of the assessing authority having “reason to believe”, notwithstanding that full and true particulars were furnished by the assessee which were examined, or presumed to be examined, by him. There was a divergence of opinion amongst various High Courts as to what constitute “Information” for the purposes of section 34(1)(b) of the 1922 Act (which corresponds to section 147(b) of the 1961 Act) the Hon’ble Apex Court in CWT vs Imperial Tobacco Company Ltd. (1966) 61 ITR 461 has noted such divergence of opinion on the point. Hon’ble jurisdictional High Court in CIT vs Sir Mohammad Yusuf Ismail (1944) 12 ITR 8 (Bom.) held that mere change of opinion on the same facts are on question of law or mere discovery of mistake of law is not sufficient information and that in order to sustained action u/s 34 by further holding that reassessment is not permissible. The Hon’ble Apex Court in Simon Carves Ltd. (1976) 105 ITR 212 held that errorless legally correct order cannot be reopened, therefore, it is settled law that without any new information and on the basis of mere change of opinion, reopening of assessment is not permissible. As was held in CIT vs TTK Prestige ltd. (2010) 322 ITR 390 (Karn.) SLP dismissed in 2010 322 ITR (St.) 14 (SC). Reference also made to Asian Paints ltd. vs DCIT (2009) 308 ITR 195 (Bom.), Andhra Bank Ltd. vs CIT (1997) 225 ITR 447 (SC). The observations of the Supreme Court are a protection against the abuse of power; they also protect the Revenue which can, in the light of subsequent coming into light of facts or law, reopen the assessment. In the light of the aforesaid discussion, since, there was no new tangible material available with the Assessing Officer while resorting to section 147/148 of the Act, more specifically, while framing original assessment u/s 143(3) of the Act, there was full disclosure of material facts by the assessee and on the basis of those facts, assessment was completed u/s 143(3) of the Act. Even otherwise, it is noted by the ld. Assessing Officer issued statutory notices u/s 143(2) and 142(1) to which the assessee furnished the necessary details as is evident from page-1 of the assessment order itself, therefore, in our humble opinion, the reassessment is unjustified as the reopening was done by the Assessing Officer beyond the prescribed period of four years, therefore, on this legal issue, the appeal of the assessee deserves to be allowed. Our view find support from Hon’ble jurisdictional High Court in Mistry Lalji Narsi Development Corporation vs ACIT (2010) 323 ITR 194 (Bom.), Anil Radha Krishnawani vs ITO (2010) 323 ITR 564 (Bom.), Sadbhav Engineering Ltd. vs DCIT (2011) 333 ITR 483 (Guj.), Aayojan Developers vs ITO 335 ITR 234 (Guj.), CIT vs PI & IC Corporation of UP Ltd. (2011) 332 ITR 324 (All.), SLP dismissed by Hon’ble Apex Court, Kimplas Trenton Fittings Ltd. vs ACIT (2012) 340 ITR 299 (Bom.). The whole case in the present appeal pertains to disallowance u/s 40(A)(ia) of the Act, which pertains to alleged non-payment of tax deducted at source within the time prescribed limit. The totality of facts and the judicial pronouncements, clearly says that the tax so deducted can be deposited in the state exchequer within the time prescribed under the Act before filing of return, which has been done by the assessee. The Hon’ble Andhra Pradesh and Telangana High Court in a latest decision dated 13/02/2017 in the case of Rajendra Gaud Chepur vs Income Tax Officer, Nijamabad (Writ Petition Nos.36483, 37209, 37213, 37270, 37469, 37478, 37479, 37524 and 37555 of 2016) held as under:-
“The petitioners in all these writ petitions are engaged in the business of retail vending of Indian-made foreign liquors purchased by them from the Andhra Pradesh State Beverages Corporation. The petitioners are aggrieved by the reopening of assessment sought to be made by the Assessing Officers under Section 147 of the Income Tax Act, 1961.
2. Heard Mr. K.Vasantkumar, learned counsel for the petitioners and Mr. B.Narasimha Sarma, learned Standing Counsel appearing for the respondents.
3. The petitioners in these writ petitions were issued with notices under Section 148 of the Act on various dates. In the notices which were in the printed form, it was stated that the Assessing Officers had reason to believe that there was income chargeable to tax relating to the relevant assessment years which had escaped assessment within the meaning of Section 147 of the Act and that therefore the petitioners should file a return in the prescribed form.
