Vijya Laxmi Exports v. The Assistant Commissioner Of Income Tax ==========================================================Appearance

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 20132 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE N.V.ANJARIA andHONOURABLE MR. JUSTICE BHARGAV D. KARIA ========================================================== 1Whether Reporters of Local Papers may be allowedto see the judgment ?2To be referred to the Reporter or not ?3Whether their Lordships wish to see the fair copyof the judgment ?4Whether this case involves a substantial questionof law as to the interpretation of the Constitutionof India or any order made thereunder ? ========================================================== VIJYA LAXMI EXPORTS Versus THE ASSISTANT COMMISSIONER OF INCOME TAX ==========================================================Appearance: MR TUSHAR HEMANI, SENIOR ADVOCATE FOR MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1 MR NIKUNT RAVAL FOR MRS KALPANAK RAVAL(1046) for the Respondent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIAandHONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 12/07/2022 ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1.Heard learned advocate Mr. Tushar Hemani,Senior Advocate for Ms. Vaibhavi Parikh forthe petitioner and learned advocate Ms.Nikunt Raval for learned advocate Ms. KalpanaRaval for the respondent. 2.Having regard to the controversy involved inthe present case which lies in a very narrow compass, with the consent of the learnedadvocates for the respective parties, thematter is taken up for final hearing. 3.Rule returnable forthwith. Learned advocateMr. Nikunt Raval waives service of notice ofrule on behalf of the respondent. 4.By this petition under Article 226 of theConstitution of India, the petitioner haschallenged the notice dated 31.03.2018 issued under section 148 of the Income Tax Act, 1961(For short “the Act”) for reopening of theassessment proceedings for the AssessmentYear 2011-2012. 5.Brief facts of the case are as under : 5.1)The petitioner is a partnership firmand is engaged in the activity of re-exportof imported goods. income for the Assessment Year 2011-2012 on29.09.2011 declaring total income at Rs. Nilafter claiming deduction of Rs. 86,19,599/-under section 10AA of the Act. 5.3)Case of the petitioner was taken up for scrutiny assessment under section 143(3)of the Act. Various details were called forand same were duly furnished by the petitioner. 5.4)The Assessing Officer issued noticedated 15.01.2014 calling upon the petitionerto show cause as to why deduction undersection 10AA of the Act should not bedisallowed. 5.5)The petitioner vide letter dated19.01.2014 furnished justification as to theclaim of deduction under section 10AA of theAct. 5.6)The Assessing Officer thereafterpassed the assessment order dated 26.02.2014under section 143(3) of the Act anddisallowed the entire deduction of Rs.86,19,599/-. 5.7)The petitioner preferred an appeal before the Commissioner of Income Tax (Appeals) who vide order dated 2.05.2014deleted the disallowance of Rs. 86,19,599/-made by the Assessing Officer under section10AA of the Act. 5.8)Case of the petitioner for theAssessment Year 2012-2013 was also taken upfor scrutiny assessment by the AssessingOfficer. While framing the assessment undersection 143(3) of the Act vide order dated28.04.2015, the Assessing Officer disallowedthe claim of section 10AA of the Act. It wasfurther observed by the Assessing Officerthat if claim made is allowed under section10AA of the Act, then excess claim to thetune of Rs.15,08,55,820/- pertaining to interest and remuneration should bewithdrawn. 5.9)The petitioner preferred appealagainst the assessment order for the before the Commissioner of Income Tax (Appeals) who vide order dated 2.05.2014deleted the disallowance of Rs. 86,19,599/-made by the Assessing Officer under section10AA of the Act. 5.8)Case of the petitioner for theAssessment Year 2012-2013 was also taken upfor scrutiny assessment by the AssessingOfficer. While framing the assessment undersection 143(3) of the Act vide order dated28.04.2015, the Assessing Officer disallowedthe claim of section 10AA of the Act. It wasfurther observed by the Assessing Officerthat if claim made is allowed under section10AA of the Act, then excess claim to thetune of Rs.15,08,55,820/- pertaining to interest and remuneration should bewithdrawn. 5.9)The petitioner preferred appealagainst the assessment order for the Assessment Year 2012-2013 before theCommissioner of Income Tax (Appeals). TheCommissioner of Income Tax (Appeals) videorder dated 21.01.2016 deleted the additionmade on account of interest and remunerationto the partners. 