R  EPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

                   CIVIL APPEAL NO. 2732 OF 2007

Income Tax Officer Ward No. 16(2)  .... Appellant(s)

Versus

M/s TechSpan India Private Ltd. & Anr.       .... Respondent(s)

J U D G M E N T

R.K. Agrawal, J.

1) The  present  appeal  has  been  preferred  against  the

impugned final judgment and order dated 24.02.2006 passed

by  the  High  Court  of  Delhi  in  W.P.(C)  No  14376  of  2005

whereby a Division Bench of the High Court, while allowing

the petition filed by the Respondent herein, quashed the notice

dated 10.02.2005 issued under Section 148 of the Income Tax

Act, 1961 (hereinafter referred to as ‘the IT Act’) and the order

dated 17.08.2005 passed by the Income Tax Officer.

2) Brief facts:-

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(a) M/s  TechSpan  India  Private  Ltd.-the  Respondent  is  a

private  limited  company  incorporated  under  the  Companies

Act, 1956 and is engaged in the business of development and

export of computer softwares and human resource services.  It

is also relevant to mention here that the Respondent-Company

is also eligible for deduction under Section 10A of the IT Act.   

(b) On 25.10.2001, the Respondent filed its return of income

for the Assessment Year (AY) 2001-02 declaring a loss of Rs

3,31,301/-.  The  Respondent,  while  filing  the  return  for  the

aforementioned  period,  has  declared  its  income  from  two

sources, namely, software development and human resource

development but claimed expenses commonly for both. It also

claimed deduction under Section 10 A of the IT Act for the

income from the software development. The said return was

accepted and accordingly intimated to the Respondent.

(c) The  return was  selected  for  regular  assessment  under

Section 143(3) of the IT Act and a show cause notice dated

09.03.2004 was issued to the Respondent to show cause as to

why  the  expenses  claimed  with  regard  to  the  allocation  of

common  expenses  between  the  two  heads,  viz.,  software

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development and human resource development do not reveal

any basis for such allocation.  The issue was duly contested

and decided vide order dated 29.11.2004 and the proceedings

ended  with  a  rectification  of  the  Assessment  Order  under

Section 154 of the IT Act while arriving at an income of Rs.

31,63,570/- which was fully set-off against the loss brought

forward  and  the  income  was  assessed  as  ‘Nil’  for  the  AY

2001-2002.  

(d) Further,  on 10.02.2005, a Notice was served upon the

Respondent  by  the  Revenue  for  re-opening  the  assessment

under Section 148 on the ground that the deduction under

Section 10A of the IT Act has been allowed in excess and the

income escaped assessment works out to Rs. 57,36,811/- in

the original assessment. The Respondent filed a detailed reply

objecting  to  the  re-assessment.  However,  by  order  dated

17.08.2005,  the  objections  were  rejected  and  reassessment

was approved by the Revenue.

(e) Being  aggrieved,  the  Respondent  challenged  the  above

said show cause notice dated 10.02.2005 as well as the order

dated  17.08.2005  before  the  High  Court  by  filing  a  Writ

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Petition (C) No. 14376 of 2005. Vide judgment and order dated

24.02.2006, the High Court set aside the show cause notice

dated 10.02.2005 as well  as  the re-assessment order  dated

17.08.2005.

(f) Being aggrieved, the Revenue has filed this appeal before

this Court.

3) Heard  Mr.  Rajesh  Ranjan,  learned  counsel  for  the

Appellant  and  Mr.  C.S.  Agarwal,  learned  counsel  for  the

Respondents and perused the records.

Point(s) for consideration:-

4) The  only  point  for  consideration  before  this  Court  is

whether  the  re-opening  of  the  completed  assessment  is

justified in the present facts and circumstances of the case?

Rival contentions:-

5) Learned  counsel  for  the  Appellant  contended  that  the

Assessing Officer (AO) was well within his powers to issue the

show cause notice under Section 148 as the deduction that

was allowed under Section 10A was in excess and had escaped

assessment  for  which  re-assessment  proceedings  can  be

issued under Section 147.  He further contended that the High

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Court  has  erroneously  held  that  the  re-assessment

proceedings initiated under Section 147 of the Act are illegal

and not sustainable in the eyes of law.  Learned counsel finally

contended that the impugned judgment of the High Court is

erroneous in the eyes of law and is liable to be set aside.

