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2021 (2) TMI 37 - HC - Income TaxReopening of assessment u/s 147 - change of opinion - Reason to believe based on mere change of opinion - erroneous exercise of jurisdiction and the change of opinion - whether the Division Bench of this Court in the case of Rinku Chakraborthy 2011 (1) TMI 1160 - KARNATAKA HIGH COURT has laid down the correct law wherein held that there is no change of opinion before reopening assessment? HELD THAT - AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain precondition 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 - after 1-4- 1989 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 a live link with the formation of the belief. Our view gets support from the changes made to Section 147 - 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 reintroduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the assessing officer. As decided in M/S. KELVINATOR OF INDIA LIMITED 2010 (1) TMI 11 - SUPREME COURT when a power under Section 147 is to be exercised concept of change of opinion must be treated as an inbuilt test to check abuse of power of the Assessing Officer. Further it is held that after 1st April 1989 the Assessing Officer has power to reopen provided there is a tangible material to come to the conclusion that there is escapement of income from assessment. The Apex Court held that mere change of opinion on consideration of the same material is no ground to invoke Section 147 of the said Act. The decision in the case of Rinku Chakraborthy (supra) is based only on what is held in Clause (2) of paragraph 13 of the decision in the case of Kalyanji Mavji and Company 1975 (12) TMI 2 - SUPREME COURT . Subsequently a larger Bench of three Hon ble Judges in the case of M/s. Indian and Eastern Newspaper Society 1975 (12) TMI 2 - SUPREME COURT has clearly held that oversight inadvertence or mistake of the Assessing Officer or error discovered by him on the reconsideration of the same material does not give him power to reopen a concluded assessment. It was expressly held that the decision in the case of Kalyanji Mavji and Company (supra) on this aspect does not lay down the correct law. The decision in the case of Rinku Chakraborthy (supra) is based solely on the decision of the Apex Court in the case of Kalyanji Mavji and Company (supra) and in particular what is held in Clause (2) of paragraph 13. The said part is held as not a good law by a subsequent decision of the Apex Court in the case of M/s. Indian and Eastern Newspaper Society (supra). Therefore in the light of law laid down in the case of M/s. Indian and Eastern Newspaper Society (supra) the first question will have to be answered in the negative by holding that the decision in the case of Rinku Chakraborthy does not lay down correct position law to the extent to which it follows what is held in clause (2) of paragraph 13 of the decision of the Apex Court in the case of Kalyanji Mavji and Company (supra). Reason to believe in the context of Section 147 of the Income Tax cannot be based on mere change of opinion of the Assessing Officer the third question will have to be answered in the negative.
Issues Involved:
1. Validity of the Division Bench judgment in the case of Commissioner of Income Tax Vs Rinku Chakraborthy. 2. Whether the judgment in Rinku Chakraborthy is per incuriam due to reliance on overruled precedent. 3. Whether 'reason to believe' under Section 147 of the Income Tax Act can be based on a mere 'change of opinion' by the Assessing Officer. Detailed Analysis: Issue 1: Validity of the Division Bench Judgment in Rinku Chakraborthy The Court examined whether the Division Bench judgment in the case of Rinku Chakraborthy (2011) 242 ITR 425 lays down good law. The judgment had concluded that an Assessing Officer has jurisdiction under Section 147 to reopen an assessment if there is an income escaping assessment due to oversight, inadvertence, or a mistake. This conclusion was based on the Supreme Court's decision in Kalyanji Mavji & Co. However, the Court noted that the subsequent Supreme Court decision in Indian & Eastern Newspaper Society explicitly held that an error discovered on reconsideration of the same material does not give the Assessing Officer the power to reopen a concluded assessment. Therefore, the Court concluded that the decision in Rinku Chakraborthy does not lay down the correct law to the extent it relies on Kalyanji Mavji & Co. Issue 2: Per Incuriam Status of Rinku Chakraborthy Judgment The Court addressed whether the judgment in Rinku Chakraborthy is per incuriam because it relied on the judgment of Kalyanji Mavji & Co., which was overruled by the Supreme Court in Indian & Eastern Newspaper Society. The Court found that the decision in Rinku Chakraborthy was indeed per incuriam as it followed the now-invalidated principles from Kalyanji Mavji & Co. Specifically, the Court highlighted that the principle allowing reopening of assessments due to oversight or mistake by the Assessing Officer was not good law. Issue 3: 'Reason to Believe' and 'Change of Opinion' The Court examined whether 'reason to believe' in the context of Section 147 of the Income Tax Act can be based on a mere 'change of opinion' by the Assessing Officer. The Court reiterated the established legal position that a mere change of opinion does not constitute a valid reason for reopening an assessment under Section 147. The Court relied on the Supreme Court's decision in CIT v. Kelvinator of India Limited, which emphasized that the concept of 'change of opinion' must be treated as an inbuilt test to check the abuse of power by the Assessing Officer. Therefore, the Court concluded that 'reason to believe' cannot be based on a mere change of opinion. Conclusion: The Court answered the questions as follows: - Question No.1: Negative (the decision in Rinku Chakraborthy does not lay down the correct law). - Question No.2: Affirmative (the decision in Rinku Chakraborthy is per incuriam). - Question No.3: Negative (reason to believe cannot be based on a mere change of opinion). The Court clarified that it has not adjudicated the merits of the Writ Appeal, which will now be placed before the concerned Division Bench for a decision on merits in light of the above conclusions.
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