Application of mind & availability of material must for Reasons To Believe under section 147 of The Income Tax Act, 1961 Wef 01.04.1989. Article compares Section 34 of Income Tax Act, 1922 with Section 147 of Income Tax Act, 1961 and also compare Section 147 of Income Tax Act, 1961 with Amendment made vide Amendment Act, 1987 and subsequently-
| Section 34 Of The Income Tax Act 1922
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Prior To Amendment Act 1987 | After Amendment Act 1987 But Prior To 1.4.1989 | After The Amending Act, 1989 Wef 01.04.1989 |
| 34. Income escaping assessment – | 147. Income escaping Assessment | 147. Income escaping Assessment | 147. Income escaping Assessment |
| (1) If
(a) The income-tax officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return on his income under Section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income tax have escaped assessment for that year, or have been under-assessed or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or (b) Notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the income- tax officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under- assessed, or assessed at too low rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may in cases falling under Clause (a) at any time within eight years and in cases falling under Clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of 22 and may proceed to assess or reassess such income profits or gains or recomputed the loss depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice issued under that sub-section: Provided that- (i) the income-tax officer shall not issue a notice under this sub- section, unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons recorded that it is a fit case for the issue of such notice; (ii) the tax shall be chargeable at the rate at which it would have been charged had the income, profits and gains not escaped assessment or full assessment, as the case may be; and (iii) where the assessment made or to be made is an assessment made or to be made on a person deemed to be a agent of a non-resident person under Section 43, this sub- section shall have effect as if for the periods of eight years and four years a period of one year was substituted. Explanation:- Production before the income- tax officer of account books or other evidence from which material facts could with due diligence have been discovered by the income-tax officer will not necessarily amount to disclosure within the meaning of this section.” |
(1) If
[a] the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or [b] notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income- tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year).
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Income escaping assessment.– If the Assessing Officer, for reasons to be recorded by him in writing, is of the opinion that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year). | If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year).” |
On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words “reason to believe” failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of “mere change of opinion”, which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to re-assess. But reassessment has to be based on fulfillment of certain pre-condition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words “reason to believe” but also inserted the word “opinion” in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words “reason to believe”, Parliament re-introduced the said expression and deleted the word “opinion” on the ground that it would vest arbitrary powers in the Assessing Officer. We quote here in below the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows: 2 http://www.itatonline.org “7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression `reason to believe’ in Section 147. –A number of representations were received against the omission of the words `reason to believe’ from Section 147 and their substitution by the `opinion’ of the Assessing Officer. It was pointed out that the meaning of the expression, `reason to believe’ had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression `has reason to believe’ in place of the words `for reasons to be recorded by him in writing, is of the opinion’. Other provisions of the new section 147, however, remain the same.”
On the basis of changes in section 147 of the act wef 01.04.1989, the hon’ble delhi high court delivered its judgement in favour of the assesse and later on the Hon’ble supreme court confirmed the judgement of the Hon’ble Delhi High court. Wef 01.04.1989, reasons to believe is the prime factor for reopening u/s 147. The following are the judgements.
Also Read-
CIT, Delhi Vs. M/s. Kelvinator of India Limited (Supreme Court of India)
Commissioner Of Income-Tax Vs Kelvinator Of India Ltd. (Delhi High Court)
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