5.10)The respondent thereafter issuedimpugned notice under section 148 of the Actdated 31.03.2018 seeking to reopen the caseof the petitioner for the year underconsideration. 5.11)The petitioner filed return ofincome for the year under consideration on11.05.2018 in response to the notice issuedunder section 148 of the Act. The petitionervide letter dated 21.05.2018 requested therespondent to supply copy of reasons recordedfor reopening. 5.12)Such copy of reasons recorded by theAssessing Officer were supplied to thepetitioner on 9.07.2018. The reasons recorded by the Assessing Officer forreopening the assessment under section 147of the Act read as under: “In this case, the assessee has filedher ROI for A.Y 2011-12 on 29.09.2011declaring total income of Rs. Nil byclaiming deduction u/s. 10AA of the I.T.Act of Rs.86,19,599/-. The assessee isengaged in the trading activity innature of "Re-export of Imported Goods".As per the audit report, the assesseehas derived income from manufacturing,processing, repairing and import exportof goods. Scrutiny assessment us. 143(3)of the I.T. Act was completed on26.02.2014. Income was assessed atRs.86,19,599/- by making disallowance ofdeduction claimed u/s. 10AA of the I.T.Act. Subsequently, the income has beenrevised to Rs. Nil in view of the appealeffect order of CIT(A). 2. On verification of the case records,it is observed that the assessee firm inits partnership deed has inserted aclausetoprovideinterestandremuneration to partners as perprovisions of Section 40(b) of the Act.However, the assessee firm did not makeany provision for the said remuneration and interest to be provided to thepartners in accordance with theprovisions of the partnership deed. Theworking of Interest on partners capitaland remuneration are as under: Interest payable to the partners ontheir capital: 12% of Rs.10619599 =Rs.1274351/- Profit eligible for remuneration :8619599-1274351 = Rs.7345247/- Remuneration to be provided to thepartners as per 40(b) of the I.T. Act. :Rs.4497148/ Profit eligible for deduction u/s. 10AAin the case of the firm : 8619599-(1274351 +4497148) = Rs.2848100/- From the above, it is seen that assesseehas claimed excess deduction ofRs.57,71,499/ u/s. 10AA of the I.T. Actwhich is liable to be taxed in the handsof the partners. The assessee hasclaimedthewholedeductionofRs.86,19,599/-in its accounts and evadedthe tax on the income of Rs.57,71,499/-.On the other hand, the assessee firm hasderived total income of Rs.86,19,599/-which have been audited. It revealedthat the assessee has earned income fromunaccounted sources of Rs.57,71,499/-equivalent to the amount of interest oncapital and remuneration to the partnersaccumulate with its total income and thesame has been claimed exempted u/s. 10AAof the I.T. Act. In such way, the Profit eligible for deduction u/s. 10AAin the case of the firm : 8619599-(1274351 +4497148) = Rs.2848100/- From the above, it is seen that assesseehas claimed excess deduction ofRs.57,71,499/ u/s. 10AA of the I.T. Actwhich is liable to be taxed in the handsof the partners. The assessee hasclaimedthewholedeductionofRs.86,19,599/-in its accounts and evadedthe tax on the income of Rs.57,71,499/-.On the other hand, the assessee firm hasderived total income of Rs.86,19,599/-which have been audited. It revealedthat the assessee has earned income fromunaccounted sources of Rs.57,71,499/-equivalent to the amount of interest oncapital and remuneration to the partnersaccumulate with its total income and thesame has been claimed exempted u/s. 10AAof the I.T. Act. In such way, the assesseehasearnedincomeofRs.57,71,499/- from unaccounted sourceswhich have accumulated into its exemptedincome.3. It is true that the assessee hasfiled a copy of annual report and auditP&L A/c and balance sheet along withreturnofincomewherevariousinformation/material were 3. disclosed.However, the assessee has not furnishedthe details of payment of interestpayable to the partners on their capitaland remuneration in accordance with theprovision contained in partnership deed.In fact, the assessee had embedded thedetails and documents in such a mannerthat material evidence could not bediscovered by the AO and could have beendiscoveredwithduediligence,accordingly attracting provisions ofExplanation 1 of Section 147 of the Act. 4. It is evident from the abovediscussion that in this case, the issuesunder consideration were never examinedby the AO during the