MUMBAI: The issue whether an assessing officer has the
power to reopen an assessment under Section 147 of the Income Tax Act
(The Act) based on a mere "change of opinion" has been the
subject matter of considerable debate.
Judicial opinion has been divided on the matter.
While the majority of High Courts were of the
opinion that no reopening lies on a mere "change of opinion"
certain High Courts held otherwise.
More than 20 years after the amendment to Section 147 of the Act, the Supreme Court has put at end to the controversy.
The Supreme Court in its order dt 18th January 2010 has set at rest the controversy,
whether, under the provisions of Section 147 of the Act, as amended
with effect from 1st April 1989, the concept of "change of opinion"
stands obliterated.
While dismissing the civil appeals filed by the revenue against the
Full Bench decision of the Delhi High Court in CIT v/s Kelvinator
of India reported in 256 ITR Pg 1, the three member Bench of the Supreme
Court noted that post amendment the only condition conferring jurisdiction
on the assessing officer to invoke section 147 of the Act is that he must
have "reason to believe" that income has escaped assessment.
The Supreme Court held that a schematic interpretation is to be
given to the words "reason to believe" failing which arbitrary powers
would be given to the assessing officer to reopen assessments on the
basis of a mere change of opinion. While observing that that there
is a conceptual difference between power to review and power to
reassess the Bench noted that while the assessing officer has no power
to review he only has the power to reassess.
The Bench thereafter observed that if the concept of "change of opinion"
were to be given the go by, then, in the garb of reaopening the assessment,
review would take place. The Bench held that the concept of "change of
opinion" is an inbuilt test to check abuse of power by the assessing officer
and even after 1st April 1989 the assessing officer has power to reopen
only if there is "tangible material" to come to the conclusion that income
has escaped assessment and the reasons must have a live link with the
formation of belief. The Bench drew support from the fact that originally in
Section 147 of the Act, the words "reason to believe" were deleted and the
word " opinion" was inserted by the Direct Tax Laws ( Amendment ) Act,
1987. However based on representations received that the word "opinion"
would give arbitrary powers to the Assessing officer to reopen past assessments
on a mere change of opinion, the Amending Act of 1989 reintroduced the
expression "reason to believe" in Section 147 of the Act.
The relevant portion of Circular No 549 dt 31st October 1989
issued by the Central Board of Direct Taxes was also was quoted
by the Bench to support the legislative intent behind the amendment.
The Supreme Court judgement provides much awaited relief to
assessees and should dispose of pending litigation at various levels.
power to reopen an assessment under Section 147 of the Income Tax Act
(The Act) based on a mere "change of opinion" has been the
subject matter of considerable debate.
Judicial opinion has been divided on the matter.
While the majority of High Courts were of the
opinion that no reopening lies on a mere "change of opinion"
certain High Courts held otherwise.
More than 20 years after the amendment to Section 147 of the Act, the Supreme Court has put at end to the controversy.
The Supreme Court in its order dt 18th January 2010 has set at rest the controversy,
whether, under the provisions of Section 147 of the Act, as amended
with effect from 1st April 1989, the concept of "change of opinion"
stands obliterated.
While dismissing the civil appeals filed by the revenue against the
Full Bench decision of the Delhi High Court in CIT v/s Kelvinator
of India reported in 256 ITR Pg 1, the three member Bench of the Supreme
Court noted that post amendment the only condition conferring jurisdiction
on the assessing officer to invoke section 147 of the Act is that he must
have "reason to believe" that income has escaped assessment.
The Supreme Court held that a schematic interpretation is to be
given to the words "reason to believe" failing which arbitrary powers
would be given to the assessing officer to reopen assessments on the
basis of a mere change of opinion. While observing that that there
is a conceptual difference between power to review and power to
reassess the Bench noted that while the assessing officer has no power
to review he only has the power to reassess.
The Bench thereafter observed that if the concept of "change of opinion"
were to be given the go by, then, in the garb of reaopening the assessment,
review would take place. The Bench held that the concept of "change of
opinion" is an inbuilt test to check abuse of power by the assessing officer
and even after 1st April 1989 the assessing officer has power to reopen
only if there is "tangible material" to come to the conclusion that income
has escaped assessment and the reasons must have a live link with the
formation of belief. The Bench drew support from the fact that originally in
Section 147 of the Act, the words "reason to believe" were deleted and the
word " opinion" was inserted by the Direct Tax Laws ( Amendment ) Act,
1987. However based on representations received that the word "opinion"
would give arbitrary powers to the Assessing officer to reopen past assessments
on a mere change of opinion, the Amending Act of 1989 reintroduced the
expression "reason to believe" in Section 147 of the Act.
The relevant portion of Circular No 549 dt 31st October 1989
issued by the Central Board of Direct Taxes was also was quoted
by the Bench to support the legislative intent behind the amendment.
The Supreme Court judgement provides much awaited relief to
assessees and should dispose of pending litigation at various levels.
