Reassessment: S/s. 143(1), 143(3), 147 and 148: A. Y. 2002-03: No distinction to be made while interpreting the words “reason to believe” vis-à-vis section 143(1) and 143(3): In the absence of “fresh material” assessment cannot be reopened: Change of opinion is not a valid basis for reopening assessment:

For the A. Y. 2002-03, the assessee filed the return of income claiming deduction of Rs. 13.35 crore u/s. 80HHC of the Income-tax Act, 1961. The returned income was accepted by an order u/s. 143(1) of the Act. Subsequently, the Assessing officer issued notice u/s. 148 of the Act and reopened the assessment on the ground that the sale proceeds of the quota was wrongly considered as export turnover and that it was business profits and 90% thereof had to be reduced for computing deduction u/s. 80HHC. The assessee challenged the reopening on the ground that there was no “fresh material” as contemplated by the Supreme Court in the case of CIT Vs. Kelvinator of India Ltd; 320 ITR 561 (SC). The Tribunal accepted the assessee’s contention and held that the Assessing Officer had no jurisdiction to reopen the assessment made u/s. 143(1) of the Act.

On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under:
“i) Section 147 permits an assessment to be reopened if there is “reason to believe”. It makes no distinction between an order u/s. 143(3) or an intimation u/s. 143(1) of the Act. Accordingly, it is not permissible to adopt different standards while interpreting the words “reason to believe” vis-à-vis section 143(1) and 143(3). The Department’s argument that the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of a section 143(3) assessment cannot apply to a section 143(1) intimation is not acceptable because it would place an assessee whose return is processed u/s. 143(1) in a more vulnerable position than an assessee in whose case there is a full-fledged scrutiny assessment u/s. 143(3).

ii) Whether the return is put to scrutiny or accepted without demur is not a matter which is within the control of assessee. An interpretation which makes distinction between the meaning and content of the expression “reason to believe” between a case where a section 143(3) assessment is made and one where an intimation u/s. 143(1) is made may lead to unintended mischief, be discriminatory and lead to absurd results.

iii) In CIT vs. Kelvinator India Ltd; 320 ITR 561(SC) it was held that the term “reason to believe” means that there is “tangible material” and not merely a “change of opinion” and this principle will apply even to section 143(1) intimation.

iv) On facts, the Assessing Officer reached the belief that there was escapement of income on going through the return of income filed by the assessee. This is nothing but a review of the earlier proceedings and an abuse of power by the Assessing Officer. 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 power conferred u/s. 147.

v) Appeal of the Revenue is accordingly dismissed.”