course of regularassessment/reassessment. This fact iscorroborated from the contents ofnotices issued by the AO u/s.143(2)/142(1) and order sheet entryrecorded during the 143(3) proceedings.It is important to highlight here thatthe issue of interest on capital andremuneration to the partners were notfiled during the course of assessmentproceeding and the same may be embeddedin annual report, audited P&L A/c,balance sheet and books of account insuch a manner that it would require duediligence by the AO to extract these information. For aforestated reasons, itis not a case of change of opinion bythe AO. 5. In view of the above facts andmaterials, I have reason to believe thatincome of Rs. 57,71,499/- has escapedassessment for A.Y. 2011-12 within themeaning of section 147 of the Act. I amtherefore, satisfied that this is a fitcase for invoking the provisions ofsection 147 of the Income-tax Act.Therefore, it is requested to grantstatutory approval to issue noticeu/s.148 of the Income-Tax Act.” 5.13)The petitioner raised objections against reopening vide letter dated17.07.2018. The respondent Assessing Officervide order dated 27.08.2018 rejected suchobjections raised by the petitioner. 5.14) Being aggrieved by the action of therespondent, the petitioner has preferred thispetition. 6.Learned Senior Advocate Mr. Tushar Hemani forthe petitioner submitted that the case of the petitioner was reopened on the basis that theassessee did not provide for interest oncapital as well as remuneration to partnersin accordance with the provisions of originalpartnership deed and evaded tax on the totalamount of remuneration as well as interestpayable to the partners. 6.1) Learned Senior Advocate Mr. Hemanisubmitted that the petitioner had filed trueand correct return of income and had shownall taxable income from all the sources andduring the year under consideration, theassesseehadderivedincomefrommanufacturing, processing, repairing andimport export of goods. 6.2) It was submitted that the petitionerhad executed a supplementary deed on18.03.2011 and the same was notarized on31.03.2011. Such supplementary deed itself petitioner was reopened on the basis that theassessee did not provide for interest oncapital as well as remuneration to partnersin accordance with the provisions of originalpartnership deed and evaded tax on the totalamount of remuneration as well as interestpayable to the partners. 6.1) Learned Senior Advocate Mr. Hemanisubmitted that the petitioner had filed trueand correct return of income and had shownall taxable income from all the sources andduring the year under consideration, theassesseehadderivedincomefrommanufacturing, processing, repairing andimport export of goods. 6.2) It was submitted that the petitionerhad executed a supplementary deed on18.03.2011 and the same was notarized on31.03.2011. Such supplementary deed itself makes it clear that no interest on capitaland remuneration is to be paid to any partnerfrom the starting of the business. 6.3) Learned Senior Advocate Mr. Hemanisubmitted that the said issue was thoroughlylooked into by the Commissioner of Income Tax(Appeals)-II Surat during the assessmentproceedings for the year 2012-2013. It wassubmitted that during the appellateproceedings, the petitioner had produced thenotarized copy supplementary partnership deeddated 18.03.2011 as an additional evidence.Thereafter, the Commissioner of Income taxsought a remand report from the AssessingOfficer under Rule 46A of the Income TaxRules, 1962 regarding the authenticity of theadditional evidence. It was submitted thateven the Deputy Commissioner of Income Taxhad confirmed the genuineness of suchsupplementary deed by instructing the inspector to visit the place of the RegistrarOffice and obtain photocopy of relevant pageof notary register wherein the entry ofamended deed was made. 6.4) It was submitted that transactionswere duly carried out as per the provisionsand the conditions laid down in thesupplementary deed subject to the provisionsof the Act. It was further submitted thatbecause the assessee had claimed the incomeas exempt under section 10AA of the Act, theAssessing Officer presumed that notionalinterest at the rate of 12% and maximumallowableremunerationhasescapedassessment. 