Mere ‘Change of Opinion’ can’t be basis for Re-Assessment: SC [Read Judgment]

Re-Assessment

A two-judge bench of the Supreme Court in the case of Income Tax Officer vs. M/s TechSpan India Private Ltd. & Anr held that under section 147/ 148 of the Income Tax Act 1961, an Assessing Officer (A.O.) has no power to review but only has the power to re-open the assessment. The bench further clarified that the re-assessment cannot be made on the basis of mere ‘change of opinion’.

The Court was considering an appeal filed by the Revenue-appellant against an order of the High Court quashing the notice issued under 148 and the order passed by the Income Tax officer. The assessee-respondent engages in the business of software development & human resource services. The assessee is eligible for deduction under Section 10A of the Income Tax Act. The assessee while filing returns declared income from software development and human resources. Whereas the expenses were claimed commonly. The deduction was claimed for income from the software development. The returns were accepted and were selected for regular assessment under Section 143(3) of the Act and a show cause notice was issued to explain why the expenses claimed with regard to the allocation of common expenses did not reveal any basis for such allocation. The issue was duly contested and decided and the proceedings ended with a rectification of the Assessment Order under Section 154 of the Income Act Act while arriving at an income of Rs. 31.63 lacs, which was fully set-off against the loss brought forward and the income was assessed as ‘Nil’ for the AY 2001-2002.

Thereafter a notice was served to the assessee by the Revenue for re-opening the assessment under section 148 on the ground that the deduction has been allowed in excess and that the income escaped assessment works out to Rs.57.36 lacs in the original assessment. Objections of the assessee in this regard was rejected. Aggrieved, they approached the High Court via Writ Petition. The High Court set aside the show cause notice as well as the re-assessment order dated. Revenue appealed to the Supreme Court against the order of the High Court.

The Counsel for the Revenue argued that the A.O was well within his powers conferred under section 147 & section 148 of the IT Act.  The Counsel for the assessee-respondent contended that the re-assessment proceedings under section 147 were initiated because of the change of opinion of the A.O. relating to the facts of the case. He argued that no new fact has come to the knowledge of the appellant to enable him to initiate re-assessment proceedings under the IT Act. He also argued that the grounds on which the re-assessment proceedings were initiated had already been considered by the A.O. during the original assessment.

The bench comprising of Justice R, K. Agrawal & Justice Mohan M. Shantanagoudar observed that the words “reason to believe” in Section 147 has to be interpreted schematically and if interpreted liberally would give the A.O. arbitrary powers. The bench reminded that Section 147 cannot be invoked when the A.O. has a change of opinion with regard to the interpretation of law differently on the facts that were well within his knowledge even at the time of assessment. The bench found that the grounds on which re-assessment was initiated had already been considered during the original proceedings.

Relying on the decision of the Court in the case of Commissioner of Income Tax, Delhi vs. Kelvinator of India Ltd. the court observed “Every attempt to bring to tax, income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed change of opinion even in cases where the order of assessment does not address itself to a given aspect sought to be examined in the re-assessment proceedings. initiation of the re-assessment proceedings under Section 147 by issuing a notice under Section 148 merely because of the fact that now the Assessing Officer is of the view that the deduction under Section 10A was allowed in excess, was based on nothing but a change of opinion on the same facts and circumstances which were already in his knowledge even during the original assessment proceedings.”

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