TMI Blog2014 (11) TMI 1095X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 21(2) of the Act could be granted on the subjective change of opinion, no proceeding under Section 21(1) of the Act can be initiated on the ground of change in opinion of the assessing Authority dehors any material on record which justifies such change requiring re-assessment. The requirement of "reason to believe" in Section 21(1) qualifies the phrase "change in opinion" as contained in Section 21(2). Subsequent change in law according to which the assessment proceedings were conducted, cannot constitute "change in opinion" of the assessing Authority so as to initiate re-assessment proceedings. In fact, the same is impermissible if the Act does not specify the operation of law as retrospective. Reliance placed in the decision of the case S.C. Prashar v. Vasantsen Dwarkadas [1962 (12) TMI 53 - SUPREME COURT] held that if after change in law, the period of time prescribed for action by the tax authorities has already expired, then subsequent change in the law does not make it so retrospective in its effect as to revive the power of the tax authority to take action under the new law. The material in existence remains the same during both, the assessment and the r ..... 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These appeals are directed against the common judgment and order passed by the High Court of Judicature at Allahabad, Bench at Lucknow in Civil Misc. Writ Petition No.2344 (MB) of 2008, dated 22.05.2008, whereby and whereunder, the High Court, while upholding the legality of the Circular No.137, dated 29-30.03.2007 issued by the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Circular ) and clarified the position of law under Section 15(c) of the Act,1956 to the effect that the said provision does not contemplate set-off of tax liability on paddy purchased within the State of Uttar Pradesh with the tax liability on the inter-State sale of rice. Further, that no deduction in respect of tax deposited by the assessee on the purchase of paddy within the State of Uttar Pradesh from tax liability on the sale of rice under the Act, 1956 manufactured from such paddy is permissible and directed that the aforesaid assessment orders be revived in consonance with the instructions under the Circular. 7. In light of the aforesaid, since the period of limitation for initiation of proceedings under Section 21(1) of the Act had lapsed, the assessing Authority forwarded a proposal for obtaining legal sanction of Additional Commissioner of Trade Tax to reopen the assessment under Section 21(2) of the Act in respect of the assessee. Consequently, the Additional Commissioner of Trade Tax issued a notice to the assessee to show cause as to why permission for re-assessment of their case should not be granted to the assessing Authority. 8. Being aggrieved by the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs so initiated by the assessing Authority. 14. The appellant-State, aggrieved by the aforesaid judgment and order of the High Court, is before us in this appeal. 15. We have heard learned counsel for the parties to the lis. 16. This appeal requires our consideration and decision on the limited question of whether the High Court was justified in quashing the re-assessment proceedings initiated under Section 21(2) of the Act on grounds that it was merely based on change of opinion and therefore, bad in law. 17. The relevant Section of the Act is reproduced hereunder for convenience of our discussion: 21. Assessment of tax on the turnover not assessed during the year.--(1 ) If the Assessing Authority has reason to believe that the whole or any part of the turnover of the dealer, for any assessment year or part thereof, has escaped assessment to tax or has been under assessed or has been assessed to tax at a rate lower than that at which it is assessable under this Act, or any deductions or exemptions have been wrongly allowed in respect thereof, the Assessing Authority may, after issuing notice to the dealer and making such inquiry as it may consider ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such order of assessment or re-assessment under the Act. The proviso to this section empowers the Commissioner on his own or on the basis of the reasons recorded by the assessing Authority to re-open an assessment notwithstanding that such assessment or re-assessment may involve a change of opinion. 20. Under Section 21(1) of the Act, the re-assessment proceedings can only be initiated if the assessing Authority has reason to believe that there is a case of escaped assessment and not otherwise. It is now trite law that whenever a statute provides for reason to believe , either the reasons should appear on the face of the notice or they must be available on the materials which have been placed before him. (See: Aslam Mohd. Merchant v. Competent Authority and Ors, (2008) 14 SCC 186) 21. In context of Section 21 of the Act, the position of law was explained succinctly by this Court in CST v. Bhagwan Industries (P) Ltd., (1973) 3 SCC 265 as follows: 11. The controversy between the parties has centered on the point as to whether assessing Authority in the present case had reason to believe that any part of the turnover of the respondent had escaped assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010) 2 SCC 723 , a three judge bench of this Court has considered the meaning of expression reason to believe in the context of change of language in Section 147 of the Income Tax Act, 1961 (for short, the IT Act ). The said provision provides for income that has escaped assessment and lays down the test for ascertainment of the case where reassessment should be performed by the assessing Authority. The test being if the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year... . This Court in Kelvinator case (supra) has referred to the legislative intent behind reintroduction of condition of reason to believe in the said Section and observed that: 5. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the assessing officer to make a back assessment, but in Section 147 of the Act (with effect from 1-4-1989), they are given a go-by and only one condition has remained viz. that where the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and relevant information coming to his possession subsequently, he has reasons, which he must record, to believe that, by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming this belief is not for the court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake a return of his income or to disclose fully and truly all material facts necessary for his assessment. Since other provisions of the said Section 34 are not relevant for present discussion, we would not saddle the judgment by elaborating on them. 26. Dealing with the said provision, this Court in S. Narayanappa v. CIT, (1967) 1 SCR 590 , this Court had observed that: But the legal position is that if there are in fact some reasonable grounds for the Income Tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of under assessment, that would be sufficient to give jurisdiction to the Income Tax Officer to issue the notice under Section 34. Whether these grounds are adequate or not is not a matter for the Court to investigate. In other words, the sufficiency of the grounds which induced the Income Tax Officer to act is not a justiciable issue. It is of course open for the assessee to contend that the Income Tax Officer did not hold the belief that there had been such non-disclosure. In other words, the existence of the belief can be challenged by the assessee but not the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is reached, it would tantamount to change of opinion . If an assessing Authority forms an opinion during the original assessment proceedings on the basis of material facts and subsequently finds it to be erroneous; it is not a valid reason under the law for re-assessment. Thus, reason to believe cannot be said to be the subjective satisfaction of the assessing Authority but means an objective view on the disclosed information in the particular case and must be based on firm and concrete facts that some income has escaped assessment. 30. In case of there being a change of opinion, there must necessarily be a nexus that requires to be established between the change of opinion and the material present before the assessing Authority. Discovery of an inadvertent mistake or non-application of mind during assessment would not be a justified ground to reinitiate proceedings under Section 21(1) of the Act on the basis of change in subjective opinion ( CIT v. Dinesh Chandra H. Shah, (1972) 3 SCC 231; CIT v. Nawab Mir Barkat Ali Khan Bahadur, (1975) 4 SCC 360). 31. The above observations regarding the import of the words reason to believe though made in the context of diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has brought home the point that if after change in law, the period of time prescribed for action by the tax authorities has already expired, then subsequent change in the law does not make it so retrospective in its effect as to revive the power of the tax authority to take action under the new law. The relevant observations are as follows: 35. ...In Delhi Cloth General Mills Co. Ltd. v. ITC, 54 IA 421, it was held that no appeal lay against the decision of a High Court if it was given before appeals to the Privy Council were provided for. In that connection Lord Blanesburgh observed at p. 425: Their Lordships can have no doubt that provisions which, if applied retrospectively, would deprive of their existing finality orders which, when the statute came into force, were final are provisions which touch existing rights. In all these cases the Privy Council proceeded on the principle that if the right of action had become barred according to the law of limitation in force, subsequent enlargement of the period of time does not revive the remedy to enforce the rights already barred. The same principle, in my opinion, would apply to the periods specified in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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