Income Tax Act, 1961

--Reassessment--Reason to believe Absence of tangible material vis-a-vis intimation under section 143(1)--Assessee's return was proceeded with under section 143(1). Thereafter, a notice under section 148 was issued on the ground that deduction under section 80HHC was allowed in excess, as the 90 per cent of premium on sale of quota and DEPB was not reduced under Explanation (baa) of section 80HHC. Assessing officer as such passed reassessment order. Commissioner (Appeals) and Tribunal allowed assessee's appeal. Held: Rightly so. Reasons disclosed that assessing officer reached belief that there was escapement of income 'On going through return of income' filed by assessee return was accepted under section 143(1) without scrutiny and nothing more. This was nothing but a review of earlier proceedings and an abuse of power by assessing officer. Accepted Reasons recorded by assessing officer do confirm apprehension about the harm that a less strict interpretation of the words 'reason to believe' vis-a-vis an intimation issued under section 143(1) can cause to the tax regime.

Intimation can be disturbed by initiating reassessment proceedings only so long as the ingredients of section 147 are fulfilled and with reference to section 143(1) vis-a-vis section 147, the only ingredient is that there should be reason to believe that income chargeable to tax has escaped assessment and it does not matter that there has been no failure or omission on the part of the assessee to disclose full and true particulars at the time of the original assessment. There is nothing in the language of section 147 to unshackle the assessing officer from the need to show 'reason to believe'. The fact that the intimation issued under section 143(1) cannot be equated to an 'assessment', a position which has been elaborated by the Supreme Court cannot lead to the conclusion that the requirements of section 147 can be dispensed with when the finality of an intimation under section 143(1) is sought to be disturbed. An intimation under section 143(1) can be disturbed on any ground which appeals to the assessing officer. The consequence of countenancing such an argument could be grave. The expression 'reason to believe' has come to attain a certain signification and content, nourished over a long period of years by judicial refinement painstakingly embarked upon by great judges in the past. The expression has been judicially interpreted in a particular manner. When section 147 was recast with effect from 1-4-1989, the legislature sought to replace the expression reason to believe with the expression 'for reasons to be recorded by him in writing'. [Para 8] After 1-4-1989, the assessing officer has power to reopen provided there is tangible material to come to the conclusion that there is escapement of income there can be no review of an assessment in the guise of reopening and that a bare review without any tangible material would amount to abuse of the power. The assumption of the Revenue that somehow the words reason to believe have to be understood in a liberal manner where the finality of an intimation under section 143(1) is sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such an assumption because of the language employed in section 147; it makes no distinction between an order passed under section 143(3) and the intimation issued under section 143(1). Therefore it is not permissible to adopt different standards while interpreting the words reason to believe vis-a-vis section 143(1) and section 143(3) this court is unable to appreciate what permits the Revenue to assume that somehow the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of an assessment earlier made under section 143(3) cannot apply where only an intimation was issued earlier under section 143(1). It would in effect place an assessee in whose case the return was processed under section 143(1) in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny assessment made under section 143(3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of assessee; he has no choice in the matter. The other consequence, which is somewhat graver, would be that the entire rigorous procedure involved in reopening an assessment and the burden of proving valid reasons to believe could be circumvented by first accepting the return under section 143(1) and thereafter issue notices to reopen the assessment. An interpretation which makes a distinction between the meaning and content of the expression reason to believe in cases where assessments were framed earlier under section 143(3) and cases where mere intimations were issued earlier under section 143(1) may well lead to such an unintended mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be eschewed. The argument of the revenue that an intimation cannot be equated to an assessment, relying upon certain observations of the Supreme Court in Rajesh Jhaveri (supra) would also appear to be self-defeating, because if an 'intimation' is not an 'assessment' then it can never be subjected to section 147 proceedings, for, that section covers only an 'assessment' and court wonder if the revenue would be prepared to concede that position. It is nobody's case that an 'intimation' cannot be subjected to section 147 proceedings; all that is contended by the assessee, and quite rightly, is that if the revenue wants to invoke section 147 it should play by the rules of that section and cannot bog down. In other words, the expression 'reason to believe' cannot have two different standards or sets of meaning, one applicable where the assessment was earlier made under section 143(3) and another applicable where an intimation was earlier issued under section 143(1). It follows that it is open to the assessee to contend that notwithstanding that the argument of 'change of opinion' is not available to him, it would still be open to him to contest the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment. In doing so, it is further open to the assessee to challenge the reasons recorded under section 148(2) on the ground that they do not meet the standards set in the various judicial pronouncements. [Para 14] In the present case, the reasons disclose that the assessing officer reached the belief that there was escapement of income 'on going through the return of income' filed by the assessee after he accepted the return under section 143(1) without scrutiny, and nothing more. This is nothing but a review of the earlier proceedings and an abuse of power by the assessing officer, both strongly deprecated by the Supreme Court in CIT v. Kelvinator. The reasons recorded by the assessing officer in the present case do confirm apprehension about the harm that a less strict interpretation of the words 'reason to believe' vis-a-vis an intimation issued under section 143(1) can cause to the tax regime. There is no whisper in the reasons recorded, of any tangible material which came to the possession of the assessing officer subsequent to the issue of the intimation. It reflects an arbitrary exercise of the power conferred under section 147. [Para 14]