Whether Reassessment u/s.147 of Income tax Act is Permissible on a Mere Change of Opinion Introduction : 1.1 S. 147 authorises and permits the Assessing Officer (AO) to assess or re-assess the income chargeabl e to tax, if he has reason to believe that income for relevant years has escaped assessment. This is popularly known as power of reassessment. 1.2 Provisions of S. 147 have been substituted by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989 (New Provisions). Primarily, the New Provisions confer jurisdiction to reopen the reassessment, when the AO, for whatever reason, has ‘reason to believe’ that the income has escaped assessme nt. 1.2.1 Under the New Provisions, the above-referred power of reassessment cannot be exercised after the end of four years from the end of the relevant assessment year in cases where the original assessment is made u/s.143(3) or S. 147, unless in such cases, the income chargeable to tax has escaped assessment for such assessment year by reason offailure of the assessee to make return u/s.139 or in response to notice u/s.142(1)/148 or by reason of failure of the assessee to disclose fully and truly all material facts necessary for such assessment (‘failure to disclose material facts’). In this write-up we are not concerned with this provision. 1.3 Prior to substitution of the provisions of S. 147 w.e.f. 1-4-1989 as aforesaid (i.e., New Provisions), S. 147 providing for reassessment was divided into two separate clauses [(a) and (b)], which laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or re-assessed (Old Provisions) . Under the Old Provisions, clause (a) empowered the AO to initiate proceedings for re-assessmen t in cases where he has ‘reason to believe’ that by reason of the omission or failure of the assessee to make return u/s.139 or by reason of the ‘failure to disclose the material facts’, the income chargeab le to tax has escaped assessmen t. Under clause (b) of the Old Provisions, the AO was empowered to initiate reassessment proceedings if, in consequence of information in his possession, he has ‘reason to believe’ that income chargeable to tax has escaped assessmen t, even if there is no omission or failure on the part of the assessee as mentioned in clause (a). 1.4 From the comparison of the Old Provisions with the New Provisions relating to re- assessmen t, it would appear that to confer jurisdiction under clause (a) of the Old Provisions, it would appear that two conditions were required to be satisfied, namel y, (i) the AO must have ‘reason to believe’ that income chargeable to tax has escaped assessment, and (ii) such escapement has occurred by reason of ‘failure to disclose material facts’, etc. on the part of the assessee. On the other hand, under the New Provisions, the existence of only first condition (i.e., ‘reason to believe’) is sufficient to confer the jurisdiction on the AO to initiate the reassessment proceeding s (except, of course, in cases covered by the circumstances mentioned in Para 1.2.1 above). 1.5 Various issues are under debate with regard to powers of the AO to make reassessment under the New Provisions. In large number of cases, reassessment proceedings are being initiated merely on account of ‘change of opinion’ on the issues decided at the time oforiginal assessment. In such cases, the issue has come up before the Courts in the past as to whether, under the New Provisions, the AO is empowered to initiate reassess ment proceedings on a mere ‘change of opinion’. By and large, the Courts have taken a view that reassessment proceedings cannot be initiated on a mere ‘change of opinion’. However, the issue still survives and in practice, such re-assessment proceedings are being initiated on a mere ‘change of opinion’ by giving one reason or the other. 1.6 Recently, the issue referred to in Para 1.5 above came up for consideration before the
