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Reassessment based on mere change of opinion is not justified : Karnataka High Court

The tax payer should not be allowed to take advantage of an oversight or mistake committed by an Assessment Officer. The High Court bench consisting of Hon’ble Chief Justice Abhay S. Okay, Hon’ble Justice R. Devadas and Hon’ble Justice Sachin Shankar Magadum postulated upon the scope of Section 142 of the Income Tac Act, 1961 in the case of Dell India Private Limited v. The Joint Commissioner of Income Tax [Writ Appeal No. 1145 of 2015 (T-IT)].

The appellants are manufacturers who sell computer hardware and other related products, provide warranty services the price of which is covered by sale price of the hardware and also provide extended or upsell warranty which goes beyond standard warranty. The appellant has adopted a “deferred revenue” system under the mercantile system of accounting. Scrutiny assessment proceedings were held in the assessment year 2009-10. The appellant claimed that that Assessing Officer examined the issue of deferred revenue and agreed with the said accounting system. However, the Joint Commissioner of Income Tax issued a notice stating that the appellant had escaped tax for the assessment year 2009-10. The appellant replied that the reasons for reopening of the assessment for the given year was based on mere change of opinion and hence, was not valid. The appellant filed a petition which was rejected and hence, the present appeal.

The High Court, relying on the case of Commissioner of Income Tax and Anr. v. Rinku Chakraborthy [(2011) 242 CTR 425], held that “where an Assessing Officer erroneously fails to tax a part of the assessable income, there is an income escaping assessment and accordingly, the Assessing Officer has jurisdiction under Section 147 to reopen the assessment”. The respondents argued that this was not a case of change of opinion by the Assessing Officer but it was a case of income escaping the assessment. The HC further stated that the tax payer should not be allowed to take advantage of an oversight or mistake committed by an Assessment Officer. However, the court also added based on Kalyan Mavji and Company v. C.I.T West Bengal [(1976) 1 SCC 985], that “An error discovered on reconsideration of the same material does not give the Income Tax Officer the power to reopen a concluded assessment”.  

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