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

328                      [2018]REPORTS
               SUPREME COURT    4 S.C.R. 328                [2018] 4 S.C.R.


A                INCOME TAX OFFICER WARD NO. 16 (2)
                                        v.
               M/S TECHSPAN INDIA PRIVATE LTD. & ANR.
                         (Civil Appeal No. 2732 of 2007)
B                                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
C
      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
D     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
E
      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
F     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
G
      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
H     aside the show cause notice as well as the re-assessment order.
                                      328
 INCOME TAX OFFICER WARD NO. 16 (2) v. M/S TECHSPAN                   329
            INDIA PRIVATE LTD. & ANR.

       Income Tax Act, 1961 – s.147 – Reassessment proceedings –      A
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
                                                                      B
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    C
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        D
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         E
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         F
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         G
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
                                                                      H
330            SUPREME COURT REPORTS                       [2018] 4 S.C.R.


A     earlier made has either expressly or by necessary implication
      expressed an opinion on a matter which is the basis of the alleged
      escapement of income that was taxable. If the assessment order
      is non-speaking, cryptic or perfunctory in nature, it may be difficult
      to attribute to the assessing officer any opinion on the questions
      that are raised in the proposed re-assessment proceedings. Every
B
      attempt to bring to tax, income that has escaped assessment,
      cannot be absorbed by judicial intervention on an assumed change
      of opinion even in cases where the order of assessment does not
      address itself to a given aspect sought to be examined in the re-
      assessment proceedings. [Para 12][336-B-D]
C            3. The fact in controversy in this case is with regard to the
      deduction under Section 10A of the IT Act which was allegedly
      allowed in excess. The show cause notice reflects the ground for
      re-assessment in the instant case, that is, the deduction allowed
      in excess under Section 10A and, therefore, the income has
D     escaped assessment to the tune of Rs. 57,36,811. In the impugned
      order, the reason purportedly given for rejecting the objections
      was that the assessee was not maintaining any separate books of
      accounts for the two categories, i.e., software development and
      human resource development, on which it has declared income
      separately. However, a bare perusal of notice which was issued
E     in the original assessment proceedings under Section 143 makes
      it clear that the point on which the re-assessment proceedings
      were initiated, was well considered in the original proceedings.
      [Para 13][336-E-G]
            Commissioner of Income Tax, Delhi v. Kelvinator of
F           India Ltd. (2010) 320 ITR 561(SC) – referred to.
                              Case Law Reference
            (2010) 320 ITR 561 (SC)         referred to       Para 11
            CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2732
G     of 2007.
            From the Judgment and Order dated 24.02.2006 of the High Court
      of Delhi at New Delhi in Writ Petition (C) No. 14376 of 2005.
            Rajesh Ranjan, Hemant Arya, Shashank Dewan, Ms. Vimla Sinha
      (for Mrs. Anil Katiyar), Advs. for the Appellant.
H
 INCOME TAX OFFICER WARD NO. 16(2) v. M/S TECHSPAN                           331
            INDIA PRIVATE LTD. & ANR.

     C. S. Agarwal, Sr. Adv, Bhargava V. Desai, Ms. Pushpa Sharma,           A
Uma Shankar, Ms. Saumya Mehrotra, Advs. for the Respondents.
      The Judgment of the Court was delivered by
      R. K. AGRAWAL, J. 1.The present appeal has been preferred
against the impugned final judgment and order dated 24.02.2006 passed
by the High Court of Delhi in W.P.(C) No 14376 of 2005 whereby a             B
Division Bench of the High Court, while allowing the petition filed by the
Respondent herein, quashed the notice dated 10.02.2005 issued under
Section 148 of the Income Tax Act, 1961 (hereinafter referred to as ‘the
IT Act’) and the order dated 17.08.2005 passed by the Income Tax
Officer.                                                                     C
      2. Brief facts:-
      (a) M/s TechSpan India Private Ltd.-the Respondent is a private
limited company incorporated under the Companies Act, 1956 and is
engaged in the business of development and export of computer softwares
and human resource services. It is also relevant to mention here that        D
the Respondent-Company is also eligible for deduction under Section
10A of the IT Act.
       (b) On 25.10.2001, the Respondent filed its return of income for
the Assessment Year (AY) 2001-02 declaring a loss of Rs 3,31,301/-.
The Respondent, while filing the return for the aforementioned period,       E
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 A of the IT Act for the
income from the software development. The said return was accepted
and accordingly intimated to the Respondent.                                 F
       (c) The return was selected for regular assessment under Section
143(3) of the IT Act and a show cause notice dated 09.03.2004 was
issued to the Respondent to show cause as to why the expenses claimed
with regard to the allocation of common expenses between the two
heads, viz., software development and human resource development do
                                                                             G
not reveal any basis for such allocation. The issue was duly contested
and decided vide order dated 29.11.2004 and the proceedings ended
with a rectification of the Assessment Order under Section 154 of the
IT Act while arriving at an income of Rs. 31,63,570/- which was fully
set-off against the loss brought forward and the income was assessed
as ‘Nil’ for the AY 2001-2002.                                               H
332               SUPREME COURT REPORTS                         [2018] 4 S.C.R.


