1. In the identical facts and circumstances, identical issue has been raised in all these three petitions, the same are being heard and decided together.

2. For the purpose of revealing the controversy raised in all these petitions, we shall refer to the facts of Special Civil Application No. 3257/1991.

3. The petitioner is a private limited company and an assessee under the IT Act. The petitioner challenges notice under s. 148 for reassessment of its income for the asst. yr. 1986-87. The notices were issued on 7th March, 1990. The petitioner, had submitted return of its income for asst. yr. 1986-87 on 30th January, 1987, disclosing an income of Rs. 4,46,04,420 as per the statement of income filed along with the return. Thereafter, the petitioner-company filed a re-computation of total income along with the revised return. In the said re-computation, the petitioner added to the total income of original return a sum of Rs. 18,76,126 which it had claimed by way of deduction for the asst. yr. 1985-86 which was the component of the valuation of the closing stock for that year by way of adjustment as a result of operation of s. 43b of the it act and was allowed for that year. As the aforesaid amount as component of the closing stock for the asst. yr. 1985-86 had been allowed as deduction for that year, to make necessary adjustment in computation of total income for asst. yr. 1986-87, the said amount was sought to be added in the total income of the asst. yr. 1986-87. The second modification which was sought through revised return was for adjusting the value of closing stock for that year by excluding the component of custom duty as a consequence of its treatment under s. 43b of the it act. Thus, the revised return was in respect of adjusting the value of opening stock as well as closing stock by giving effect to adjustment already made in the previous year in the light of provisions of s. 43B and for making same adjustment for the current year's closing stock. During the course of assessment proceedings an inquiry into this claim was directed towards assessee by the AO which was replied by letter dt. 9th March, 1987, which included explaining reason for claiming modification in adjustment of value of opening stock as well as closing stock. This claim was in consonance with a Bench decision of this Court in Lakhanpal National Ltd. vs. ITO (1986) 162 ITR 240 (Guj). Thus, in the assessment for the asst. yr. 1986-87 customs duty included in the opening stock having been paid in asst. yr. 1985-86 but excluded from the valuation of the closing stock for 1985-86 in the assessment of that year which resulted in reducing the value of closing stock in asst. yr. 1985-86 was adjusted by reducing opening stock-in-trade for the asst. yr. 1986-87 by the like amount to make it in consonance with the closing stock of the previous year taken into account for the purposes of computing income of that year. Likewise, on the same principle, customs duty paid on closing stock was deleted reducing the value of the closing stock for asst. yr. 1986-87 which may result in reduction of the value of opening stock for asst. yr. 1987-88.

4. In the first instance notice under s. 147 dt. 7th March, 1990, was issued for the asst. yr. 1986-87 which was challenged by the present petitioner by way of SCA No. 3557/1990. After issuance of rule, on submission being made by the Department that the impugned notice shall be withdrawn, SCA No. 3557/1990 was not pressed at that time. As the petition was dismissed with liberty to issue proper notice in accordance with law, the impugned notices were issued on 27th March, 1991, which has been challenged by way of this petition.

5. The petitioner contends that question about operation of s. 43B in the case of the petitioner who is maintaining his books of account on mercantile basis and as a result of its applicability adjustment in the value of closing stock as disclosed in books of account while computing income chargeable to tax under the provisions of the IT Act had been duly considered by making inquiry into the claim of the petitioner on that basis and has been allowed by the AO after application of mind. The claim of the assessee was supported by a Bench decision of this Court in Lakhanpal's case (supra). That decision has not been reversed or overruled in any other decision. In fact, this Court recently in CIT vs. Cadila Chemicals (P) Ltd. (1998) 230 ITR 885 (Guj) has reiterated that the issue decided in Lakhanpal's case (supra) does not require reconsideration when similar question was again sought to be raised by way of reference application under s. 256(2) in Cadila Chemical's case (supra). This being a case of mere change of opinion it was not open to AO to have recourse to s. 147. Section 147 does not confer any jurisdiction on the AO to review his own order on a mere change of opinion.

5A. Learned counsel for the Revenue has urged that the ITO, for reasons recorded in writing, had reason to believe that income of the assessee had escaped assessment which is attributable to underassessment as a result of wrong allowance of deduction by way of adjustment of the value of closing stock of the custom duty payable on that stock and on that conclusion is reached, no further enquiry into the validity of the reason is envisaged at this stage. This is not the stage to examine the correctness or otherwise of the opinion so held by the AO which is domain of subjective satisfaction.

6. We have carefully considered the rival contentions. This Court had occasion to consider scope of s. 147 as amended w.e.f. 1st April, 1989. It would be profitable to have reference to it. In VXL India Ltd. vs. Asstt. CIT (1995) 215 ITR 295 (Guj) : TC 51R. 1569, the Court opined :

"We are also of the view that howsoever wide the scope of taking action under s. 148 of the Act, it does not confer jurisdiction on change of opinion on the interpretation of a particular provision earlier adopted by the assessing authority. For coming to the conclusion whether there has been excessive loss or depreciation allowance or there has been underassessment or assessment at a lower rate or for applying other provisions of Expln. 2, it must be on material and it should have nexus for holding such opinion contrary to what has been expressed earlier. The scope of s. 147 of the Act is not for reviewing its earlier order suo motu irrespective of there being any material to come to a different conclusion apart from just having second thoughts about the inferences drawn earlier."

