Issues Involved: 1. Whether action u/s 147 of the Income-tax Act, 1961, can be initiated for a mere change of opinion by the Income-tax Officer (ITO).
Summary:
Issue 1: Whether action u/s 147 of the Income-tax Act, 1961, can be initiated for a mere change of opinion by the Income-tax Officer (ITO).
Factual Background: The assessee maintained guest houses in Delhi, Bombay, and Faridabad, incurring expenses on rent, maintenance, and depreciation. Initially, the assessee did not claim deductions for these expenses but later filed a revised return. The Assessing Officer (AO) disallowed certain expenses and issued a notice u/s 148 to reopen the assessment, citing underassessment based on a tax audit report.
Legal Arguments: - The Department argued that the change of opinion is relevant and that the reassessment was based on new information from the tax audit report. - The assessee contended that the reassessment was based on a mere change of opinion and that all facts were disclosed initially.
Court's Analysis: - The court examined the provisions of section 147 before and after April 1, 1989, and the amendments introduced by the Direct Tax Laws (Amendment) Act, 1987, and 1989. - The court emphasized that both the conditions of "reason to believe" and "failure to disclose material facts" must be satisfied for invoking jurisdiction u/s 147. - It was noted that the reasons for reopening must be based on new information and not merely a change of opinion by the AO.
Key Judgments Cited: - Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191: The court held that the AO must have reason to believe based on new information and not just a change of opinion. - Jindal Photo Films Ltd. v. Deputy CIT [1998] 234 ITR 170: Reopening of assessment based on a mere change of opinion is not permissible. - Foramer v. CIT [2001] 247 ITR 436: Reaffirmed that reassessment cannot be based on a mere change of opinion. - Praful Chunilal Patel v. M.J. Makwana, Asst. CIT [1999] 236 ITR 832 (Guj): The court disagreed with this decision, emphasizing that reassessment should not be based on a mere change of opinion.
Circular No. 549: The court referred to Circular No. 549 issued by the CBDT, which clarified that the amendments to section 147 were made to prevent arbitrary reopening of assessments based on a mere change of opinion.
Conclusion: The court concluded that section 147 does not permit reassessment based on a mere change of opinion. Any reassessment must be founded on new information or material facts that were not available during the original assessment. The court answered the question in favor of the assessee and against the Revenue, stating that reassessment proceedings initiated on a mere change of opinion are invalid.
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