HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on: 15.09.2015 + ITA 174/2013 ORIENTAL INSURANCE COMPANY ..... Appellant versus COMMISSIONER OF INCOME TAX, DELHI ..... Respondent Advocates who appeared in this case: For Appellant : Mr M.S. Syali, Senior Advocate with Mr Mayank Nagi and Mr Harkunal Singh. For Respondent : Mr Kamal Sawhney, Senior Standing Counsel with Mr Shikhar Garg. CORAM: HON'BLE DR. JUSTICE S. MURALIDHAR HON'BLE MR. JUSTICE VIBHU BAKHRU JUDGMENT VIBHU BAKHRU, J 1. This appeal under Section 260A of Income Tax Act, 1961 (hereafter Act ), has been filed by Oriental Insurance Company (hereafter Assessee ) impugning order dated 22nd July, 2011 passed by Income Tax Appellate Tribunal (hereafter Tribunal ) in ITA No. 3910/Del/2007. said appeal was filed by Assessee challenging order dated 16th August, 2007 passed by Commissioner of Income Tax (Appeals) [hereafter CIT(A) ] in Appeal no. 170/2006-07 whereby appeal filed by Assessee against assessment order dated 25th ITA 174/2013 Page 1 of 26 January, 2007 passed by Assessing Officer (hereafter AO ) for assessment year 2004-05, was dismissed. 2. By order dated 10th July, 2013, this Court admitted this appeal and framed following questions of law for consideration:- (1) Whether Income Tax Appellate Tribunal was correct in law in upholding addition on account of income arising on sale of investments in spite of fact that no addition on account of grounds mentioned in reasons to believe has been sustained? (2) Whether Income Tax Appellate Tribunal was correct in law in holding that income earned on sale/redemption of investment is chargeable to tax? At outset, learned Senior Counsel appearing for Revenue submitted that present appeal also raises issue whether AO s decision to tax income arising on sale of investments was result of change in opinion and whether same is permissible. It is not disputed that above issue arise from impugned order passed by Income Tax Appellate Tribunal and, accordingly, following question of law is framed as third question:- (3) Whether AO had assumed jurisdiction under Section 147 of Act on account of change in opinion as to taxability of income arising on sale of investments ITA 174/2013 Page 2 of 26 and whether Income Tax Appellate Tribunal was correct in law in upholding assumption of jurisdiction under Section 147 of Act Background 3. relevant facts necessary to address aforesaid issues are briefly stated as under:- 3.1 Appellant Company is subsidiary of General Insurance Corporation of India and is engaged in business of General Insurance comprising of Fire, Marine and Miscellaneous Insurance Business. According to Assessee, it invests its policy holder s funds as per statutory guidelines provided under Insurance Act, 1938 and IRDA (Investment) Regulations, 2000. 3.2 AO computed assessable income at `35,87,12,674 but since adjusted book profits were higher at `3,91,45,35,826, AO passed assessment order dated 30th January, 2006 for Assessment year 2004-05 assessing tax payable at `30,09,30,018 under section 115JB of Act. 3.3 Assessee claimed that profits on sale/redemption of investments amounting to `505.33 crores for year ending 31.03.2004, were exempt from tax in view of omission of clause (b) of Rule 5 of ITA 174/2013 Page 3 of 26 First Schedule of Income Tax Act w.e.f. 01.04.1989 and in terms of CBDT Circular No. 528 dated 16th December, 1988, providing explanatory notes to Finance Act, 1988. Assessee also claimed deduction of `3,57,54,000/- on account of amount written off in respect of depreciated investments in support of which, it relied upon order passed by Tribunal in its own case for earlier assessment year. 3.4 AO, however, disallowed claim for Investments Written Off . He held that after omission of clause (b) of Rule 5 of First Schedule of Act, neither losses on depreciation of investments were allowable as deduction nor were profits on sale/redemption of investments taxable. 3.5 Subsequently, AO issued notice dated 28th November, 2006 under Section 148 of Act as AO was of view that income from sale/redemption of investments had escaped assessment and initiated proceedings under Section 147 of Act. In response to said notice, Appellant stated that return of income filed on 29 th October, 2004 be treated as its return in compliance of notice. Thereafter, notices under Sections 143(2) and 142(1) of Act were issued by AO. Assessee ITA 174/2013 Page 4 of 26 responded to said notices by letter dated 22nd January, 2007, inter alia, claiming that profits on sale of investments were exempt in view of omission of Rule 5(b) of First Schedule of Act. AO, however, was not satisfied with said response and, accordingly, passed order dated 25th January, 2007 reassessing income of Assessee by including sum of `505.33 crores in total taxable income. 