Section 147 – Whether Reopening can be done pursuant to judgment of Supreme Court ?
Dy.Commissioner of Income Tax &Ors. Vs. M/s. Simplex Concrete Piles
(India) Limited (Supreme Court)( Civil Appeal no. 2329 of 2006)
“The subsequent reversal of the legal position by the judgment of the Supreme Court does not authorise the Department to re-open the assessment,which stood closed on the basis of the law, as it stood at the relevant time.”
Section 147: Whether section 143(1) Intimation can be reopened under section 147 without “fresh material” ?
Held – No
CIT v. Orient Craft Ltd (Delhi High Court) (ITA NO. 555/2012)
The assessee file return of income wherein it claimed s. 80HHC deduction of Rs. 13.35 crores. The AO accepted the ROI u/s 143(1). He thereafter reopened the assessment under Section 147 on the ground that the sale proceeds of the quota was wrongly considered as export turnover and that it was business profits and 90%thereof had to be reduced u/s 80HHC. The assessee challenged the reopening on the ground that as there was no “fresh material“, the AO had no jurisdiction to reopen the s. 143(1) Intimation. This was upheld by the Tribunal by relying on CIT v Kelvinator of India Ltd.(2010) 320 ITR 561 (SC).
On appeal by the department to the High Court, dismissing the appeal it was held :
“Section 147 permits an assessment to be reopened if there is “reason to believe”. It makes no distinction between an order u/s 143(3) or an Intimation u/s 143(1). Accordingly, it is not permissible to adopt different standards while interpreting the words “reason to believe” vis-à-vis S.143(1) and S.143(3). The department’s argument that the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of a s. 143(3) assessment cannot apply to a s. 143(1) Intimation is not acceptable because it would place an assessee whose return is processed u/s 143(1) in a more vulnerable position than an assessee in whose case there is a full-fledged s.scrutiny assessment u/s 143(3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of assessee. An interpretation which makes a distinction between the meaning and content of the expression “reason to believe” between a case where a s. 143(3)
assessment is made and one where an Intimation u/s 143(1) is made may lead to unintended mischief, be discriminatory & lead to absurd results. In Kelvinator 320 ITR 561 (SC) it was held that the term “reason to believe” means that there
is “tangible material” and not merely a “change of opinion” and this principle will apply even to s. 143(1) Intimations. On facts, the AO reached the belief that there was escapement of income “on going through the ROI” filed by the assessee. This is nothing but a review of the earlier proceedings and an abuse of power by the AO. There is no whisper in the reasons recorded of any tangible material which came to the possession of the AO subsequent to the issue of the Intimation. It reflects an arbitrary exercise of the power conferred under Section 147 (ACIT v Rajesh Jhaveri Stock Brokers(2007) 291 ITR 500 (SC) distinguished) .”
Note : The judgment in Orient Craft is in contrast with the judgment in case of CIT vs. Usha International Ltd (Delhi High Court – Full Bench) ITA NO. 2026/2010
Section 147: There is no “change of opinion” if AO does not specifically apply his mind ?
The Full Bench was constituted to consider the meaning of the expression “change of opinion” for purposes of Section 147 and whether, in the light of Kelvinator 256 ITR 1 (Del FB), as approved in 320 ITR 521 (SC), in a case where the assessee has furnished full and true particulars at the time of original assessment with reference to the income alleged to have escaped assessment, the AO, even within 4 years from the end of the AY, could be said to have formed an opinion and to have no jurisdiction to reopen the assessment even though he had not raised any query with respect to the issue.
HELD by the Full Bench:
By the Majority:
(i) The expression “change of opinion” postulates formation of opinion and then a change thereof. The question of “change of opinion” arise only when the AO at the s. 143(3) stage forms an opinion and accepts the assessee’s stand.
There is a difference between “change of opinion” and failure to “form an opinion“. However, for determining whether or not there is “change of opinion“, the fact that the assessment order is silent is not relevant because the assessee has no control over the way the order is written. There may also because where though the AO has not raised a query, the issue may be so apparent and obvious that to say that the AO has not formed an opinion would be contrary and opposed to normal human conduct;
(ii) The observations in Kelvinator 256 ITR 1 (FB) that when an assessment order is passed u/s 143(3), a presumption is raised u/s 114(e) of the Indian Evidence Act that the order was passed after application of mind and that otherwise there would be a premium on the authority exercising quasi-judicial function to take benefit of its own wrong does not mean that even if the AO
does not examine a particular issue and had not formed any opinion, it must be presumed that he must have formed an opinion. There cannot be deemed formation of opinion even when the particular issue is not examined. The observations were made only to reject the Revenue’s contention that a nonspeaking assessment order means a case of non-formation of opinion;
(iii) In affirming Kelvinator, the Supreme Court referred only to the principle of “change of opinion” and no comments were made on the presumption u/s 114(e) of the Indian Evidence Act. The assessee’s argument that the Full Bench verdict has merged in the judgment of the Supreme Court and cannot be reconsidered is not acceptable because there are no observations by the Supreme Court on the issue of whether there is deemed formation of opinion and it cannot be said that the High Court’s reasoning is the ratio of the apex Court;