Gujarat Power Corporation Ltd vs. ACIT (Gujarat High Court)

S. 147: If claim not considered by AO, there is no “change of opinion”

For AY 2002-03, the AO issued a notice u/s 148 to reopen the assessment (within 4 years) on the ground that the assessee had been wrongly allowed exemption u/s 10(23G) on certain bonds that had been acquired out of surplus funds and not by way of loans & advances. The assessee filed a Writ Petition to challenge the reopening on the ground that the issue had been considered at the stage of the original assessment and that the reopening was based on a “change of opinion”. HELD by the High Court after a comprehensive review of the law on the subject:

(i) An assessment can be reopened within a period of four years if the AO has some tangible material at his command on which he has reason to believe that income has escaped assessment. Reopening on a “change of opinion” is not possible. The term “opinion” means a “view, judgment or appraisal” formed in the mind about a particular matter. Consequently, if in the original assessment, the AO did not examine the claim of the assessee, did not raise queries or elicit answers, it cannot be stated that merely because the AO did not reject such a claim in the final order of assessment, he should be deemed to have expressed an opinion with respect to such a claim. As long as there is some tangible material to support the belief that income chargeable to tax has escaped assessment, reopening is permissible. Such tangible material need not be “new” or be alien to the record;

(ii) The assessee’s argument that as the Full Bench judgement in Kelivinator 256 ITR 1 (Del) (FB) was approved by the Supreme Court 320 ITR 561, the observations made by the Full Bench must be regarded as the ratio of the Supreme Court is not correct because the question before the Supreme Court was whether the concept of “change of opinion” stands obliterated with effect from 1.4.1989 or not. The Supreme Court did not hold that the tangible material must be that which did not form part of the original record of the assessment proceedings. The ratio of the decision of the Supreme Court is what the judgement lays down and not what the decisions of the High Court under challenge held. Further, it is doubtful whether even the Full Bench in Kelvinator meant to convey that a certain claim which has not been examined by the AO in the original assessment, cannot be a subject matter of reopening on the basis of material already on record. Now, the Delhi High Court has itself referred the matter for reconsideration to another Full Bench in Usha International;

(iii) If the AO notices the claim, raises queries and extracts a response from the assessee, the fact that he is silent in the assessment order does not mean that he has not applied his mind to the issue. The assessee has no control over the manner in which the assessment order is to be written. A reopening in this situation would be based on a “change of opinion” and not be permissible. The wide observations in Praful Chunilal Patel 236 ITR 832 cannot be understood to mean that even where a particular claim had been examined by the AO in the original assessment, reopening is permissible because this would be counter to Kelvinator 320 ITR 561;