3.6 Appellant filed appeal, before CIT (A), against said order of reassessment, inter-alia, challenging both assumption of jurisdiction to reopen assessment as well as including of profit on sale/redemption of investment in total income. 3.7 By order dated 16th August, 2007, CIT(A) upheld reassessment order dated 25th January, 2007. In so far as issue of assumption of jurisdiction is concerned, CIT(A) held that AO had recorded adequate reasons to believe and, therefore, AO had jurisdiction to issue notice under Section 148 of Act. Insofar as merits of addition were concerned, CIT(A) upheld addition of `505.33 crores to total income of Assessee. CIT(A) held that: (i) in absence of specific statutory provision, Assessee could not be ITA 174/2013 Page 5 of 26 granted exemption merely on basis of CBDT Circular No. 528 dated 16th December, 1988 explaining provisions of Finance Act 1988; (ii) CBDT Circular being contrary to legal position is not binding; and (iii) once income is credited to Profit and Loss Account no adjustment to same was permitted as per Rule 5 of First Schedule of Income-Tax Act, and that Tribunal had held so in Assessee s own case for AY 1990-91 (in ITA No. 2998/Del/93). 3.8 Assessee appealed against aforesaid order of CIT(A), before Tribunal, inter alia, contending that AO had initiated reassessment proceedings solely on basis of change of opinion , which was not permissible. Assessee also urged that reasons to believe recorded by AO were based on erroneous factual assumptions that assessee was carrying on business other than Non-Life Insurance business, and that assessee had credited sum of `505,33,63,209/- directly into General Reserve Account in Balance Sheet as profit on sale of investment without routing same through Profit and Loss Account for Previous Year. 3.9 In respect of addition of profit on sale of investment, ITA 174/2013 Page 6 of 26 Assessee reiterated that provisions of clause (b) of Rule 5 were omitted by Finance Act, 1988 and legislative intention for such statutory amendment was explained vide CBDT Circular No. 528 dated 16th December, 1988. As per said Circular, Rule 5 of First Schedule of Act was amended to provide tax exemption in respect of profits earned by General Insurance Companies on sale of investments. provisions of clause (b) to Rule 5 were re-instated by virtue of Finance (No.2) Act, 2009 w.e.f. 01-04-2011. It was further submitted by Assessee that Circular No.5 of 2010, dated 3rd June, 2010 indicated reasons for statutory amendment. said Circular indicated that post introduction of Insurance Regulatory and Development Authority of India (hereafter IRDA ) (Preparation of Financial Statements and Auditors Report of Insurance Companies) Regulations in 2002 , Insurance Companies are required to include income from sale of investments directly in their Profit & Loss Account and, therefore, provisions of Rule 5 were amended so as to tax this income. Assessee urged that this amendment was not retrospective and, therefore, income from sale/redemption of investments during Previous Year 2003-04 was not taxable. 3.10 Tribunal did not accept submissions made by Assessee ITA 174/2013 Page 7 of 26 and rejected appeal. 4. Before Tribunal, it was conceded by Revenue that reasons recorded by AO for issuing notice under Section 148 of Act were erroneous. Concededly, profit and loss on sale of investments had been credited to Profit & Loss Account and not entered directly to General Reserve Account as assumed by AO. second reason provided by AO for reopening assessment was that Assessee was carrying on two streams of business; (1) non-life insurance business and (2) business in shares and securities as public financial institution. Concededly, this assumption was also erroneous. However, Tribunal upheld reassessment on ground that Assessee had not brought decision of Tribunal in respect of Assessment Year 1991, which was against Assessee, to knowledge of AO. Tribunal held that such issue should have been brought to notice of Assessing Officer specially, failing which it can be held that special circumstances exist by way of facts on record so as to lead to conclusion that Assessing Officer had reason to believe that income had escaped assessment . Tribunal was of view that since relevant information had been withheld from AO, it was within powers of AO to ITA 174/2013 Page 8 of 26 reopen assessment. Submissions 5. Mr Syali, learned counsel appearing on behalf of Assessee contended that validity of reopening of assessment must be tested on reasons provided by AO and reopening of assessments cannot be sustained on additional grounds provided subsequently. He argued that once it was clear that reasons as indicated by AO for issuing notice under Section 148 of Act were found to be palpably erroneous; reopening of assessment could not be sustained. He submitted that it was not open for Income-tax Authorities to sustain re-opening of assessment under Section 147 of Act on grounds other than those indicated as reasons for forming belief that income had escaped assessment and for issuance of notice under Section 148 of Act. He relied upon decision of this Court in Ranbaxy Laboratories Ltd. v. CIT: 336 ITR 136 and CIT v. Software Consultants: 341 ITR 240 in support of his contentions. 