Is the mention in assessment order a condition to stop initiation of reassessment proceedings on the same issue? - V. K. Subramani

Volume VIII Part 6 September 25, 2014 10 Business Advisor
Is the mention in assessment order a
condition to stop initiation of
reassessment proceedings on the same
issue?
V. K. Subramani
If you ask me to rank top three legal provisions of the
Income-tax Act, 1961 which are disliked by the taxpayers,
my answer would be one, section 132 dealing with search
and seizure; two, section 133A meant for survey; and
three, section 148 meant for reopening of assessment.
Reopening of assessment means an assessment was
completed earlier but with escapement of income
chargeable to tax under the Act. It also includes a case
where the taxpayer omits to file the return and the tax
officers resort to this provision for assessing the income due to non-
compliance with the legal requirement of filing the return of income by the
taxpayers. In the case of assessees engaged in business, in particular,
reassessment would generally mean an assessment completed already but
later on it is found that the income chargeable to tax has escaped
assessment or a claim excessively allowed or the income was assessed at too
low a rate or the income has been subjected to excessive relief.
This write-up discusses what the scope for reopening the assessment is
when an assessment has been completed under section 143(3). If the
Assessing Officer has not discussed a point in the assessment records
though materials were available on record whether a reassessment is
possible or it would amount to change of opinion?
This write-up hinges on the Full Bench decision of the Delhi High Court in
the case of CIT v. Usha International Ltd (2012) 348 ITR 485 (Del).
Issues involved
A reference was made to the Full Bench in respect of the following
substantial questions of law:
(i) What is meant by the term ―change of opinion‖?

(ii) Whether assessment proceedings can be validly reopened under
section 147 within four years if an assessee has furnished full and
true particulars at the time of original assessment with reference to
income alleged to have escaped assessment and whether and when
in such cases reopening is valid or invalid on the ground of change of
opinion?
(iii) Whether the bar or prohibition under the principle of ―change of
opinion‖ will apply even when the Assessing Officer has not asked
any question or query with respect to an entry/ note, but there is
evidence and material to show that the Assessing Officer had raised
queries and questions on other aspects?
(iv) Whether and in what circumstances section 114(e) of the Evidence
Act can be applied and it can be held that it is a case of change of
opinion?
The court held that the questions relate to interpretation of section 147 and
hence the factual aspects of the case need not be elaborated nor be taken
cognisance of, for deciding the issue.
First, the court examined section 147 and also the assessment under
section 143(3). It held that where the regular assessment under section
143(3) is not made, then there is no bar in issuing notice for triggering
reassessment provisions. Hence, intimation under section 143(1) is open-
ended and reassessment could be resorted to, freely. It cannot be called
‗change of opinion‘ since in intimation under section 143(1), there is no
formation of opinion. It was so concluded by the apex court in the case of
Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd (2007) 291 ITR 500 (SC).
However, for reopening an assessment made under section 143(3), the
following conditions have been enumerated by the Delhi High Court in the
Usha International case (Supra):
(i) The Assessing Officer must form a tentative or prima facie opinion on
the basis of material that there is under-assessment or escapement
of income.
(ii) He must record the prima facie opinion into writing.
(iii) The opinion formed is subjective but the reasons recorded or the
information available on record must show that the opinion is not a
mere suspicion.

(iv) Reasons recorded and/ or the documents available on record must
show a nexus or that in fact they are germane and relevant to the
subjective opinion formed by the Assessing Officer regarding
escapement of income.
(v) In cases where the first proviso applies, there is an additional
requirement that there should be failure or omission on the part of
the assessee in disclosing full and true material facts. The
Explanation stipulates that mere production of books of account
or other documents from which the Assessing Officer could
have, with due diligence, inferred material facts does not
amount to ‘full and true disclose of material facts’. (emphasis
supplied)
The Court firstly held that the question of change of opinion would arise
when the Assessing Officer forms an opinion and decides not to make an
addition or holds that the assessee is correct and accepts his position or
stand.
The Delhi High Court referred to catena of decisions such as CIT v.
H.P.Sharma (1980) 122 ITR 675 (Del); CIT v. Eicher Ltd (2007) 297 ITR 310
(Del); Consolidated Photo & Finvest Ltd (2006) 281 ITR 394 (Del); CIT v
Kelvinator of India Ltd (2002) 256 ITR 1 (FB); K.L.M Royal Dutch Airlines v.
Asstt DIT (2007) 292 ITR 49 (Del); and Asstt. CIT v. Rajesh Jhaveri Stock
Brokers (P) Ltd (2007) 291 ITR 500 (SC). Its analysis could be stated as
situations given below.
(i) Situaion-1: Reassessment proceedings can be validly initiated in
case the return is processed under section 143(1) since there is no
opinion formed on processing of return and hence the question of
change of opinion does not arise.
(ii) Situation-2: Reassessment proceedings could be invalid where the
assessment order records the issue and was decided in favour of the
assessee. It amounts to change of opinion.
Only recourse in such case would be to invoke section 263 for revising
the order which is erroneous and prejudicial to the interests of
revenue.
(iii) Situaion-3: Reassessment proceedings will be invalid where a query
is raised and answered by the assessee and the Assessing Officer

