CIT vs. Usha International Ltd (Delhi High Court – Full Bench)

S. 147: There is no “change of opinion” if AO does not specifically apply his mind

The Full Bench was constituted to consider the meaning of the expression “change of opinion” for purposes of s. 147 and whether, in the light of Kelvinator 256 ITR 1 (Del FB), as approved in 320 ITR 521 (SC), in a case where the assessee has furnished full and true particulars at the time of original assessment with reference to the income alleged to have escaped assessment, the AO, even within 4 years from the end of the AY, could be said to have formed an opinion and to have no jurisdiction to reopen the assessment even though he had not raised any query with respect to the issue. HELD by the Full Bench:

By the Majority (Easwar J. dissenting partly):

(i) The expression “change of opinion” postulates formation of opinion and then a change thereof. The question of “change of opinion” arise only when the AO at the s. 143(3) stage forms an opinion and accepts the assessee’s stand. There is a difference between “change of opinion” and failure to “form an opinion“. However, for determining whether or not there is “change of opinion“, the fact that the assessment order is silent is not relevant because the assessee has no control over the way the order is written. There may also be cases where though the AO has not raised a query, the issue may be so apparent and obvious that to say that the AO has not formed an opinion would be contrary and opposed to normal human conduct;

(ii) The observations in Kelvinator 256 ITR 1 (FB) that when an assessment order is passed u/s 143(3), a presumption is raised u/s 114(e) of the Indian Evidence Act that the order was passed after application of mind and that otherwise there would be a premium on the authority exercising quasi-judicial function to take benefit of its own wrong does not mean that even if the AO does not examine a particular issue and had not formed any opinion, it must be presumed that he must have formed an opinion. There cannot be deemed formation of opinion even when the particular issue is not examined. The observations were made only to reject the Revenue’s contention that a non-speaking assessment order means a case of non-formation of opinion;

(iii) In affirming Kelvinator, the Supreme Court referred only to the principle of “change of opinion” and no comments were made on the presumption u/s 114(e) of the Indian Evidence Act. The assessee’s argument that the Full Bench verdict has merged in the judgement of the Supreme Court and cannot be reconsidered is not acceptable because there are no observations by the Supreme Court on the issue of whether there is deemed formation of opinion and it cannot be said that the High Court’s reasoning is the ratio of the apex Court;

Per Easwar J. (dissenting in part):

(i) There is no difference between a case where a query is raised by the AO which is replied to by the assessee with supporting material, but the opinion of the AO is not recorded in the assessment order, and a case where even without a query from the AO, the assessee voluntarily discloses full and true particulars necessary for his assessment, which are not referred to in the assessment order and the opinion of the AO is not expressly recorded. The ruling of the Full Bench in Kelvinator would apply with equal force to both types of cases.

(ii) The substratum of the ruling in Kelvinator is not a question of “deemed formation of opinion” alone but that the AO cannot take advantage of the perfunctory manner in which he completed the assessment. The ratio of the judgment is rooted to the salutary principle that the assessees shall not be subjected to harassment if they have furnished full and true particulars at the time of the original assessment. Making an assessment is a serious task. Legal consequences follow. A return of income is not a mere scrap of paper. It is to be treated with the respect it deserves. The real principle laid down by the Full Bench in Kelvinator is that if the assessee has discharged his duty of furnishing full and true particulars at the time of the assessment, it may be fairly taken that the AO has equally discharged his functions in the manner required of him. It hardly matters that in the s. 143(3) order, he has not recorded his agreement with the assessee on every issue or point; that could be reasonably inferred;

(iii) The Supreme Court affirmed Kelvinator in a “wholesome manner” in the context of a power given to the AO to disturb the finality of a s. 143(3) assessment and it was held that there should be “tangible material” with the AO. That should end the controversy. The argument that because the observations of the Full Bench on s. 114(e) of the Evidence Act were not expressly referred to and approved by the Supreme Court, that is not a part of the ratio of the Supreme Court’s verdict introduce an undesirable element of uncertainty even when finality has been accorded by the decree of Supreme Court. This way, matters can be reargued and re-agitated till the end of time and is not in conformity with the parameters of judicial discipline and comity.

(iv) The acceptance of the department’s argument that there is no “change of opinion” only because the AO did specifically look at the particulars that were on record raises a “clear and present danger” of the “dangerous consequences” of the two vices of power to review masquerading as the power to reassess and an abuse of the power to reopen the assessment coming into full play. There would be an abuse of power if the AO seeks to reopen the assessment only on the ground that he did not form an opinion despite being possessed of full and true particulars furnished by the assessee.