1. Perface
The Finance Act, 2021 with effect from 01st April, 2021 completely overhauled, renovated and re-regulated the provisions pertaining to section 147 of the Income Tax Act, 1961. Over a considerable period of time, the provisions of section 147 were subject matter of massive debates, dialogues and discussions with many a times, courts taking totally divergent views in so far interpretation of the scheme of the reopening was concerned. However, the lawmakers rising to the anomalies, inconsistencies and deviation of the reassessment provisions as interpreted by various judicial forums kicked off structural changes with the push conceded by the Finance Act, 2021. Section 147, introduced with altogether new legislative linen, considered the impact of bringing to tax that income which is either perhaps re-flagged by the system being information driven or can be put to action on the final objection raised by the Comptroller and Auditor General of India to the effect that assessment finalized is not in accordance with the provisions of this act as per the meaning ascribed to the Explanation appended to section 148.
2. Section 147 substituted with effect from 01st April, 2021
Section 147 of the Income Tax Act, 1961 provides for provisions pertaining to income escaping assessment. The newly introduced provisions have since been pruned by incorporating the body of principal section besides introduction of only one explanation at this point of time as compared to erstwhile section 147 which was on the statute prior to 01st April, 2021. Section 147 as substituted by the Finance Act, 2021 provides that where any income chargeable to tax has escaped assessment, the assessing officer may, subject to the provisions of section 148 to 153, assess or reassess such income or re-compute the loss or the depreciation allowance or any other allowances or deduction for such assessment year. The Explanation appended to section 147 further provides that the assessing officer may assess, reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section without having any recourse to the provisions of section 148A of the Income Tax Act, 1961.
Any important question of law that since arises pertaining to the interpretation of the newly carved out and substituted section 147 is whether with effect from 01st April, 2021, assessing officer can still take advantage of his lapse, inadvertence, oversight or mistake in considering the material before him thereby leading him to the pivotal defence that re-opening is sustainable merely because no cognizance could have been taken of the issue while passing the assessment order. Undisputedly, the assessing officer will have to take recourse to the provisions of section 147 wherein the words `Reason to Believe’ no longer exist but however, whether he can still be deemed to be armed to cover up his lapse by taking protection of lapse, mistake or inadvertence committed in considering the material before him.
Hon’ble Karnataka High Court (Full Bench) in Dell India (P) Ltd vs. Joint Commissioner of Income Tax & Anr, (2021) 319 CTR (Kar)(FB) 1 / (2021) 278 Taxman 9 (Karnataka) has recently considered this aspect as to whether the assessing can still take advantage of the lapse committed in considering the material before him prior to stepping into 147/148 process. The attention of the Hon’ble Court was drawn to the decision of another division bench of the Karnataka High Court in CIT vs. Rinku Chakraborthy (2011) 242 CTR (Kar) 425 wherein relying upon the pronouncement of the Hon’ble Supreme Court of India in Kalyanji Mavji & Co vs. CIT (1976) 1 SCC 985, the apex court standing in interpretation of the provisions of the erstwhile reopening provisions in context of section 34, Sub-section (1), Clause (b) of the Income Tax Act, 1922 concluded that assessment can be reopened wherein the original assessment, the income liable to tax has escaped assessment due to oversight, inadvertence, mistake committed by the assessing officer in considering the material before him.
3. Impugned Issue in context of the proposition of existence of material before the AO while passing the original assessment order
It will be in the fitness of things to understand that with effect from 01st April, 2021, the words `Reasons to Believe’ are no longer apparent from the statutory provisions in view of the significant changes made to the machinery provisions at large. The assessing officer in exercise of his power under the statutory provisions cannot go the extent of saying that material was nevertheless before him but he failed to apply his mind to the facts of the case, therefore, the assessment finalized earlier needs to be revisited by stepping into the illogical and irrational defences of lapse, mistake, inadvertence or oversight. An assessing officer is a master of his own proceedings and in the event he fails to take cognizance of a fact emanating out of the material (thought fully and truly disclosed by the assessee) cannot be any stretch have recourse to the shield of oversight, inadvertence, mistake or omission in considering the material before him. The Hon’ble Supreme Court of India in its decision titled Kalyanji Mavji & Co vs. CIT (supra) inspected the scope of the reassessment procedure in rhyme with the law prevailing for the provision embedded in the Income Tax Act of 1922. The Hon’ble Supreme Court observed as below:-
1. where the information is as to the true and correct state of the law derived from relevant judicial decisions;
2. Where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the ITO.
3. Where the information is derived from an external source of any kind. Such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of the original assessment.
4. Where the information may be obtained even from the record of the original assessment from an investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law.