6. Mr Syali further argued that AO had no jurisdiction to reopen assessment for taxing profits and gains from sale of investments as ITA 174/2013 Page 9 of 26 issue with regard to taxability of that income had been considered by AO in initial assessment order in context of Assessee s claim for deduction on account of diminution in value of investments. He submitted that in first round of assessment AO had considered effect of omission of clause (b) of Rule 5 of First Schedule by virtue of Finance Act, 1988 and held that with omission of said clause, profit and gains on sale/redemption of investments were not chargeable to tax. He submitted that notice under Section 148 of Act was occasioned by change of opinion on issue of taxability of profits from sale/redemption of investments and same was not permissible. 7. Mr Sawhney, learned counsel for Revenue countered arguments made on behalf of Assessee and submitted that decisions of this Court in Ranbaxy Laboratories (supra) and Software Consultants (supra) were wholly inapplicable in facts of present case. He submitted that said decisions related to question whether other incomes could be taxed where income that was alleged to have escaped assessment and which had occasioned notice under Section 148 of Act had not been assessed or assessment, if made, had not been sustained. ITA 174/2013 Page 10 of 26 Reasoning and Conclusion 8. It is now well established that powers under Section 147 of Act of AO can be invoked only in cases where AO has reason to believe that income chargeable to tax has escaped assessment. It has been held in several decisions that reason to believe must be based on tangible material and cogent facts; powers under Section 147 of Act cannot be exercised merely on suspicion or on apprehension that income of Assessee has escaped assessment. 9. bona fide reason to believe that income has escaped assessment is necessary pre-condition that clothes AO with power to reopen assessment, which has otherwise attained finality. reasons to believe must have direct nexus and live link with formation of opinion by AO that taxable income of Assessee has escaped assessment. In Commissioner of Income-Tax v. Chintoo Tomar: (2015) 54 Taxmann.com 160 (Delhi), Division Bench of this Court had observed as under: reason to believe predicates belief which is founded and induced by existence of palpable or cogent material or information. Reason to suspect cannot amount to reason to ITA 174/2013 Page 11 of 26 believe. As it is beginning of inquiry, having prima facie opinion is sufficient; and irrebuttable conclusive evidence or finding is not required. But prima facie formation of belief should be rational, coherent and not ex facie incorrect and contrary to what is on record. 10. In present case, reasons recorded by AO for issuance of notice under Section 148 of Act are quoted as under:- Under prescribed statutory provisions only profits and gains of insurance (other than life insurance) shall be taken to be balance as disclosed in annual' accounts by assessee, copies of which were required under Insurance Act, 1938(4 of 1938) to be submitted to prescribed Controller of Insurance (referred to in Schedule 1 of I.Tax Act, 1961). It is, therefore, clear that income earned by assessee form noninsurance activities are taxable like profit and gains of business and profession. After omission of Rule 5(b) of first schedule of I.Tax Act, 1961, with effect from A.V. 1989-90, assessee has been crediting directly profits on realization of investments/sale of shares of companies and redemption of such investment into balance sheet Under head general reserve account without subjecting it to profit and loss account of corresponding year. Since this part of profit and gains is not attributable to insurance business, same does not constitute valid cause for claiming it exempted. Further, taking profit and gains attributable to such activities directly to balance sheet without subjecting it to profit and loss account of corresponding year constitute furnishing of inaccurate particulars of income on part of assessee. Besides profit arising out of sale of investments being non-obligatory under ITA 174/2013 Page 12 of 26 Insurance Act, 1938, constitute business income of assessee not incidental to. Insurance business. During previous year under consideration assessee has inter-alia credited sum of Rs. 5,05,33,63,209/- directly into General Reserve Accounts in Balance Sheet as "profit on sale of investment" without routing it through profit and loss account of corresponding year. Thus income of Rs. 5,05,33,63,209'- has escaped assessment within meaning of section 147 of I.Tax Act, 1961 during previous year relevant to assessment year under consideration . 