6.5) Learned Senior Advocate Mr. Hemanisubmitted that assessment framed undersection 143(3) of the Act can be reopenedbeyond the prescribed period of four years from the end of relevant assessment year ifand only income chargeable to tax had escapedassessment by failure on part of thepetitioner to disclose fully and truly allmaterial facts necessary for assessment. Itwas submitted that no interest andremuneration has been paid to the partners isevident from the computation of total income,tax audit report and audited annual accounts.It was further submitted that the originalpartnership deed was supplied to theAssessing Officer at the original assessmentstage and since the respondent was of theview that entire deduction under section 10AAof the Act was to be disallowed, he chose notto make separate addition in respect ofinterest and remuneration to partners. It wasfurther submitted that in the Assessment Year2012-2013 the Assessing Officer partlywithdrew claim of interest and remunerationto partners and in appeal supplementary partnership deed supplied by the petitionerwas found to be genuine and hence additionmade in respect of interest and remunerationto the partners was deleted. It wastherefore, submitted that there was nofailure on part of the petitioner to fullyand truly disclose the relevant materialsnecessary for assessment. 6.6) Learned Senior Advocate Mr. Hemanisubmitted that reopening was not justified onaccount of the applicability of principle ofmerger. It was submitted that as per thirdproviso to section 147 of the Act, theAssessing Officer cannot reopen assessmentto examine an issue which is already a subject matter of appeal, reference orrevision. partnership deed supplied by the petitionerwas found to be genuine and hence additionmade in respect of interest and remunerationto the partners was deleted. It wastherefore, submitted that there was nofailure on part of the petitioner to fullyand truly disclose the relevant materialsnecessary for assessment. 6.6) Learned Senior Advocate Mr. Hemanisubmitted that reopening was not justified onaccount of the applicability of principle ofmerger. It was submitted that as per thirdproviso to section 147 of the Act, theAssessing Officer cannot reopen assessmentto examine an issue which is already a subject matter of appeal, reference orrevision. 6.7) Learned Senior Advocate Mr. Hemani further submitted that even on merits, the claim of the deduction under section 10AA ofthe Act cannot be reduced to the extent ofinterest and remuneration to partners. It wassubmitted that the original partnership deedcontained a clause for providing interest andremuneration to partners, however, thesupplementary partnership deed contained a clause as to non-payment of interest andremuneration to the partners. It wassubmitted that mere fact that there was aclauseforprovidinginterestandremuneration to partners in originalpartnership deed does not signify thatinterest and remuneration to partners ismandatory and even if there was nosupplementary deed containing clause as tonon-payment of interest and remuneration,then also the respondent cannot reduce theclaim of deduction under section 10AA of theAct to the extent of interest andremuneration. 6.8) Learned Senior Advocate Mr. Hemanifurther submitted that it is apparent fromthe record that though the issue with regardto the claim of deduction under section 10AAof the Act was considered by the AssessingOfficer at the time of original assessmentunder section 143(3) of the Act, 1961, againthe same issue is sought to be reconsideredin the reopening proceedings. It wastherefore, submitted that the assumption ofthe jurisdiction by the Assessing Officer toreopen the assessment would amount to changeof opinion. 7.On the other hand learned advocate Mr. NikuntRaval for the Revenue submitted that uponverification of the case records it wasobserved that the assessee firm in itspartnership deed had inserted a clause toprovide interest and remuneration to partners as per the provisions of Section 40(b) of theAct. However, the assessee firm did not makeany provision for the said remuneration andinterest to be provided to the partners inaccordance with the provisions of thepartnership deed though subsequently theassessee claimed to have amended thepartnership deed whose veracity and relevancehas been questioned by the Assessing Officer. 