Subject to the conditions enlisted above, the assessing officer will have jurisdiction to reopen the original assessment. The Hon’ble Karnataka High Court in CIT vs. Rinku Chakraborthy (supra) held as below:-
`Though the word opinion is deleted and is now substituted by the words `Reason to Believe’, the concept of change of opinion is not obliterated w.e.f. 01st April, 1989 after substitution of section 147 by the Direct Tax Laws (Amendment) Act, 1987.However, where in original assessment the income liable to tax has escaped assessment due to oversight and inadvertence or a mistake committed by the ITO, the ITO has the jurisdiction to reopen the original assessment. It is not necessary that for such reopening of such assessment the information is to be derived from external source of any kind or disclosure of new and important matters subsequent to the original assessment. Even if the information is obtained from the record of the original assessment after a proper investigation from the materials on record or the facts disclosed thereby or from any enquiry or research into facts or law, reassessment if permissible. Income may escape assessment as a result of lack of vigilance by the ITO or due to perfunctory performance of his duties without due care and caution. Even in a case where a return has been submitted to the ITO who erroneously fails to tax a part of the assessable income, it is a case of the said part of the income as having escaped assessment and the AO has jurisdiction under section 147 to reopen the assessment and bring to tax the income that has escaped assessment. A taxpayer cannot be allowed to take advantage of any of those lapses, as ultimately, if such an advantage is alowed, it would be prejudicial to the interests of the Revenue and public interest.
The Hon’ble Karnataka High Court (FB) in Dell India (P) Limited (Supra) after consideration of the earlier decision in CIT vs. Rinku Chakraborthy (supra) categorically held erroneous the law laid down as inherently bad in law and cannot be taken recourse therein by the revenue. The Hon’ble Karnataka High Court in Del India (P) Ltd’s case (supra) observed that the decision of Rinku Chakraborthy’s Bench (supra) was based upon the decision of the Hon’ble Supreme Court of India in Kalyanji Mavji’s case (supra). The Hon’ble Supreme Court of India (larger bench verdict) in Indian & Eastern Newspaper Society vs. CIT (1979) 12 CTR SC 190 : (1979) 4 SCC 248 categorically unsettled what was settled by the division bench of the Hon’ble Supreme Court in Kalyanji Mavji’s case. In Indian & Eastern Newspaper Societies case (supra), one of the issue before the Hon’ble Surpeme Court was whether reassessment was justified on the basis of an error found by the assessing officer on the reconsideration of same material which was before him when the original assessment was finalized.
`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 of 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 & Co. v. Commissioner of Income Tax, 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 fal 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 Income Tax 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 not more) does not give him that power. That was the view taken by this Court in Maharaj Kamal Singh v. Commissioner of Income Tax (supra), Commissioner of Income Tax v. Raman and Company (supra) and Bankipur Club Ltd. v. Commissioner of Income Tax. and we do not believe that the law has since taken a different course. Any observations in Kalyanji Mavji & Co. v Commissioner of Income Tax (supra) suggesting the contrary do not, we say with respect, lay down the correct law. A further submission raised by the Revenue on section 147(b) of the Act may be considered.’
The Hon’ble Supreme Court of India in its pronouncement titled Indian & Eastern Newspaper Society vs. CIT (supra) settled that the observations of the Hon’ble Supreme Court of India in Kalyanji Mavji’s case (supra) do not lay down the correct law in terms of the very fact that merely because the assessing officer is in error in consequence of the escaped income, it is open for him to commence the reassessment procedure. Therefore the law laid down in Kalyanji Mavji’s case does not support the lawful analysis of the provision and does not lay down the correct law. The Hon’ble Karnataka High Court in Dell India (P) Ltd (supra) observed in Para No.19 of its order dated 27th January, 2021 as below:-
19. Therefore, in light of the law laid down in the case of Indian & Eastern Newspaper Society (supra), the first question will have to be answered in the negative by holding that the decision in the case of Rinku Chakraborthy does not lay down correct position of law to the extent to which it follows what is held in Cl.(2) of Para 13 of the decision of the apex court in the case of Kalyanji Mavji & Co. (Supra).
4. Postface
In view of the forgoing discussion, it is apparent that the Hon’ble Karnataka High Court in Dell India (P) Ltd (Supra) has taken a pragmatic, possible, rational, reasoned and logical view of the fact that any mistake, inadvertence, oversight or error discovered by the assessing officer on the reconsideration of the material before him does not entitle him to commence the reassessment procedure a fresh. An assessing officer is at will to take cognizance of the material before him and merely because he substantiates and tries to cover his lapse on account of inadvertence on his part to consider the material before him, the provisions cannot be resorted to. The assessing officer cannot take the shield and protection of being ignorant in his duty to consider the material before him in coming to the reasonable conclusion which can be acknowledged through the contents of his order passed and communicated to the assessee. The meaning of the expressions like inadvertence, mistake, omission, error, oversight cannot by any imagination be so stretched so as to include within its ambit the right to re-agitate and re-consider the material that was in existence at the time of framing of the original assessment and that in exercise of powers under section 147 ought to be considered so as to bring home the income chargeable to tax which has escaped assessment. So will be the position in the newly substituted section 147 of the Income Tax Act, 1961 primarily when there is full, true and complete disclosure of the facts warranting examination in view of the powers exercised by the Assessing officer. If such a course of action is not taken adherence thereto, it can lead to chaos in the very enforcement of the provisions of re-assessment with the element of power of review which was never the intent behind the incorporation of section 147 into the Income Tax Act, 1961.
Sameer Bhatia,
Advocate, Punjab & Haryana High Court,
158/2, Guru Teg Bahadur Nagar, Jalandhar.
Contact No: 90413-04900 / 98142-18476
Email: [email protected]
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