2021 (11) TMI 776 - HC - Income Tax

Court Invalidates Reopening of Tax Assessments: Change of Opinion Not Enough

Rich Feel Health and Beauty Private Limited Versus Income Tax Officer Ward 13 (3) (2), Mumbai, Assistant Commissioner of Income Tax, Circle 13 (3) (1), Mumbai, Pr. Commissioner of Income-tax-13, Mumbai Union of India

The court set aside the notices and orders seeking to reopen assessments under Section 148 of the Income-tax Act for the Assessment Year 2012-2013. It ... Reopening of assessment u/s 147 - Allowability of expenses incurred on advertisement and marketing by the Petitioner - change of opinion - HELD THAT:- As in view of notice dated 14/8/2014 and order sheet entry dated 4/10/2014, it is clear that the Assessing Officer in the original assessment was aware of the issue of expenses incurred on advertisement and marketing by the Petitioner. Once the Assessing Officer had applied his mind in the regular assessment proceedings of Petitioner having incurred advertisement and marketing expenditure, it is not open for the Assessing Officer to reopen the assessment. This Court in Aroni Commercial Limited [2014 (2) TMI 659 - BOMBAY HIGH COURT] and in Marico Limited [2019 (8) TMI 1337 - BOMBAY HIGH COURT] had taken a similar view. The pronouncements of the coordinate Bench of this Court are binding on us. Reopening beyond period of four years - The criteria’s for reopening of assessment after a period of 4 years are no longer Res-Integra in view of the judgment of Division Bench of this Court in the case of Ananta Landmark (P.) Ltd. [2021 (10) TMI 71 - BOMBAY HIGH COURT] wherein this Court held that where assessment was not sought to be reopened on reasonable belief that income had escaped assessment on account of failure of assessee to disclose truly and fully all material facts that were necessary for computation of income but was a case wherein assessment was sought to be reopened on account of change of opinion of Assessing Officer about manner of computation of deduction under Section 57, reopening was not justified. It is also held that when the primary facts necessary for assessment are fully and truly disclosed, the Assessing Officer is not entitled to a change of opinion for commencing proceedings for reassessment. It is also held that when on consideration of the material on record, one view is conclusively taken by the Assessing Officer, it would not be open for the Assessing Officer to reopen assessment based on the very same material and to take another view. We are therefore satisfied that the Assessing Officer could not have reopened the assessment merely on the basis of change of opinion and could not have issued a notice of reopening of assessment to Petitioner. - Decided in favour of assessee. Issues involved:Challenging notice under Section 148 of the Income-tax Act, 1961 for reopening assessment, deduction of advertisement and marketing expenses, application of Section 37 of the Act, reopening assessment after a period of 4 years, change of opinion by Assessing Officer, power to review assessment, and setting aside the notices.Analysis:1. Challenging notice under Section 148 for reopening assessment: The petitioner challenged the notice dated 29/3/2019 issued under Section 148 of the Income-tax Act, 1961, seeking to reopen the assessment for the Assessment Year 2012-2013. The respondent contended that the advertisement and marketing expenses were not deductible under Section 37 of the Act due to restrictions imposed by the Indian Medical Council Act, 1956 read with the Regulations of 2002. The petitioner argued that the assessment could not be reopened merely on a change of opinion, as all material facts were disclosed in the original assessment.2. Deduction of advertisement and marketing expenses: The petitioner had incurred advertisement and marketing expenses, which were a subject of scrutiny during the original assessment. The Assessing Officer had called for details and discussed the issue with the petitioner before accepting the return of income. The petitioner contended that the Assessing Officer had applied his mind to these expenses during the initial assessment, and therefore, reopening the assessment solely on this basis was not justified.3. Application of Section 37 of the Act: The respondent relied on Section 37(1) of the Act, which disallows any expenditure incurred for a purpose that is an offense or prohibited by law. The contention was that the petitioner's advertisement and marketing expenses were not allowable deductions under this provision due to the restrictions imposed by the Indian Medical Council Act and its Regulations.4. Reopening assessment after a period of 4 years: The assessment was sought to be reopened after a period of 4 years, raising the issue of whether the criteria for reopening assessments after such a period were met. The court referred to a previous judgment where it was held that reopening assessments based on a change of opinion without tangible material was not justified.5. Change of opinion by Assessing Officer: The Assessing Officer's decision to reopen the assessment was challenged on the grounds of being a mere change of opinion. The court emphasized that if the primary facts necessary for assessment were fully disclosed, the Assessing Officer could not reopen the assessment based on the same material and take another view.6. Power to review assessment: The court reiterated that the Assessing Officer did not have the power to review an assessment that had been concluded unless there was tangible material indicating an escapement of income from assessment. Merely changing the opinion without new material was not a valid reason to reopen an assessment.7. Setting aside the notices: Ultimately, the court set aside the notices dated 29/3/2019 and consequential orders dated 25/9/2019 issued by the respondent, quashing the reopening of assessments based on a change of opinion. The court held that since the Assessing Officer had already considered the advertisement and marketing expenses during the original assessment, reopening the assessments on the same grounds was not permissible.