7.1) It was submitted that the assesseehas claimed the whole deduction of Rs.86,19,599/- in its accounts and evaded tax onthe income of Rs.57,71,499/- and on the otherhand the assessee firm has derived totalincome of Rs. 86,19,599/- which have beenaudited and it has been revealed that theassesseehasearnedincomefromunaccounted/ineligiblesourcesofRs.57,71,499/- equivalent to the amount ofinterest on capital and remuneration to the partners with its total income and the samehas been claimed as exemption under section10AA of the Act. 7.1) It was submitted that the assesseehas claimed the whole deduction of Rs.86,19,599/- in its accounts and evaded tax onthe income of Rs.57,71,499/- and on the otherhand the assessee firm has derived totalincome of Rs. 86,19,599/- which have beenaudited and it has been revealed that theassesseehasearnedincomefromunaccounted/ineligiblesourcesofRs.57,71,499/- equivalent to the amount ofinterest on capital and remuneration to the partners with its total income and the samehas been claimed as exemption under section10AA of the Act. 7.2) It was submitted that the assesseehas filed a copy of annual report and auditedProfit and Loss Account and Balance sheetalong with the return of income where variousinformation/material were disclosed. However,the assessee has not furnished the details ofpayment of interest payable to the partnerson their capital and remuneration inaccordance with the provisions contained inthe partnership deed. It was submitted thatthe assessee had embedded the details anddocuments in such a manner that materialevidence could not be discovered by theAssessing Officer and therefore, attractingthe provisions of Explanation 1 of section147 of the Act. 7.3) Learned advocate Mr. Raval submittedthat sizeable amount of income chargeable totax in case of the assessee had escapedassessment and that such escapement was onaccount of failure on part of the assessee todisclose truly and fully all material factsand therefore, notice issued under section148 of the Act was legal and valid. 7.4) It was submitted that there is norelevance of doctrine of merger as the scopeof case before the Commissioner of Income Taxwas restricted. It was submitted that thejurisdiction exercised by the Commissioner ofIncome Tax was narrow and limited to theallowability of deduction under section 10AAof the Act and therefore, the issue ofdeduction in respect of interest andremuneration payable to the partners didnever arise and there was no opportunity orscope for the Commissioner of Income Tax (Appeals) to adjudicate the matter or assumejurisdiction over the issue which is distinctand separate. 7.5) Learned advocate Mr. Raval submittedthat veracity, legality and applicability ofthe so-called supplementary deed executed on18.03.2011 and notarized on 31.03.2011 hasnot been examined in the Assessment Year2011-2012. It was further submitted that thecontention of the assessee that informationfrom the broker was sought after issuance ofthe notice shows that there was no enquiryprior to the issuance of notice is nottenable inasmuch as once it is held that theproceedings under section 147 and 148 havebeen validly initiated, the Assessing Officeris not prevented from looking into the matterfurtherincludinggatheringfurtherinformation. 7.6) Learned advocate Mr. Raval furthersubmitted that it is a trite law thatadequacy or sufficiency of material on basison which the belief was formed by theAssessing Officer for reopening of theassessment could not be enquired into at thepreliminary stage. 7.7) Learned advocate Mr. Raval furthersubmitted that there is a clear provision of interest payment to partner in thepartnership deed. It was submitted thatsection 80A(1) of the Act is a specificprovision inserted in the Act to prevent themisuse of exemption provision like section10AA and artificial inflation of profitsclaimed as exempt. Therefore, the argument ofthe assessee that relevant expenses ofremuneration of partners and interest oncapital have not been provided in the partnership deed and therefore, such expenses cannot be imposed upon the assessee and theclaim under section 10AA cannot be reduced,was not acceptable as it is not imposition ofany claim but mere working of normal profitsof the assessee as per section 80IA(1) of theAct. 7.7) Learned advocate Mr. Raval furthersubmitted that there is a clear provision of interest payment to partner in thepartnership deed. It was submitted thatsection 80A(1) of the Act is a specificprovision inserted in the Act to prevent themisuse of exemption provision like section10AA and artificial inflation of profitsclaimed as exempt. Therefore, the argument ofthe assessee that relevant expenses ofremuneration of partners and interest oncapital have not been provided in the partnership deed and therefore, such expenses cannot be imposed upon the assessee and theclaim under section 10AA cannot be reduced,was not acceptable as it is not imposition ofany claim but mere working of normal profitsof the assessee as per section 80IA(1) of theAct. 