1. This appeal by the Revenue is against the order of the learned CIT(A) in holding that the initiation of proceedings under s. 147 of the IT Act, 1961, was bad in law.
2. In this case, the return of income was filed by the assessee on 29th December, 1989, declaring loss of Rs. 11,504 and the revised return was filed on 31st December, 1990, declaring income of Rs. 6,198. The assessment was completed on 5th February, 1991, accepting the return of income. Subsequently, it was noticed that the deduction under s. 80M from the dividend income was wrongly calculated. Therefore, notice under s. 148 was issued on 6th October, 1993. Subsequently, the AO passed order under s. 143(3) r/w s. 147 of the IT Act on 28th February, 1996. There is nothing in the order mentioned regarding the validity or otherwise of the reassessment. The assessment was challenged by the assessee also on the ground that reopening under s. 147 was bad in law.
The assessee contended before the CIT(A) that all the facts were before the AO who had done the assessment at the first instance and the subsequent opinion formed by the second incumbent was a change of opinion and mere change of opinion does not give any legal sanctity to reopen the assessment under s. 147. The assessee further submitted that by resorting to s. 147 as a result of change of opinion, a deduction allowed cannot be withdrawn subsequently. It was the case of the assessee that all the materials were before the AO and it was after satisfying himself that the claim of deduction under s. 80M was allowed. At the time of passing of the order, the AO applied his mind and then only, he allowed the claim. The successor AO cannot sit on the judgment of the earlier order. He held that it was not an error of judgment but it was a change of opinion and, therefore, there was no legal sanctity to reopen under s. 147 by the successor AO. No additional information was available. The assessee relied upon the judgment of the Supreme Court in the case of Calcutta Discount Co. Ltd. vs. ITO (1961) 41 ITR 191 (SC). The learned CIT(A) considering the above submissions, came to the conclusion that the assessee has disclosed all the material facts relating to computation and the claim of deduction under s. 80M. The AO, he held, has applied his mind. In the absence of any information, the subsequent AO cannot act upon on the basis that he had different opinion. He further held that though the provisions of s. 147 have been changed w.e.f. 1st April, 1989, the judgment of the Hon'ble Supreme Court cited supra would still be valid.
Thus, he allowed the appeal by the assessee. It is against this order, the Revenue is in appeal before the Tribunal.
3. The learned Departmental Representative submitted that subsequent to the decision of the Hon'ble Supreme Court relied upon by the learned CIT(A), the section had undergone change of great magnitude and, therefore, the learned CIT(A) was not justified in holding that the Supreme Court decision still lays down the law. Relying upon the decision of the Hon'ble Supreme Court in the case of CIT vs. Sun Engg.
Works (P) Ltd. (1992) 198 ITR 297 (SC), the learned Departmental Representative submitted that it is neither desirable nor permissible to pick out a word or sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be complete law declared by the Court. The learned Departmental Representative, quoting the judgment of the Hon'ble Supreme Court, submitted "the judgment must be read as a whole and observations from the judgment have to be considered in light of the questions which were before the Court." A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a latter case, the Court must carefully try to ascertain the true principles laid down by the decision." 4. The learned Departmental Representative continuing her arguments, submitted that the decision of the Hon'ble Supreme Court (1961) 41 ITR 191 (SC) (supra) was rendered before the amendment of the s. 147. The amendment was w.e.f. 1st April, 1989, vide Direct Tax Laws (Amendment) Act, 1987. The learned Departmental Representative further submitted that the present s. 147 gives an absolute power to the AO to reopen the case if he has reason to believe that the income has escaped assessment whereas in earlier section, the words were "for reasons to be recorded by him in writing, is of the opinion".
5. None attended on behalf of the assessee at the time of hearing.
However, the assessee has made the following written submissions vide its letter dt. 21st September, 1998 : "In this case originally the assessment was completed under s.
143(3) of the IT Act, 1961. The claim made under s. 80M by the assessee was allowed. However, the incumbent ITO reopened the assessment and disallowed the claim under s. 80M of the IT Act, 1961.
This being a change of opinion in respect of decided matter, cannot be reopened, as has already been held by the Supreme Court.
The matter was argued in detail before the learned CIT(A). After due verification of all the relevant facts and law applicable thereto, the learned CIT(A) decided the appeal in favour of the assessee. The respondent strongly supports and relies on the same.
The respondent for some unavoidable reasons, is unable to appear on the date of hearing. However, he submits that the appeal may kindly be decided and disposed of, in absence of the respondent, and the appeal filed by the Department may be dismissed." According to the assessee, this is a mere change of opinion in respect of decided matter and, therefore, it cannot be reopened. In its written submission, the assessee supports the order of the CIT(A).
