VIJYA LAXMI EXPORTS V. THE ASSISTANT COMMISSIONER OF INCOME TAX

SCA/20132/2018

AI Insights

The case involves Vijya Laxmi Exports, a partnership firm engaged in re-export of imported goods, which challenged a notice issued by the Assistant Commissioner of Income Tax under section 148 of the Income Tax Act, 1961, for reopening the assessment for the Assessment Year 2011-2012. The notice was based on the grounds that the firm had claimed excess deduction under section 10AA of the Act by not accounting for interest and remuneration to partners as per the partnership deed. The firm argued that the reopening was unjustified as the issue had been previously examined and decided in their favor during earlier assessments and appeals. The court, after examining the submissions and evidence, including the supplementary partnership deed, concluded that there was no material change in facts that would justify reopening the assessment and that the reopening was based on a change of opinion by the Assessing Officer.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 747465 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 12-07-2022
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income tax v. Kelvinator of India Ltd.
• Laws Referred To: Income Tax Act, 1961, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NIKUNT RAVAL; KALPANA RAVAL
• Assessee Lawyers: TUSHAR HEMANI; VAIBHAVI PARIKH
• Keywords: Assessment Year 2011-2012; Income tax reassessment; Interest and remuneration to partners; Partnership deed; Section 10AA
• Section: 147; 148; 143(3); 10AA; 40(b)

Judgement Text

"C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 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 and HONOURABLE MR. JUSTICE BHARGAV D. KARIA ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of 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.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 12/07/2022 ORAL JUDGMENT Page 1 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1.Heard learned advocate Mr. Tushar Hemani, Senior Advocate for Ms. Vaibhavi Parikh for the petitioner and learned advocate Ms. Nikunt Raval for learned advocate Ms. Kalpana Raval for the respondent. 2.Having regard to the controversy involved in the present case which lies in a very narrow compass, with the consent of the learned advocates for the respective parties, the matter is taken up for final hearing. 3.Rule returnable forthwith. Learned advocate Mr. Nikunt Raval waives service of notice of rule on behalf of the respondent. 4.By this petition under Article 226 of the Constitution of India, the petitioner has challenged the notice dated 31.03.2018 issued Page 2 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 under section 148 of the Income Tax Act, 1961 (For short “the Act”) for reopening of the assessment proceedings for the Assessment Year 2011-2012. 5.Brief facts of the case are as under : 5.1) The petitioner is a partnership firm and is engaged in the activity of re-export of imported goods. 5.2) The petitioner filed return of income for the Assessment Year 2011-2012 on 29.09.2011 declaring total income at Rs. Nil after 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 for and same were duly furnished by the Page 3 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 petitioner. 5.4) The Assessing Officer issued notice dated 15.01.2014 calling upon the petitioner to show cause as to why deduction under section 10AA of the Act should not be disallowed. 5.5) The petitioner vide letter dated 19.01.2014 furnished justification as to the claim of deduction under section 10AA of the Act. 5.6) The Assessing Officer thereafter passed the assessment order dated 26.02.2014 under section 143(3) of the Act and disallowed the entire deduction of Rs. 86,19,599/-. 5.7) The petitioner preferred an appeal before the Commissioner of Income Tax Page 4 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 (Appeals) who vide order dated 2.05.2014 deleted the disallowance of Rs. 86,19,599/- made by the Assessing Officer under section 10AA of the Act. 5.8) Case of the petitioner for the Assessment Year 2012-2013 was also taken up for scrutiny assessment by the Assessing Officer. While framing the assessment under section 143(3) of the Act vide order dated 28.04.2015, the Assessing Officer disallowed the claim of section 10AA of the Act. It was further observed by the Assessing Officer that if claim made is allowed under section 10AA of the Act, then excess claim to the tune of Rs.15,08,55,820/- pertaining to interest and remuneration should be withdrawn. 5.9) The petitioner preferred appeal against the assessment order for the Page 5 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 Assessment Year 2012-2013 before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) vide order dated 21.01.2016 deleted the addition made on account of interest and remuneration to the partners. 5.10) The respondent thereafter issued impugned notice under section 148 of the Act dated 31.03.2018 seeking to reopen the case of the petitioner for the year under consideration. 