11. As indicated hereinbefore, it is not disputed that reasons that led AO to reopen assessment were factually incorrect. It is not disputed that Assessee was carrying on only one business - General Insurance Business, which is regulated under Insurance Act, 1938. Indisputably, insurers cannot carry on any business other than insurance business or any prescribed business. business of General Insurance is regulated and there is no allegation that regulatory authority has found Assessee to be in default of any provisions of Insurance Act, 1938. learned counsel for Revenue also did not dispute that AO s assumption that Assessee was carrying on two streams of business was incorrect. Thus, this reason to believe that Assessee s income had escaped assessment is clearly without any factual basis. ITA 174/2013 Page 13 of 26 12. assumption that Assessee had not credited profits in question to Profit and Loss Account is also, admittedly, factually incorrect. Thus, reasons which led AO to form belief that income of Assessee had escaped assessment are admittedly based on palpably incorrect assumptions. It is well established that reasons to believe that income had escaped assessment is necessary precondition for AO to assume jurisdiction. Clearly, it would be difficult to sustain that this pre- condition is met if such reasons to believe that income of Assessee has escaped assessment are based on palpably erroneous assumptions. reason to believe must be predicated on tangible material or information. reason to suspect cannot be reason to believe; belief must be rational and bear direct nexus to material on which such belief is based. In present case, very assumption on basis of which AO is stated to have formed his belief that Assessee s income had escaped assessment has been found to be erroneous. There was no basis for AO to assume that Assessee had not credited profits from sale of investments, which are alleged to have escaped assessment in its Profit and Loss account. 13. Before Tribunal, Revenue had contended that errors in ITA 174/2013 Page 14 of 26 reasons recorded were minor errors, which did not detract from fact that income had escaped assessment. In our view, this contention is without merit as reasons to believe that income had escaped assessment is necessary pre-condition which enables AO to assume jurisdiction to proceed further. In event such reasons are found to be erroneous, AO would not have jurisdiction to make assessment and any proceedings initiated on basis of palpably erroneous reasons would be without authority of law. Therefore, even if it is assumed that, infact, Assessee s income has escaped assessment, AO would have no jurisdiction to assess same if his reasons to believe were not based on any cogent material. In absence of jurisdictional pre-condition being met to reopen assessment, question of assessing or reassessing income under Section 147 of Act would not arise. 14. Thus, in our view, proceedings under Section 147 of Act are liable to be quashed as being without jurisdiction. 15. decisions of this Court in Ranbaxy Laboratories Ltd. (supra) and Software Consultants (supra) are, in our view, inapplicable to facts pertaining to issues involved in present case. As rightly pointed out ITA 174/2013 Page 15 of 26 by Mr Sawhney, said decisions relate to jurisdiction of AO to tax other income being income other than income which AO has reason to believe has escaped assessment and has occasioned issuance of notice under Section 148 of Act that has escaped assessment and comes to notice of AO during course of proceedings initiated under Section 147 of Act. This Court had held that other income chargeable to tax could be assessed only once income which AO had reason to believe had escaped assessment and which occasioned AO to reopen assessment under Section 147 of Act is sustained. In present case, AO has not sought to tax any other income but income, which AO believed had escaped assessment, that is, profits from sale of investments. point in issue involved in present case is whether reopening could be sustained on grounds other than those which led AO to believe that income has escaped assessment. This Court was not convinced with this issue in decisions referred above. 