Ita/1/2014 Commissioner Of Income Tax, Kolkata-Ii, Kolkata v. M/S. Kesoram Industries Limited

O – 31 A. F. R. IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE ITA/1/2014COMMISSIONER OF INCOME TAX, KOLKATA-II, KOLKATAVSM/S. KESORAM INDUSTRIES LIMITED BEFORE :THE HON’BLE JUSTICE SURYA PRAKASH KESARWANIANDTHE HON’BLE JUSTICE RAJARSHI BHARADWAJDate : 6[th] May 2024. Appearance: Mr. Soumen Bhattacharjee, AdvocateMr. Ankan Das, Advocate… for the appellant.Mr. J. P. Khaitan, Senior AdvocateMs. Nilanjana Banerjee Pal, Advocate.… for the respondent. 1.Heard Sri Soumen Bhattacharjee, learned junior standing counsel forthe appellant and Sri J. P. Khaitan, learned senior advocate assistedby Sm. Nilanjana Banerjee Pal, learned counsel for the respondentassessee. 2.This appeal was admitted by this Court by order dated 31[st] July 2013on the following substantial question of law:- “Whether on facts and in the circumstances of the case, theLearned Income Tax Appellate Tribunal erred in law in settingaside the order under Section 147 of the Income Tax, 1961?” Facts : 3.Briefly stated, facts of the present case are that the respondent assesseeis engaged in manufacture and sale of textile goods, rayon, transparentpaper, cast iron pipes, fire bricks and cement through its different unitsi.e. Kesoram Textiles, Kesoram Rayon, Kesoram Spun Pipes, KesoramRefractories, Kesoram Cement and Vasavadatta Cement. During theassessment year in question i.e. AY 1997-98, the respondent assesseeshown “capital work in progress” relating to thermal power plant andexpansion of project of the cement section at Basantnagar and Sedam.In item no.6 of Schedule 17 to the balance sheet, under the heading“Capital Work in Progress”, the assessee also showed interestpaid/payable Rs.28,89,56,752/-. The amount of work in progress wasreduced by the assessee by Rs.2,89,68,884/- as interest received. Therespondent assessee claimed the aforesaid interest paid/payableRs.28,89,56,752/- as revenue expenditure. He added the aforesaidinterest amount of Rs.2,89,68,884/- as revenue receipt. Vide originalassessment order dated 27.03.2000 (paragraph 8) under Section 143(3)of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act, 1961’],the assessing officer rejected the claim of the assessee and held that theamount of interest paid is capital expenditure. After holding so, infinal computation, the assessing officer took the net profit ofRs.45,95,97,148/- without allowing deduction of the aforesaidinterest paid of Rs.2,89,68,884/- and without adding interest received of Rs.2,89,68,884/-. Thus, the assessing officer treatedthe interest paid as capital receipt and the interest received asrevenue receipt. Although the assessing officer discussed in detail inparagraph 8 of the assessment order the claim of the aforesaid interestpaid but has not discussed about the interest received amount ofRs.2,89,68,884/-, both shown under the head “work-in-progress”.Aggrieved with the aforesaid assessment order, the respondent assesseeis stated to have filed an appeal before the CIT (A) which was allowed byan order dated 27.03.2001 and the amount of interest paid was held tobe revenue expenditure. Against order of the CIT(A), the revenue filedan appeal before the Income Tax Appellate Tribunal [for short, ‘ITAT’]which was allowed by order dated 25.01.2007 and the aforesaid amountof interest paid was held to be capital expenditure. … Against the orderof the ITAT, the assessee filed ITA No. 322 of 2007 (Kesoram IndustriesLtd. Vs. Commissioner of Income Tax-II) in which the followingsubstantial questions of law was framed :- “Whether on the facts and circumstances of the instant case,the Tribunal is justified in disallowing the sum ofRs.28,89,56,562/- paid as interest on borrowed capital foracquisition of fixed assets under Section 36(1)(iii) of the Actinasmuch as the said assets have been acquired for thepurposes of expansion of existing business of your petitionerand the findings of the Tribunal to this extent is unreasonable,arbitrary and perverse ?” 4.By judgement and order dated 5.1.2009 in the aforesaid ITA no. 322 of2007 this Court answered the aforequoted substantial questions oflaw in ‘negative’, i.e. in favour of the assessee and against the revenue. This judgement has attained finality. Thus finally the claim of theassessee for interest paid as revenue expenditure was accepted. 