Reassessment on the basis of change of opinion is forbidden by law

Brief about the case

The Assessing Officer had issued notice u/s 148 of IT act to reopen the assessment giving reasons to believe that assessee’s claim for set off of brought forward unabsorbed depreciation against long term capital gain was not allowable as it was being set off after a lapse of 8 years.

According to the assessee, it had disclosed all material facts fully and truly, in the course of assessment proceedings including all long term capital gains, trial run expenses and bad debts during the course of original assessment proceedings. The assessee further asserted that the Assessing Officer had applied his mind and passed the assessment order on 7.12.2011 being fully satisfied after scrutinizing the particulars. The notice under section 148 seeks to reconsider the same issue and results in change of opinion on the same set of facts and is therefore impermissible by law.

Facts of the case:

• The assessee was assessed for the relevant year and the Assessing Officer had passed order u/s 143(3) as on 07.12.2011.
• The Assessing Officer issued notice u/s 148(1) dated 18.11.2013 calling for reassessment providing the reason to be the disallowance of set off of the brought forward unabsorbed depreciation pertaining to 8 years ago due to non-disclosure of facts by assessee.
• According the Assessing Officer, relying upon the decision of Mumbai High court in the case of Export Credit Guarantee Corporation of India Ltd. Vs. Additional Commissioner of Income Tax and Others that within a period of four years if the Assessing Officer found reason to believe that the income has escaped assessment, it is within his powers to reopen the assessment. He further submitted that in the light of Explanation 2 to section 147, it is a valid ground to recompute the excessive allowance of unabsorbed depreciation.
• The assessee further contended that there was complete disclosure on the part of the assessee of material facts during the course of the assessment and there is an absence of fresh or tangible material on the basis of which the assessment can be reopened.
• On writ appeal, it was held by the Mumbai High Court that the issue of notice u/s 148 for reassessment was not justifiable and to revisit the set off based on a different opinion is clearly impermissible by law.

Contention of the Revenue

• The Revenue averred that the impugned notice does not arise as a result of change of opinion.
• It further submitted that within a period of four years, it was permissible to reassess the earlier orders.
• That the assessee had claimed incorrect set off of unabsorbed depreciation of of Rs.2, 70, 12,040/-, thereby leading to a short levy of tax of Rs.61, 20,928/-.
• According to the Assessing Officer, the claim of unabsorbed depreciation of Rs.1, 74, 88,918/- in computation of book profit was not in order and the assessee had not made full and true disclosure of income and its particulars in the return or during assessment proceedings.

Contention of the Assessee

• The Assessee contended that the Assessing Officer had scrutinized all documents with regard to the Long term Capital gains, trial run expenses and bad debts written off in the initial assessment itself and so the reconsideration of the same amounts to change of opinion on the same set of facts and is hence not justifiable.
• The order under section 143(3) had been passed by the Assessing Officer only after due application of mind and there was no new or tangible material which would justify issuance of the impugned notice.
• The Hon’ble Supreme Court had in the case of Kelvinator of India Ltd. the Court held that one needs to give an elucidation to the words “reason to believe” failing which section 147 may give arbitrary powers to the Assessing Officer to reopen assessments on the basis of “mere change of opinion”. The Assessing Officer must specify the reason which made him believe that income has escaped assessment.
  

Held by High Court

• The power to reopen is much wider, but the words ‘reason to believe’ must receive an interpretation which is in consonance with the scheme of the law. There cannot be arbitrary powers to the Assessing Officer to reopen assessment on the basis of mere change of opinion.
• The decision to reopen assessment is not based on proper reasons but is a result of change of opinion as there is no tangible material/reason for the assessing officer to reopen the assessment proceedings in the facts of the present case.
• If the assessee has not made full and true disclosure of income and its particulars in the return or during the assessment proceedings, then, one fails to understand how these figures have been derived by the Assessing officer.
• Review of assessment under the guise of reopening is not permissible in law.