2024 (5) TMI 352 - HC - Income Tax

AO cannot reopen assessment based on change of opinion regarding designing fees and concession expenses previously accepted

The Bombay HC quashed reassessment proceedings initiated by the AO within four years of the relevant assessment year. The court found that the AO's ... Validity of Reassessment proceedings - reason to believe escapement of income - notice issued within four years from the end of the relevant assessment year - what tangible material which AO has done in the reasons to believe? - reason to believe under two heads, i.e., expenses towards designing fees which was capitalized and a sum that assessee paid towards concession fee to Punjab Urban Development Authority (PUDA) - HELD THAT:- The reasons made available itself shows that it was a clear case of change of opinion. On the first item, i.e., expenses towards designing fees, which was capitalized, the A.O. states “the said contention was accepted and expenses was allowed by the department”. In Paragraph No. 2.3 it is stated “such expenses was not to be allowed as revenue expense and should have been capitalized and required to be disallowed and added back”. Therefore, it is a clear case of change of opinion. For amount paid towards concession fee to PUDA it is stated that it is arising out of the contractual obligation between assessee company and PUDA, the same had been claimed as deduction while computing income. The said deduction was accepted and deduction was allowed to assessee - In Paragraph No. 3.1 it is stated that “ such expense was also required to be capitalized as work in progress in the books of accounts of assessee and should have been disallowed.” Therefore, this is also a clear case of change of opinion. Moreover, during the course of assessment proceedings petitioner had also received a notice under Section 142(1) of the Act calling upon to furnish various materials under different heads including details of designing fees expense with copy of ledger and party wise details as also details regarding concession paid to PUDA. By its letter petitioner provided all the details. Therefore, these two items were also subject of consideration during the assessment proceedings. Since the reasons to believe itself indicate as noted above that the reopening is based purely on change of opinion, as held in Aroni Commercials Limited [2014 (2) TMI 659 - BOMBAY HIGH COURT] this change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment. Decided in favour of assessee. Issues involved:The issues involved in the judgment are the reassessment of income tax based on the notice issued under Section 148 of the Income Tax Act, 1961, and the contention of the petitioner regarding the justification for the reassessment.Reassessment based on Section 148 Notice:The petitioner filed its return of income for Assessment Year (A.Y.) 2016-17, and the assessment was finalized under Section 143(3) of the Act. Subsequently, a notice was issued under Section 148 of the Act, alleging escapement of income due to expenses towards designing fees and concession fee paid to Punjab Urban Development Authority (PUDA). The Assessing Officer (A.O.) had reason to believe escapement of income under these heads, leading to the proposed reopening of the assessment.Justification for Reassessment:The petitioner contended that the reason to believe escapement of income chargeable to tax was based on a change of opinion rather than valid reasons. The court agreed with the petitioner, noting that the reasons provided by the A.O. indicated a clear case of change of opinion. The expenses towards designing fees and concession fee were previously accepted and allowed by the department during the assessment proceedings. The court emphasized that the reopening of the assessment was merely on the basis of a change of opinion, which does not constitute valid justification for reassessment.Consideration during Assessment Proceedings:During the assessment proceedings, the petitioner had received a notice under Section 142(1) of the Act, requesting various details including those related to designing fees expense and concession paid to PUDA. The petitioner provided all the details as requested. The court held that once a query is raised during the assessment proceedings and the assessee has replied to it, it is considered a subject of consideration by the A.O. The court cited a previous judgment to support this principle, emphasizing that the reopening of the assessment was unjustified as it was based on a mere change of opinion without valid reasons.Conclusion:The court made the Rule absolute in favor of the petitioner, quashing the notice under Section 148 of the Act, the impugned assessment order, notice of demand, and show-cause notice for levy of penalty. The consequential notice of demand and proceedings were also quashed and set aside. The petitioner's undertaking to withdraw the appeal within two weeks was accepted, and the petition was disposed of accordingly.