7. The principle was reiterated in Birla VXL Ltd. vs. Asstt. CIT (1995) 217 ITR 1 (Bom) : TC 51R.1022, in which petitioner's own case for a subsequent assessment year relevant to asst. yr. 1992-93 when notices under s. 148 were issued on 5th February, 1995, relating to escapement of income which included issue similar to one at hand about allowance of adjustment in respect of excise duty paid on yarn included in closing stock of yarn, the Court opined, after holding that there has been no failure on the part of the assessee to disclose truly and correctly material for the purpose relevant for assessment :

"The AO cannot take any action under this section merely because he happened to change his opinion or to hold an opinion different from that of his predecessor on the same set of facts. From the earlier assessment which clearly assumes that the AO applied his mind to the computation of income and therefore in a case like this it would not be open to the AO to issue notice under s. 148 of the Act."

8. The fact that present case relates to like adjustment about the customs duty and not the excise duty will make no difference.

9. The question was again discussed at some length by another Division Bench of this Court in Praful Chunilal Patel vs. M. J. Makwana, Asstt. CIT. It was a case in which notice under s. 147 had been issued. Recording of reasons disclosed that a part of item of income though disclosed as per information submitted by the assessee, had remained to be considered for assessment and, therefore, the income has been underassessed. It was submitted on behalf of the assessee that all facts were correctly disclosed and were on record during the assessment proceedings relevant to asst. yr. 1991-92 and the order was made by the AO after seeking details. It should be assumed that he has consciously not taxed the income which is now sought to be looked into by him. It was emphasised that it should be assumed that the AO had formed an opinion that there was no transfer and hence, no capital gains accrued.

10. The case of the Revenue had been, on the other hand, that the facts about the valuation of bungalow and distribution of such value among partners of Krishnan Enterprises, of which the petitioners in that case were partners, were found in the assessment of the firm and protective assessment was made and the AO had observed that proceedings under s. 148 of the Act are separately required to be taken. In nutshell, the case of the Revenue was that the erroneous nature of original assessment order and reason to believe about underassessment of the income of the relevant assessment year was entertained as a result of detection about its erroneous nature on the facts which have been referred to in the assessment order of the firm. It was also the case disclosed in the reasons that it was a case of assessee, who by appending note to his return, has tried to mislead the AO at the time of original assessment about the nature of transaction.

11. The first premise which the Court took into consideration is that the cases of underassessment or excessive relief which are deemed cases of escapement of income leave no scope for an argument that they are not the cases of income having escaped assessment. There cannot be any doubt about this proposition. It arises in every case where an assessment results in lesser collection of revenue than what it ought to be. But, as it is noticed, reason to believe that there has been escapement of assessment must not be a pretence or change of opinion but must be founded on material having reasonable nexus to the formation of opinion about escapement of income. The sufficiency or adequacy of such material, so far it exists, some nexus between the material and the formation of opinion, is not subject-matter of judicial scrutiny nor holding of such belief on that basis can be challenged which is subjective in nature, giving jurisdiction to issue notice and initiate proceedings for reassessment. However, the Court while considering the contention about change of opinion observed,

"while considering the cases referred to above change of opinion would mean where, if there is conscious application of mind on the earlier occasion and the assessment is result of such conscious application of mind to the issue which is sought to be reopened. That there has been no conscious application of mind, in the first instance, question of change of opinion would not arise. It would be then formation of opinion for the first time about the erroneous nature of assessment resulting in escapement."

12. The Court, while considering earlier decisions of this Court in Garden Silk Mills vs. Dy. CIT (1996) 222 ITR 27 (Guj) : TC 51R.1521, and of the same assessee another case reported in the same volume at p. 68 [Garden Silk Mills Ltd. vs. Dy. CIT (1996) 222 ITR 68 (Guj) : TC 51R. 1520], said,

"Even the decision of this Court in Garden Silk Mills vs. Dy. CIT (supra) cannot assist the petitioner because in that case it was held that the AO was aware about the investment and fluctuations in the exchange rate and depreciation had been allowed after considering the material on record and further that the notice was issued after four years and there was no failure on the part of the assessee to disclose material facts necessary for the assessment. Reliance placed on the case of that very assessee reported in the same volume at p. 68 also cannot help the petitioner, because in that case the Court found that in the first assessment the AO had applied his mind in the computation of income and that there was a mere change of opinion. When, at the first assessment all the relevant aspects are considered and there is proper applicability of mind for ascertainment of the amount of taxable income and of the tax payable thereon, then in the absence of any error or mistake being discovered or found, the AO lateron cannot merely for the sake of giving a different opinion, change the earlier opinion. However, in cases where an error or mistake is detected, it can never be said that there is only a mere change of opinion. The mistake or error which is detected and which constituted a valid decision or cause to form a belief in the first assessment as a result of which the income has escaped assessment, would constitute a reason to believe that the income had escaped assessment and such cases where mistakes and errors are detected and which constitute a valid justification or cause to form a belief sought to be corrected, cannot be said to be cases of mere change of opinion."

