2012 (9) TMI 767 - HC - Income Tax

Reopening Assessments Under Section 147 Invalid Without New Material If Full Details Provided in Section 143(3)

The HC held that reopening assessment proceedings under Section 147 within four years is invalid if the assessee has furnished full and true particulars ... Change of opinion - escapement of income - Whether assessment proceedings can be validly reopened under Section 147 of the Act, even within four year, if an assessee has furnished full and true particulars at the time of original assessment with reference to income alleged to have escaped assessment - Held that:- As decided in CIT Versus Kelvinator Of India Limited [2002 (4) TMI 37 - DELHI HIGH COURT] an assessment order passed under section 143(3) must be presumed to be one passed after full scrutiny and formation of opinion on the points raised in the return and in the course of the assessment proceedings. It has been observed that section 114(e) of the Evidence Act comes into operation and it must be presumed that the AO had performed his duty in the manner expected of him, that is, after examining and forming an opinion on all aspects of the return, though he has not been articulate about it in the assessment order. It has also been held that if such a presumption is not drawn, that would amount to putting a premium on a perfunctory discharge of duties by the assessing authority and permitting him to take advantage of his own wrong. The first proviso to section 147 can be resorted to only if the assessee has not discharged the duty. Where the assessee has discharged his duty and the assessment completed under section 143 (3) is reopened within the period of 4 years from the end of the assessment year, the assessing officer has to either show that the disclosure is not full and true or he has come into possession of some 'tangible material', to borrow with respect the expression used by the Supreme Court in Kelvinator (supra), to come to the conclusion that there is escapement of income. The material must have a live link with the formation of the belief regarding escapement of income. When there is no failure on the part of the assessee to furnish full and true particulars and there is no tangible material on the basis of which the assessing officer can allege escapement of income, the only consequence would be that the assessing officer was exercising the power of review on the very same materials which he is presumed to have examined. This would amount to abuse of the power to re-assess and has to be checked. When the assessing officer fails to examine a subject matter, entry, claim or deduction, he forms no opinion, notwithstanding that the assessee had made a full and true disclosure and notwithstanding that the assessment was completed under section 143 (3) and to further hold that it would be a case of 'no opinion', would be to fly in the teeth of the two rulings. It is not even open to the revenue to urge such a proposition - Thus the assessment proceedings cannot be validly reopened under section 147 even within four years, if an assessee has furnished full and true particulars at the time of original assessment with reference to the income alleged to have escaped assessment, if the original assessment was made u/s 143(3), thus the issue is concluded by the judgment of the Full Bench of this court in Kelvinator (supra). So long as the assessee has furnished full and true particulars at the time of original assessment and so long as the assessment order is framed under section 143(3) it matters little that the assessing officer did not ask any question or query with respect to one entry or note but had raised queries and questions on other aspects. Again the answer to this question stands concluded by the judgment of the Full Bench of this court in Kelvinator (supra). It is that section 114(e) of the Evidence Act can be applied to an assessment order framed under section 143(3) provided that there has been a full and true disclosure of all material and primary facts at the time of original assessment. In such a case if the assessment is reopened in respect of a matter covered by the disclosure, it would amount to change of opinion. Issues Involved:1. Meaning of the term 'change of opinion'.2. Validity of reopening assessment proceedings under Section 147 within four years when full and true particulars were furnished by the assessee.3. Applicability of the 'change of opinion' principle when the Assessing Officer has not asked any question or query with respect to an entry/note but has raised queries on other aspects.4. Application of Section 114(e) of the Evidence Act in the context of 'change of opinion'.Detailed Analysis:1. Meaning of the term 'change of opinion':The term 'change of opinion' implies that the Assessing Officer (AO) had initially formed an opinion during the original assessment proceedings under Section 143(3) and now proposes to take a different view. The word 'opinion' means a belief or conviction resulting from what one thinks on a particular question. In the context of assessment proceedings, it means the formation of belief by the AO resulting from understanding, experience, and reflection. The expression postulates the formation of an opinion and then a change thereof.2. Validity of reopening assessment proceedings under Section 147 within four years when full and true particulars were furnished by the assessee:Reassessment proceedings can be validly initiated if the return of income is processed under Section 143(1) and no scrutiny assessment is undertaken. In such cases, there is no change of opinion. Reassessment proceedings will be invalid if the assessment order records that the issue was raised and decided in favor of the assessee. Reassessment proceedings will also be invalid if an issue or query is raised and answered by the assessee in original assessment proceedings, but the AO does not make any addition in the assessment order. In such situations, it should be accepted that the issue was examined, and the AO did not find any ground to make an addition or reject the stand of the assessee.3. Applicability of the 'change of opinion' principle when the Assessing Officer has not asked any question or query with respect to an entry/note but has raised queries on other aspects:The principle of 'change of opinion' applies even when there is no discussion in the assessment order but where the AO had applied his mind. A wrong decision, wrong understanding of law, or failure to draw proper inferences from the material facts already on record and examined cannot be rectified or corrected by recourse to reassessment proceedings. The assessee is required to disclose full and true material facts and need not explain and interpret the law. Legal inference has to be drawn by the AO from the facts disclosed.4. Application of Section 114(e) of the Evidence Act in the context of 'change of opinion':Section 114(e) of the Evidence Act raises a presumption that judicial and official acts have been regularly performed. This presumption means that when an official act is proved to have been done, it will be presumed to have been regularly done. However, it does not raise any presumption that an act was done for which there is no evidence or proof. The presumption is of no help in deciding whether the order on merit was correct or not. The presumption under Section 114(e) applies to an assessment order framed under Section 143(3) of the Act, provided there has been a full and true disclosure of all material and primary facts at the time of the original assessment.Conclusion:The judgment elucidates that the principle of 'change of opinion' prevents the AO from reopening an assessment merely because he has a different view on the same set of facts and law already considered. The AO must have 'tangible material' to justify the reopening of an assessment. The presumption under Section 114(e) of the Evidence Act supports the principle that official acts are presumed to be regularly performed, but it does not imply that an act was done without evidence. The judgment reinforces the importance of full and true disclosure by the assessee and the limitations on the AO's power to reassess based on a mere change of opinion.