1. Rule. Returnable forthwith. Heard finally by consent of parties.
2. The petitioner is a company engaged in the business of trading and investments. The petitioner is regularly assessed to income-tax. This petition relates to the assessment year 2003-04. This petition is directed against the notice dated December 27, 2006, issued under section 148 of the Income-tax Act, 1961, for reopening of the assessment for the assessment year 2003-04. The petitioner raised an objection to the notice. That objection has been rejected by order dated May 14, 2008. Thus, by this petition the petitioner challenges the notice as also the order dated May 14, 2008, rejecting the objection. According to averments in the petition, in the assessment year 2003-04 the petitioner received dividends of Rs. 69,85,550 from other domestic companies and Rs. 14,094 from mutual funds. The petitioner distributed to its shareholders dividends of Rs. 31,00,000 on October 6, 2003, falling in the assessment year 2004-05, before the due date for filing the return of income for the said assessment year 2003-04. In accordance with section 80M of the Income-tax Act the petitioner claimed that the dividends of Rs. 31,00,000 declared by it should be allowed as a deduction against the dividends of Rs. 69,99,644 received by it. This claim was accepted by the Assessing Officer in the regular assessment order. The assessment order was passed on February 21, 2006. A notice under section 148 was issued on December 27, 2006, stating that respondent No. 1 has a reason to believe that the income in respect of which the petitioner was chargeable to tax for the assessment year 2003-04 has escaped assessment. A perusal of the annexures to the notice shows, it is claimed that the deduction under section 80M was wrongly allowed and it has resulted in underassessment of income of Rs. 31,00,000.
3. The petitioner filed an objection to the notice issued under section 148. That objection was rejected by the order dated May 14, 2008. The present petition is directed against the notice issued under section 148 and the order dated May 14, 2008, rejecting the objection.
4. The learned counsel appearing for the petitioner submits that the petitioner had in returns given necessary details for claiming deduction under section 80M. A perusal of the assessment order shows that the Assessing Officer after applying his mind by a specific order allowed the deduction under section 80M and now, therefore, it cannot be claimed that the deduction was wrongly allowed. In any case, according to the learned counsel, the power under section 147 cannot be used to review the order made by the authorities.
5. The learned counsel for the petitioner relies on two judgments, one of the Full Bench of the Delhi High Court in the case of CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 and another of the Division Bench of this court in the case of German Remedies Ltd. v. Deputy CIT [2006] 285 ITR 26.
6. The learned counsel for the respondents, on the other hand, relies on Explanation 2 to section 147 of the Income-tax Act. A perusal of the record shows that the petitioner had made full disclosure necessary for claiming deduction under section 80M. The Assessing Officer after applying his mind to the relevant records had made a specific order allowing the deduction. A perusal of the record shows that now respondent No. 1 proposes to reopen the assessment because according to him deduction under section 80M was wrongly allowed, and, therefore he was of the opinion that the income has escaped assessment. Though, in the notice respondent No. 1 has used the phrase “reason to believe”, admittedly between the date of the order of assessment sought to be reopened and the date of forming of opinion by respondent No. 1, nothing new has happened and there is no change of law, no new material has come on record, no information has been received. It is merely a fresh application of mind by the same officer to the same set of facts. Thus, it is a case of mere change of opinion, which, in our opinion, does not provide jurisdiction to respondent No. 1 to initiate proceedings under section 148 of the Act. It can now be taken as a settled law, because of a series of judgments of various High Courts and the Supreme Court, which have been referred to in the judgment of the Full Bench of the Delhi High Court in the case of Kelvinator of India Ltd. [2002] 256 ITR 1 referred to above, that under section 147 assessment cannot be reopened on a mere change of opinion. Considering this aspect of the matter, the Full Bench of the Delhi High Court in the case of Kelvinator of India Ltd. [2002] 256 ITR 1 has observed thus (page 19):
“When a regular order of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong.”
7. The Full Bench of the Delhi High Court has also considered the nature of the jurisdiction conferred by section 147 in the scheme of the Act. The Full Bench of the Delhi High Court in paragraph 15 of the judgment has observed thus (page 15):
“It is not in dispute that the Assessing Officer does not have any jurisdiction to review his own order. His jurisdiction is confined only to rectification of mistakes as contained in section 154 of the Act. The power of rectification of mistake conferred upon the Income-tax Officer is circumscribed by the provisions of section 154 of the Act. The said power can be exercised when the mistake is apparent. Even a mistake cannot be rectified where it may be a mere possible view or where the issues are debatable. Even the Income-tax Appellate Tribunal has limited jurisdiction under section 254(2) of the Act. Thus, when the Assessing Officer or Tribunal has considered the matter in detail and the view taken is a possible view the order cannot be changed by way of exercising the jurisdiction of rectification of mistake.
It is a well settled principle of law that what cannot be done directly cannot be done indirectly. If the Income-tax Officer does not possess the power of review, he cannot be permitted to achieve the said object by taking recourse to initiating a proceeding of reassessment or by way of rectification of mistake. In a case of this nature the Revenue is not without remedy. Section 263 of the Act empowers the Commissioner to review an order which is prejudicial to the Revenue.”
8. It is, thus, clear from the observations quoted above that power under section 147 cannot be used like the power of review to reopen the assessment and this is precisely what has been done in the present case. The Division Bench of this court in its judgment in the case of German Remedies Ltd. [2006] 285 ITR 26, referred to above, has taken the same view. In our opinion, the following observations from the judgment of the Division Bench of this court are relevant (page 28):
“It is a settled position of law that though the power conferred under section 147 of the Income-tax Act for reopening the concluded assessment is very wide, the said power cannot be exercised mechanically or arbitrarily. The expression ‘reason to believe that any income chargeable to tax has escaped assessment’ means entertaining a reasonable belief that a particular income went unnoticed by the Assessing Officer and hence escaped assessment. Even after the introduction of the concept of deemed escapement of income by Explanation 2 to section 147 of the Act with effect from April 1, 1989, the belief that the income has escaped assessment entertained by the Assessing Officer must be a prudent belief and not mere change of opinion. Thus, an assessment order passed after detailed discussion cannot be reopened within a period of four years from the end of the relevant assessment year, unless the Assessing Officer has reason to believe that due to some inherent defect in the assessment, the income chargeable to tax has been underassessed or assessed at too low a rate or excessive relief is granted to excessive loss or depreciation allowance or any other allowance under the Act has been computed.
In the present case, after the service of the notice under section 148 of the Act, the assessee had filed its objections for reopening the assessment to the effect that in the light of the binding decision of this court and the decision of the Income-tax Appellate Tribunal there is no scope for entertaining the belief that the income has escaped assessment. However, the said objection had been rejected without even considering the said binding decision. Therefore, it is necessary to find out as to whether the conditions precedent for invoking the jurisdiction to reopen the assessment have been met or not.”
9. So far as the present case is concerned, it is clear that in the present case proceedings under section 147 are initiated only because of change of mind or change of opinion by respondent No. 1, and, therefore, in our opinion, in view of the settled law, it cannot be said that respondent No. 1 was justified in issuing the notice and rejecting the objection.
10. In the result, therefore, the petition succeeds and is allowed. Rule is made absolute in terms of prayer clause (a) with no order as to costs.