Even s. 143(1) Intimation cannot be reopened u/s 147 without “fresh material”

CIT vs. Orient Craft Ltd (Delhi High Court)

The assessee filed a ROI in which it claimed s. 80HHC deduction of Rs. 13.35 crores. The AO accepted the ROI u/s 143(1). He thereafter reopened the assessment u/s 147 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 u/s 80HHC. The assessee challenged the reopening on the ground that as there was no “fresh material“, the AO had no jurisdiction to reopen the s. 143(1) Intimation. This was upheld by the Tribunal (order attached) by relying on Kelvinator of India 320 ITR 561 (SC). On appeal by the department to the High Court, HELD dismissing the appeal:

S. 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). Accordingly, it is not permissible to adopt different standards while interpreting the words “reason to believe” vis-à-vis s. 143(1) and s. 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 s. 143(3) assessment cannot apply to a s. 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 s. scrutiny assessment u/s 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. An interpretation which makes a distinction between the meaning and content of the expression “reason to believe” between a case where a s. 143(3) assessment is made and one where an Intimation u/s 143(1) is made may lead to unintended mischief, be discriminatory & lead to absurd results. In Kelvinator 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 s. 143(1) Intimations. On facts, the AO reached the belief that there was escapement of income “on going through the ROI” filed by the assessee. This is nothing but a review of the earlier proceedings and an abuse of power by the AO. There is no whisper in the reasons recorded of any tangible material which came to the possession of the AO subsequent to the issue of the Intimation. It reflects an arbitrary exercise of the power conferred u/s 147 (Rajesh Jhaveri Stock Brokers 291 ITR 500 (SC) distinguished)

Note: This impliedly approves the Third Member verdict in Telco Dadajee Dhackjee (which incidentally was also authored by Easwar J when he was Sr. VP in the ITAT) which have been followed in H. V. Transmissions & Delta Airlines. Contrast with the Full Bench verdict in Usha International (where Easwar J. dissented) that even in a s. 143(3) assessment, there is no “change of opinion” if there is no specific inquiry by the AO