REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 2732 OF 2007 Income Tax Officer Ward No. 16(2) .... Appellant(s) Versus M/s TechSpan India Private Ltd. & Anr. .... Respondent(s) JUDGMENT R.K. Agrawal, J. 1) present appeal has been preferred against impugned final judgment and order dated 24.02.2006 passed by High Court of Delhi in W.P.(C) No 14376 of 2005 whereby Division Bench of High Court, while allowing petition filed by Respondent herein, quashed notice dated 10.02.2005 issued under Section 148 of Income Tax Act, 1961 (hereinafter referred to as IT Act ) and order dated 17.08.2005 passed by Income Tax Officer. Signature Not Verified Digitally signed by ASHA SUNDRIYAL Date: 2018.04.24 17:40:42 IST Reason: 2) Brief facts:- 1 (a) M/s TechSpan India Private Ltd.-the Respondent is private limited company incorporated under Companies Act, 1956 and is engaged in business of development and export of computer softwares and human resource services. It is also relevant to mention here that Respondent-Company is also eligible for deduction under Section 10A of IT Act. (b) On 25.10.2001, Respondent filed its return of income for Assessment Year (AY) 2001-02 declaring loss of Rs 3,31,301/-. Respondent, while filing return for aforementioned period, has declared its income from two sources, namely, software development and human resource development but claimed expenses commonly for both. It also claimed deduction under Section 10 of IT Act for income from software development. said return was accepted and accordingly intimated to Respondent. (c) return was selected for regular assessment under Section 143(3) of IT Act and show cause notice dated 09.03.2004 was issued to Respondent to show cause as to why expenses claimed with regard to allocation of common expenses between two heads, viz., software 2 development and human resource development do not reveal any basis for such allocation. issue was duly contested and decided vide order dated 29.11.2004 and proceedings ended with rectification of Assessment Order under Section 154 of IT Act while arriving at income of Rs. 31,63,570/- which was fully set-off against loss brought forward and income was assessed as Nil for AY 2001-2002. (d) Further, on 10.02.2005, Notice was served upon Respondent by Revenue for re-opening assessment under Section 148 on ground that deduction under Section 10A of IT Act has been allowed in excess and income escaped assessment works out to Rs. 57,36,811/- in original assessment. Respondent filed detailed reply objecting to re-assessment. However, by order dated 17.08.2005, objections were rejected and reassessment was approved by Revenue. (e) Being aggrieved, Respondent challenged above said show cause notice dated 10.02.2005 as well as order dated 17.08.2005 before High Court by filing Writ 3 Petition (C) No. 14376 of 2005. Vide judgment and order dated 24.02.2006, High Court set aside show cause notice dated 10.02.2005 as well as re-assessment order dated 17.08.2005. (f) Being aggrieved, Revenue has filed this appeal before this Court. 3) Heard Mr. Rajesh Ranjan, learned counsel for Appellant and Mr. C.S. Agarwal, learned counsel for Respondents and perused records. Point(s) for consideration:- 4) only point for consideration before this Court is whether re-opening of completed assessment is justified in present facts and circumstances of case? Rival contentions:- 5) Learned counsel for Appellant contended that Assessing Officer (AO) was well within his powers to issue show cause notice under Section 148 as deduction that was allowed under Section 10A was in excess and had escaped assessment for which re-assessment proceedings can be issued under Section 147. He further contended that High 4 Court has erroneously held that re-assessment proceedings initiated under Section 147 of Act are illegal and not sustainable in eyes of law. Learned counsel finally contended that impugned judgment of High Court is erroneous in eyes of law and is liable to be set aside. 6) Learned counsel appearing on behalf of Respondent submitted that ground for re-assessment proceedings under Section 147 in present case is nothing but merely change of opinion on same material facts of case and no new fact has come to knowledge of Appellant enabling said authority to initiate re-assessment proceedings under IT Act, and therefore, High Court was right in allowing writ petition in light of fact that mere change of opinion cannot be ground for re-assessment. 7) He further submitted that ground on which re-assessment proceedings were initiated was well considered by competent authority during time of original assessment proceedings. He further contended that order dated 17.08.2005 was not speaking order and was rightly set aside by High Court. Learned counsel finally submitted 5 that High Court has rightly set aside show cause notice dated 10.02.2005 and order dated 17.08.2005 and no interference is called for by this Court in matter. Discussion:- 8) To appreciate present controversy between parties, it would be appropriate to refer to Sections 147 and 148 of IT Act. For ready reference, relevant portion of Sections 147 and 148 of Act are reproduced below:- 147. Income escaping assessment:-- If Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to provisions of sections 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 course of proceedings under this section, or recompute loss or depreciation allowance or any other allowance, as case may be, for assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as relevant assessment year): Provided that where assessment under sub- section (3) of section 143 or this section has been made for relevant assessment year, no action shall be taken under this section after expiry of four years from end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on part of assessee to make return under section 139 or in response to notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year: xxx x x x 6 148. Issue of notice where income has escaped assessment.