5.After the CIT(A) passed the order dated 22.03.2001 allowing theappeal of the respondents/assessee, the income tax officerinstituted proceedings against the respondent/assessee underSection 147 of the Act, 1961 seeking to tax receipt amount ofRs.2,89,68,884/- in the income of the assessee for theassessment year in question i.e. A.Y. 1997-98. Aggrieved with theaforesaid reassessment order the assessee filed appeal No. 499/CIT(A)-XIX/ITO, Wd (4)/Kol/08-09 which was dismissed by order dated16.12.2010 observing that the assessee himself had offered fortaxation the interest receipt of Rs. 2,89,68,884/- as income in hisreturn, therefore, merely for the reasons that the addition of incomeoffered by the assessee was made by the assessing officer by issuingnotice under Section 148 instead of rectifying it under Section 154 ofthe Act, 1961 does not mean that the aforesaid income was nottaxable. Against this order of the CIT(A) the assessee filed an appealbeing I.T.A. No. 346/Kol/2011 before the ITAT, “B” Bench, Kolkatawhich was allowed on the jurisdictional issue holding that to invokethe provision of Section 147 of the Act, the Assessing Officer wasrequired to have some tangible material pin-pointing escapement ofincome from assessment and in the absence of any fresh materialsufficient to lead inference of escapement of income, the Assessing Officer cannot exercise jurisdiction under Section 147 read withSection 148 to proceed with the reassessment. The ITAT further heldthat the jurisdiction to rectify the order under Section 154 of theAct cannot be exercised under Section 147 of the Act. Accordingly,the ITAT quashed the reassessment proceedings and allowed theappeal. 6. Aggrieved with the aforesaid order of the ITAT, the revenue has filedthe present appeal which was admitted on the substantial questions oflaw afore-quoted. Submission : 7.Learned Counsel for the appellant submits that although the factsand figures relating to interest of Rs.2,89,68,884/- was well beforethe assessing officer but, he did not add it in the income of theassessee while passing the original assessment order due to nonapplication of mind. Under the circumstances, the assessing officerwas justified to initiate proceedings under Section 147 of the Act,1961. 8.Learned Counsel for the respondent/assessee submits that theAssessing Officer while quashing the original assessment order hasconsciously applied his mind on all facts relating to interest paid andinterest received, which were claimed by the assessee as revenueexpenditure and revenue receipt but he treated it as capitalexpenditure and capital receipt. It is only after the assessee’s success 7.Learned Counsel for the appellant submits that although the factsand figures relating to interest of Rs.2,89,68,884/- was well beforethe assessing officer but, he did not add it in the income of theassessee while passing the original assessment order due to nonapplication of mind. Under the circumstances, the assessing officerwas justified to initiate proceedings under Section 147 of the Act,1961. 8.Learned Counsel for the respondent/assessee submits that theAssessing Officer while quashing the original assessment order hasconsciously applied his mind on all facts relating to interest paid andinterest received, which were claimed by the assessee as revenueexpenditure and revenue receipt but he treated it as capitalexpenditure and capital receipt. It is only after the assessee’s success before the CIT(A) in appeal which held the interest paid to be revenueexpenditure, the Assessing Officer initiated proceedings under Section147 of the Act, 1961. Since the Assessing Officer was not having anyreason to believe that any income chargeable to tax has escapedassessment and as such the entire proceedings under Sections147/148 of the Act, 1961 was void ab initio and has been correctly setaside by the ITA. In support of his submission, learned Counsel forthe respondent has relied upon a judgment of Hon’ble Supreme Courtin Commissioner of Income Tax Vs. Kelvinator of India Ltd.reported in (2010) 320 ITR 561 and submits that proceeding underSection 147 of the Act, 1961 initiated by the Assessing Officer wasbased on “change of opinion” inasmuch as on conscious applicationof mind on facts of the case during original assessment proceeding hetreated the aforesaid amount as ‘capital receipt’. Therefore, theattempt to tax the same amount on same set of facts as revenuereceipt is nothing but a change of opinion. Discussion & Findings : 9.We have carefully considered the submission of the learned Counselfor the parties and perused the paper book, copy of the originalassessment order dated 27.03.2000 for the assessment year 1997-98,copy of judgement of this Court dated 05.01.2009 in I.T.A. No. 322 of2007 and copy of accompanying computation sheet of the income taxreturn filed by the assessee which were produced by learned Counsel for the respondent/assessee during the course of hearing of thisappeal and which have not been disputed/objected by the learnedCounsel for the appellant. 