TMI Blog2013 (1) TMI 177X X X X Extracts X X X X X X X X Extracts X X X X ..... sdiction. As decided in CIT vs. Kelvinator of India Ltd.[2010 (1) TMI 11 - SUPREME COURT OF INDIA] AO has no power to review, he has the power to reassess. But reassessment has to be based on fulfilment of certain preconditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer.The reasons to believe must have a material bearing on the question on escapement of income. It does not mean a purely subjective satisfaction of the assessing authority; the reason be held in good faith and cannot merely be a pretence. The reasons disclose that the AO reached the belief that there was escapement of income “on going through the return of income” filed by the assessee after he accepted the return under Section 143(1) without scrutiny, and nothing more. This is nothing but a review of the earlier proceedings and an abuse of power by the AO both strongly deprecated by the Supreme Court in CIT vs. Kelvinator (supra). The reasons recorded by the AO in the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation (baa) to section 80HHC. Not doing so resulted in excessive allowance of the deduction under Section 80HHC and consequently in escapement of income chargeable to tax. 4. In response to the notice under Section 148 the assessee filed a return on 22nd August, 2005 declaring total income at the same figure as in the original return of income; it also questioned the jurisdiction of the Assessing Officer to reopen the assessment and proceed with the reassessment proceedings. In the course of the reassessment proceedings the Assessing Officer dealt with the assessee‟s objection to the issue of notice under Section 148. He held that the assessee‟s case was covered by clause(c) of Explanation 2 below Section 147, which provides that claiming excessive deduction would amount to a case of income escaping assessment. He thus rejected the assessee‟s objection. On merits he held that the assessee was not entitled to any deduction under Section 80HHC in respect of the premium on sale of quota. He also held that the assessee was not entitled to the DEPB of Rs.2,55,74,491/-. The claim under Section 80HHC was thus revised downward to Rs.6,83,94,510/- as against Rs.8,74,20, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal for the assessment years 1999-2000 and 2003-04 vide order dated 21st November, 2008 and that there was no fresh material which came to the notice of the Assessing Officer after the original return was processed under Section 143(1) and having regard to the orders of the Tribunal(supra) and the instruction of the CBDT dated 23rd February, 1998 regarding the treatment to be given to the premium received on transfer of quotas, there was no escapement of income and thus the notice was without jurisdiction. Reference was made to the judgment of the Supreme Court in the case of CIT vs. Kelvinator of India Ltd.(2010) 320 ITR 561. Several other authorities were adverted to by the Tribunal and eventually it was observed as under:- For the above discussion, we hold that since there was no tangible material available with the AO to form the requisite belief of escapement of income, the reopening of the completed assessment is unsustainable in the eye of law. The same is, therefore, cancelled. In the above view of the matter, the Tribunal did not examine the merits of the disallowances/additions made in the reassessment order. 7. The Revenue is in appeal before us. The following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied : firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 143(1) can be disturbed on any ground which appeals to the Assessing Officer. The consequence of countenancing such an argument could be grave. The expression reason to believe has come to attain a certain signification and content, nourished over a long period of years by judicial refinement painstakingly embarked upon by great judges in the past. The expression has been judicially interpreted in a particular manner. When Section 147 was recast with effect from 1st April, 1989, the legislature sought to replace the expression reason to believe with the expression for reasons to be recorded by him in writing . But there were representations against the proposal and bowing to them the original expression was restored. This aspect of the matter has been brought out by the Supreme Court in Commissioner of Income Tax vs. Kelvinator of Income-tax Anr.(supra) in the following words:- 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 reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rumour. This was in the context of the pre-1948 law relating to reassessment under which the Assessing Officer was empowered to reopen the assessment on the basis of definite information . Though this judgment is based on the phraseology of Section 34 of the 1922 Act as it existed before 1948 which did not contain the expression reason to believe , that principle was adopted by the Supreme Court while dealing with Section 34 of the Act after the amendment made in 1948. In that year the words definite information were replaced by the words reason to believe . While expatiating on the new words, a three-Judge Bench of the Supreme Court speaking through V. Ramaswami, J., in CIT vs S. Narayanappa (1965) 63 ITR 219 opined as under:- Again the expression "reason to believe" in section 34 of the Income-tax Act does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The belief must be held in good faith: it cannot be merely a pretence. To put it different, it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irreleva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer and the formation is belief regarding escapement of income. (f) The fact that the words definite information which were there in section 34 of the Act of 1922 before 1948, are not there in section 147 of the 1961 Act would not lead to the conclusion that action can now be taken for reopening an assessment even if the information is wholly vague, indefinite, far-fetched or remote. 12. In Commissioner of Income Tax vs. Kelvinator of Income-tax Anr. (supra) the Supreme Court observed as under:- 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 reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has the power to reassess. But reassessment has to be based on fulfilment of certain preconditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn under Section 143(1) and thereafter issue notices to reopen the assessment. An interpretation which makes a distinction between the meaning and content of the expression reason to believe in cases where assessments were framed earlier under Section 143(3) and cases where mere intimations were issued earlier under Section 143(1) may well lead to such an unintended mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be eschewed. 14. Certain observations made in the decision of Rajesh Jhaveri (supra) are sought to be relied upon by the revenue to point out the difference between an assessment and an intimation . The context in which those observations were made has to be kept in mind. They were made to point out that where an intimation is issued under section 143(1) there is no opportunity to the assessing authority to form an opinion and therefore when its finality is sought to be disturbed by issuing a notice under section 148, the proceedings cannot be challenged on the ground of change of opinion . It was not opined by the Supreme Court that the strict requirements of section 147 can be compromised. On the co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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