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Recent Delhi HC Full Bench decision-CIT v Usha International Ltd[2012]25taxmann.com200(Delhi) on

whether ‘change of opinion’ bars reopening of scrutiny assessment in a ‘no opinion’ case

BY CA SRINIVASAN ANAND.G

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Sum &substance of majority view

Reopening of scrutiny assessment within the 4-year time limit cannot be challenged as “change of opinion”

if subject matter of notice u/s 148 was not examined by AO in original assessment u/s 143(3)

even though asessee made full & true disclosure of facts during original assessment u/s 143(3)

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Backdrop-Questions of law referred by Delhi HC Division Bench to Full Bench

(i)What is meant by the term “change of opinion”? (ii)Whether assessment proceedings can be validly reopened u/s147

of the Act, even within four years, if an assessee has furnished full and true particulars at the time of original assessment with reference to income alleged to have escaped assessment? Whether and when in such cases reopening is valid or invalid on the ground of “change of opinion”?

(iii)Whether the bar or prohibition under the principle “change of opinion” will apply even when the AO has not asked any question or query with respect to an entry/note, but there is evidence and material to show that the AO had raised queries and questions on other aspects?

(iv)Whether and in what circumstances Section 114 (e) of the Evidence Act can be applied and it can be held that it is a case of “change of opinion”?

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Majority View

Reopening of scrutiny assessments within the 4-years time limit not barred by ‘change of opinion’ principle where no opinion formed in the original assessment on the subject-matter of the notice u/s 148. This is so even where assessee has made full and true disclosures.

‘Change of opinion’ postulates formation of opinion and then change thereof;

If subject matter/entry/deduction claim not examined by AO in original assessment u/s 143(3), it is a case of ‘no opinion’;

No question of ‘change of opinion’ in a ‘no opinion case’; No deemed formation of opinion by operation of

presumption u/s 114(e) of the Evidence Act,1872.

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What is ‘change of opinion’-I

‘Change of opinion’ postulates formation of opinion and then change thereof.

It means that AO first formed an opinion in the proceedings u/s143(3) and now by initiation of the reassessment, he wants to take a different view.

There is a difference between change of opinion and failure or omission of the AO to form an opinion

When the AO fails to examine a subject matter, entry, claim or deduction, he forms no opinion. It is a case of no opinion.

Reassessment proceedings will be invalid under ‘change of opinion’ principle (i)if the assessment order itself records that the issue was raised and is decided in favour of the assesse; or (ii) if an issue or query is raised by AO and answered by the assessee in original assessment proceedings but thereafter the AO does not make any addition in the assessment order.

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What is ‘change of opinion’-II

Omission to disclose material facts should be distinguished from cases where the material facts on record are correct but the AO did not draw proper legal inference or did not appreciate the implications or did not apply the correct law.

The latter Cases will be a case of “change of opinion” and cannot be reopened for the reason that the assessee, as required, has placed on record primary factual material but on the basis of legal understanding, the AO has taken a particular legal view. However, an erroneous decision, which is also prejudicial to the interest of the Revenue can be revised u/s Section 263 of the Act.

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Whether change of opinion can be invoked where scrutiny assessment reopened with 4 year time limit and assessee had made full & true disclosure in scrutiny assessment

True & Full disclosure of material facts by assessee bars reopening initiated after expiry of 4 years time limit-i.e.after 4 years from the end of the relevant assessment year.

True & Full disclosure does not invalidate reopening initiated within 4 years time limit. Such reopening can be invalidated by “change of opinion” principle. However, failure to state true and correct facts can vitiate and make the change of opinion principle inapplicable.

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Whether section 114(e) of Evidence Act,1872 operates to deem that AO has formed an opinion even when he hasn’t done so

No ‘deemed formation of opinion’ by AO in a ‘no opinion case’ by reason of operation of the Presumption u/s 114(e) of Evidence Act,1872.

The said presumption of regularity of acts done by an authority operates when act proved to have been done; It does not presume an act not proved to be done as an act done.

Further, the presumption is permissive and not a mandatory provision.

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How to ascertain whether AO has formed an opinion or not?

Cases have to be examined individually. Some matters may require examination of the assessment

order or queries raised by the AO and answers given by the assessee. In others cases, a deeper scrutiny or examination may be necessary.

The stand of the Revenue and the assessee would be relevant. Several aspects including papers filed and submitted with the

return and during the original proceedings are relevant and material.

Sometimes application of mind and formation of opinion can be ascertained and gathered even when no specific question or query in writing had been raised by the AO.

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DISSENTING VIEW-PER EASWAR J

No reopening of scrutiny assessments even within the 4 year time limit in ‘no opinion cases’ except where failure to furnish full & true particulars is shown in the reasons recorded for reopening the assessment

If ‘no opinion’ argument accepted, then all that the AO needs to do to reopen an assessment is to record reasons along the following lines: “The assessee has no doubt disclosed fully and truly all material facts necessary for the assessment. The assessment was also completed under section 143 (3). However, I have not examined those particulars while completing the assessment. I, therefore, did not form any opinion. I now want to reopen the assessment so that I can take the opportunity to examine the full and true particulars furnished by the assessee and form an opinion. I am, therefore, issuing notice under section 148.”