10.We find that from the original assessment order that the assessee filedhis return of income in which the profit from business or profession asper P & L account was disclosed at Rs.45,95,97,148/-. To this profitthe assessee added interest Rs.2,89,68,884/- as revenue receipt andclaimed deduction interest paid Rs.28,89,56,652/- as revenueexpenditure. The Assessing Officer disallowed the claimed revenueexpenditure of Rs.28,89,56,652/- towards interest paid andaccordingly did not add Rs.2,89,68,884/- in the income of theassessee. These facts are very much evident from paragraph 8 and thecomputation part of the original assessment order dated 27.03.2000.CIT(A) did not consider the jurisdictional issue of initiation ofproceedings under Section 147 of the Act, 1961 and, instead held thatthe order could have been rectified under Section 154 and as such theaddition made in proceedings under Section 147 cannot be said to bebad. The Tribunal has found that the proceeding initiated by theAssessing Officer under Section 147 was based on change of opinion. Reason to Believe-Meaning, Scope and Consequence: 11.In the case of State of Uttar Pradesh & Others vs. Aryaverth ChawalUdyog & Others reported in (2015) 17 SCC 324 (paragraphs 28 to30), the Hon'ble Supreme Court has held as under:Udyog & Others reported in (2015) 17 SCC 324 (paragraphs 28 to30), the Hon'ble Supreme Court has held as under: Reason to Believe-Meaning, Scope and Consequence: 11.In the case of State of Uttar Pradesh & Others vs. Aryaverth ChawalUdyog & Others reported in (2015) 17 SCC 324 (paragraphs 28 to30), the Hon'ble Supreme Court has held as under:Udyog & Others reported in (2015) 17 SCC 324 (paragraphs 28 to30), the Hon'ble Supreme Court has held as under: “28. This Court has consistently held that such materialon which the assessing Authority bases its opinion mustnot be arbitrary, irrational, vague, distant or irrelevant. Itmust bring home the appropriate rationale of action takenby the assessing Authority in pursuance of such belief. Incase of absence of such material, this Court in clear termshas held the action taken by assessing Authority on such"reason to believe" as arbitrary and bad in law. In case of the same material being present before theassessing Authority during both, the assessmentproceedings and the issuance of notice for re- assessmentproceedings, it cannot be said by the assessing Authoritythat "reason to believe" for initiating reassessment is anerror discovered in the earlier view taken by it duringoriginal assessment proceedings. (See Delhi Cloth andGeneral Mills Co. Ltd. v. State of Rajasthan, (1980) 4 SCC71). 29. The standard of reason exercised by the assessingAuthority is laid down as that of an honest andprudent person who would act on reasonable groundsand come to a cogent conclusion. The necessarysequitur is that a mere change of opinion while perusingthe same material cannot be a "reason to believe" that acase of escaped assessment exists requiring assessmentproceedings to be reopened. (See: Binani Industries Ltd. v.CCT, (2007) 15 SCC 435; A.LA. Firm v. CIT, (1991) 2 SCC558). If a conscious application of mind is made to therelevant facts and material available or existing at therelevant point of time while making the assessment andagain a different or divergent view is reached, it wouldtantamount to "change of opinion" If an assessing Authority forms an opinion during theoriginal assessment proceedings on the basis of materialfacts and subsequently finds it to be erroneous, it is not avalid reason under the law for re-assessment. Thus,reason to believe cannot be said to be the subjectivesatisfaction of the assessing Authority but means anobjective view on the disclosed information in theparticular case and must be based on firm andconcrete facts that some income has escapedassessment. 30. In case of there being a change of opinion, theremust necessarily be a nexus that requires to be established between the "change of opinion" and thematerial present before the assessing Authority.Discovery of an inadvertent mistake or non-application ofmind during assessment would not be a justified ground toreinitiate proceedings under Section 21(1) of the Act on thebasis of change in subjective opinion (CIT v. DineshChandra H. Shah, (1972) 3 SCC 231; CIT v. Nawab MirBarkat Ali Khan Bahadur, (1975) 4 SCC 360)." (emphasis supplied) 12.In the case of The Commissioner of Sales-Tax U.P. vs. M/s.Bhagwan Industries (P) Ltd., Lucknow, AIR 1973 SC 370 (Paras 9& 10), Hon'ble Supreme Court has held as under:Bhagwan Industries (P) Ltd., Lucknow, AIR 1973 SC 370 (Paras 9& 10), Hon'ble Supreme Court has held as under: established between the "change of opinion" and thematerial present before the assessing Authority.Discovery of an inadvertent mistake or non-application ofmind during assessment would not be a justified ground toreinitiate proceedings under Section 21(1) of the Act on thebasis of change in subjective opinion (CIT v. DineshChandra H. Shah, (1972) 3 SCC 231; CIT v. Nawab MirBarkat Ali Khan Bahadur, (1975) 4 SCC 