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Judgment
DEBANGSU BASAK, J.
The petitioner has challenged a notice under Section 148 of the Income Tax Act, 1961 dated April 7, 2010 and the Order dated November 26, 2010
passed by the authorities rejecting the objections of the petitioner. Learned Senior Advocate appearing for the petitioner has submitted that, the
department has no reason to invoke Section 148 of the Act of 1961. He has questioned the assumption of jurisdiction under Section 147 read with
Section 148 of the Act of 1961. According to him, all necessary information were available with the Assessing Officer in respect of the concerned
financial year. The petitioner had made tax and full disclosure of its amounts. The petitioners underwent a scrutiny assessment under Section 143(3)
of the Act of 1961 in respect of financial year concerned.
The twin grounds cited in the reasons for invoking Section 148 of the Act of 1961, are not available to the department. He has referred to the first
ground being the alleged incorrect claim of depreciation while computing book profit under Section 115JB of the Act of 1961, and has submitted that,
on such score, all material facts were in possession of the Assessing Officer during the scrutiny assessment. The Assessing Officer had dealt with
such aspect in the order passed under Section 143(3) of the Act of 1961 on December 24, 2009. The Assessing Officer had formed an opinion on the
basis of the materials placed before him while computing the assessment. The Assessing Officer is not entitled to change his opinion on the basis of
existing facts to reopen the assessment under Section 147 and 148 of the Act of 1961. He has relied upon 2012 Volume 344 Income Tax Report page
187 (Amrit Feeds Limited v. Assistant Commissioner of Income Tax & Ors.), 2002 Volume 256 Income Tax Report page 1 (Commissioner of
Income Tax v. Kalvinator of India Ltd.), 2010 Volume 320 Income Tax Report page 561 (Commissioner of Income-Tax v. Kelvinator of India Ltd.),
2015 Volume 370 Income Tax Report page 660 (Cal) (Debashis Moulik v. Assistant Commissioner of Income-Tax), 2010 Volume 370 Income Tax
Report page 369 (Cal) (Berger Paints India Ltd. v. Assistant Commissioner of Income Tax & Ors.) and 2013 Volume 350 Income Tax Report page
266 (Gujarat Power Corporation v. Assistant Commissioner of Income-Tax) in support of his contentions.
Learned Senior Advocate for the petitioner has submitted that, the Assessing Officer has limited powers while framing assessment under Section 115J
of the Act of 1961. He has relied upon 2002 Volume 255 Income Tax Report page 273 (Apollo Tyres Ltd. v. Commissioner of Income-Tax), 2008
Volume 300 Income Tax Report page 251 (Malayala Manorama Co. Ltd. v. Commissioner of Income-Tax) and 2016 Volume 384 Income Tax
Report page 457 (Cal) (Commissioner of Income-Tax v. Binani Cement Ltd.) in support of such contentions. He has drawn the attention of the Court
to the fact that, the reasons for invocation of Section 148 of the Act of 1961 cannot be subsequently improved upon by either oral submissions or by
the affidavit in opposition. He has relied upon 2016 Volume 384 Income Tax Report page 477 (Cal) (Ranglal Bagaria (HUF) v. Assistant
Commissioner of Income-Tax & Ors.), 2007 Volume 294 Income Tax Reports page 222 (Anil Kumar Bhandari v. Joint Commissioner of Income-Tax
& Ors.) and 2014 Volume 363 Income Tax Reports page 603 (Bom) (NDT Systems & Anr. v. Income-Tax Officer & Ors.) in support of such
contentions.
Referring to the letter dated September 17, 2010 issued by the petitioner, he has submitted that, such letter acknowledges a mistake. The same cannot
form the basis of reopening an assessment under Section 148. The letter at best is a lament that, although the petitioner is entitled to claim their
deductions, by mistake, it did not claim the same. Such a lament should not be construed to mean that, income has escaped assessment.
Learned Advocate appearing for the respondent has referred to Section 147 of the Act of 1961. She has submitted that, the Assessing Officer has
given the reasons why it has invoked Section 148 of the Act of 1961. The Assessing Officer has sufficient reasons to believe that, the petitioner is
guilty of not making full and true disclosure even when undergoing the scrutiny assessment. An Assessing Officer is entitled to invoke the jurisdiction
under Section 147 of the Act of 1961 when, the assessee is guilty of not making full and true disclosure of the accounts and where, income escaped
assessment and the Assessing Officer has reasons to believe it to be so. She has relied upon 2009 Volume 226 Commercial Tax Report page 659
(EMA India Ltd. v. Assistant Commissioner of Income-tax), 2001 Volume 247 Income Tax Report page 818 (ESS ESS KAY Engineering Co. P. Ltd.
v. Commissioner of Income Tax), 2007 Volume 291 Income Tax Report page 500 (Assistant Commissioner of Income-Tax v. Rajesh Jhaveri Stock
Brokers (P.) Ltd.), 1991 Volume 2 Supreme Court Cases page 558 (A.L.A. Firm v. Commissioner of Income Tax, Madras) and 2006 Volume 281
Income Tax Report page 394 (Consolidated Photo and Finvest Ltd. v. Assistant Commissioner of Income-Tax) in support of her contentions.