5.11) The petitioner filed return of income for the year under consideration on 11.05.2018 in response to the notice issued under section 148 of the Act. The petitioner vide letter dated 21.05.2018 requested the respondent to supply copy of reasons recorded for reopening. Page 6 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 5.12) Such copy of reasons recorded by the Assessing Officer were supplied to the petitioner on 9.07.2018. The reasons recorded by the Assessing Officer for reopening the assessment under section 147 of the Act read as under: “In this case, the assessee has filed her ROI for A.Y 2011-12 on 29.09.2011 declaring total income of Rs. Nil by claiming deduction u/s. 10AA of the I.T. Act of Rs.86,19,599/-. The assessee is engaged in the trading activity in nature of \"Re-export of Imported Goods\". As per the audit report, the assessee has derived income from manufacturing, processing, repairing and import export of goods. Scrutiny assessment us. 143(3) of the I.T. Act was completed on 26.02.2014. Income was assessed at Rs.86,19,599/- by making disallowance of deduction claimed u/s. 10AA of the I.T. Act. Subsequently, the income has been revised to Rs. Nil in view of the appeal effect order of CIT(A). 2. On verification of the case records, it is observed that the assessee firm in its partnership deed has inserted a clause to provide interest and remuneration to partners as per provisions of Section 40(b) of the Act. However, the assessee firm did not make any provision for the said remuneration Page 7 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 and interest to be provided to the partners in accordance with the provisions of the partnership deed. The working of Interest on partners capital and remuneration are as under: Interest payable to the partners on their capital: 12% of Rs.10619599 = Rs.1274351/- Profit eligible for remuneration : 8619599-1274351 = Rs.7345247/- Remuneration to be provided to the partners as per 40(b) of the I.T. Act. : Rs.4497148/ Profit eligible for deduction u/s. 10AA in the case of the firm : 8619599- (1274351 +4497148) = Rs.2848100/- From the above, it is seen that assessee has claimed excess deduction of Rs.57,71,499/ u/s. 10AA of the I.T. Act which is liable to be taxed in the hands of the partners. The assessee has claimed the whole deduction of Rs.86,19,599/-in its accounts and evaded the tax on the income of Rs.57,71,499/-. On the other hand, the assessee firm has derived total income of Rs.86,19,599/- which have been audited. It revealed that the assessee has earned income from unaccounted sources of Rs.57,71,499/- equivalent to the amount of interest on capital and remuneration to the partners accumulate with its total income and the same has been claimed exempted u/s. 10AA of the I.T. Act. In such way, the Page 8 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 assessee has earned income of Rs.57,71,499/- from unaccounted sources which have accumulated into its exempted income. 3. It is true that the assessee has filed a copy of annual report and audit P&L A/c and balance sheet along with return of income where various information/material were 3. disclosed. However, the assessee has not furnished the details of payment of interest payable to the partners on their capital and remuneration in accordance with the provision contained in partnership deed. In fact, the assessee had embedded the details and documents in such a manner that material evidence could not be discovered by the AO and could have been discovered with due diligence, accordingly attracting provisions of Explanation 1 of Section 147 of the Act. 4. It is evident from the above discussion that in this case, the issues under consideration were never examined by the AO during the course of regular assessment/reassessment. This fact is corroborated from the contents of notices issued by the AO u/s. 143(2)/142(1) and order sheet entry recorded during the 143(3) proceedings. It is important to highlight here that the issue of interest on capital and remuneration to the partners were not filed during the course of assessment proceeding and the same may be embedded in annual report, audited P&L A/c, balance sheet and books of account in such a manner that it would require due diligence by the AO to extract these Page 9 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 information. For aforestated reasons, it is not a case of change of opinion by the AO. 5. In view of the above facts and materials, I have reason to believe that income of Rs. 57,71,499/- has escaped assessment for A.Y. 2011-12 within the meaning of section 147 of the Act. I am therefore, satisfied that this is a fit case for invoking the provisions of section 147 of the Income-tax Act. Therefore, it is requested to grant statutory approval to issue notice u/s.148 of the Income-Tax Act.” 5.13) The petitioner raised objections against reopening vide letter dated 17.07.2018. The respondent Assessing Officer vide order dated 27.08.2018 rejected such objections raised by the petitioner. 5.14) Being aggrieved by the action of the respondent, the petitioner has preferred this petition. 6.Learned Senior Advocate Mr. Tushar Hemani for the petitioner submitted that the case of the Page 10 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 petitioner was reopened on the basis that the assessee did not provide for interest on capital as well as remuneration to partners in accordance with the provisions of original partnership deed and evaded tax on the total amount of remuneration as well as interest payable to the partners. 