360)." (emphasis supplied) 12.In the case of The Commissioner of Sales-Tax U.P. vs. M/s.Bhagwan Industries (P) Ltd., Lucknow, AIR 1973 SC 370 (Paras 9& 10), Hon'ble Supreme Court has held as under:Bhagwan Industries (P) Ltd., Lucknow, AIR 1973 SC 370 (Paras 9& 10), Hon'ble Supreme Court has held as under: “9. The controversy between the parties has centered onthe point as to whether the assessing authority in thepresent case had reason to believe that any part of theturnover of the respondent had escaped assessment to taxfor the assessment year 1957-58. Question in thecircumstances arises as to what is the import of the words"reason to believe", as used in the section. In our opinion,these words convey that there must be some rationalbasis for the assessing authority to form the belief thatthe whole or any part of the turnover of a dealer has,for any reason, escaped assessment to tax for someyear. If such a basis exists, the assessing authority canproceed in the manner laid down in the section. To putit differently, if there are, in fact, some reasonablegrounds for the assessing authority to believe that thewhole or any part of the turnover of a dealer hasescaped assessment, it can take action under thesection. Reasonable grounds necessarily postulate thatthey must be germane to the formation of the beliefregarding escaped assessment. If the grounds are of anextraneous character, the same would not warrantinitiation of proceedings under the above section. If,however, the grounds are relevant and have a nexuswith the formation of belief regarding escapedassessment, the assessing authority would be clothedwith jurisdiction to take action under the section.Whether the grounds are adequate or not is not amatter which would be gone into by the High Court orthis Court, for the sufficiency of the grounds which induced the assessing authority to act is not ajusticiable issue. What can be challenged is theexistence of the belief but not the sufficiency ofreasons for the belief. At the same time, it is necessaryto observe that the belief must be held in good faithand should not be a mere pretence. 10. It may also be mentioned that at the stage of the issueof notice the consideration which has to weigh is whetherthere is some relevant material giving rise to primafacie inference that some turnover has escapedassessment. The question as to whether that materialin sufficient for making assessment or re-assessmentunder section 21 of the Act would be gone into afternotice is issued to the dealer and he has been heard inthe matter or given an opportunity for that purpose.The assessing authority would then decide the matterin the light of material already in its possession as wellas fresh material procured as a result of the enquirywhich may be considered necessary." (Emphasis supplied) 13.A Division Bench of Allahabad High Court, while dealing with thevalidity of the re-assessment notice under Section 148 in Writ TaxNo.874 of 2010 (M/S Parmarth Steel And Alloys Pvt. Ltd. vs. Statevalidity of the re-assessment notice under Section 148 in Writ TaxNo.874 of 2010 (M/S Parmarth Steel And Alloys Pvt. Ltd. vs. State of U.P. and Others, decided on 28.03.2022, held as under (Para 17): (Emphasis supplied) 13.A Division Bench of Allahabad High Court, while dealing with thevalidity of the re-assessment notice under Section 148 in Writ TaxNo.874 of 2010 (M/S Parmarth Steel And Alloys Pvt. Ltd. vs. Statevalidity of the re-assessment notice under Section 148 in Writ TaxNo.874 of 2010 (M/S Parmarth Steel And Alloys Pvt. Ltd. vs. State of U.P. and Others, decided on 28.03.2022, held as under (Para 17): "17. It is settled principles of law that proceedings underSection 21 of the Act, 1948 can be initiated if the materialon which the Assessing Authority bases its opinion, is notarbitrary, irrational, vague, distant or irrelevant. Theremust be some rational basis for the assessing authority toform the belief that the whole or any part of the turnover ofa dealer has, for any reason, escaped assessment to tax forsome year. If such a basis exists, the assessing authoritycan proceed in the manner laid down in Section 21 of theAct, 1948. If the grounds are of an extraneous character,the same would not warrant initiation of proceedingsunder the above section. If, however, the grounds arerelevant and have a nexus with the formation of beliefregarding escaped assessment, the assessing authoritywould be clothed with jurisdiction to take action under the section. Whether the grounds are adequate or not is not amatter which would be gone into by the High Court for thesufficiency of the grounds which induced the assessingauthority to act is not a justiciable issue. The question asto whether that material in sufficient for makingassessment or re-assessment under section 21 of the Actwould be gone into after notice is issued to the dealer andhe has been heard in the matter or given an opportunityfor that purpose. The assessing authority would thendecide the matter in the light of material already in itspossession as well as fresh material procured as a result ofthe enquiry which may be considered necessary.” 