6) Learned counsel appearing on behalf of the Respondent

submitted  that  the  ground  for  re-assessment  proceedings

under Section 147 in the present case is nothing but merely a

change of opinion on the same material facts of the case and

no  new  fact  has  come  to  the  knowledge  of  the  Appellant

enabling  the  said  authority  to  initiate  re-assessment

proceedings under the IT Act, and therefore, the High Court

was right in allowing the writ petition in light of the fact that

mere change of opinion cannot be a ground for re-assessment.

7) He  further  submitted  that  the  ground  on  which  the

re-assessment proceedings were initiated was well considered

by  the  competent  authority  during  the  time  of  original

assessment proceedings. He further contended that the order

dated 17.08.2005 was not a speaking order and was rightly set

aside by the High Court.  Learned counsel finally submitted

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that  the  High  Court  has  rightly  set  aside  the  show  cause

notice dated 10.02.2005 and the order dated 17.08.2005 and

no interference is called for by this Court in the matter.

Discussion:-  

8) To  appreciate  the  present  controversy  between  the

parties, it would be appropriate to refer to Sections 147 and

148 of  the  IT Act.   For  ready reference,  relevant  portion of

Sections 147 and 148 of the Act are reproduced below:-   

“147.  Income  escaping  assessment:--  If  the  Assessing Officer  has reason to believe that any income chargeable to tax  has  escaped  assessment  for  any  assessment  year,  he may, subject to the provisions of sections 148 to 153, assess or  reassess  such  income  and  also  any  other  income chargeable to tax which has escaped assessment and which comes  to  his  notice  subsequently  in  the  course  of  the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):  Provided that where an assessment under sub- section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after  the  expiry  of  four  years  from  the  end  of  relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the  failure  on  the  part  of  the  assessee  to  make  a  return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully  and  truly  all  material  facts  necessary  for  his assessment for that assessment year: x x x  x x x”

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“148. Issue  of  notice  where  income  has  escaped assessment.-(1)  Before making the assessment,  reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is  assessable  under  this  Act  during  the  previous  year corresponding  to  the  relevant  assessment  year,  in  the prescribed  form  and  verified  in  the  prescribed  manner  and setting forth such other particulars as may be prescribed, and the  provisions  of  this  Act  shall,  so  far  as  may  be,  apply accordingly  as  if  such  return  were  a  return  required  to  be furnished under Section 139: x x x  x x x (2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.”

The language of Section 147 makes it clear that the assessing

officer certainly has the power to re-assess any income which

escaped assessment for  any assessment year subject to the

provisions of  Sections 148 to 153. However,  the use of  this

power is conditional upon the fact that the assessing officer

has  some  reason  to  believe  that  the  income  has  escaped

assessment. The use of the words ‘reason to believe’ in Section

147  has  to  be  interpreted  schematically  as  the  liberal

interpretation  of  the  word  would  have  the  consequence  of

conferring arbitrary powers on the assessing officer who may

even initiate  such re-assessment  proceedings  merely  on his

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change  of  opinion  on  the  basis  of  same  facts  and

circumstances  which  has  already  been  considered  by  him

during the original assessment proceedings. Such could not be

the  intention  of  the  legislature.  The  said  provision  was

incorporated in the scheme of the IT Act so as to empower the

Assessing Authorities to re-assess any income on the ground

which  was  not  brought  on  record  during  the  original

proceedings  and  escaped  his  knowledge;  and  the  said  fact

would have material bearing on the outcome of the relevant

assessment order.    

9) Section  147  of  the  IT  Act  does  not  allow  the

re-assessment of  an income merely because of the fact that

the assessing officer has a change of opinion with regard to

the interpretation of law differently on the facts that were well

within his knowledge even at the time of assessment. Doing so

would have the effect of giving the assessing officer the power

of review and Section 147 confers the power to re-assess and

not the power to review.  

