S. 147: Q whether there is “change of opinion” if AO does not specifically apply his mind referred to Full Bench
In the Notes to accounts, the assessee had disclosed that it had received Rs.173 lakhs for transfer of exclusive distribution rights of AC and water coolers and that it was credited to capital reserve and not treated as income. The AO passed a s. 143(3) assessment order in which he did not deal with the issue. Subsequently, as the revenue audit raised an objection, the AO, within 4 years from the end of the AY, reopened the assessment on the ground that the said amount was chargeable as “Capital gains”. The Tribunal, following Kelvinator 256 ITR 1 (FB) (affirmed in 320 ITR 561 (SC)), struck down the reopening on the ground that it was based on the notes on accounts that was already on record, there was no “fresh material” and so it was a case of “lapse of the AO” and a “change of opinion“. On appeal by the department, HELD:
A case where the AO specifically examines an issue and applies his mind poses no difficulty because even if the order is silent, it is a case of “change of opinion”. However, in a case where the AO does not notice or examine a particular aspect in the assessment order and does not raise any written question or query, can it be said that the doctrine of “mere change of opinion” is applicable. There can be different aspects in which this question may arise including cases where the claim may be a repetition and allowed in earlier years. To what extent the presumption u/s 114 (e) of the Evidence Act applicable is the issue. The question is whether the presumption is rebuttable and when the presumption is rebutted. Further, whether the said presumption only applies to procedural aspects or even to substantive assertions relevant to the assessment. Though in Kelvinator 256 ITR 1, the Full Bench held that s. 114 (e) of the Evidence Act would apply and the AO would be deemed to have applied his mind, s. 114 was not specifically referred to by the Supreme Court nor did it specifically approve or disapprove the observations of the Full Bench. Accordingly, the matter should be examined by a larger Bench and the issues requiring consideration are:
(i) What is meant by the term “change of opinion?
(ii) Whether assessment proceedings can be validly reopened u/s 147, even within four year, if an assessee has furnished full and true particulars at the time of original assessment with reference to income alleged to have escaped assessment and whether and when in such cases reopening is valid or invalid on the ground of change of opinion?
(iii) Whether the bar or prohibition under the principle “change of opinion” will apply even when the AO has not asked any question or query with respect to an entry/note, but there is evidence and material to show that the AO had raised queries and questions on other aspects?
(iv) Whether and in what circumstances s. 114 (e) of the Evidence Act can be applied and it can be held that it is a case of change of opinion?”