14.In the case of Sheo Nath Singh vs. Appellate Assistant CTT, (1972) 3 SCC 234 (Para-10), Hon'ble Supreme Court while considering thesimilar provisions of Section 34 (1-A) of the Indian Income Tax Act,1922, held as under:- “………..There can be no manner of doubt that the words"reason to believe" suggest that the belief must be that ofan honest and reasonable person based upon reasonablegrounds and that the Income Tax Officer may act on director circumstantial evidence but not on mere suspicion,gossip or rumour. The Income Tax Officer would be actingwithout jurisdiction if the reason for his belief that theconditions are satisfied does not exist or is not material orrelevant to the belief required by the section. The court canalways examine this aspect though the declaration orsufficiency of the reasons for the belief cannot beinvestigated by the court." 15.In the case of Union Of India And Others vs M/S. Rai Singh Dev Singh Bist & others, AIR 1974 SC 478: (1973) 3 SCC 581 (para-5), Hon'ble Supreme Court held as under:- “.......... before an Income-tax Officer can be said to havehad reason to believe that some income had escapedassessment, he should have some relevant material beforehim from which he could have drawn the inference thatincome has escaped assessment. His vague feeling that there might have been some escape of income fromassessment is not sufficient.……” 16.In the case of ITO vs. Lakhmani Mewal Das, (1976) 3 SCC 757 (para-11 and 12), Hon'ble Supreme Court has held as under:- 15.In the case of Union Of India And Others vs M/S. Rai Singh Dev Singh Bist & others, AIR 1974 SC 478: (1973) 3 SCC 581 (para-5), Hon'ble Supreme Court held as under:- “.......... before an Income-tax Officer can be said to havehad reason to believe that some income had escapedassessment, he should have some relevant material beforehim from which he could have drawn the inference thatincome has escaped assessment. His vague feeling that there might have been some escape of income fromassessment is not sufficient.……” 16.In the case of ITO vs. Lakhmani Mewal Das, (1976) 3 SCC 757 (para-11 and 12), Hon'ble Supreme Court has held as under:- "11. As stated earlier, the reasons for the formation of thebelief must have a rational connection with or relevantbearing on the formation of the belief. Rational connectionpostulates that there must be a direct nexus or live linkbetween the material coming to the notice of the Income-tax Officer and the formation of his belief that there hasbeen escapement of the income of the assessee fromassessment in the particular year because of his failure todisclose fully and truly all material facts. It is no doubttrue that the court cannot go into the sufficiency oradequacy of the material and substitute its own opinion forthat of the Income-tax Officer on the point as to whetheraction should be initiated for reopening assessment. At thesame time we have to bear in mind that it is not any andevery material, howsoever vague and indefinite or distant,remote and farfetched, which would warrant the formationof the belief relating to escapement of the income of theassessee from assessment. The fact that the words"definite information" which were there in section 34 of theAct of 1922 at one time before its amendment in 1948 arenot there in section 147 of the Act of 1961 would not leadto the conclusion that action cannot be taken forreopening assessment even if the information is whollyvague, indefinite, farfetched and remote. The reason for theformation of the belief must be held in good faith andshould not be a mere pretence. 12. The powers of the Income-tax Officer to reopenassessment though wide are not plenary. The words of thestatute are "reason to believe" and not "reason to suspect".The reopening of the assessment after the lapse of manyyears is a serious matter. The Act, no doubt, contemplatesthe reopening of the assessment if grounds exist forbelieving that income of the assessee has escapedassessment. The underlying reason for that is thatinstances of concealed income or other income escapingassessment in a large number of cases come to the noticeof the income-tax authorities after the assessment hasbeen completed. The provisions of the Act in this respect depart from the normal rule that there should be, subjectto right of appeal and revision, finality about orders madein judicial and quasi- judicial proceedings. It is, therefore,essential that before such action is taken the requirementsof the law should be satisfied. The live link or close nexuswhich