-(1) Before making assessment, reassessment or recomputation under section 147, Assessing Officer shall serve on assessee notice requiring him to furnish within such period, as may be specified in notice, return of his income or income of any other person in respect of which he is assessable under this Act during previous year corresponding to relevant assessment year, in prescribed form and verified in prescribed manner and setting forth such other particulars as may be prescribed, and provisions of this Act shall, so far as may be, apply accordingly as if such return were return required to be furnished under Section 139: xxx xxx (2) Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so. language of Section 147 makes it clear that assessing officer certainly has power to re-assess any income which escaped assessment for any assessment year subject to provisions of Sections 148 to 153. However, use of this power is conditional upon fact that assessing officer has some reason to believe that income has escaped assessment. use of words reason to believe in Section 147 has to be interpreted schematically as liberal interpretation of word would have consequence of conferring arbitrary powers on assessing officer who may even initiate such re-assessment proceedings merely on his 7 change of opinion on basis of same facts and circumstances which has already been considered by him during original assessment proceedings. Such could not be intention of legislature. said provision was incorporated in scheme of IT Act so as to empower Assessing Authorities to re-assess any income on ground which was not brought on record during original proceedings and escaped his knowledge; and said fact would have material bearing on outcome of relevant assessment order. 9) Section 147 of IT Act does not allow re-assessment of income merely because of fact that assessing officer has change of opinion with regard to interpretation of law differently on facts that were well within his knowledge even at time of assessment. Doing so would have effect of giving assessing officer power of review and Section 147 confers power to re-assess and not power to review. 10) To check whether it is case of change of opinion or not one has to see its meaning in literal as well as legal terms. 8 word change of opinion implies formulation of opinion and then change thereof. In terms of assessment proceedings, it means formulation of belief by assessing officer resulting from what he thinks on particular question. It is result of understanding, experience and reflection. 11) It is well settled and held by this court in catena of judgments and it would be sufficient to refer Commissioner of Income Tax, Delhi vs. Kelvinator of India Ltd. (2010) 320 ITR 561(SC) wherein this Court has held as under:- 5 .where Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give schematic interpretation to words "reason to believe" .. Section 147 would give arbitrary powers to Assessing Officer to re-open assessments on basis of "mere change of opinion", which cannot be per se reason to re-open. 6. We must also keep in mind conceptual difference between power to review and power to re-assess. Assessing Officer has no power to review; he has power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if concept of "change of opinion" is removed, as contended on behalf of Department, then, in garb of re-opening assessment, review would take place. 7. 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 re-open, 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. 9 12) Before interfering with proposed re-opening of assessment on ground that same is based only on change in opinion, court ought to verify whether assessment earlier made has either expressly or by necessary implication expressed opinion on matter which is basis of alleged escapement of income that was taxable. If assessment order is non-speaking, cryptic or perfunctory in nature, it may be difficult to attribute to assessing officer any opinion on questions that are raised in proposed re-assessment proceedings. Every attempt to bring to tax, income that has escaped assessment, cannot be absorbed by judicial intervention on assumed change of opinion even in cases where order of assessment does not address itself to given aspect sought to be examined in re-assessment proceedings. 13) fact in controversy in this case is with regard to deduction under Section 10A of IT Act which was allegedly allowed in excess. show cause notice dated 10.02.2005 reflects ground for re-assessment in present case, that 10 is, deduction allowed in excess under Section 10A and, therefore, income has escaped assessment to tune of Rs. 57,36,811. In order in question dated 17.08.2005, reason purportedly given for rejecting objections was that assessee was not maintaining any separate books of accounts for two categories, i.e., software development and human resource development, on which it has declared income separately. However, bare perusal of notice dated 09.03.2004 which was issued in original assessment proceedings under Section 143 makes it clear that point on which re-assessment proceedings were initiated, was well considered in original proceedings. In fact, very basis of issuing show cause notice dated 09.03.2004 was that assessee was not maintaining any separate books of account for said two categories and details filed do not reveal proportional allocation of common expenses be made to these categories. Even said show cause notice suggested how proportional allocation should be done. All these things leads to unavoidable conclusion that question as to how and to what extent deduction should be allowed under 11 Section 10A of IT Act was well considered in original assessment proceedings itself. Hence, initiation of re-assessment proceedings under Section 147 by issuing notice under Section 148 merely because of fact that now Assessing Officer is of view that deduction under Section 10A was allowed in excess, was based on nothing but change of opinion on same facts and circumstances which were already in his knowledge even during original assessment proceedings. 14) In light of forgoing discussion, we are of view that impugned judgment and order of High Court dated 24.02.2006 does not call for any interference. appeal is accordingly dismissed with no order as to costs. ..... J. (R.K. AGRAWAL) . . J. (MOHAN M. SHANTANAGOUDAR) NEW DELHI; APRIL 24, 2018. 12 Income-tax Officer Ward No. 16(2) v. TechSpan India Private Ltd. & Anr