16. next issue to be addressed is whether AO would have jurisdiction to examine question as to taxability of profits and gains from sale of securities as it is contended that AO had already expressed his opinion in that regard in initial assessment. According to ITA 174/2013 Page 16 of 26 Assessee, decision of AO to tax profits and gains from sale of investments, amounts to change of opinion, which is impermissible under Section 147 of Act. 17. By virtue of Section 44 of Act, income of insurance company is to be computed in accordance with Rules contained in First Schedule of Act. Rule 5 of First Schedule provides for computation of profits and gains of insurance business other than life insurance business. said Rule as in force prior to 1st April, 1989 reads as under:- Computation of profits and gains of other insurance business. 5. profits and gains of any business of insurance other than life insurance shall be taken to be profit before tax and appropriations as disclosed in profit and loss account prepared in accordance with provisions of Insurance Act, 1938 (4 of 1938) or rules made thereunder or provisions of Insurance Regulatory and Development Authority Act, 1999 (4 of 1999) or regulations made thereunder, subject to following adjustments:- (a) subject to other provisions of this rule, any expenditure or allowance including any amount debited to profit and loss account either by way of provision for any tax, dividend, reserve or any other provision as may be prescribed which is not admissible ITA 174/2013 Page 17 of 26 under provisions of sections 30 to 43B in computing profits and gains of business shall be added back; (b) Any amount either written off or reserved in accounts to meet depreciation of or loss on realization of investments shall be allowed as deduction and any sum taken credit for in accounts on account of appreciation of or gain on realization of investment shall be treated as part of profits and gains. (c) such amount carried over to reserve for unexpired risks as may be prescribed in this behalf shall be allowed as deduction. 18. By virtue of Finance Act, 1988, clause (b) of Rule 5 of First Schedule of Act was deleted. In initial assessment proceedings relevant to Assessment Year 2004-05, Assessee claimed deduction in respect of sum of `3,57,54,000/- on account of amount written off in respect of depreciated investments. Assessee contended that deletion clause (b) of Rule 5 did not affect deduction claimed as same had been debited to Profit & Loss Account and was not representing any loss on realization of investments. In support of its contention, Assessee relied on paragraph seventeen of Memorandum explaining provisions of Finance Act, 1988 which reads as under:- ITA 174/2013 Page 18 of 26 17) Under existing provisions of section 44 of Income Tax Act, profits and gains of any insurance business is computed in accordance with rules contained in first Schedule to Act. In Rule 5 of this Schedule, profits and gains of any business of insurance, other than life insurance, are taken to be balance of profits disclosed in annual accounts furnished to Controller of Insurance subject to certain adjustments. One of adjustments provided therein is in respect of amount either written off or reserved in account to meet depreciation or loss on realization of investment, which is allowed as deduction. Similarly, any sum taken credit for in accounts of appreciation of or gain on realisation of investments is taken as part of profits and gains of business. With view to enable General Insurance Corporation and its subsidiaries to play more active role in capital markets for benefit of policy holders, it is proposed to provide for exemption of profits earned by them on sale of investments. As corollary, it is proposed to provide that losses incurred by General Insurance Corporation on realization of investment shall not be allowed as deduction in computing profits chargeable to tax. To achieve this objective, clause (b) of Rule 5 of First schedule of Act will take effect from 1st April, 1989, and will, accordingly, apply in relation to assessment year 1989-90 and subsequent years. 