Question And Answer
Subject: Can a S. 143(3) assessment be reopened u/s 147 despite full disclosure of facts?
Category:  Income Tax
Asked by: Prashant Joshi
Answered by:
Tags: ,
Date: October 11, 2018
Query asked by Prashant Joshi

In the computation of income filed with the return of income, the assessee has made a full and true disclosure of the material facts.

The AO passed an assessment order u/s 143(3) of the Income-tax Act, 1961. However, he did not raise any specific query relating to the issue which he seeks to reopen. The assessment order is also silent.

The AO has issued a notice u/s 148 and wants to reopen the assessment under section 147 of the Act.

Is the action of the AO permissible or is it bad in law on the ground that it is based on ‘change of opinion’?

In Income-Tax Officer V/s. Techspan India Private Limited and Another, reported in [2018] 404 ITR 10(SC), the Supreme Court reiterated the settled principle of law laid down by the Supreme Court in CIT V/s. Kelvinator of India Ltd. [2010] 320 ITR 561(SC) that the Assessing Officer has a power only to reassess and has no power to review the assessment order. Thus, it held that no re-opening notice can be issued which is premised on a change of opinion.

The Supreme Court further held that before interference with a proposed reopening of the assessment, the Court should verify whether the assessment order made earlier has expressly or by necessary implication expressed an opinion on a matter which is the basis of the alleged escapement of income that was taxable.

Generally, the assessment orders passed in regular assessment proceedings do refer to examining the computation of income filed alongwith the Return of Income.

Also, the Assessment order in regular assessment proceedings in terms disallow some of the claims made for deduction under Section 143(3) of the Act.

If this is so, it can be said that the Assessing Officer has by necessary implication allowed the claim.

It must be borne in mind that the basic document for completing the assessment under Section 143(3) of the Act is the computation of income.

Therefore, to the extent the claims made for deduction in the computation of come, were disallowed by the Assessing Officer, discussion on the same is found in the assessment order. It is an accepted position that the assessment orders would necessarily deal only with the claims being disallowed and not with the claims being allowed.

In CIT Vs. Nirma Chemicals Ltd 309 ITR 67 the Gujarat High Court held that if the Assessing Officer has to deal with all the claims which were to be allowed in the assessment order, the result would be an epictome.

Such a requirement would cast an impossible burden upon the Assessing Officer considering his workload and the period of limitation.

If there is a full disclosure, it can be inferred that there was no reason for the Assessing Officer to ask any queries in respect of this claim of the assessee and that he was satisfied with the correctness of the claim.

Thus, it must necessarily be inferred that the Assessing Officer has applied his mind at the time of passing an assessment order to this particular claim made in the basic document viz. computation of the income by not disallowing it in proceedings under Section 143(3) of the Act as he was satisfied with the basis of the claim as indicated in that very document.

When the AO accepts the claim made, the occasion to ask questions on it will not arise nor does it have to be indicated in the order passed in the regular assessment proceedings.

Thus, issuing a notice under section 148 of the Act would amount to a change of opinion.

In Export Credit Guarantee Corporation vs. Additional CIT 350 ITR 651, the Bombay High Court held that the reopening is justified if the Assessing Officer had overlooked/ignored a particular claim made in the assessment order.

However, if the Assessing Officer has allowed the claim in regular Assessment order on application of mind by implication, this judgement will not apply.

It cannot be said to be overlooked or ignored as this claim alongwith other claims were made in the basic document i.e. computation of income. The disallowance of some of the claims therein implies allowing the same after considering it.

In M/s. Eleganza Jewellery Limited Vs. CIT (Writ Petition (Lodg) No. 2763 of 2013) dated 1st February, 2014, the Bombay High Court upheld the reopening as in that case it was not the contention of the assessee that the regular assessment order impliedly indicate that there was an opinion formed by the Assessing Officer at the time of passing an assessment order.

The decision in the case of A.L.A. Firm v. Commissioner of Income-Tax [1991] 189 ITR 285 of the Apex Court, wherein the Proposition (4) as enunciated in Kalyanji Mavji and Co., V. CIT, reported in [1976] 102 ITR 287 (SC) was held to be applicable which reads as under :-

“where the information may be obtained even from the record of the original assessment from the investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law”.

The Supreme Court observed, the aforesaid proposition would entitle the Revenue to re-open an assessment on the basis of material already on record provided some information in the form of facts or law which the Assessing Officer was not earlier conscious, coming to his knowledge subsequently.

In Rabo India Finance Ltd. vs. Deputy Commissioner of Income-Tax 356 ITR 200, the Bombay High Court held that as the reopening notice was issued on the basis of information coming to the knowledge of the Assessing Officer after the original assessment order was passed. i.e. during the course of assessment proceedings of the subsequent year, the reopening was valid.

In Multiscreen Media Private Limited V. Union of India and another (No.2) [2010] 324 ITR 54 (Bom), the reassessment was upheld because the re-opening notice was issued on obtaining fresh information/material after the passing of an order in the regular assessment proceedings.

However, if no fresh material/information was obtained by the Assessing Officer and the same does not find a mention in the reasons recorded in support of the impugned notice, it is a case of change of opinion.

The decision of the Apex Court in Raymond Woollen Mills Ltd. v. Income-Tax Officer [1999] 236 ITR 34 (SC), while refusing to entertain the petition had directed the party to contest the re-opening notices before the authorities under the Act by observing that it would be open to the assessee to prove that no new facts came to the knowledge of the Assessing Officer after completion of the regular assessment proceedings.

This judgement will not apply if the assessee has shown absence of any new facts or law coming to the notice of the Assessing Officer after passing of assessment orders in regular assessment proceedings.

In State Bank Of India vs. ACIT WRIT PETITION NO. 271 OF 2018 ALONGWITH WRIT PETITION NO. 278 OF 2018, the Bombay High Court held that if the claim is made in the computation of income and if the stand of the Revenue is to be accepted, the sanctity/finding attached to the proceedings under Section 143(3) of the Act would be done away with and it would be open to the Revenue to do piecemeal assessments by re-opening the same. Therefore, the reasons were held to prima-facie indicate a change of opinion.

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