2006 (10) TMI 138 - HC - Income Tax

Notice for re-opening assessment reason given to issue notice was that that during the course of assessment proceedings for the A.Y. 2002-03 it came to light that claim of the assessee for deduction u/s 80P(2)(a)(i) was erroneous as the assessee was not registered under the Banking Regulation Act 1949 & was not a member of clearing house & was providing facilities to non-members notice is not based merely on change of opinion but also on the subsequent judgment of the SC notice is valid

Summary

Issues:
Quashing of notice under section 148 of the Income Tax Act, 1961 and further proceedings notice validity; Interpretation of "reason to believe" for re-assessment under sections 147/148; Judicial analysis of the power to reopen assessment pre and post-amendment of Section 147 of the Act.

Analysis:
The petitioner, engaged in banking, sought quashing of a notice for re-opening assessment under section 148 of the Income Tax Act, claiming exemption under section 80P(2)(a)(i) of the Act. The notice was issued based on discrepancies found by the assessing officer, including wrongly allowed deductions. The petitioner argued that re-assessment should not be done solely on a change of opinion, citing precedents like Foramer France and Kelvinator of India Limited judgments. The respondents justified the re-opening citing guidelines for compulsory scrutiny of Public Sector Undertakings and Banks. The Court examined the concept of "reason to believe" pre and post-amendment of Section 147, emphasizing the need for specific, reliable, and relevant information for re-assessment.

The Court delved into judicial interpretations of the term "reason to believe," highlighting the requirement for the assessing officer to have a rational basis for re-assessment. Pre-March 31, 1989, the satisfaction of income escapement was crucial, while post-April 1, 1989, the power to reopen assessments widened. The Court referenced various judgments, including Calcutta Discount Co. and Ganga Saran and Sons, to emphasize the importance of a valid reason for re-assessment. It was noted that mere change of opinion was insufficient for invoking Section 147 of the Act, as established in precedents like Bawa Abhai Singh and Swaraj Engine Limited cases.

In the present case, the Court found that the notice for reassessment was not solely based on a change of opinion but also on a subsequent Supreme Court judgment. The Court concluded that there was sufficient material justifying the invocation of jurisdiction under section 147 of the Act, leading to the dismissal of the writ petition challenging the notice for re-opening assessment. The judgment provided a comprehensive analysis of the legal principles surrounding the power to reopen assessments, emphasizing the need for valid reasons and specific information for initiating re-assessment proceedings under the Income Tax Act.