should be there between the material before theIncome-tax Officer in the present case and the belief whichhe was to form regarding the escapement of the income ofthe assessee from assessment because of the latter'sfailure or omission to disclose fully and truly all materialfacts was missing in the case. In any event, the link wastoo tenuous to provide a legally sound basis for reopeningthe assessment. The majority of the learned Judges in theHigh Court, in our opinion, were not in error in holdingthat the said material could not have led to the formationof the belief that the income of the assessee respondenthad escaped assessment because of his failure or omissionto disclose fully and truly all material facts. We would,therefore, uphold the view of the majority and dismiss theappeal with costs." 17.In the case of M/s. S. Ganga Saran and Sons (P) Ltd. Calcutta vs. ITO and others, (1981) 3 SCC 143 (Para-6), Hon'ble Supreme Court held as under:- 17.In the case of M/s. S. Ganga Saran and Sons (P) Ltd. Calcutta vs. ITO and others, (1981) 3 SCC 143 (Para-6), Hon'ble Supreme Court held as under:- "6. It is well settled as a result of several decisions of thisCourt that two distinct conditions must be satisfied beforethe Income Tax Officer can assume jurisdiction to issuenotice under section 147 (a). First, he must have reason tobelieve that the income of the assessee has escapedassessment and secondly, he must have reason to believethat such escapement is by reason of the omission orfailure on the part of the assessee to disclose fully andtruly all material facts necessary for his assessment. Ifeither of these conditions is not fulfilled, the notice issuedby the Income Tax Officer would be without jurisdiction.The important words under section 147 (a) are "has reasonto believe" and these words are stronger than the words "issatisfied". The belief entertained by the Income Tax Officermust not be arbitrary or irrational. It must be reasonableor in other words it must be based on reasons which arerelevant and material. The Court, of course, cannotinvestigate into the adequacy or sufficiency of the reasonswhich have weighed with the Income Tax Officer in coming to the belief, but the Court can certainly examine whetherthe reasons are relevant and have a bearing on the mattersin regard to which he is required to entertain the beliefbefore he can issue notice under section 147 (a). It there isno rational and intelligible nexus between the reasons andthe belief, so that, on such reasons, no one properlyinstructed on facts and law could reasonably entertain thebelief, the conclusion would be inescapable that theIncome Tax Officer could not have reason to believe thatany part of the income of the assessee had escapedassessment and such escapement was by reason of theomission or failure on the part of the assessee to disclosefully and truly all material facts and the notice issued byhim would be liable to he struck down as invalid." 18.In the case of Income Tax Officer, Ward No.62 vs. TechSpan India (P.) Ltd. and another, (2018) 6 SCC 685 (Paras 14 to 18), Hon'ble Supreme Court held as under: "14. The language of Section 147 makes it clear that theassessing officer certainly has the power to re-assess anyincome which escaped assessment for any assessmentyear subject to the provisions of Sections 148 to 153.However, the use of this power is conditional upon the factthat the assessing officer has some reason to believe thatthe income has escaped assessment. The use of the words'reason to believe' in Section 147 has to be interpretedschematically as the liberal interpretation of the wordwould have the consequence of conferring arbitrary powerson the assessing officer who may even initiate such re-assessment proceedings merely on his change of opinionon the basis of same facts and circumstances which hasalready been considered by him during the originalassessment proceedings. Such could not be the intentionof the legislature. The said provision was incorporated inthe scheme of the IT Act so as to empower the AssessingAuthorities to re-assess any income on the ground whichwas not brought on record during the original proceedingsand escaped his knowledge; and the said fact would havematerial bearing on the outcome of the relevantassessment order 15. Section 147 of the IT Act does not allow the re-assessment of an income merely because of the fact thatthe assessing officer has a change of opinion with regard tothe interpretation of law differently on the facts that werewell within his knowledge even at the time of assessment.Doing so would have the effect of giving the assessingofficer the power of review and Section 147 confers thepower to re-assess and not the power to review. 