The petitioner is a company incorporated under the Companies Act, 1956. It is an assessee under the Act of 1961. The petitioner filed its return of
Income for the Assessment Year 2007-08 on October 28, 2007 electronically disclosing total income at nil. It relied upon an auditor’s report under
Section 115JB of the Act of 1961. It disclosed a tax liability of Rs.36,52,884/- under Section 115JB and in view of, tax deducted at Source and
Advance Tax paid, the petitioner claimed a sum of Rs.4,14,098/- as refundable. The petitioner received notice under Section 143(3) and Section
142(1) of the Act of 1961 for scrutiny assessment in respect of the concerned financial year. In course of such scrutiny assessment proceedings, the
petitioner filed details of profit and loss account and balance sheet. The Assessing Officer passed an Order dated December 24, 2009 computing total
income as nil and calculating minimum alternate tax under Section 115JB at Rs.50,63,864/-. After allowing tax deducted at source and taxes paid by
the petitioner, a demand for Rs.19,91,776/- was raised upon the petitioner by a notice dated December 24, 2009 issued under Section 156 of the Act of
1961.
It is thereafter that, the petitioner received the notice dated April 7, 2010 under Section 148 of the Act of 1961, which is impugned herein. Upon
receipt of such notice, the petitioner by a writing dated April 28, 2010 sought the reasons for the invocation of Section 148 of the Act of 1961. The
Assessing Officer communicated the reasons by a writing dated May 26, 2010. The petitioner by its writing dated August 12, 2010 raised objections
thereto. By a writing dated September 17, 2010, the petitioner supplemented the objections. It issued another writing dated November 9, 2010 raising
further objections. By the impugned order dated November 26, 2010, the Assessing Officer rejected the objections raised by the petitioner. The
petitioner filed the instant writ petition on February 23, 2010. During the pendency of the writ petition, the Assessing Officer completed the
assessment under Section 148 of the Act of 1961 and passed an Order thereon dated February 23, 2011. It is in this factual matrix that the present
writ petition has come up for final hearing.
It has been contended on behalf of the petitioner that, the Assessing Officer had erred in invoking Sections 147 and 148 of the Act of 1961 and that
the factual matrix obtaining in the present case, in respect of the financial year concerned, does not permit the Assessing Officer to invoke such
provisions of the Act of 1961. It has been contended on behalf of the respondents that, there are tangible materials before the Assessing Officer to
come to the conclusion that there was escapement of income from assessment. Kelvinator of India Ltd. (supra), has considered whether the concept
of change of opinion stands obliterated with effect from April 1, 1989 after substitution of Section 147 of the Act of 1961 by the Direct Tax Laws
(Amendment) Act 1987. It has answered such question as follows:-
“6. 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 fulfilment 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 1st April, 1989), they are given a go-by and only one condition has
remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the
assessment. Therefore, post-1st April, 1989, power to reopen 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 reopen assessments on the
basis of “mere change of opinionâ€, 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, 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. Hence, after 1st April, 1989, the Assessing Officer has power to
reopen, provided there is “tangible material†to come to the conclusion that there is escapement of income from assessment. Reasons must have
live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the
Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words “reason to believe†but also inserted the word “opinion†in
section 147 of the Act. However, on receipt of representations from the companies against omission of the words ""reason to believe"", Parliament re-
introduced the said expression and deleted the word ""opinion"" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote
hereinbelow the relevant portion of Circular No.549 dated 31st October, 1989, ([1990] 182 ITR (St.) 1, 29), which reads as follows:
7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression ‘reason to believe’ in section 147. - A number of
representations were received against the omission of the words ‘reason to believe’ from section 147 and their substitution by the
‘opinion’ of the Assessing Officer. It was pointed out that the meaning of the expression, ‘reason to believe’ had been explained in a
number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to
reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the
expression ‘has reason to believe’ in place of the words ‘for reasons to be recorded by him in writing, is of the opinion’. Other provisions
of the new section 147, however, remain the same. For the afore-stated reasons, we see no merit in these civil appeals filed by the Department,
hence, dismissed with no order as to costs.â€
Rajesh Jhaveri Stock Brokers (P.) Ltd. (supra) has held that, Section 147 authorises and permits the Assessing Officer to assess or reassess income
chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. It has explained the word “reason†in
the phrase “reasons to believe†to mean cause for justification. It has held that, if the Assessing Officer has caused for justification to know or
suppose that income has escaped assessment, if can be said to have reasons to believe that, an income has escaped final assessment. An Assessing
Officer need not ascertain the fact of income escaping assessment finally by legal evidence. It has held that, under the substituted Section 147 of the
Act of 1961, if the Assessing Officer, for whatever reason, has reasons to believe that, income has escaped assessment, it confers jurisdiction to
reopen the assessment if it does not fall within the proviso to Section 147. If it falls within the proviso to Section 147 then two conditions are required
to be fulfilled, firstly, the Assessing Officer must have reason to believe that, income, profits, gains chargeable to Income Tax has escaped
assessment. Secondly, he must also have reasons to believe that, such escapement had occurred by reason of either omission or failure on the part of
the assessee to file a return under Section 139 for any assessment year with the Assessing Officer to disclose fully or truly all material facts
necessary for his assessment of that year.
