Reopening under s.147 invalid where AO lacked fresh tangible material and merely re-examined disclosed documents

Bombay HC held the reopening of assessment under s.147 invalid: the AO lacked fresh tangible material and merely re-examined documents already disclosed during the original assessment (computation sheets, tax audit report, receipts), amounting to an impermissible change of opinion rather than a bona fide belief of escaped income. The reasons-to-believe notice did not disclose new information warranting reassessment. The HC quashed the reopening and decided in favor of the taxpayer.

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Issues Involved:
1. Legality of the notice dated 27th March 2021 issued under Section 148 of the Income Tax Act, 1961.
2. Rejection of objections to reopening of assessment for AY 2017-18 by the order dated 21st December 2021.
3. Allegation of income escapement due to CSR expenditure claimed under Section 80G.

Summary:

Issue 1: Legality of the Notice under Section 148
The petitioner challenged the legality of the notice dated 27th March 2021 issued by the Assessing Officer (AO) under Section 148 of the Income Tax Act, seeking to reopen the assessment for the Assessment Year (AY) 2017-18. The petitioner contended that the jurisdictional preconditions were not fulfilled as the belief formed by the AO was based on an audit objection without fresh and tangible material. The court observed that all material/documents necessary for computing the income were disclosed during the original assessment proceedings and there was no failure on the part of the petitioner to disclose fully and truly all material facts. The court concluded that the reopening of the assessment was based on a mere change of opinion, which does not constitute a valid reason to believe that income has escaped assessment.

Issue 2: Rejection of Objections to Reopening
The petitioner also challenged the order dated 21st December 2021, which rejected the objections raised against the reopening of the assessment. The court noted that the AO had previously examined and accepted the petitioner's claims regarding CSR expenditure and deductions under Section 80G during the original assessment proceedings. The court reiterated that an AO has no power to review an assessment based on a change of opinion and emphasized that reassessment must be based on fresh tangible material. The court found that the AO's reasons for reopening the assessment were not based on any new information but rather on a re-examination of the same material considered during the original assessment.

Issue 3: Allegation of Income Escapement
The revenue contended that CSR expenses are specifically disallowed under Section 37(1) read with Explanation 2 of the Act and cannot be allowed under Section 80G. The court, however, agreed with the petitioner that donations to eligible trusts would still qualify for deduction under Section 80G even if the contribution is out of CSR funds. The court found that the AO had examined all aspects related to CSR expenditure and deductions under Section 80G during the original assessment, and there was no new tangible material to justify the reopening of the assessment.

Conclusion:
The court held that the notice dated 27th March 2021 under Section 148 and the order dated 21st December 2021 rejecting the objections were untenable and could not be sustained in law. The petition was allowed, and the rule was made absolute in terms of quashing the impugned notice and order. There was no order as to costs.

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