19. AO rejected above contention of Assessee and held that intention of Legislature in deleting clause (b) of Rule 5 of First Schedule of Act was to exempt all types of gains on investments whether by way of appreciation or by way of realization and simultaneously to disallow all types of losses on investments whether by ITA 174/2013 Page 19 of 26 way of depreciation or by way of realization. relevant extract of assessment order dated 30th January, 2006 is quoted below:- above contention of assessee is taken into consideration by me and I think that assessee has not understood provision of clause 5(b) in totality. When clause 5(b) stood in Income Tax statute, it talked about for not allowing deduction for all type of losses from investments either it is due to writing off or reserved in account to meet depreciation of investment or it is due to loss in realisation of investments and simultaneously it talked about taking amount as part of profits and gains, which is taken credit for in accounts on account of appreciation of investments earned as gain on realization of investments. Therefore, when it is deleted, intention of legislature is very clear that it has exempted all types of gains on investments whether by way of appreciation or by way of realization and simultaneously all type of losses on investments whether by way of depreciation or by way of realisation are to be disallowed. As far as para 17 of Memorandum quoted by assessee is concerned, firstly Memorandum is not law and secondly this explains basic idea behind amendment and does not give exact effect of amendment. Therefore, in general term it has been explained that when profit on sale of investment is not being taxed, loss on realisation of investment will not be deducted. However, while applying provision of particular clause or section we have to see its effect in totality. Had intention of legislature been that only loss on realisation of investments is to be disallowed, there was no need of deleting whole clause 5(b) and only phrase or loss on realization of investments and or gains on realization of investments could have been deleted from clause 5(b). Since, whole clause 5(b) is deleted, all profit on investments whether by way of appreciation or gains on realization of investments ITA 174/2013 Page 20 of 26 shall be exempted from taxation and at same time all type of losses on investments whether by way of depreciation or loss on realization of investments are to be disallowed. Once depreciated value of investment is written off, no loss would be incurred by assessee on realization of these investments. Therefore, it is quite logical and also in consonance with deletion of clause 5(b) that any loss booked by assessee company on depreciation in value of investment should not be allowed. (emphasis added) 20. It is at once clear from above that AO had expressed its firm opinion that profits and gains on realization of investments were exempt from taxation. Admittedly, such profits had been included by Assessee in its Profit & Loss Account, which was subjected to scrutiny in assessment proceedings. 21. It is also not disputed that Assessee had appended note expressly explaining that sum of `5,05,33,63,209/- had been deducted from taxable income. relevant note being Note No. 2 appended along with return of income reads as under:- Profit/loss on sale/redemption of investment amounting to Rs.5,05,33,63,209/- during year ended on 31.03.2004 has been credited to revenue and profit and loss account as per IRDA requirement made applicable from F.Y. ending 31.03.2002. Till 31.03.2001, this amount was being credited directly to General Reserve as per our consistent accounting policy and was treated as exempt by us and also ITA 174/2013 Page 21 of 26 accepted by Assessing Officer. We, therefore, deducted Rs.5,05,33,63,209/- out of taxable income. 22. In above circumstances, it cannot be disputed that exemption claimed by AO in respect of profit on sale/redemption of investments was duly disclosed and AO had also opined on merits of taxability of profits on sale/redemption of investments. income from profit on sale/redemption of investments is now sought to be taxed as income which had escaped assessment. This, in our view, clearly represents change in opinion with regard to taxability of income in question. It is well settled that power under Section 147 of Act is not power of review but power to reassess. Permitting reopening of assessment on change of opinion as to taxability of income of Assessee is, thus, outside scope of Section 147 of Act. Supreme Court in case of Commissioner of Income-Tax v. Kelvinator of India Ltd.: 320 ITR 561 (SC) had held as under:- 6. On going through changes, quoted above, made to section 147 of Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfilment of said conditions alone conferred jurisdiction on Assessing Officer to make back assessment, but in section 147 of ITA 174/2013 Page 22 of 26 Act (with effect from 1st April, 1989), they are given go- by and only one condition has remained, viz., that where Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen assessment. Therefore, post-1st April, 1989, power