6.1) Learned Senior Advocate Mr. Hemani submitted that the petitioner had filed true and correct return of income and had shown all taxable income from all the sources and during the year under consideration, the assessee had derived income from manufacturing, processing, repairing and import export of goods. 6.2) It was submitted that the petitioner had executed a supplementary deed on 18.03.2011 and the same was notarized on 31.03.2011. Such supplementary deed itself Page 11 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 makes it clear that no interest on capital and remuneration is to be paid to any partner from the starting of the business. 6.3) Learned Senior Advocate Mr. Hemani submitted that the said issue was thoroughly looked into by the Commissioner of Income Tax (Appeals)-II Surat during the assessment proceedings for the year 2012-2013. It was submitted that during the appellate proceedings, the petitioner had produced the notarized copy supplementary partnership deed dated 18.03.2011 as an additional evidence. Thereafter, the Commissioner of Income tax sought a remand report from the Assessing Officer under Rule 46A of the Income Tax Rules, 1962 regarding the authenticity of the additional evidence. It was submitted that even the Deputy Commissioner of Income Tax had confirmed the genuineness of such supplementary deed by instructing the Page 12 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 inspector to visit the place of the Registrar Office and obtain photocopy of relevant page of notary register wherein the entry of amended deed was made. 6.4) It was submitted that transactions were duly carried out as per the provisions and the conditions laid down in the supplementary deed subject to the provisions of the Act. It was further submitted that because the assessee had claimed the income as exempt under section 10AA of the Act, the Assessing Officer presumed that notional interest at the rate of 12% and maximum allowable remuneration has escaped assessment. 6.5) Learned Senior Advocate Mr. Hemani submitted that assessment framed under section 143(3) of the Act can be reopened beyond the prescribed period of four years Page 13 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 from the end of relevant assessment year if and only income chargeable to tax had escaped assessment by failure on part of the petitioner to disclose fully and truly all material facts necessary for assessment. It was submitted that no interest and remuneration has been paid to the partners is evident from the computation of total income, tax audit report and audited annual accounts. It was further submitted that the original partnership deed was supplied to the Assessing Officer at the original assessment stage and since the respondent was of the view that entire deduction under section 10AA of the Act was to be disallowed, he chose not to make separate addition in respect of interest and remuneration to partners. It was further submitted that in the Assessment Year 2012-2013 the Assessing Officer partly withdrew claim of interest and remuneration to partners and in appeal supplementary Page 14 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 partnership deed supplied by the petitioner was found to be genuine and hence addition made in respect of interest and remuneration to the partners was deleted. It was therefore, submitted that there was no failure on part of the petitioner to fully and truly disclose the relevant materials necessary for assessment. 6.6) Learned Senior Advocate Mr. Hemani submitted that reopening was not justified on account of the applicability of principle of merger. It was submitted that as per third proviso to section 147 of the Act, the Assessing Officer cannot reopen assessment to examine an issue which is already a subject matter of appeal, reference or revision. 6.7) Learned Senior Advocate Mr. Hemani further submitted that even on merits, the Page 15 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 claim of the deduction under section 10AA of the Act cannot be reduced to the extent of interest and remuneration to partners. It was submitted that the original partnership deed contained a clause for providing interest and remuneration to partners, however, the supplementary partnership deed contained a clause as to non-payment of interest and remuneration to the partners. It was submitted that mere fact that there was a clause for providing interest and remuneration to partners in original partnership deed does not signify that interest and remuneration to partners is mandatory and even if there was no supplementary deed containing clause as to non-payment of interest and remuneration, then also the respondent cannot reduce the claim of deduction under section 10AA of the Act to the extent of interest and remuneration. Page 16 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 6.8) Learned Senior Advocate Mr. Hemani further submitted that it is apparent from the record that though the issue with regard to the claim of deduction under section 10AA of the Act was considered by the Assessing Officer at the time of original assessment under section 143(3) of the Act, 1961, again the same issue is sought to be reconsidered in the reopening proceedings. It was therefore, submitted that the assumption of the jurisdiction by the Assessing Officer to reopen the assessment would amount to change of opinion. 