1998 (2) TMI 538 - HC - Income Tax

Section 147 validly invoked after conversion of capital asset to stock-in-trade, reassessment upheld; factual belief challenge for appeal

Praful Chunilal Patel Versus MJ Makwana / Assistant Commissioner Of Income-tax

HC held that the Assessing Officer validly invoked section 147 upon discovering that a capital asset had been converted into stock-in-trade, giving rise ... Reassessment - escaped assessment u/s 147 - Reason To Believe - conversion of the capital asset - Stock-In-Trade - Capital Gains - HELD THAT:- In our view, the Assessing Officer therefore clearly had a reason to believe that the income chargeable to tax in the form of capital gains in respect of the transfer that took place on September 19, 1990, had escaped assessment in the relevant assessment year 1991-92. the initiation of the proceedings under section 147 cannot, therefore, be assailed on the ground that it was without jurisdiction. The Legislature has entrusted the Assessing Officer with a jurisdiction which includes the jurisdiction to determine whether the preliminary state of facts exists as well as the jurisdiction, on finding that it does exist, to proceed further to assess, reassess or recompute as indicated in section 148. The Assessing Officer has formed his belief on discovery of the earlier error which resulted in the said income having escaped assessment which constituted the fact primary to giving him jurisdiction to proceed with the matter for assessment or reassessment. If his decision on the question whether there was sufficient justification or cause for formation of the belief in view of the error committed in the first assessment was wrong, the only remedy would be by way of an appeal against his ultimate order and not by a writ of prohibition ; for, the Assessing Officer has not assumed jurisdiction not vested in him, but has merely exercised jurisdiction, the existence of which is necessarily involved by the scope of his functions under the Income-tax Act, pursuant to the said provision of section 147. In view of the facts noted above, it is utterly impossible to say that there was no evidence of primary facts upon which the Assessing Officer may apply his mind and exercise his power and proceed further under the said provision. It is not for this court in exercise of its extraordinary jurisdiction under the Constitution, to examine the sufficiency of the reason which led the Assessing Officer to believe that the income had escaped assessment. In this view of the matter, the present petition is wholly misconceived and deserved to be rejected. However, in cases where an error or mistake is detected, it can never be said that there is only a mere change of opinion, The mistake or error which is detected and which constituted a valid decision or cause to form a belief in the first assessment as a result of which the income has escaped assessment, would constitute a reason to believe that the income had escaped assessment and. such cases where mistakes and errors are detected and which constitute a valid justification or cause to form a belief sought to be corrected, cannot be said to be cases of mere change of opinion. We find no merit in these petitions and they are, therefore, rejected. Issues Involved:1. Jurisdiction of the Assessing Officer to issue notice u/s 148.2. Validity of reopening assessment based on a change of opinion.3. Interpretation of 'escaped assessment' u/s 147.Issue-wise Summary:1. Jurisdiction of the Assessing Officer to issue notice u/s 148:The petitioners challenged the notices dated March 29, 1996, issued by the Assistant Commissioner of Income-tax, proposing to reopen the completed assessment for the assessment year 1991-92. The respondent argued that the notice was issued after recording reasons, which are reflected in the order sheet, and that the computation of capital gains was shown by the assessee in the return for the assessment year 1993-94. The court held that the Assessing Officer had a reason to believe that the income chargeable to tax had escaped assessment and thus had the jurisdiction to issue the notice u/s 148.2. Validity of reopening assessment based on a change of opinion:The petitioner contended that the notice was issued on a mere change of opinion and that all relevant details were placed on record during the original assessment. The court held that if the Assessing Officer discovers or finds that the taxable income has escaped assessment, it would amount to having a reason to believe that such income had escaped assessment. The court emphasized that the word 'assessment' means the ascertainment of the amount of taxable income and of the tax payable thereon. If the Assessing Officer had overlooked something during the original assessment, there can be no question of a mere change of opinion when the income is actually taxed as it ought to have been under the law.3. Interpretation of 'escaped assessment' u/s 147:The court interpreted the term 'escaped assessment' to cover cases where an error of fact or law is discovered later, justifying the belief that income had escaped assessment. The court noted that the provisions of section 147 require that the Assessing Officer should have a reason to believe that any income chargeable to tax has escaped assessment. The court held that the Assessing Officer's belief is an administrative decision and does not determine anything at the initial stage. The court concluded that the initiation of proceedings u/s 147 cannot be assailed on the ground that it was without jurisdiction, and the proper remedy for the assessee would be to go up in appeal under the provisions of the Act.Conclusion:The court found no merit in the petitions and rejected them, discharging the rule with no order as to costs. The court emphasized that the Assessing Officer has the jurisdiction to reopen assessments within four years if there is a reason to believe that income has escaped assessment, and such actions cannot be challenged on the ground of mere change of opinion.