Income Tax Act, 1961 – s.147 – Scope of – Held: s.147 empowers the Assessing authority to re-assess any income on the ground which was not brought on record during the original proceedings and escaped his knowledge; and the said fact would have material bearing on the outcome of the relevant assessment order – In the instant case, assessee declared its income from two sources, namely software development and human resource development but claimed expenses commonly for both – Notice was issued to show cause as to why the expenses claimed with regard to the allocation of common expenses between the two heads did not reveal any basis of such allocation – The notice which was issued in the original assessment proceedings under s.143 show that the point on which the re-assessment proceedings were initiated, was well considered in the original proceedings – In fact, the very basis of issuing the show cause notice was that the assessee was not maintaining any separate books of account for the said two categories and the details filed did not reveal proportional allocation of common expenses be made to these categories – Even the said show cause notice suggested how proportional allocation should be done – All these things led to an unavoidable conclusion that the question as to how and to what extent deduction should be allowed under s.10A was well considered in the original assessment proceedings itself – Hence, initiation of the re-assessment proceedings under s.147 by issuing a notice under s.148 merely because of the fact that now the Assessing Officer is of the view that the deduction under s.10A was allowed in excess, was based on nothing but a change of opinion on the same facts and circumstances which were already in his knowledge even during the original assessment proceedings – High Court was right in setting aside the show cause notice as well as the re-assessment order. Income Tax Act, 1961 – s.147 – Reassessment proceedings – Held: The use of the words ‘reason to believe’ in s.147 has to be interpreted schematically as the liberal interpretation of the word would have the consequence of conferring arbitrary powers on the assessing officer who may even initiate such re-assessment proceedings merely on his change of opinion on the basis of same facts and circumstances which has already been considered by him during the original assessment proceedings.
Words and Phrases – ‘change of opinion’ – Meaning of – Held: The word change of opinion implies formulation of opinion and then a change thereof – In terms of assessment proceedings, it means formulation of belief by an assessing officer resulting from what he thinks on a particular question – It is a result of understanding, experience and reflection.
Dismissing the appeal, the Court
HELD: 1. The language of Section 147 makes it clear that the assessing officer certainly has the power to re-assess any income which escaped assessment for any assessment year subject to the provisions of Sections 148 to 153. However, the use of this power is conditional upon the fact that the assessing officer has some reason to believe that the income has escaped assessment. The said provision was incorporated in the scheme of the IT Act so as to empower the Assessing Authorities to reassess any income on the ground which was not brought on record during the original proceedings and escaped his knowledge; and the said fact would have material bearing on the outcome of the relevant assessment order. Section 147 of the IT Act does not allow the re-assessment of an income merely because of the fact that the assessing officer has a change of opinion with regard to the interpretation of law differently on the facts that were well within his knowledge even at the time of assessment. Doing so would have the effect of giving the assessing officer the power of review and Section 147 confers the power to re-assess and not the power to review. [Paras 8, 9][334-F-H; 335-A-C]
2. Before interfering with the proposed re-opening of the assessment on the ground that the same is based only on a change in opinion, the court ought to verify whether the assessment earlier made has either expressly or by necessary implication expressed an opinion on a matter which is the basis of the alleged escapement of income that was taxable. If the assessment order is non-speaking, cryptic or perfunctory in nature, it may be difficult to attribute to the assessing officer any opinion on the questions that are raised in the proposed re-assessment proceedings. Every attempt to bring to tax, income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed change of opinion even in cases where the order of assessment does not address itself to a given aspect sought to be examined in the reassessment proceedings. [Para 12][336-B-D]
3. The fact in controversy in this case is with regard to the deduction under Section 10A of the IT Act which was allegedly allowed in excess. The show cause notice reflects the ground for re-assessment in the instant case, that is, the deduction allowed in excess under Section 10A and, therefore, the income has escaped assessment to the tune of Rs. 57,36,811. In the impugned order, the reason purportedly given for rejecting the objections was that the assessee was not maintaining any separate books of accounts for the two categories, i.e., software development and human resource development, on which it has declared income separately. However, a bare perusal of notice which was issued in the original assessment proceedings under Section 143 makes it clear that the point on which the re-assessment proceedings were initiated, was well considered in the original proceedings. [Para 13][336-E-G]
Commissioner of Income Tax, Delhi v. Kelvinator of India Ltd. (2010) 320 ITR 561(SC) – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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