2021 (8) TMI 829 - HC - Income Tax

Reopening of assessment u/s 147 - reason to believe - change of opinion - computation of net interest received from government securities - HELD THAT - The annexure clearly indicated the interest received from investment in government securities and premium written off during financial year 2004-05 - The aforesaid return was processed under Section 143(1) of the Act on 31.03.2006. The return thereafter was selected for scrutiny and the Assessing Officer passed an original order of assessment dated 27.07.2007. Thus, the details were placed before the Assessing Officer, at the time of original assessment and therefore, it is not possible to infer that the AO had not at all applied his mind. The Supreme Court in TECHSPANINDIAS PVT LTD 2018 (4) TMI 1376 - SUPREME COURT has held that the use of the words reason to believe in Section 147 has to be interpreted schematically as the liberal interpretation of the word would have the consequence of conferring arbitrary powers on the assessing officer who may even initiate such re-assessment proceedings merely on his change of opinion on the basis of same facts and circumstances which has already been considered by him during the original assessment proceedings. As evident that the Assessing Officer, on perusal of the record available with him, came to a different conclusion and therefore, he cannot be permitted to change his opinion. It is settled in law that the concept of 'change of opinion' is in-built test to check the abuse of power by the Assessing Officer. Thus, the initiation of the re-assessment proceedings on account of 'change of opinion' is not permissible in law as the Assessing Officer had examined all the relevant material furnished by the assessee and had accepted the claim of the assessee. The Tribunal has therefore, rightly held that the re-opening of the assessment is based on mere change of opinion by the Assessing Officer. - Decided against revenue.

Summary

Issues:
1. Whether the Tribunal was correct in holding that the reopening of assessment is a mere change of opinion?
2. Whether premium paid on Government of India securities held to maturity is allowable as an expenditure under Section 57 of the Income Tax Act?
3. Whether the Assessing Officer had formed an opinion during the original assessment?

Analysis:

Issue 1:
The appeal pertained to the Assessment Year 2005-06, where the Assessing Officer reopened the assessment under Section 148 of the Income Tax Act. The Tribunal held that the reopening was a mere change of opinion without any new material. The revenue contended that the Assessing Officer had not formed any opinion during the original assessment process. The Supreme Court's decision in various cases was cited to support the argument that the Assessing Officer cannot invoke Section 147 based solely on a change of opinion without tangible material indicating income escapement.

Issue 2:
The dispute also revolved around the allowability of premium paid on Government of India securities held to maturity as an expenditure under Section 57 of the Act. The assessee argued that the premium should be amortized and allowed as an expense, impacting the total income. Citing relevant case laws, the assessee contended that the premium paid should be considered as an allowable expenditure, even if under a different head, to avoid a tax impact on the total income.

Issue 3:
The Assessing Officer initiated re-assessment proceedings under Section 147, claiming that the premium written off by the assessee was not an allowable expenditure. However, the Tribunal found that the Assessing Officer's decision was based on a change of opinion without new material. The Supreme Court's ruling in various cases emphasized that the Assessing Officer cannot reopen assessments merely on a change of opinion without tangible grounds for income escapement. The Tribunal concluded that the re-assessment was indeed a result of a change of opinion by the Assessing Officer, and not permissible under the law.

In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decision that the re-assessment was based on a change of opinion without valid grounds. The court emphasized that the Assessing Officer cannot initiate re-assessment proceedings solely on a change of opinion without new material indicating income escapement. The decision also highlighted the importance of considering all relevant material during the original assessment process to prevent arbitrary use of re-assessment powers.