does not make any addition in the assessment order. In this case
also section 263 could be invoked to set right the erroneous order.
Distinction between erroneous understanding of AO and emergence of
new facts
If new facts, material or information comes to the knowledge of the
Assessing Officer after the assessment was made and which were not
available at the time of the assessment order, the principle of ―change of
opinion‖ will not apply.
Yet another important observation of the court was that for reopening the
assessment, for recording the reasons it is not necessary that the Assessing
Officer should have finally ascertained escapement of income by recording
conclusive findings. The final ascertainment of escaped income could take
place when the final or reassessment order is passed. At the time of
invoking reassessment provisions, the reasons recorded based on the
materials available facilitate subjective opinion formed by the Assessing
Officer regarding escapement of income.
An incorrect appreciation of the treatment of receipt or income will not give
any second chance to the Assessing Officer for reopening the case. A
possible remedy is in section 263 for Commissioner to revise the said order.
However, a new fact coming to light will provide definite scope for triggering
reassessment provisions.
Within and beyond 4 years
As per the first proviso to section 147, no action can be taken after the
expiry of four years from the end of the relevant assessment year unless any
income chargeable to tax has escaped assessment by reason of failure on
the part of the assessee to disclose fully and truly all material facts
necessary for his assessment.
In this context, reference was made to Kelvinator of India Ltd case (supra)
where the Full Bench rejected the submission of the Revenue that the
reassessment proceedings would be justified if the assessment is silent or
does not record reasons or analysis of material on record. The Revenue
‗Opinion‘ is formed on facts. ‗Opinion‘ formed or based on wrong and
incorrect facts which are belied and untrue do not get the protection and
cover under the principle of ―change of opinion‖.

propounded the concept of non-application of mind by the assessing
authority. The Court held when an order under section 143(3) is passed a
presumption could be raised that the order was passed after application of
mind. Reference was made to section 114(e) of the Indian Evidence Act,
1872. It was held that if the Revenue‘s contention is accepted it would
provide premium to the assessing authority exercising quasi-judicial
function to take benefit out of its own wrong, i.e. failure to discuss or record
reasons in the assessment order.
The court in Usha International case (supra) held that there cannot be
deemed formation of opinion when the particular subject matter, entry or
claim is not examined.
It drew the distinction between failure to make full and true disclosure to
estop reopening of the case by holding that only where the time period of
four years has elapsed such criteria need to be looked into. Where the
reassessment is resorted to within four years it held that the first proviso to
section 147 will not apply. Explanation 1 stipulates that mere production of
books of account from which the Assessing Officer with due diligence could
have inferred facts does not amount to true and full disclosure.
When the proviso is not applicable, the pre-condition that the
assessee had disclosed fully, truly all material facts at the time of
assessment need not be looked into.
With regard to section 114(e) of the Indian Evidence Act the court held that
it is a general provision dealing with presumption of facts, inferences drawn
from facts, patterns drawn from experience and observations based upon
habits of the society, human action, usages and ordinary course of human
affairs and conduct. The presumption is no evidence or proof. It only shows
on whom the burden of proof remains. It is a permissive provision and not a
mandatory provision. As a permissive provision it enables the judge to
support his judgment but there is no scope of presumption when facts are
known.
Dissenting note
Hon‘ble Judge R. V. Easwar with regard to the judgment of the court
concurred with the decision of the Full Bench as regards the first question.
However, he held that the assessment proceedings cannot be validly
reopened under section 147 even within four years, if the assessee has
furnished full and true particulars at the time of original assessment with
reference to income alleged to have escaped assessment, if the original
assessment was made under section 143(3).

Learned Judge referred to A. L. A. Firm v. CIT (1991) 189 ITR 285 and viewed
that if the Assessing Officer had considered the materials in the original
assessment and formed an opinion then he would be powerless to reopen
the assessment. He fully relied on Kelvinator of India Ltd case (Supra) to hold
that once an assessment order is framed under section 143(3) and the
assessee has undisputedly furnished full and true particulars at the
time of original assessment, then it is presumed that the Assessing
Officer has formed an opinion and if he reopened the assessment say
within 2 years without proving any failure on the part of the assessee
to furnish full and true particulars then that it would amount to a
change of opinion which is not permissible in law.
As regards the application of section 114(e) of the Indian Evidence Act he
held that it could be applied to an assessment framed under section 143(3)
of the Act provided there has been full and true disclosure of all material
facts at the time of original assessment.
Conclusion
The decision of the Delhi High Court has considered its own precedents and
the apex court decision on the issue of reopening of assessment after
completion of regular assessment under section 143(3). If the Assessing
Officer has information on record and has not recorded his opinion in the
assessment order, it is held that there was no opinion and much less the
‗change of opinion‘, hence can reopen the case.
If the assessment order contains the opinion of Assessing Officer then the
Assessing officer is helpless and hence cannot reopen the case. The only
recourse then is section 263.
Where the material is available on record and Assessing Officer has not
formed an opinion and has not discussed the same in the assessment order,
the controversy continues.
In the Full Bench decision it is stated there is no deemed formation of
opinion. Mere production of books of account does not amount to full
disclosure. The first proviso was interpreted to hold that within four years,
the Revenue need not prove that there was failure on the part of the
assessee to disclose fully and truly all material facts. It is stated that only
after four years for reopening the case such burden has to be discharged by
the Revenue, notwithstanding contrary view expressed in Kelvinator of India
Ltd case (supra).
(V. K. Subramani is Chartered Accountant, Erode)

Is the mention in assessment order a condition to stop initiation of reassessment proceedings on the same issue? - V. K. Subramani

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Is the mention in assessment order a condition to stop initiation of reassessment proceedings on the same issue? - V. K. Subramani