Kelvinator Affirmed by Supreme Court

[brett_lee38]

Supreme Court has affirmed the ruling of kelivantor 256 ITR 1 However the observation of the Bench may be used by revenue also for sustaining the action of the AO u/s148 if any one want the decision then mail me or call me. I am attaching the judgment of Supreme Court

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ITEM No.1A COURT NO.2 SECTION IIIA


S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS

Civil Appeal Nos.2009-2011 of 2003


COMMISSIONER OF INCOME TAX, DELHI Appellant(s)

VERSUS

M/S.KELVINATOR OF INDIA LIMITED Respondent(s)

With Civil Appeal No.2520 of 2008


Date : 18/01/2010 These Matters were called on for judgement
today.


For Appellant(s) Mr. Arijit Prasad,Adv.
Mr. B.V. Balaram Das,Adv.


For Respondent (s) Mr. Bhargava V. Desai,Adv.



Hon'ble Mr. Justice S.H. Kapadia pronounced
the judgement of the Bench comprising His Lordship,
Hon'ble Mr. Justice Aftab Alam and Hon'ble Mr.
Justice Swatanter Kumar.

The civil appeals are dismissed with no
order as to costs.



[ T.I. Rajput ] [ Madhu Saxena ]
A.R.-cum-P.S. Court Master

[Signed reportable judgement is placed on the file]
REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.2009-2011 OF 2003


Commissioner of Income Tax, Delhi ...Appellant(s)


Versus


M/s. Kelvinator of India Limited ...Respondent(s)


With Civil Appeal No.2520 of 2008


J U D G E M E N T



S.H. KAPADIA,J.



Heard learned counsel on both sides.
A short question which arises for determination in
this batch of civil appeals is, whether the concept of
"change of opinion" stands obliterated with effect from 1st
April, 1989, i.e., after substitution of Section 147 of
the Income Tax Act, 1961 by Direct Tax Laws (Amendment)
Act, 1987?
To answer the above question, we need to note the
changes undergone by Section 147 of the Income Tax Act,
1961 [for short, "the Act"]. Prior to Direct Tax Laws
(Amendment) Act, 1987, Section 147 reads as under:
...2/-
- 2 -


"Income escaping assessment.

147. If--

[a] the Income-tax Officer has reason to
believe that, by reason of the omission or
failure on the part of an assessee to make a
return under section 139 for any assessment
year to the Income-tax Officer or to
disclose fully and truly all material facts
necessary for his assessment for that year,
income chargeable to tax has escaped
assessment for that year, or

notwithstanding that there has been no
omission or failure as mentioned in clause
(a) on the part of the assessee, the Income-
tax Officer has in consequence of
information in his possession reason to
believe that income chargeable to tax has
escaped assessment for any assessment year,

he may, subject to the provisions of sections 148
to 153, assess or reassess such income or
recompute the loss or the depreciation allowance,
as the case may be, for the assessment year
concerned (hereafter in sections 148 to 153
referred to as the relevant assessment year)."


After enactment of Direct Tax Laws (Amendment) Act,
1987, i.e., prior to 1st April, 1989, Section 147 of the
Act, reads as under:

"147. Income escaping assessment.-- If the
Assessing Officer, for reasons to be recorded
by him in writing, is of the opinion that any
income chargeable to tax has escaped
assessment for any assessment year, he may,
subject to the provisions of Sections 148 to
153, assess or reassess such income and also
...3/-
- 3 -

any other income chargeable to tax which has
escaped assessment and which comes to his
notice subsequently in the course of the
proceedings under this section, or recompute
the loss or the depreciation allowance or any
other allowance, as the case may be, for the
assessment year concerned (hereafter in this
section and in Sections 148 to 153 referred
to as the relevant assessment year)."



After the Amending Act, 1989, Section 147 reads as
under:

"Income escaping assessment.

147. If the Assessing Officer has reason to
believe that any income chargeable to tax has
escaped assessment for any assessment year, he
may, subject to the provisions of sections 148 to
153, assess or reassess such income and also any
other income chargeable to tax which has escaped
assessment and which comes to his notice
subsequently in the course of the proceedings
under this section, or recompute the loss or the
depreciation allowance or any other allowance, as
the case may be, for the assessment year
concerned (hereafter in this section and in
sections 148 to 153 referred to as the relevant
assessment year)."


On going through the changes, quoted above, made to
Section 147 of the Act, we find that, prior to Direct Tax
Laws (Amendment) Act, 1987, re-opening could be done under
above two conditions and fulfillment of the said
conditions alone conferred jurisdiction on the Assessing
Officer to make a back assessment, but in section 147 of
the Act [with effect from 1st April, 1989], they are given
a go-by and only one condition has remained, viz., that
...4/-
- 4 -


where the Assessing Officer has reason to believe that
income has escaped assessment, confers jurisdiction to re-
open the assessment. Therefore, post-1st April, 1989,
power to re-open is much wider. However, one needs to
give a schematic interpretation to the words "reason to
believe" failing which, we are afraid, Section 147 would
give arbitrary powers to the Assessing Officer to re-open
assessments on the basis of "mere change of opinion",
which cannot be per se reason to re-open. We must also
keep in mind the conceptual difference between power to
review and power to re-assess. The Assessing Officer has
no power to review; he has the power to re-assess. But
re-assessment has to be based on fulfillment of certain
pre-condition and if the concept of "change of opinion" is
removed, as contended on behalf of the Department, then,
in the garb of re-opening the assessment, review would
take place. One must treat the concept of "change of
opinion" as an in-built test to check abuse of power by
the Assessing Officer. Hence, after 1st April, 1989,
Assessing Officer has power to re-open, provided there is
"tangible material" to come to the conclusion that there
is escapement of income from assessment. Reasons must
have a live link with the formation of the belief. Our
view gets support from the changes made to Section 147 of
the Act, as quoted hereinabove. Under the Direct Tax Laws
(Amendment) Act, 1987, Parliament not only deleted the
words "reason to believe" but also inserted the word
"opinion" in Section 147 of the Act. However, on receipt
of representations from the Companies against omission of
...5/-
- 5 -
the words "reason to believe", Parliament re-introduced
the said expression and deleted the word "opinion" on the
ground that it would vest arbitrary powers in the
Assessing Officer. We quote hereinbelow the relevant
portion of Circular No.549 dated 31st October, 1989, which
reads as follows:

"7.2 Amendment made by the Amending Act, 1989,
to reintroduce the expression `reason to
believe' in Section 147.--A number of
representations were received against the
omission of the words `reason to believe' from
Section 147 and their substitution by the
`opinion' of the Assessing Officer. It was
pointed out that the meaning of the
expression, `reason to believe' had been
explained in a number of court rulings in the
past and was well settled and its omission
from section 147 would give arbitrary powers
to the Assessing Officer to reopen past
assessments on mere change of opinion. To
allay these fears, the Amending Act, 1989, has
again amended section 147 to reintroduce the
expression `has reason to believe' in place of
the words `for reasons to be recorded by him
in writing, is of the opinion'. Other
provisions of the new section 147, however,
remain the same."

For the afore-stated reasons, we see no merit in
these civil appeals filed by the Department, hence,
dismissed with no order as to costs.


......................J.
[S.H. KAPADIA]


......................J.
[AFTAB ALAM]


......................J.
[SWATANTER KUMAR]
New Delhi,
January 18, 2010.