7.On the other hand learned advocate Mr. Nikunt Raval for the Revenue submitted that upon verification of the case records it was observed that the assessee firm in its partnership deed had inserted a clause to provide interest and remuneration to partners Page 17 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 as per the provisions of Section 40(b) of the Act. However, the assessee firm did not make any provision for the said remuneration and interest to be provided to the partners in accordance with the provisions of the partnership deed though subsequently the assessee claimed to have amended the partnership deed whose veracity and relevance has been questioned by the Assessing Officer. 7.1) It was submitted that the assessee has claimed the whole deduction of Rs. 86,19,599/- in its accounts and evaded tax on the income of Rs.57,71,499/- and on the other hand the assessee firm has derived total income of Rs. 86,19,599/- which have been audited and it has been revealed that the assessee has earned income from unaccounted/ineligible sources of Rs. 57,71,499/- equivalent to the amount of interest on capital and remuneration to the Page 18 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 partners with its total income and the same has been claimed as exemption under section 10AA of the Act. 7.2) It was submitted that the assessee has filed a copy of annual report and audited Profit and Loss Account and Balance sheet along with the return of income where various information/material were disclosed. However, the assessee has not furnished the details of payment of interest payable to the partners on their capital and remuneration in accordance with the provisions contained in the partnership deed. It was submitted that the assessee had embedded the details and documents in such a manner that material evidence could not be discovered by the Assessing Officer and therefore, attracting the provisions of Explanation 1 of section 147 of the Act. Page 19 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 7.3) Learned advocate Mr. Raval submitted that sizeable amount of income chargeable to tax in case of the assessee had escaped assessment and that such escapement was on account of failure on part of the assessee to disclose truly and fully all material facts and therefore, notice issued under section 148 of the Act was legal and valid. 7.4) It was submitted that there is no relevance of doctrine of merger as the scope of case before the Commissioner of Income Tax was restricted. It was submitted that the jurisdiction exercised by the Commissioner of Income Tax was narrow and limited to the allowability of deduction under section 10AA of the Act and therefore, the issue of deduction in respect of interest and remuneration payable to the partners did never arise and there was no opportunity or scope for the Commissioner of Income Tax Page 20 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 (Appeals) to adjudicate the matter or assume jurisdiction over the issue which is distinct and separate. 7.5) Learned advocate Mr. Raval submitted that veracity, legality and applicability of the so-called supplementary deed executed on 18.03.2011 and notarized on 31.03.2011 has not been examined in the Assessment Year 2011-2012. It was further submitted that the contention of the assessee that information from the broker was sought after issuance of the notice shows that there was no enquiry prior to the issuance of notice is not tenable inasmuch as once it is held that the proceedings under section 147 and 148 have been validly initiated, the Assessing Officer is not prevented from looking into the matter further including gathering further information. Page 21 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 7.6) Learned advocate Mr. Raval further submitted that it is a trite law that adequacy or sufficiency of material on basis on which the belief was formed by the Assessing Officer for reopening of the assessment could not be enquired into at the preliminary stage. 7.7) Learned advocate Mr. Raval further submitted that there is a clear provision of interest payment to partner in the partnership deed. It was submitted that section 80A(1) of the Act is a specific provision inserted in the Act to prevent the misuse of exemption provision like section 10AA and artificial inflation of profits claimed as exempt. Therefore, the argument of the assessee that relevant expenses of remuneration of partners and interest on capital have not been provided in the partnership deed and therefore, such expenses Page 22 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 cannot be imposed upon the assessee and the claim under section 10AA cannot be reduced, was not acceptable as it is not imposition of any claim but mere working of normal profits of the assessee as per section 80IA(1) of the Act. 7.8) Learned advocate Mr. Raval submitted that section 40(b) of the Act intends to put a cap on maximum interest and remuneration allowable even if higher sums are allocated in the partnership deed. It was submitted that section 40(b) does not imply that remuneration and interest cannot be impugned if not provided in the partnership deed, what it implies is that even if higher than