15. Section 147 of the IT Act does not allow the re-assessment of an income merely because of the fact thatthe assessing officer has a change of opinion with regard tothe interpretation of law differently on the facts that werewell within his knowledge even at the time of assessment.Doing so would have the effect of giving the assessingofficer the power of review and Section 147 confers thepower to re-assess and not the power to review. 16. To check whether it is a case of change of opinion ornot one has to see its meaning in literal as well as legalterms. The words "change of opinion" implies formulationof opinion and then a change thereof. In terms ofassessment proceedings, it means formulation of belief byan assessing officer resulting from what he thinks on aparticular question. It is a result of understanding,experience and reflection. 17. It is well settled and held by this court in a catena ofjudgments and it would be sufficient to referCommissioner of Income Tax, Delhi vs. Kelvinator ofIndia Ltd. (2010) 320 ITR 561(SC) wherein this Courthas held as under: (SCC p.725, para 5-7) "5....where the Assessing Officer has reason to believethat income has escaped assessment, confersjurisdiction to reopen the assessment. Therefore,post-1-4-1989, power to reopen is much wider.However, one needs to give a schematic interpretationto the words "reason to believe"..... Section 147 wouldgive arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change ofopinion", which cannot be per se reason to reopen. 6. We must also keep in mind the conceptualdifference between power to review and power toreassess. The Assessing Officer has no power toreview, he has the power to reassess. Butreassessment has to be based on fulfillment of certainprecondition and if the concept of "change of opinion"is removed, as contended on behalf of theDepartment, then, in the garb of re-opening theassessment, review would take place. 7. One must treat the concept of "change of opinion"as an in-built test to check abuse of power by theAssessing Officer. Hence, after 1-4-1989, Assessing Officer has power to reopen, provided there is"tangible material" to come to the conclusion thatthere is escapement of income from assessment.Reasons must have a live link with the formation ofthe belief." 18. Before interfering with the proposed reopening of theassessment on the ground that the same is based only ona change in opinion, the court ought to verify whether theassessment earlier made has either expressly or bynecessary implication expressed an opinion on a matterwhich is the basis of the alleged escapement of income thatwas taxable. If the assessment order is non-speaking,cryptic or perfunctory in nature, it may be difficult toattribute to the assessing officer any opinion on thequestions that are raised in the proposed reassessmentproceedings. Every attempt to bring to tax, income thathas escaped assessment, cannot be absorbed by judicialintervention on an assumed change of opinion even incases where the order of assessment does not addressitself to a given aspect sought to be examined in thereassessment proceedings." 19.In the case of Radha Krishna Industries vs. State of H.P., (2021) 6 SCC 771, Hon'ble Supreme Court reiterated the law laid down in itsearlier judgments in the case of Kelvinator of India Limited (supra)and TechSpan India (P.) Ltd. (supra) and held that the power toreopen an assessment must be conditioned on the existence of"tangible material" and that "reasons must have a live link with theformation of the belief". 20.The law laid down in the judgments referred above, leaves no mannerof doubt that:- (a) The assessing officer under Section 147 of the Act,1961 has the power to re-assess any income whichescaped assessment to tax for any assessment year subjectto the provisions of Sections 148 to 153. The power to reassess under Section 147 of the Act, 1961 has beenincorporated so as to empower the Assessing Authorities tore-assess any income on the ground which escaped hisknowledge. 20.The law laid down in the judgments referred above, leaves no mannerof doubt that:- (a) The assessing officer under Section 147 of the Act,1961 has the power to re-assess any income whichescaped assessment to tax for any assessment year subjectto the provisions of Sections 148 to 153. The power to reassess under Section 147 of the Act, 1961 has beenincorporated so as to empower the Assessing Authorities tore-assess any income on the ground which escaped hisknowledge. (b) The words "reason to believe" suggest that the beliefmust be bona fide and must be that of an honest andreasonable person based upon reasonable grounds andthat the Income Tax Officer may act on direct orcircumstantial evidence but not on mere suspicion, gossipor rumour. His vague feeling that there might have beensome escapement of income from assessment is notsufficient. The reasons for the formation of the belief mustbe based on tangile material