SC reverses reassessment under Section 147 ruling mere change of opinion insufficient for three assessment years

The SC reversed the Kerala HC's decision favoring revenue and restored the Tribunal's order allowing the assessee's appeal. The Court held that reassessment proceedings under Section 147 for three assessment years were unjustified as they constituted mere change of opinion. The assessing officer relied on a provisional balance sheet submitted to a bank for credit purposes, which was previously discarded by CIT(A) as unreliable. The Court found no material evidence of income escapement beyond the assessee's disclosed primary facts. Returns filed without regular balance sheets due to departmental seizure were defective but not invalid, and the assessing officer failed to declare them defective or seek rectification.

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Issues Involved:
1. Legality of reopening a concluded assessment under Section 147 of the Income Tax Act, 1961.
2. Whether the assessee disclosed fully and truly all material facts necessary for assessment.
3. Whether the reassessment proceedings were barred by limitation.
4. Validity of the reassessment orders based on the balance sheet submitted to the South Indian Bank.

Summary:

1. Legality of Reopening Assessment:
The Supreme Court examined whether the reopening of a concluded assessment under Section 147 of the Income Tax Act, 1961, following the issuance of notice under Section 148, was legally sustainable. The Court noted that the assessee's original assessments for the years 1990-91, 1991-92, and 1992-93 were completed under Section 143(3) after detailed scrutiny. The reassessment was initiated based on the balance sheet for the assessment year 1989-90 obtained from the South Indian Bank, which the assessing officer compared with the balance sheet for the assessment year 1993-94. The Court held that this comparison and the subsequent inference of escaped income constituted a mere change of opinion, which is not a valid ground for reopening an assessment.

2. Disclosure of Material Facts:
The Court emphasized the duty of the assessee to disclose fully and truly all primary facts necessary for assessment. It was found that the assessee had disclosed all relevant details, including profit and loss accounts and statements showing the source and application of funds. The Court noted that the balance sheet submitted to the South Indian Bank was prepared on a provisional basis for obtaining credit and had been previously discarded by the CIT(A) as unreliable. Therefore, the reassessment based on this balance sheet was not justified.

3. Limitation for Reassessment:
The assessee argued that the reassessment proceedings were barred by limitation as the notices under Section 148 were issued beyond the permissible period. The Court observed that the original assessments were completed under Section 143(3) and that the reassessment notices issued on 29.03.2000 were beyond the four-year period specified in the proviso to Section 147. The Court held that the reassessment proceedings were indeed barred by limitation.

4. Validity of Reassessment Orders:
The Court found that the reassessment orders were based on the balance sheet submitted to the South Indian Bank, which was not reliable. The assessing officer's reliance on this balance sheet, without any fresh material or evidence, was not justified. The Court concluded that the reassessment orders were invalid as they were based on a change of opinion and not on any new information or material evidence.

Conclusion:
The Supreme Court set aside the High Court's order and restored the Tribunal's order, which had quashed the reassessment proceedings. The Court held that the reassessments were not justified, as they were based on a mere change of opinion and were barred by limitation. The appeals filed by the assessee and its partners were allowed.

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