6. I have heard the learned Departmental Representative, gone through the written submissions of the assessee and the arguments advanced by the assessee before the CIT(A). I have also gone through the decisions relied upon by the contending parties. The main thrust of the arguments of the assessee before the CIT(A) is recorded in para. 3 of his appellate order. The AO had applied his mind and then only, accordingly to the assessee, the AO and the CIT(A), in the first instance, allowed the claim. The successor AO cannot say that it was a mere error of judgment. According to the assessee, this is a change of opinion and the assessment order cannot be reopened under s. 147 on mere change of opinion. No additional information has come into the possession of the AO. The assessee relies upon the judgment of the Hon'ble Supreme Court in the case of Calcutta Discount Co. Ltd. vs. ITO (supra). I have gone through the orders of the Revenue authorities. Before dealing with the arguments of the parties, for a better appraisal of the arguments, it is necessary to have a glance of the section before and after amendment. Before amendment brought in by the Direct Tax Laws (Amendment), Act, 1987 w.e.f. 1st April, 1989, s. 147 read as under : (a) the AO has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under s. 139 for any assessment year to the AO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in cl. (a) on the part of the assessee, the AO has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of s. 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in ss. 148 to 153 referred to as the relevant assessment year)" "147. If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of ss. 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 ss. 148 to 153 referred to as the relevant assessment year) ......" While allowing the assessee's appeal, the learned CIT(A) came to the conclusion that "though provisions of s. 147 have been changed w.e.f.
1st April, 1989, nevertheless, the judgment of the Supreme Court cited by the counsel would still be valid." It is, therefore, held by him that the proceedings have not been validly reopened and, therefore, reassessment not validly made. He further held that there was no need to give any finding on merits.
7. Under s. 34 of the IT Act, 1922, the ITO got jurisdiction to reopen the assessment, if the officer had reason to believe that by reason of the omission or failure on the part of the assessee to make a return of his income under s. 22 or to disclose fully and truly all material facts necessary for his assessment for that year, and income profits or gains chargeable to income-tax have escaped assessment for that year, or have been underassessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed or if there was no failure or omission on the part of the assessee but subsequently, the officer has, in consequence of information in his possession, reason to believe that income has escaped assessment either by way of allowing excessive relief, or underassessed or assessed at low rate of tax, then the ITO got the jurisdiction to reopen the assessment. In the case (1961) 41 ITR 191 (SC) (supra), their Lordships of the Hon'ble Supreme Court was dealing with a case under 1922 IT Act. Coming to the IT Act, 1961, the words "by reason or omission or failure on the part of the assessee" have been omitted from the section. This means in case where there is no failure on the part of the assessee to file the return of income and no concealment, fill the AO may take action under s. 147 if he had reason to believe that the income had escaped the assessment. Of course, the reason to believe as it was in the original section and interpreted by the Court still applies and should be given effect. The 'reason' should be a belief of a reasonable man which should be supported by the facts, justice and fair play. In the case Praful Chunilal Patel vs. M. J. Makwana, Asstt. CIT, the Hon'ble Gujarat High Court held that formation of belief by the AO is not necessarily a judicial decision but an administrative decision. At the initiation of the proceeding by reopening, it does not determine anything at that stage. The reason may be the result of official information or his own investigation or may come from any source that he considers reliable.
His reason is not to be judged by a Court by the standard of what the ideal man would think, held the Gujarat High Court. The Court further held that "he is the actual man trusted by the legislature and charged with the duty of forming of a belief, for the mere purposes of determining whether he should proceed to collect what is strictly due by law and no other authority can substitute its standard of sufficient reason in the circumstances or his opinion or belief for his." Their Lordships of the Gujarat High Court further held - "Therefore, unless it is shown that the AO never enquired into the matter at all or that he never honestly believed that a mistake has been made, the result of his investigation and initiation of the proceedings under s. 147 of the Act cannot be challenged on the ground of want of jurisdiction. The AO has to determine the facts and the law in order to give him jurisdiction to proceed and if in the determination of this he goes wrong, the proper remedy for the assessee would be to go up in appeal and to have the case referred to the High Court under the provisions of the Act." 8. The decision of the Hon'ble Supreme Court relied upon by the learned CIT(A) was rendered in the context of pre-amended law whereas after the introduction of changes w.e.f. 1st April, 1989, the scope for reopening the assessment escaping the income has been widened. The only restriction put in this section is" "reason to believe" and the reason, as noted above, should be a reason of a prudent man and it should be a reasonable, fair and judicious one, and not necessarily due to the failure of the assessee to disclose fully or partially some material facts relevant for his assessment. If anything is escaped the assessment and the AO notices it, subsequent, by his own investigation or by the reason of some information received, it cannot be said that it is always a change of opinion by the successor officer. The decision relied upon by the learned CIT(A) is not strictly applicable in this case. Therefore, I hold that the AO was justified in reopening the matter on the facts of the case. Since the CIT(A) has not decided the issue on merits, I remand the matter back to the file of the CIT(A) to decide the issue on merits after affording the assessee a reasonable opportunity of being heard.
9. In the result, the appeal by the Revenue is allowed for statistical purposes.