7.8) Learned advocate Mr. Raval submittedthat section 40(b) of the Act intends to puta cap on maximum interest and remunerationallowable even if higher sums are allocatedin the partnership deed. It was submittedthat section 40(b) does not imply thatremuneration and interest cannot be impugnedif not provided in the partnership deed, whatit implies is that even if higher thanprescribed interest and remuneration areprovided in the partnership deed, the excesswould not be allowable. It was furthersubmitted that the provisions of section40(b0 of the Act provides for payment of interest @ 12% on capital of partners andremuneration to the working partners,however, the assessee firm has not made anypayment thereof to the partners nor has madeany provision of liability in the books ofaccount. Therefore, the remuneration andinterest at the rate as prescribed undersection 40(b) of the Act is treated as paidto the partner. It was therefore, submittedthat the interest and remuneration payable tothe partners under section 40(b) of the Actare liable to be excluded from the profits ofthe business eligible for exemption undersection 10AA of the Act and accordingly thedeductions claimed under section 10AA are tobe reduced by the amount of interest andremuneration and the remaining businessprofit would be allowable for deduction undersection 10AA. 7.9) Learned advocate Mr. Raval submitted that this is not a fit case nor anappropriate stage to make any interference bythis Court as there is no illegality in theimpugned notice. 8.Considering the submissions made by the learned advocates of both the sides, itappears that the impugned notice undersection 148 of the Act, 1961 is issued onlyon the ground that the assessee firm in itspartnership deed has inserted a clause toprovide interest and remuneration to partnersas per the provisions of section 40(b) of theAct, however, the assessee firm did not makeany provision for the said remuneration andinterest to be provided to the partners inaccordance with the provisions of thepartnership deed and the assessee has claimedexcess deduction of Rs. 57,71,499/- undersection 10AA of the Act which is liable to betaxed in the hands of the partners and therefore, the assessing officer has reasonto believe that the assessee has earnedincome of Rs.57,71,499/- from unaccounted sources which have accumulated into itsexempted income and such income has escapedassessment. 9. It is not in dispute that partners of the petitioner firm had executed a partnershipdeed on 1.07.2010 which contained a clause of payment of interest and remuneration topartners however, later a supplementarypartnership deed was executed on 18.03.2011modifying the partnership deed to the extentthat no interest and remuneration shall bepaid to the partners. In the assessmentproceedings for the Assessment Year 2012-2013, the supplementary partnership deed wasplaced on record. The Commissioner of IncomeTax in appeal, after verifying suchsupplementary partnership deed by conducting sources which have accumulated into itsexempted income and such income has escapedassessment. 9. It is not in dispute that partners of the petitioner firm had executed a partnershipdeed on 1.07.2010 which contained a clause of payment of interest and remuneration topartners however, later a supplementarypartnership deed was executed on 18.03.2011modifying the partnership deed to the extentthat no interest and remuneration shall bepaid to the partners. In the assessmentproceedings for the Assessment Year 2012-2013, the supplementary partnership deed wasplaced on record. The Commissioner of IncomeTax in appeal, after verifying suchsupplementary partnership deed by conducting inquiry from the notary regarding genuinenessof the same, held that clause as to interestand remuneration to partners was modified inthe supplementary deed and accordinglydeleted the addition made on account ofinterest and remuneration to partners. Thusthere is no failure on part of the assesseeto disclose fully and truly all relevantmaterial necessary for assessment. 