4. In response to the said notices, the petitioners sent individual replies indicating that they had already filed their returns of income electronically admitting income to a particular extent. In the replies, the petitioners also sought the reason for issuance of the notice.
5. Thereafter, the Assessing Officers sent a rejoinder indicating the reasons for reopening. Except the figures indicated therein, the reasons stated in all the notices were identical and hence the reasons stated in respect of one case alone is extracted as follows as a model:
“It is observed that your gross receipt was Rs.2,28,48,838/- for the AY 2013-14 and you have admitted total income amounting to Rs.4,16,840/- which is 2.10% of your total receipt, and the income admitted is also very less compared to others who are in the same line of business.”
6. The petitioners filed objections to the reasons indicated by the Assessing Officers contending that the cases would not fall under Section 147(1), as everything turned upon presumptions and surmises without any factual basis. The objections were rejected by the Assessing Officers by the orders impugned in these writ petitions forcing the petitioners to come up with the above writ petitions.
7. The orders rejecting the objections, are also identically worded and hence the relevant portion of one of those orders is extracted for easy appreciation as follows:
“3(ii) It may be specifically mentioned here that there is nothing in Section 147 of the I T Act, 1961 to suggest that an AO cannot reopen an assessment where he had failed to investigate and find out fact of the case truth at initial stage. Reliance is placed on the decision of Hon’ble High Court in the case of Ramprasad vs. AO (1995) 82 Taxman 199 (Allahabad). The Hon’ble Supreme Court in the case of ACIT Vs Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 has clearly held that intimation u/s 143(1) is not ‘assessment’, so there is no question of treating the re-assessment in such cases as based on change of opinion. Here in the instant case of assessee, the case is covered by the main provision and not by 1st proviso to section 147. The assessee has ignored the substantial changes made to 143(1) w.e.f. 01.06.1999. Further Hon’ble Supreme Court has held in the cited case that w.e.f. 1.6.1999, the acknowledgement of return is deemed to be an intimation except as provided in 1st proviso. Therefore, there being no “assessment” u/s 143(1), in this case for A.Y. 2012-13, the question of change of opinion as contended by assessee does not arise. (iii) In the above context, attention is also drawn to the provisions of section 147 in general, and explanation- 2(b) as under: Explanation 2 “For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax escaped assessment, namely (a)——- (b) where a ROI has been furnished by the assessee but no assessment has been made and it is noticed by the AO that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the FOI.
5. The notice was issued after obtaining approval from the competent Authority. The Joint Commissioner of Income Tax, Nizamabad Range has given approval vide F.No.51/JCIT/ NZB/u/s 148/2015-16 dated 12.02.2016.
6. In view of the above the objections of the assessee fail and there is no reason for dropping the case. Hence, the proceedings shall continue.”
8. Though the learned counsel for the petitioners as well as the learned Standing Counsel for the respondents raised several contentions, we are of the considered view that one contention of the petitioners is sufficient for the disposal of all these writ petitions. Admittedly, the notices under Section 148 was issued on the sole ground that the total income admitted by each of these petitioners, constituted a very small percentage of their gross receipts for the relevant assessment year and that therefore there was income that escaped assessment. The Assessing Officers had drawn presumably a comparison to others in the same line of business, as indicated in the reason for reopening.
9. But the reasons for reopening owefully fall short of the reasons that could form the basis for reopening of assessments. There is no indication in the reasons as to who are the assessees with whom any comparison was made. If the Assessing Officers had compared the gross receipts of yet another assessee in the same line of business and pointed out as to how the income returned by such assessee was at a consistently higher rate of the total receipts, the petitioners could have been in a position to point out how the admitted total income in their cases fell for short. Without making an actual comparison with named assessees in the same line of business, the Assessing Officers cannot leave it to presumptions and surmises.
10. The learned Standing Counsel for the respondents/ Department took us through various decisions of the Tribunal where the similar reopening of assessments made on the same line of reasons were upheld, wherever books of accounts were not maintained, estimating the income to be 5% of the gross receipts. But it appears that in those cases, the very rationale for reopening of assessment and the very jurisdiction of the Assessing Officer to reopen assessments on the basis of such flimsy reasons, was not considered. Therefore, we cannot make a comparison of the cases on hand with cases of persons who reconciled themselves to the estimation of income at 5% of either the gross receipts or the stock available on trade.
