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 reasons to believe were based on a change of opinion rather than tangible material indicating escaped income. Two items were challenged: designing fees expenses and concession fees paid to PUDA, both previously accepted during original assessment after detailed scrutiny. The AO later sought to capitalize these expenses instead of allowing them as revenue deductions. Since the assessee had provided all required details during original proceedings and the items were duly considered, the court held this constituted impermissible change of opinion, not valid grounds for reopening. The petition was allowed in favor of the assessee.

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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.

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