and must be based on arational connection with or relevant bearing on theformation of the belief. Rational connection postulates thatthere must be a direct nexus or live link between thematerial coming to the notice of the Income-tax Officer andthe formation of his belief that there has been escapementof the income of the assessee from assessment in theparticular assessment year. In other words, such materialon which the assessing Authority bases its opinion mustnot be arbitrary, irrational, vague, distant or irrelevant. Ifthe grounds for formation of "reason to believe" are of anextraneous character, the same would not warrantinitiation of proceedings under Section 147 of the Act,1961. (c) If, there are, in fact, some reasonable grounds for theassessing authority to believe that the whole or any part ofincome of the assessee has escaped assessment, it cantake action under Section 147 of the Act, 1961. If thegrounds taken for initiating reassessment proceedingsunder Section 147 of the Act, 1961 are relevant and have anexus with the formation of belief regarding escapedassessment, the assessing authority would be clothed withjurisdiction to take action under the section. Whether thegrounds are adequate or not is not a matter which wouldbe gone into by the High Court for the sufficiency of thegrounds which induced the assessing authority to act isnot a justiciable issue. What can be challenged is theexistence of the belief but not the sufficiency of reasons forthe belief. The belief must be held in good faith and shouldnot be a mere pretence. Change of Opinion (f) Reassessment of income under Section 147 of the Act,1961 cannot be made on change of opinion. The words"change of opinion" implies formulation of opinion andthen a change thereof. If the Assessing Officer has earliermade assessment for the same Assessment Yearexpressing an opinion of a matter either expressly orby necessary implication then on the same matter, areassessment proceedings for the alleged escapement ofincome from assessment to tax, cannot be initiated as itwould be a case of "change of opinion". If the assessmentorder is non-speaking, cryptic or perfunctory innature, then it may be difficult to attribute to theassessing officer any opinion on the questions that areraised in the proposed reassessment proceedings. If aconscious application of mind is made to the relevantfacts and material available or existing at the relevantpoint of time while making the assessment and again adifferent or divergent view is reached, it wouldtantamount to "change of opinion". If the assessingAuthority forms an opinion during the originalassessment proceedings on the basis of material factsand subsequently finds it to be erroneous; it is not avalid reason under the law for re-assessment.” 21.Since there was full disclosure of interest by the assessee and theAssessing Officer while passing the original assessment order, afterdiscussion, had formed opinion that the interest paid and interestreceived are not revenue items but capital item, therefore, thesubsequent attempt of the Assessing Officer to tax the interest receiptof Rs.2,89,68,884/- as revenue receipt is clearly based on change ofopinion.Assessing Officer while passing the original assessment order, afterdiscussion, had formed opinion that the interest paid and interestreceived are not revenue items but capital item, therefore, thesubsequent attempt of the Assessing Officer to tax the interest receiptof Rs.2,89,68,884/- as revenue receipt is clearly based on change ofopinion. 22. Since proceedings under Section 147 of the Act, 1961 initiated by theAssessing Officer against the respondent/assessee is based on changeof opinion, therefore, the tribunal has not committed any manifesterror of law to set aside the re-assessment proceedings. Thus, we findAssessing Officer against the respondent/assessee is based on changeof opinion, therefore, the tribunal has not committed any manifesterror of law to set aside the re-assessment proceedings. Thus, we find that once the Assessing Officer has consciously applied his mindfor not treating the interest paid and the interest received asrevenue item and instead he treated it as capital item,subsequent proceedings under Section 147 of the Act, 1961 wasclearly based on change of opinion. 23.For all the reasons afore-stated, we do not find any manifest error oflaw or infirmity in the impugned order of the ITAT. Accordingly, theappeal (ITA/1/2014) is dismissed and the substantial question of lawis answered against the revenue and in favour of the assessee.law or infirmity in the impugned order of the ITAT. Accordingly, theappeal (ITA/1/2014) is dismissed and the substantial question of lawis answered against the revenue and in favour of the assessee. (SURYA PRAKASH KESARWANI, J.) (RAJARSHI BHARADWAJ, J.) S. Kumar/As.