Reopening under s.147 by notice u/s.148 invalid where Assessing Officer already considered s.10A deduction, reassessment was change of opinion

SC held that reopening under s.147 by issuing notice u/s.148 was invalid because the Assessing Officer had already considered how and to what extent deduction under s.10A of the IT Act should be allowed during the original assessment. The show cause notice demonstrated awareness of lack of separate books and how proportional allocation of common expenses should be made, so reassessment was merely a prohibited change of opinion. Matter decided in favour of the assessee.

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Issues:
Re-opening of completed assessment under Section 147 of the Income Tax Act, 1961.

Analysis:
The case involved an appeal against a High Court judgment quashing a notice issued under Section 148 of the IT Act and a subsequent re-assessment order. The Respondent, a private limited company engaged in software development and human resource services, had filed its return for AY 2001-02, claiming deduction under Section 10A of the IT Act. The Assessing Officer issued a show cause notice questioning the allocation of common expenses between software and human resource development. After rectification, the income was assessed as 'Nil'. Subsequently, a notice was issued for re-opening the assessment, alleging excess deduction under Section 10A. The High Court set aside the notice and re-assessment order.

The main contention was whether the re-opening of assessment was justified. The Appellant argued that excess deduction justified re-assessment under Section 147, while the Respondent contended it was a mere change of opinion. The Court referred to Sections 147 and 148 of the IT Act, emphasizing the requirement of the assessing officer having a "reason to believe" income escaped assessment. It noted that re-assessment cannot be based on a mere change of opinion, as it would grant review powers to the assessing officer, not intended by the legislature.

Citing precedents, the Court highlighted that re-opening requires tangible material showing escapement of income, not a change of opinion. It emphasized that the assessing officer cannot review but re-assess based on specific conditions. The Court held that if the original assessment did not address the issue forming the basis of re-assessment, it could proceed. However, in this case, the issue of excess deduction under Section 10A was already considered during the original assessment, rendering the re-assessment a mere change of opinion.

Consequently, the Court upheld the High Court's decision, dismissing the appeal. The judgment emphasized that re-assessment should be based on new material, not a change of opinion on existing facts.

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