Berger Paints India Ltd. (supra) has quashed a notice under Section 148 of the Act of 1961 after finding that, the Assessing Officer had issued a
notice under Section 154 and that, the reassessment notice was issued for virtually the same reason for which rectification proceedings had earlier
been initiated and dropped. In the facts of that case, the Assessing Officer was found not to have disclosed any new material for reopening the
assessment. Amrit Feeds Limited (supra) has found that, the question of invocation of Section 148 of the Act of 1961 revolves around the
interpretation to be given to Section 80IB(5) of the Act of 1961 read with Sub-section (2) therein dealing with an industrial undertaking. In the facts of
that case, it has found that, all information regarding alleged manufacturing process of the assessee was before the Assessing Officer. It has held that,
after the time limit for making assessment or reassessment having expired, the revenue cannot turn around, take recourse to an extraordinary
provision which is Section 147 and attempt to reopen concluded assessment. In Debashis Moulik (supra), the authorities did not communicate to the
assessee, the reasons for invoking Section 148 of the Act of 1961. In such circumstances, such notice was quashed.
Consolidated Photo and Finvest Ltd. (supra) has held that, production of books of accounts or other evidence relevant to assessment does not
necessarily amount to full and true disclosure within the meaning of Sections 147 and 148 of the Act of 1961. In the facts of that case, it has found
that, there was no change in opinion by the Assessing Officer concerned. EMA India Ltd. (supra) has held that, mere production of accounts books
before the Assessing Officer would not amount to disclosure within the meaning of the first explanation to Section 147 since the same could have
been discovered by the Assessing Officer only with due diligence. Apollo Tyres Ltd. (supra) has held that, while determining the book profits under
Section 115J, the Assessing Officer cannot recompute the profits in the profit and loss account by excluding the provisions made for arrears of
depreciation.
Section 147 is one of the statutory instruments available to the Assessing Officer to arrest, income chargeable to tax which has escaped assessment,
for any assessment year. The statutory instrument, however, is with prescribed limitations. There are two parts to Section 147 of the Act of 1961.
One part relates to the Assessing Officer invoking such provisions when a period less than four years has elapsed from the end of the relevant
assessment year. During such period of time, if the Assessing Officer, is inclined to invoke Section 147 of the Act of 1961, he has to have reasons to
believe that, income chargeable to tax has escaped assessment. He must have tangible material to come to the conclusion that, income has escaped
assessment. There has to be a live-link. The other portion of Section 147 deals with a situation where an assessment under Section 143(3) of the Act
of 1961 or under Section 147 of the Act of 1961 has been made for the relevant assessment year and a period of four years from the end of the
relevant assessment year has elapsed, then, the Assessing Officer will have jurisdiction to invoke Section 147 of the Act of 1961, if income chargeable
to tax has escaped assessment for such assessment year by reason of the assessee failing to disclose fully and truly all material facts necessary for
his assessment for that assessment year. In either of the two scenarios, the Assessing Officer has no power of review. He has right to assume
jurisdiction on change of opinion. He can, however, reassess, subject to the fulfilment of the conditions precedent for him to assume jurisdiction.
In the facts of the present case, as noted above, the petitioner underwent a scrutiny assessment where, the order passed by the Assessing Officer
dealt with the issue of book profits. He arrived at a figure after working on the materials provided to him. However, according to the Assessing
Officer in the proceeding under Section 147, the calculation of book profits is incorrect and that, the book profits claimed should be treated in a
different way. According to the Assessing Officer, the computation done in the order of assessment is incorrect, resulting in escapement of income
for assessment. The same, to my understanding, will constitute change of opinion. He had all the materials at the time of scrutiny assessment to form
an opinion.
He had done so as appearing in the order of assessment. There is no new material on record to suggest that, the assessee is guilty of suppression.
Therefore, it cannot be said that, there are reasons for the Assessing Officer to arrive at a finding that, income has escaped assessment. The
Assessing Officer, is trying to review his order of scrutiny assessment. In the facts of the present case, he is seeking to have a different opinion than
that expressed in the order of scrutiny assessment, on the basis of the same materials. The same is not permissible. In such circumstances, the
invocation of Section 147 of the Act of 1961 by the Assessing Officer is quashed. All steps taken consequent therein are also quashed. W.P. No. 232
of 2011 is disposed of accordingly.