2022 (3) TMI 1042 - HC - Income Tax

Validity of reopening of assessment - reasons to believe - provision was not allowable expense and contingent in nature and it was required to be disallowed while computing book Profit under section 115JB - HELD THAT - As held by this Court time and again and particularly in Aroni Commercials Ltd. 2014 (2) TMI 659 - BOMBAY HIGH COURT once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Officer while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. We are satisfied that the issue of year end identified provision for expenses was a subject of consideration of the Assessing Officer during the original assessment proceedings - reopening of assessment by the impugned noticeis merely on the basis of change of opinion of the AO from that held earlier during the course of assessment proceedings leading to the assessment order dated 27.12.2019. 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.

Summary

Issues:
Impugning notice under section 148 of the Income Tax Act, 1961 for assessment year 2017-18 based on reasons to believe income has escaped assessment. Reopening of assessment proposed on the basis of change of opinion. Query raised during original assessment proceedings regarding identified provision for expenses. Whether the notice for reopening assessment is justified.

Analysis:

1. The petitioner challenged a notice dated 27.03.2021 issued under section 148 of the Income Tax Act, 1961, for the assessment year 2017-18, alleging that the petitioner's income chargeable to tax had escaped assessment under section 147 of the Act.

2. Despite being served over 6 weeks ago, no reply was filed by the petitioner in response to the notice.

3. The assessment under section 143(3) of the Act had already been completed, and an assessment order was passed on 27.12.2019.

4. The court reviewed the reasons recorded for reopening along with the annexed documents and found that the reopening was based solely on a change of opinion by the Assessing Officer.

5. The reasons for reopening indicated a change of opinion by the Assessing Officer regarding the treatment of provisions debited to the Profit and Loss account, specifically a provision for expenses of ?1,52,58,179, which the Assessing Officer deemed as not allowable and contingent.

6. During the original assessment proceedings, a query was raised regarding the identified provision for expenses, and the petitioner provided details in response. This query was considered by the Assessing Officer before passing the assessment order.

7. The Respondent attempted to justify the notice by arguing that the issue was not discussed in the assessment order.

8. The court cited previous judgments emphasizing that once a query is raised during assessment proceedings and the assessee responds to it, it is deemed to have been considered by the Assessing Officer, even if not explicitly mentioned in the assessment order.

9. The court concluded that the identified provision for expenses was indeed a subject of consideration during the original assessment, and the reopening of assessment based on a change of opinion was not justified as it did not indicate income escaping assessment.

10. Consequently, the petition was allowed, quashing the impugned notice and order, as per the prayer clause seeking relief under Article 226 of the Constitution of India.

11. The petition was disposed of with no order as to costs.

This detailed analysis of the judgment highlights the key issues involved, the court's reasoning, and the ultimate decision to quash the notice for reopening the assessment based on a change of opinion.