Change of opinion cannot be a ground for notice of Reassessment
It has been held recently in Maruti Suzuki India Ltd. vs. Dy. CIT 356 ITR (Delhi) 209 that mere change of opinion of the Assessing Officer is not a ground for notice of Reassessment.
Provisions in the Income Tax Act for Reassessment:
Reassessment refers to reopening a completed assessment upon fulfillment of some conditions and reassesses the total income of the assessee for including the income which has not been assessed. But reassessment cannot be done by the AO at his pleasure. It should be done only as per the conditions laid down in section 147 of the Income Tax Act. Reassessment can en completed only under the provisions of the Act.
The object of section 147:
Section 147 aims to bring the income which has escaped assessment within the purview of tax. It applies when the following circumstances are fulfilled:
i) Where a person has not filed a return and consequently no assessment has been made;
ii) Where a return has been filed and assessment has been made but it appears that an income has escaped assessment.
An AO may reassess the total income of an assessee only when there is reason to believe that any income that is chargeable has escaped assessment for any assessment year.
View of the Apex Court:
The Apex Court in the case of Sheo Nath Singh v. AAC 82 ITR 147 has held that the AO would be acting without jurisdiction if the aforesaid conditions are not satisfied as required by the section.
In another case the Supreme Court held that if the AO does not have reason to believe that income chargeable to tax has escaped assessment, there can be no jurisdiction to initiate reassessment proceedings.
Reassessment based on mere change of opinion:
Various issues are under controversy relating to powers of the AO in connection with reassessment under the Act. In many cases, reassessment proceedings have being initiated merely due to ‘change of opinion’ on any issue decided while making the original assessment. In such cases, the issue which appears before the Courts is that whether under the Act the AO is entitled to initiate reassessment proceedings for a mere ‘change of opinion’.
Majority of the Courts are of the view that reassessment proceedings cannot be initiated due to only ‘change of opinion’. But the issue still remains. It is often noticed that such re-assessment proceedings are being initiated due to a mere ‘change of opinion’ by providing a simple ground or the other.
The Delhi High Court in the case of Bawa Abhai Singh (supra) where the Revenue contended that reassessment proceedings can be initiated on a mere ‘change of opinion’, noted that under the old provisions the same may be allowed but under the new provisions, the essential condition for starting the reassessment proceeding is that the AO should have ‘reason to believe’ that any income has escaped assessment.
The Delhi High Court in CIT v. Kelvinator of India Ltd., 256 ITR 1 (Del.) held that if an AO is allowed to reopen an assessment due to a mere ‘change of opinion’, his power may become arbitrary which will be held unconstitutional.