prescribed interest and remuneration are provided in the partnership deed, the excess would not be allowable. It was further submitted that the provisions of section 40(b0 of the Act provides for payment of Page 23 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 interest @ 12% on capital of partners and remuneration to the working partners, however, the assessee firm has not made any payment thereof to the partners nor has made any provision of liability in the books of account. Therefore, the remuneration and interest at the rate as prescribed under section 40(b) of the Act is treated as paid to the partner. It was therefore, submitted that the interest and remuneration payable to the partners under section 40(b) of the Act are liable to be excluded from the profits of the business eligible for exemption under section 10AA of the Act and accordingly the deductions claimed under section 10AA are to be reduced by the amount of interest and remuneration and the remaining business profit would be allowable for deduction under section 10AA. 7.9) Learned advocate Mr. Raval submitted Page 24 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 that this is not a fit case nor an appropriate stage to make any interference by this Court as there is no illegality in the impugned notice. 8.Considering the submissions made by the learned advocates of both the sides, it appears that the impugned notice under section 148 of the Act, 1961 is issued only on the ground that the assessee firm in its partnership deed has inserted a clause to provide interest and remuneration to partners as per the provisions of section 40(b) of the Act, however, the assessee firm did not make any provision for the said remuneration and interest to be provided to the partners in accordance with the provisions of the partnership deed and the assessee has claimed excess deduction of Rs. 57,71,499/- under section 10AA of the Act which is liable to be taxed in the hands of the partners and Page 25 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 therefore, the assessing officer has reason to believe that the assessee has earned income of Rs.57,71,499/- from unaccounted sources which have accumulated into its exempted income and such income has escaped assessment. 9. It is not in dispute that partners of the petitioner firm had executed a partnership deed on 1.07.2010 which contained a clause of payment of interest and remuneration to partners however, later a supplementary partnership deed was executed on 18.03.2011 modifying the partnership deed to the extent that no interest and remuneration shall be paid to the partners. In the assessment proceedings for the Assessment Year 2012- 2013, the supplementary partnership deed was placed on record. The Commissioner of Income Tax in appeal, after verifying such supplementary partnership deed by conducting Page 26 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 inquiry from the notary regarding genuineness of the same, held that clause as to interest and remuneration to partners was modified in the supplementary deed and accordingly deleted the addition made on account of interest and remuneration to partners. Thus there is no failure on part of the assessee to disclose fully and truly all relevant material necessary for assessment. 10. The issue of entire claim of deduction under section 10AA of the Act was before the Commissioner of Income Tax (Appeals) and the Commissioner of Income Tax (Appeals) had ample powers to partly withdraw the claim of the deduction under section 10AA of the Act to the extent of interest and remuneration to partners, however, while allowing deduction under section 10AA of the Act, nothing of such sort has been done. Page 27 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 11. It is therefore, apparent that there is change of opinion by the Assessing Officer to reopen the assessment for the Assessment Year 2011-2012, more particularly, when the issue of provision for the remuneration and interest to be provided to partners is already considered during the earlier assessment proceedings. The Assessing Officer cannot have any jurisdiction to issue the notice under section 148 of the Act, 1961 for reopening the assessment for the year under consideration more particularly, when the assessment is sought to be reopened beyond a period of four years as held by the Supreme Court in case of Commissioner of Income tax v. Kelvinator of India Ltd. reported in 2010(2) SCC 723 as under: “2. 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? Page 28 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 xxxx 6. 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 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 Page 29 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 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 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 Page 30 of 31 C/SCA/20132/2018 JUDGMENT DATED: 12/07/2022 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.\" 12. In view of foregoing reasons, considering the facts of the case impugned notice under section 148 of the Act, 1961 is not tenable in law and is accordingly quashed and set aside. 13. Rule is made absolute to the aforesaid extent. No order as to costs. (N.V.ANJARIA, J) (BHARGAV D. KARIA, J) RAGHUNATH R NAIR Page 31 of 31 "