11. Under Section 147(1), the Assessing Officer is entitled to reopen assessment, if he has reason to believe that any income chargeable to tax has escaped assessment for the assessment year. Two conditions ought to be satisfied for the invocation of the power under Section 147. They are:
(1) the existence of a reason to believe and (2) the escapement of any income chargeable to tax from assessment. The reason to believe on the part of the Assessing Officer, should arise out of concrete facts which could at least form the foundation for reopening. Without any concrete facts, reopening cannot be ordered merely on the presumption that the returned income is very shockingly lower than the total gross receipts. Therefore, we are of the considered view that the Assessing Officers completely erred in reopening assessments on the basis of either a suspicion that there is suppression of income or on the basis that persons in the same line of business are returning a higher income. Without even mentioning the comparables, no initiation of proceedings under Section 147 can be made.
12. In the order rejecting the objections, the Assessing Officer has relied upon Clause (b) under Explanation 2 to Section 147. Clause (b) under Explanation 2 to Section 147 deals with cases where a return of income has been furnished by the assessee but no assessment has been made and the Assessing Officer notices that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return. Admittedly, the cases of none of these petitioners fall under the category of claiming excessive loss or deduction or allowance or relief in the return. The cases of the assessees are attempted by the Assessing Officers to be brought within the category of “understatement of income”, so as to invoke Clause (b) under Explanation 2.
13. But to come to the conclusion that there was understatement of income, it is not sufficient for the Assessing Officers to just arrive at the percentage of gross receipts that were declared as income, without even referring to other assessees whose admitted income was at a better percentage of the gross receipts than the petitioners. Therefore, the invocation of the jurisdiction under Section 147 on the basis of suspicions and presumptions cannot be sustained. Therefore, the writ petitions are allowed. The miscellaneous petitions, if any, pending in these writ petitions shall stand closed. No costs.”
In the aforesaid order, the Hon’ble High Court has observed/held that though Explanation 2 of s. 147 authorizes the Assessing Officer to reopen an assessment wherever there is an “understatement of income”, the AO is not entitled to assume that there is “understatement of income” merely because the assessee’s income is “shockingly low” and others in the same line of business are returning a higher income. The invocation of the jurisdiction u/s 147 on the basis of suspicions and presumptions cannot be sustained. In the present appeal also, the Ld. Assessing Officer first tried to took the shelter of section 154 of the Act, which travelled up to the Tribunal and ultimately, the Ld. Commissioner of Income Tax (Appeal) as well as this Tribunal decided in favour of the assessee. Thereafter, before one day of completion of six years, the assessee took another route to reopen the assessment u/s 147 and issued the notice u/s 148 of the Act, as mentioned earlier, before the extended dead line of six years. However, since, the material facts were fully and truly disclosed by the assessee and the tax deducted at source was deposited in the state exchequer before the date of filing of return, we are of the view that the Ld. Assessing Officer was not justified to reopen the assessment beyond a period of four years for making fishing and rowing enquiries. Thus, considering the totality of facts and the ratio laid down in the aforementioned judicial decisions, we are of the view that no action can be initiated under section 147 after the expiry of 4 years from the end of the relevant assessment year unless the income chargeable to tax has escaped assessment by reason for the failure on the part of the taxpayer to disclose fully and truly all material facts necessary for his assessment. Recently, the Hon’ble Bombay High Court in the case of Bayer Material Science Pvt. Ltd. v. DCIT(2016) 382 ITR 333 (Bom.)(HC) held that non-disposal of objections and providing the assessee with the recorded reasons towards the end of the limitation period and passing a reassessment order without dealing with the objections results in gross harassment to the assessee which the Pr. CIT should note and take remedial action. In the present appeal also, the Assessing Officer issued notice u/s 148 of the Act, one day before, expiry of extended period of six years. Thus, considering the ratio laid down in the aforementioned judicial pronouncement and the material facts, we allow the appeal of the assessee by holding that reopening of assessment was not valid, beyond four years, when the material facts were duly disclosed by the assessee and the tax deducted at source was deposited in the state exchequer before due date of filing of return.