10.The issue of entire claim of deductionunder section 10AA of the Act was before theCommissioner of Income Tax (Appeals) and theCommissioner of Income Tax (Appeals) hadample powers to partly withdraw the claim ofthe deduction under section 10AA of the Actto the extent of interest and remuneration topartners, however, while allowing deductionunder section 10AA of the Act, nothing ofsuch sort has been done. 11.It is therefore, apparent that there ischange of opinion by the Assessing Officer toreopen the assessment for the Assessment Year2011-2012, more particularly, when the issue of provision for the remuneration andinterest to be provided to partners isalready considered during the earlierassessment proceedings. The Assessing Officercannot have any jurisdiction to issue thenotice under section 148 of the Act, 1961 forreopening the assessment for the year underconsideration more particularly, when theassessment is sought to be reopened beyond aperiod of four years as held by the SupremeCourt in case of Commissioner of Income taxv. Kelvinator of India Ltd. reported in 2010(2) SCC 723 as under: “2. A short question which arises fordetermination in this batch of civilappeals is, whether the concept of"change of opinion" stands obliteratedwith effect from 1st April, 1989, i.e.,after substitution of Section 147 ofthe Income Tax Act, 1961 by Direct TaxLaws (Amendment) Act, 1987? xxxx 2010(2) SCC 723 as under: “2. A short question which arises fordetermination in this batch of civilappeals is, whether the concept of"change of opinion" stands obliteratedwith effect from 1st April, 1989, i.e.,after substitution of Section 147 ofthe Income Tax Act, 1961 by Direct TaxLaws (Amendment) Act, 1987? xxxx 6. On going through the changes, quotedabove, made to Section 147 of the Act,we find that, prior to Direct Tax Laws(Amendment) Act, 1987, re-opening couldbe done under above two conditions andfulfillment of the said conditionsalone conferred jurisdiction on theAssessing Officer to make a backassessment, but in section 147 of theAct [with effect from 1st April, 1989],they are given a go-by and only onecondition has remained, viz., thatwhere the Assessing Officer has reasonto believe that income has escapedassessment, confers jurisdiction to re-open the assessment. Therefore, post-1st April, 1989, power to re-open ismuch wider. However, one needs to givea schematic interpretation to the words"reason to believe" failing which, weare afraid, Section 147 would givearbitrary powers to the AssessingOfficer to re-open assessments on thebasis of "mere change of opinion",which cannot be per se reason to re-open. We must also keep in mind theconceptual difference between power toreview and power to re-assess. TheAssessing Officer has no power toreview; he has the power to re-assess.But re-assessment has to be based onfulfillment of certain pre-conditionand if the concept of "change ofopinion" is removed, as contended onbehalf of the Department, then, in thegarb of re-opening the assessment,review would take place. One must treatthe concept of "change of opinion" asan in-built test to check abuse ofpower by the Assessing Officer. Hence,after 1st April, 1989, AssessingOfficer has power to re-open, provided there is "tangible material" to come tothe conclusion that there is escapementof income from assessment. Reasons musthave a live link with the formation ofthe belief. Our view gets support fromthe changes made to Section 147 of theAct, as quoted hereinabove. Under theDirect Tax Laws (Amendment) Act, 1987,Parliament not only deleted the words"reason to believe" but also insertedthe word "opinion" in Section 147 ofthe Act. However, on receipt ofrepresentations from the Companiesagainst omission of the words "reasonto believe", Parliament re-introducedthe said expression and deleted theword "opinion" on the ground that itwould vest arbitrary powers in theAssessing Officer. We quote hereinbelowthe relevant portion of Circular No.549dated 31st October, 1989, which readsas follows: "7.2 Amendment made by theAmending Act, 1989, to reintroducethe expression `reason to believe'in Section 147.--A number ofrepresentationswerereceivedagainst the omission of the words`reason to believe' from Section147 and their substitution by the`opinion'oftheAssessingOfficer. It was pointed out thatthe meaning of the expression,`reason to believe' had beenexplained in a number of courtrulings in the past and was wellsettled and its omission fromsection 147 would give arbitrarypowers to the Assessing Officer toreopen past assessments on merechange of opinion. To allay thesefears, the Amending Act, 1989, hasagain amended section 147 to reintroduce the expression `hasreason to believe' in place of thewords `for reasons to be recordedby him in writing, is of theopinion'. Other provisions of thenew section 147, however, remainthe same." 12.Inviewofforegoingreasons, considering the facts of the case impugned notice under section 148 of the Act, 1961 is not tenable in law and is accordingly quashedand set aside. 13.Rule is made absolute to the aforesaid extent. No order as to costs. (N.V.ANJARIA, J) RAGHUNATH R NAIR (BHARGAV D. KARIA, J)