10) To check whether it is a case of change of opinion or not

one has to see its meaning in literal as well as legal terms. The

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word  change  of  opinion  implies  formulation  of  opinion  and

then a change thereof. In terms of assessment proceedings, it

means formulation of belief by an assessing officer resulting

from what he thinks on a particular question. It is a result of

understanding, experience and reflection.  

11) It  is well  settled and held by this court in a catena of

judgments and it would be sufficient to refer  Commissioner

of Income Tax, Delhi vs. Kelvinator of India Ltd. (2010)

320 ITR 561(SC) wherein this Court has held as under:-

“5….where the Assessing Officer has reason to believe that income has  escaped  assessment,  confers  jurisdiction  to  re-  open  the assessment. Therefore,  post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe"…..

Section 147 would give arbitrary powers to the Assessing Officer to re-open  assessments  on  the  basis  of  "mere  change  of  opinion", which cannot be per se reason to re-open.  

6. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no  power  to  review;  he  has  the  power  to  re-assess.  But re-assessment  has  to  be  based  on  fulfillment  of  certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf  of the Department, then, in the garb of re-opening the assessment, review would take place.  

7. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief.”

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12) Before  interfering  with  the  proposed  re-opening  of  the

assessment on the ground that the same is based only on a

change  in  opinion,  the  court  ought  to  verify  whether  the

assessment earlier made has either expressly or by necessary

implication expressed an opinion  on a  matter  which  is  the

basis of the alleged escapement of income that was taxable.  If

the assessment order is non-speaking, cryptic or perfunctory

in  nature,  it  may  be  difficult  to  attribute  to  the  assessing

officer  any opinion  on the  questions  that  are  raised  in  the

proposed re-assessment proceedings.  Every attempt to bring

to  tax,  income  that  has  escaped  assessment,  cannot  be

absorbed by judicial  intervention on an assumed change of

opinion even in cases where the order of assessment does not

address itself to a given aspect sought to be examined in the

re-assessment proceedings.   

13) The fact in controversy in this case is with regard to the

deduction under Section 10A of the IT Act which was allegedly

allowed in excess.  The show cause notice dated 10.02.2005

reflects the ground for re-assessment in the present case, that

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is,  the deduction allowed in excess under Section 10A and,

therefore, the income has escaped assessment to the tune of

Rs. 57,36,811. In the order in question dated 17.08.2005, the

reason purportedly given for rejecting the objections was that

the  assessee  was  not  maintaining  any  separate  books  of

accounts for the two categories, i.e., software development and

human  resource  development,  on  which  it  has  declared

income separately.  However,  a  bare  perusal  of  notice  dated

09.03.2004  which  was  issued  in  the  original  assessment

proceedings under Section 143 makes it clear that the point

on which the re-assessment proceedings were initiated,  was

well considered in the original proceedings. In fact, the very

basis of issuing the show cause notice dated 09.03.2004 was

that the assessee was not maintaining any separate books of

account for the said two categories and the details filed do not

reveal proportional allocation of common expenses be made to

these categories. Even the said show cause notice suggested

how proportional allocation should be done. All these things

leads to  an unavoidable  conclusion that  the  question as to

how and to what extent deduction should be allowed under

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Section 10A of the IT Act was well considered in the original

assessment  proceedings  itself.  Hence,  initiation  of  the

re-assessment  proceedings  under  Section  147  by  issuing  a

notice under Section 148 merely because of the fact that now

the Assessing Officer is of the view that the deduction under

Section 10A was allowed in excess, was based on nothing but

a  change  of  opinion  on  the  same  facts  and  circumstances

which were already in his knowledge even during the original

assessment proceedings.

14) In light of the forgoing discussion, we are of the view that

impugned  judgment  and  order  of  the  High  Court  dated

24.02.2006 does not call for any interference. The appeal is

accordingly dismissed with no order as to costs.  

…….....…………………………………J.      (R.K. AGRAWAL)

…….…………….………………………J.   (MOHAN M. SHANTANAGOUDAR)

NEW DELHI; APRIL 24, 2018.  

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