INCOME TAX OFFICER WARD NO. 16 (2) versus M/S TECHSPAN INDIA PRIVATE LTD. & ANR.

Citation: [2018] 4 S.C.R. 328 · Decided: 24-04-2018 · Supreme Court of India · Bench: R.K. AGRAWAL · Disposal: Dismissed

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Judgment (excerpt)

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SUPREME COURT REPORTS
[2018] 4 S.C.R.
INCOME TAX OFFICER WARD NO. 16 (2)
v.
M/S TECHSPAN INDIA PRIVATE LTD. & ANR.
(Civil Appeal No. 2732 of  2007)
APRIL 24, 2018
[R. K. AGRAWAL AND
MOHAN M. SHANTANAGOUDAR, JJ.]
Income Tax Act, 1961 – s.147 – Scope of – Held: s.147
empowers the Assessing authority 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 – In the instant case, assessee declared its income from two
sources, namely software development and human resource
development but claimed expenses commonly for both – Notice was
issued to show cause as to why the expenses  claimed with regard to
the allocation of common expenses between the two heads did not
reveal any basis of such allocation – The notice which was issued
in the original assessment proceedings under s.143 show 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 was that the assessee was not
maintaining any separate books of account for the said two
categories and the details filed did 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 led to an unavoidable conclusion that
the question as to how and to what extent deduction should be
allowed under s.10A was well considered in the original assessment
proceedings itself – Hence, initiation of the re-assessment
proceedings under s.147 by issuing a notice under s.148 merely
because of the fact that now the Assessing Officer is of the view
that the deduction under s.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 – High Court was right in setting
aside the show cause notice as well as the re-assessment order.
  [2018] 4 S.C.R. 328
328
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Income Tax Act, 1961 – s.147 – Reassessment proceedings –
Held: The use of the words ‘reason to believe’ in s.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 change of opinion on the basis of same
facts and circumstances which has already been considered by him
during the original assessment proceedings.
Words and Phrases – ‘change of opinion’ – Meaning of –
Held: The 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.
Dismissing the appeal, the Court
HELD: 1. 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 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. 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. [Paras 8, 9][334-F-H; 335-A-C]
2. 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
INCOME TAX OFFICER WARD NO. 16 (2) v. M/S TECHSPAN
INDIA PRIVATE 

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