Section 147 of the Income Tax Act, 1961 provides the authority to reassess an Assessee’s previously filled Income Tax returns to the Income Tax Department. If the Assessing Officer (AO) is dissatisfied with the self assessment of tax by the Assessee and is convinced that the income has not been duly assessed, the notice for reassessment can be issued under Section 148. Thereafter, the Assessee is given a chance to reply to the show cause notice and offer any justifications or supporting documentation to refute AO’s assertion that income has eluded assessment.
The AO shall only continue with reassessment pursuant to section 148 of the Act if he has a “reason to believe” that income subject to tax has escaped assessment for a specific Assessment Year (AY). The threshold of “reason to believe” has been replaced under the new reassessment regime, introduced vide the Finance Act, 2021 with “information” that indicates the income has escaped assessment. Such information available to the Assessing Officer must clearly showcase that the Assessee’s taxable income has escaped assessment. The question at hand pertains to the applicability of the concept that prohibits reevaluating material solely for the purpose of reassessing it due to a “mere change in opinion”.
In the past, the regulations pertaining to re-opening and re-assessment have been the focus of litigation in various forums. The precedents scrutinizing the issue at hand dominantly affirm that a “change in opinion” of the AO is not a valid ground to serve a reassessment notice under section 148 of the Income Tax Act, 1961. In a recent development, a division bench of the Gujarat High Court has explicated “change of opinion” as “forming any opinion based on same facts and circumstances which were then available with the Assessing Officer at the time of scrutiny” and adjudged the same to be non-permissible.[1] A change of opinion is nothing more than a reconsideration of previously assessed material, which is prohibited by the reassessment powers. The Apex Court in the case of CIT v. Kelvinator of India Ltd.[2] established that there is a limit to the authority of reassessment under Section 148 of the Income Tax Act, 1961. The AO must have a reasonable suspicion that income has escaped assessment, and the court stressed that this suspicion must be based on concrete evidence. The court further proclaimed that a “mere change of opinion” of the AO is not adequate to reopen an assessment.
In Vodafone Idea Ltd v Assistant Commissioner of Income Tax[3], the Division Bench of the Bombay High Court reiterated that reopening the assessment due to a mere change of opinion would not be permitted in cases where the Assessing Officer, after reviewing the material on record, has come to a definitive conclusion. Furthermore, the ‘information’ required to reopen the assessment has been exhaustively defined in Explanation 1 to Section 148 of the Income Tax Act, 1961. It can be inferred from this provision that the legislature never intended to authorize reassessment due to a shift in the opinion of the AO.
CONCLUSION
From the aforementioned precedents and the statutory provisions under consideration, according to Section 147 of the Income Tax Act, 1961, it is clear that the income of the assessee cannot be reassessed simply because the assessing officer has changed his opinion about how the legislation should be interpreted based on information that he was completely conscious of at the time of assessment. By doing this, the assessing officer would effectively be granted the authority to review, even though Section 147 only grants the authority to reassess.
[1] Hareshkumar Bhupatbhai Panchani v. Income Tax Officer; R/SPECIAL CIVIL APPLICATION NO. 5851 of 2022
[2] Commissioner of Income Tax, Delhi v. M/S Kelvinator of India Ltd. [2010] 1 SCR 768
[3] Vodafone Idea Ltd v Assistant Commissioner of Income Tax AIR 2020 SC 2422
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