2010 (1) TMI 11 - SC - Income Tax

Re-assessment - 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 - in consequence of information in possession of AO, reason to believe that income chargeable to tax has escaped assessment - Tax Laws (Amendment) Act, 1987 - held that - 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 - The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment 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 - to reopen an assessment tangible material should be there.

Summary

Issues:
Determining the impact of the concept of "change of opinion" in income tax assessments post the amendment of Section 147 of the Income Tax Act in 1987.

Analysis:
The judgment in this case revolves around the question of whether the concept of "change of opinion" in income tax assessments was eliminated after the amendment of Section 147 of the Income Tax Act in 1987. The court examined the changes in Section 147 before and after the amendment to understand the evolution of the law. Prior to the amendment, re-opening assessments required specific conditions to be met. However, post the amendment, the jurisdiction to re-open assessments became broader, focusing solely on the Assessing Officer's belief that income had escaped assessment. The court emphasized the importance of interpreting the term "reason to believe" to prevent arbitrary exercise of power by Assessing Officers, distinguishing between the power to review and the power to re-assess. The judgment highlighted that the Assessing Officer cannot conduct a review but can only re-assess based on tangible material indicating income escapement. The court stressed that the concept of "change of opinion" acts as a safeguard against abuse of power, ensuring assessments are not re-opened solely due to a change in opinion. The court referred to legislative changes and circulars to support the significance of the "reason to believe" requirement. Ultimately, the court dismissed the civil appeals by the Department, affirming that Assessing Officers can re-open assessments post the amendment, provided there is tangible material supporting the belief of income escapement.