A            (d) Further, on 10.02.2005, a Notice was served upon the
      Respondent by the Revenue for re-opening the assessment under Section
      148 on the ground that the deduction under Section 10A of the IT Act
      has been allowed in excess and the income escaped assessment works
      out to Rs. 57,36,811/- in the original assessment. The Respondent filed a
      detailed reply objecting to the re-assessment. However, by order dated
B
      17.08.2005, the objections were rejected and reassessment was approved
      by the Revenue.

            (e) Being aggrieved, the Respondent challenged the above said
      show cause notice dated 10.02.2005 as well as the order dated 17.08.2005
C     before the High Court by filing a Writ Petition (C) No. 14376 of 2005.
      Vide judgment and order dated 24.02.2006, the High Court set aside the
      show cause notice dated 10.02.2005 as well as the re-assessment order
      dated 17.08.2005.

               (f) Being aggrieved, the Revenue has filed this appeal before this
D     Court.

             3. Heard Mr. Rajesh Ranjan, learned counsel for the Appellant
      and Mr. C.S. Agarwal, learned counsel for the Respondents and perused
      the records.

E              Point(s) for consideration:-

             4. The only point for consideration before this Court is whether
      the re-opening of the completed assessment is justified in the present
      facts and circumstances of the case?

F              Rival contentions:-

             5. Learned counsel for the Appellant contended that the Assessing
      Officer (AO) was well within his powers to issue the show cause notice
      under Section 148 as the deduction that was allowed under Section 10A
      was in excess and had escaped assessment for which re-assessment
G     proceedings can be issued under Section 147. He further contended
      that the High Court has erroneously held that the re-assessment
      proceedings initiated under Section 147 of the Act are illegal and not
      sustainable in the eyes of law. Learned counsel finally contended that
      the impugned judgment of the High Court is erroneous in the eyes of law
      and is liable to be set aside.
H
 INCOME TAX OFFICER WARD NO. 16(2) v. M/S TECHSPAN                              333
    INDIA PRIVATE LTD. & ANR. [R. K. AGRAWAL, J.]

       6. Learned counsel appearing on behalf of the Respondent                 A
submitted that the ground for re-assessment proceedings under Section
147 in the present case is nothing but merely a change of opinion on the
same material facts of the case and no new fact has come to the
knowledge of the Appellant enabling the said authority to initiate re-
assessment proceedings under the IT Act, and therefore, the High Court
                                                                                B
was right in allowing the writ petition in light of the fact that mere change
of opinion cannot be a ground for re-assessment.
       7. He further submitted that the ground on which the re-assessment
proceedings were initiated was well considered by the competent authority
during the time of original assessment proceedings. He further contended
that the order dated 17.08.2005 was not a speaking order and was rightly        C
set aside by the High Court. Learned counsel finally submitted that the
High Court has rightly set aside the show cause notice dated 10.02.2005
and the order dated 17.08.2005 and no interference is called for by this
Court in the matter.
      Discussion:-                                                              D

       8. To appreciate the present controversy between the parties, it
would be appropriate to refer to Sections 147 and 148 of the IT Act. For
ready reference, relevant portion of Sections 147 and 148 of the Act are
reproduced below:-
                                                                                E
      “147. Income escaping assessment:— If the Assessing
      Officer has reason to believe that any income chargeable to tax
      has escaped assessment for any assessment year, he may, subject
      to the 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             F
      in the course of the proceedings under this section, or recompute
      the loss or the depreciation allowance or any other allowance, as
      the case may be, for the assessment year concerned (hereafter
      in this section and in sections 148 to 153 referred to as the relevant
      assessment year):                                                         G
      Provided that where an assessment under sub- section (3) of
      section 143 or this section has been made for the relevant
      assessment year, no action shall be taken under this section after
      the expiry of four years from the end of relevant assessment
      year, unless any income chargeable to tax has escaped assessment
                                                                                H
334             SUPREME COURT REPORTS                            [2018] 4 S.C.R.


