2020 (3) TMI 499 - HC - Income Tax

Validity of reopening of assessment u/s 147 - Whether primary condition of Section 147 i.e. 'reason to believe' did not exist and it was merely a case of change of opinion at best? - HELD THAT - In the present case we find that the powers under Section 147 of the Act have been now defined without any equivocation and without going to deep into it it is safe to say that a mere change of opinion cannot be considered within the ambit of phrase reason to believe. Petitioner has tried to take us to the merits of the case and to show how the deduction could not have been claimed but we are unable to into the merits of the case because she has not been able to deny that in the original order under Section 143(3) of the Act, the issue of deduction did arise and after discussing the same a particular finding was given. Had the revenue been aggrieved of the assessment order passed under Section 143(3) of the Act, it would had the recourse under Section 263 of the Act but the present short cut method cannot be allowed. Contention of the appellant is that the phrase 'conceptual difference' between power to review and power to reassess, some how changes the law. This argument is flawed because their Lordships' have merely reiterated that invocation of Section 147 of the Act can only be on the basis of tangible material which has come to the knowledge of the assessing officer after the assessment. The question of law does not arise.

Summary

Issues:
- Appeal against the order of the Income Tax Appellate Tribunal Chandigarh Bench 'A' Chandigarh regarding Section 80-I deduction under the Income Tax Act, 1961.
- Interpretation of Section 147 of the Act and the application of Explanation 2.
- Analysis of the powers of the Assessing Officer under Section 147 post the Direct Tax Laws (Amendment) Act, 1987.
- Examination of the distinction between the power to review and the power to reassess.
- Consideration of the requirement of tangible material for invoking Section 147 after assessment.

Analysis:

The judgment addresses an appeal challenging the Income Tax Appellate Tribunal's decision on the allowance of a Section 80-I deduction under the Income Tax Act, 1961. The Tribunal had set aside an order issued under Section 148 of the Act, stating that it was a case of change of opinion rather than a valid reason to believe income had escaped assessment. The appellant argued that Explanation 2 to Section 147 permits such actions. However, the court agreed with the respondent's stand that Explanation 2 must be read subject to the main provision of Section 147, emphasizing that an explanation is subordinate to the main provision. The court highlighted that a mere change of opinion does not fall within the scope of 'reason to believe' under Section 147.

Regarding the powers of the Assessing Officer under Section 147 post the Direct Tax Laws (Amendment) Act, 1987, the court referred to the judgment in Commissioner of Income-Tax vs. Kelvinator of India Ltd and Another. The court emphasized the importance of tangible material for invoking Section 147, stating that the Assessing Officer must have a live link between the reasons and the belief of income escapement. The judgment clarified the conceptual difference between the power to review and the power to reassess, emphasizing that the Assessing Officer cannot review but can reassess based on specific preconditions.

The court dismissed the appellant's contention that the 'conceptual difference' between review and reassessment changes the law, clarifying that the invocation of Section 147 must be based on tangible material discovered post-assessment. Ultimately, the court concluded that the question of law did not arise and dismissed the appeal.