TMI Blog2011 (4) TMI 967X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (2010 -TMI - 35201 - SUPREME COURT OF INDIA) , wherein it has been held that one needs to give a schematic interpretation to the words "reason to believe" failing which, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen; the reopening of assessment is bad in law, petition succeeds and is accordingly allowed, notice issued by the respondent under section 148 of the Act is hereby quashed and set aside - 14455 of 2010 - - - Dated:- 15-4-2011 - Ms. Harsha Devani and H.B. Antani, JJ. J.P. Shah and Manish J. Shah for the Appellant. K.M. Parikh for the Respondent. JUDGMENT Harsha Devani, J By this petition under Article 226 of the Constitution of India, the petitioner has challenged the notice dated 5th February, 2010 issued by the respondent under section 148 of the Income Tax Act, 1961 (the Act) reopening the petitioner's assessment for assessment year 2005-06. 2. The petitioner, a partnership firm, submitted a return of income for assessment year 2005-06 on 29th October, 2005. The return was accompanied by the computation of income and au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok profit, computed the remuneration to partners of Rs. 5.50,000/-. Inviting attention to the reasons recorded, it was submitted that it is not the case of the respondent that on the book profit remuneration to partners of Rs. 5,50,000/- is wrongly claimed but, according to the respondent, the interest of Rs. 2,43,927/- which is earned out of business receipt is not business income. It was submitted that while framing the original assessment, the petitioner claimed this interest of Rs. 2,43,927/- to be business income which came to be accepted by the then Assessing Officer. Now, the present Assessing Officer, on a mere change of opinion, seeks to reopen the assessment on the ground that the said interest is taxable under other sources, hence, to that extent, the business income is less and, therefore, to that extent remuneration payable to the partners is to be reduced. Inviting attention to the assessment order made under section 143(3) of the Act, it was pointed out that the Assessing Officer had computed the business income of Rs. 22,59,221/- in place of book profit of Rs. 11 to 12 lakhs and it is a case of the petitioner having claimed less rather than more, because on Rs. 22,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no mention of Rs. 2,43,927/- either in the return or in the computation by the Assessing Officer and neither the petitioner nor the Assessing Officer has dealt with the same separately. It was argued that interest income cannot be considered as business income. That the assessee had computed the book profit by adding FDR interest income though the same was not computable under the head of 'Income from business or profession'. That the assessee had clubbed income of two different sources together and the Assessing Officer while framing assessment under section 143(3) of the Act had not applied his mind to this aspect. It was, accordingly submitted that the reasons for reopening being germane, there is no warrant for any intervention by this Court. 6. In rejoinder, Mr. J.P. Shah, learned advocate for the petitioner drew the attention of the Court to the computation of income to point out that the same clearly indicates that the partners' salary has been worked out on the basis of net profit as per profit and loss account. Referring to the profit and loss account for the year ended on 31st March, 2005, it was pointed out that the same clearly indicates bank interest income of Rs. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it loss account file along with the return of income, it is seen that said account is credited by Gross profit Rs. 22,88,315/- Interest income Rs. 2,43,927/- Income tax refund Rs. 1,02,470/- Net profit worked out at Rs. 5,64,001/-. As per provisions of section 40(b) of the Act, the book profit is to be computed in respect of income chargeable under the head "Profit and Gains from business or profession". In view of this provision, the income received from interest is to be excluded for working out the book profit u/s.40(b) of the Act. 5. In view of the above provisions, income chargeable to tax amounting to Rs. 97,570/- has escaped assessment. Therefore, I have reason to believe that the income chargeable to tax to the extent of Rs. 97,570/- has escaped the assessment within the meaning of Sec. 147 of the Income-tax Act, 1961 for the assessment year 2005-06 and it is a fit case for issuance of notice u/s. 148 of the Act. Notice u/s. 148 is accordingly issued." A perusal of the reasons recorded shows that the main ground for reopening the assessment is that FDR bank interest of Rs. 2,43,927/- received by the firm and credited to the profit and loss account was requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t have applied his mind in taking into consideration the interest income while computing book profit under section 40(b) of the Act. Moreover, in the light of the decision of the Bombay High Court in the case of Paramount Premises (P.) Ltd. (supra), the view taken by the Assessing Officer is a plausible view. Once the view taken by the Assessing Officer is a plausible view, reopening of assessment on the ground that another view which is more beneficial to the revenue is possible, is nothing but a mere change of opinion. In the circumstances in the light of the decision of the Supreme Court in the case of Kelvinator of India Ltd. (supra) wherein it has been held that one needs to give a schematic interpretation to the words "reason to believe" failing which, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen; the reopening of assessment is bad in law. 10. For the foregoing reasons, the petition succeeds and is accordingly allowed. The impugned notice dated 5th February, 2010 issued by the respondent under section 148 of the Act (Exh. 'E' to the petition) is hereby ..... X X X X Extracts X X X X X X X X Extracts X X X X
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