to reopen is much wider. However, one needs to give schematic interpretation to words " reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to Assessing Officer to reopen assessments on basis of " mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind conceptual difference between power to review and power to reassess. Assessing Officer has no power to review ; he has power to reassess. But reassessment has to be based on fulfilment of certain preconditions and if concept of " change of opinion" is removed, as contended on behalf of Department, then, in garb of reopening assessment, review would take place. One must treat concept of " change of opinion" as in-built test to check abuse of power by Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to reopen, provided there is "tangible material" to come to conclusion that there is escapement of income from assessment. Reasons must have live link with formation of belief. Our view gets support from changes made to section 147 of Act, as quoted hereinabove. Under Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted words " reason to believe" but also inserted word " opinion" in section 147 of Act. However, on receipt of representations from companies against omission of words " reason to believe", Parliament reintroduced said expression and deleted word " opinion" on ground that it would vest ITA 174/2013 Page 23 of 26 arbitrary powers in Assessing Officer. We quote hereinbelow relevant portion of Circular No. 549 dated October 31, 1989 ([1990] 182 ITR (St.) 1, 29), which reads as follows : 7.2 Amendment made by Amending Act, 1989, to reintroduce expression ' reason to believe' in section 147. number of representations were received against omission of words ' reason to believe' from section 147 and their substitution by ' opinion' of Assessing Officer. It was pointed out that meaning of expression, ' reason to believe' had been explained in number of court rulings in past and was well settled and its omission from section 147 would give arbitrary powers to Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, Amending Act, 1989, has again amended section 147 to reintroduce expression ' has reason to believe' in place of words ' for reasons to be recorded by him in writing, is of opinion' . Other provisions of new section 147, however, remain same. (emphasis added) 23. This Court in case of Prabhu Dayal Rangwala v. Commissioner of Income-Tax: 373 ITR 596 (Delhi) referred to decision of Supreme Court in Kelvinator of India (supra) and earlier decisions of this Court and held as under:- 18. In view of dictum of Supreme Court in case of Kelvinator of India Ltd. (supra), Full Bench of this court in Kelvinator of India Ltd. (supra) and Usha International (supra), present case would fall in category of "change of opinion" as "reasons to believe" proceed on premise that opinion formed in original assessment orders was wrong ITA 174/2013 Page 24 of 26 or erroneous. wrong or erroneous opinion is not good ground for reopening. This would be contrary to jurisdictional requirements and mandatory pre-conditions which should be satisfied. said aspect has been highlighted in aforesaid ratio by Supreme Court and this court. Erroneous decisions can be corrected by resort to exercise of power under section 263 of Act, which is appropriate remedy. said power can be exercised if order passed by Assessing Officer was erroneous and prejudicial to interests of Revenue. error and mistake made by Assessing Officer/Revenue in present case is that it did not resort to and exercise power under section 263 of Act but erringly selected to exercise power of reopening under section 147 of Act. Exercise of said power under section 147 of Act is faulty and flawed, as jurisdictional pre- conditions are not satisfied. 24. In view of aforesaid, we find considerable merit in contention of Assessee that AO did not have jurisdiction to tax profits and gains from sale/realization of investments under Section 147 of Act. first and third questions of law are, therefore, answered in favour of Assessee and against Revenue. In view of our decision that AO could not assume jurisdiction to reopen assessment under Section 147 of Act, it is not necessary to address second question of law, which relates to taxability of profits on sale of investments on merits. 25. appeal is allowed. reassessment order dated 21 st January, 2007; order dated 16th August, 2007 passed by CIT(A) and order ITA 174/2013 Page 25 of 26 dated 22nd July, 2011 passed by Tribunal are set aside. 26. parties are left to bear their own costs. VIBHU BAKHRU, J S. MURALIDHAR, J SEPTEMBER 15, 2015 RK ITA 174/2013 Page 26 of 26 ORIENTAL INSURANCE COMPANY v. COMMISSIONER OF INCOME TAX, DELHI