13. We are in respectful agreement with the aforesaid enunciation of distinction between change of opinion and finding erroneous nature of earlier assessment on detection of mistake on an issue which was not earlier considered by the AO. The present case may be examined in the light of principles noticed above. No return has been filed. However, reasons recorded by the AO has been placed on record which are identical in all the three cases except for the amount and the name of the assessee.

14. The reason in terms disclosed that on an earlier occasion assessee has claimed the amount of customs duty forming part of closing stock value, by way of a deduction in the computation of net taxable income on the ratio in the case of Lakhanpal's case (supra) and it was not disallowed by the AO while completing the assessment under s. 143(3). It further refers that for the reason that due diligence was not exercised by the AO. This part of non-exercise of due diligence on the part of the AO firstly excludes the possibility of want of true and correct disclosure on the part of the assessee being the cause of such escaped assessment. However, non-exercise of due diligence cannot be equated with lack of application of mind on the part of the AO, particularly in view of fact noticed in the reasons that claim of the assessee was founded on a decision of this Court and the allowance was in accordance with it.

15. The reasons recorded by the AO which led to belief about the escapement of assessment disclose that the present case is nothing but mere change of opinion on the facts which were already before the AO while making the first assessment to which conscious application of mind is reflected from the proceedings, and allowed in the computation and which has not been disputed by the Revenue. The claim of the assessee has been accepted after considering in the light of the decision rendered by this Court. The reasons do not even disclose that the AO issuing notice even entertained doubt about the applicability of ratio of Lakhanpal's case (supra) to the facts of the case, nor it entertained any belief that the decision has since ceased to be operative. The reference to later decision of the Supreme Court in CIT vs. British Paints India Ltd. (1991) 188 ITR 44 (SC) : TC 2R.113, in our opinion, has no relevance or bearing on the controversy with reference to which the assessment for the asst. yr. 1986-87 is sought to be reopened by the AO. Learned counsel for the Revenue has not been able to point out how and in what manner the decision in British Paint's case (supra) has any relevance to the controversy about the claim of the assessee seeking adjustment in valuation of closing and opening stocks while computation of taxable income pursuant to operation of s. 43B which has been decided by this Court in Lakhanpal's case (supra). The reasons recorded by the AO do not even reflect that he has any reason to believe that earlier decision of this Court in Lakhanpal's case (supra) has been rendered ineffective by any later decision. On the contrary, as we have noticed above, the decision has been reiterated and held to be beyond reconsideration by this Court in a recent decision in Cadila Chemical's case (supra).

16. Without there being any material before the AO on the basis of which he could hold belief about the correctness of a decision rendered in Lakhanpal's case (supra), which is the decision of the jurisdictional High Court and binding on him otherwise, the AO could not hold reason to believe that the income has escaped assessment due to application of Lakhanpal's case (supra) decision by the original AO.

17. It may further be noticed that for the like allowance claimed by the assessee for the asst. yr. 1992-93 after the issuance of the impugned notices in this case, the AO has allowed the very same claim notwithstanding issuance of notices under challenge in respect of like claim. When the assessment for 1992-93 was sought to be reopened on the alleged erroneous nature of the allowance made in the original assessment, this Court in assessee's own case has quashed the notice on the ground that it is mere change of opinion in Garden Silk Mills vs. Dy. CIT (supra).

18. Reference to unsustainable claim of deduction for the said amount put forward by the assessee not forming part of the audited P&L a/c of the assessee is also a non-existent reason for the purpose of giving jurisdiction to the AO. It is not the case that by not disclosing the audited P&L a/c the assessee led claim de hors his account books. As noticed while narrating facts, assessee has sought adjustment in the valuation of stock-in-trade as disclosed in the audited books of account on the ground of applicability of s. 43b of the it act as the assessee is maintaining his books of account on mercantile system. It is on that premise the enquiry was made and claim was investigated and allowed. Camouflaging language of framing reasons AO cannot confer upon himself jurisdiction which does not exist. The consistent view of this Court is that even after amendment of s. 147 mere change of opinion does not confer jurisdiction on the ITO to initiate proceedings for reassessment merely by resorting to Expln. 1 on the basis of change of opinion. On the facts of this case the reasons recorded by AO disclose no more than mere change of opinion.

19. As a result, these petitions succeed. The impugned notices in each case for initiating reassessment proceedings for the asst. yr. 1986-87 are quashed. Rule is made absolute in each case. There shall be no order as to costs.