A           for such assessment year by reason of the failure on the part of
            the assessee to make a return under section 139 or in response to
            a 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:
B           xxx
            x x x”
            “148. Issue of notice where income has escaped
            assessment.-(1) Before making the assessment, reassessment
            or recomputation under section 147, the Assessing Officer shall
C           serve on the assessee a notice requiring him to furnish within
            such period, as may be specified in the notice, a return of his
            income or the income of any other person in respect of which he
            is assessable under this Act during the previous year corresponding
            to the relevant assessment year, in the prescribed form and verified
D           in the prescribed manner and setting forth such other particulars
            as may be prescribed, and the provisions of this Act shall, so far
            as may be, apply accordingly as if such return were a return
            required to be furnished under Section 139:
            xxx
E           xxx
            (2) The Assessing Officer shall, before issuing any notice under
            this section, record his reasons for doing so.”
             The language of Section 147 makes it clear that the assessing
      officer certainly has the power to re-assess any income which escaped
F
      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 use of the words ‘reason to believe’ in
      Section 147 has to be interpreted schematically as the liberal interpretation
G     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. Such could not be the intention of
      the legislature. The said provision was incorporated in the scheme of the
H
 INCOME TAX OFFICER WARD NO. 16(2) v. M/S TECHSPAN                              335
    INDIA PRIVATE LTD. & ANR. [R. K. AGRAWAL, J.]

IT Act so as to empower the Assessing Authorities to re-assess any              A
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.
       9. 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           B
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.
                                                                                C
        10. To check whether it is a case of change of opinion or not one
has to see its meaning in literal as well as legal terms. 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.                     D

       11. It is well settled and held by this court in a 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:-
                                                                                E
      “5….where the Assessing Officer has reason to believe that income
      has escaped assessment, confers jurisdiction to re- open the
      assessment. Therefore, post-1st April, 1989, power to re-open is
      much wider. However, one needs to give a schematic interpretation
      to the words “reason to believe”…..
                                                                                F
      Section 147 would give arbitrary powers to the Assessing Officer
      to re-open assessments on the basis of “mere change of opinion”,
      which cannot be per se reason to re-open.
      6. We must also keep in mind the conceptual difference between
      power to review and power to re-assess. The Assessing Officer
                                                                                G
      has no power to review; he has the power to re-assess. But re-
      assessment has to be based on fulfillment of certain pre-condition
      and if the concept of “change of opinion” is removed, as contended
      on behalf of the Department, then, in the garb of re-opening the
      assessment, review would take place.
                                                                                H
336            SUPREME COURT REPORTS                          [2018] 4 S.C.R.


A           7. One must treat the concept of “change of opinion” as an in-
            built test to check abuse of power by the Assessing Officer. Hence,
            after 1st April, 1989, Assessing Officer has power to re-open,
            provided there is “tangible material” to come to the conclusion
            that there is escapement of income from assessment. Reasons
            must have a live link with the formation of the belief.”
B
             12. 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 earlier made
      has either expressly or by necessary implication expressed an opinion
      on a matter which is the basis of the alleged escapement of income that
C     was taxable. If the assessment order is non-speaking, cryptic or
      perfunctory in nature, it may be difficult to attribute to the assessing
      officer any opinion on the questions that are raised in the proposed re-
      assessment proceedings. Every attempt to bring to tax, income that has
      escaped assessment, cannot be absorbed by judicial intervention on an
D     assumed change of opinion even in cases where the order of assessment
      does not address itself to a given aspect sought to be examined in the re-
      assessment proceedings.
             13. The fact in controversy in this case is with regard to the
      deduction under Section 10A of the IT Act which was allegedly allowed
E     in excess. The show cause notice dated 10.02.2005 reflects the ground
      for re-assessment in the present case, that is, the deduction allowed in
      excess under Section 10A and, therefore, the income has escaped
      assessment to the tune of Rs. 57,36,811. In the order in question dated
      17.08.2005, the reason purportedly given for rejecting the objections was
      that the assessee was not maintaining any separate books of accounts
F     for the two categories, i.e., software development and human resource
      development, on which it has declared income separately. However, a
      bare perusal of notice dated 09.03.2004 which was issued in the original
      assessment proceedings under Section 143 makes it clear that the point
      on which the re-assessment proceedings were initiated, was well
G     considered in the original proceedings. In fact, the very basis of issuing
      the show cause notice dated 09.03.2004 was that the assessee was not
      maintaining any separate books of account for the said two categories
      and the details filed do 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
H
 INCOME TAX OFFICER WARD NO. 16(2) v. M/S TECHSPAN                          337
    INDIA PRIVATE LTD. & ANR. [R. K. AGRAWAL, J.]

leads to an unavoidable conclusion that the question as to how and to       A
what extent deduction should be allowed under Section 10A of the IT
Act was well considered in the original assessment proceedings itself.
Hence, initiation of the re-assessment proceedings under Section 147 by
issuing a notice under Section 148 merely because of the fact that now
the Assessing Officer is of the view that the deduction under Section
                                                                            B
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.
      14. In light of the forgoing discussion, we are of the view that
impugned judgment and order of the High Court dated 24.02.2006 does
not call for any interference. The appeal is accordingly dismissed with     C
no order as to costs.


Devika Gujral                                           Appeal dismissed.

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