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

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 ... Reason to believe - escaped assessment - reopening of assessment under section 147 and notice under section 148 - mere change of opinion - deemed cases of escapement under Explanation 2 - protective assessment and reassessment powerReopening of assessment under section 147 and notice under section 148 - reason to believe - escaped assessment - Validity of the notice under section 148 issued to reopen the assessment for AY 1991-92 on the ground that income chargeable to tax had escaped assessment. - HELD THAT: - The Court held that where, within four years of the end of the relevant assessment year, the Assessing Officer forms a 'reason to believe'-that is, has cause or justification-to think that income chargeable to tax has escaped assessment, he may initiate proceedings under section 147 by issuing notice under section 148. The Tribunal/Court at the interim stage need not reappraise the sufficiency of evidence by standards of a final adjudication; formation of belief is an administrative act and may be based on discovery of an error in the earlier assessment. If material on record at a later assessment shows that an item of income chargeable to tax was not ascertained or included in the earlier final assessment, that provides justification for the Assessing Officer's belief. In the present case the Assessing Officer, while protectively assessing a later year, found that the assessee's conversion and transfer to the firm and credits to partners' capital accounts indicated taxable capital gains in AY 1991-92 which had not been ascertained earlier; consequently he had a reason to believe escapement and jurisdiction to issue the section 148 notice. The Court emphasised that the correctness or sufficiency of that belief is examinable in appeal against any final order, and not by writ of prohibition.Notice under section 148 was validly issued within jurisdiction; petition challenging issuance is rejected.Mere change of opinion - deemed cases of escapement under Explanation 2 - Whether the reopening amounted to an impermissible 'mere change of opinion' or was a permissible initiation based on discovery of an error despite earlier disclosure of material facts. - HELD THAT: - The Court held that where an assessment involved application of mind and all relevant aspects were considered in the first assessment, reopening merely to take a different view would be impermissible. However, where an error or mistake is detected-whether of fact or law-or where an item of income was not in fact ascertained in the earlier assessment, the case cannot be characterised as a mere change of opinion. Explanation 2 lists deemed cases of escapement and allows reopening where under-assessment or excessive relief is found. Within four years, even full disclosure at the first assessment does not bar initiation if the Assessing Officer has reason to believe income escaped assessment on account of a discovered error. Here, the Assessing Officer found that taxable capital gains had not been ascertained earlier and that discovery justified reopening; this was not a mere change of opinion.Reopening was not struck down as mere change of opinion; proceedings legitimately initiated on discovery of error.Final Conclusion: The petitions challenging the section 148 notice for assessment year 1991-92 are dismissed. The Court held that the Assessing Officer had a bona fide reason to believe that income chargeable to tax had escaped assessment and therefore validly initiated reassessment proceedings; any challenge to the merits must await the final order and appellate remedies under the Act. 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.