2022 (6) TMI 960 - HC - Income Tax

Reopening of assessment u/s 147 - Allowability of Expenditure on account of freebies incurred in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations 2022 is not admissible under Section 37(1) - HELD THAT - Petitioner had truly and fully disclosed all material facts necessary for the purpose of assessment. They were carefully scrutinized and figures of income as well as deduction were carefully reworked by the Assessing Officer at the time of original assessment. In fact, in the reasons for reopening, there is not even a whisper as to what was not disclosed. This is not a case where the assessment is sought to be reopened on the 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 this is a case wherein the assessment sought to be reopened on account of change of opinion of the Assessing Officer about the manner of computation of income. The same is not permissible, in view of proviso to Section 147. - Decided in favour of assessee.

Summary

Issues:
1. Validity of notice under Section 148 of the Income Tax Act, 1961 seeking to reopen assessment for A.Y. 2014-15.
2. Existence of a valid reason to believe for the exercise of jurisdiction under Section 147 of the Act.
3. Requirement of new information or material for reopening assessment.
4. Application of proviso to Section 147 of the Act in the case.
5. Justifiability of reasons for reopening assessment based on Circular No. 5/2012.
6. Disallowance of expenses incurred in violation of Indian Medical Council regulations.
7. Adequacy of disclosure of material facts by the assessee during original assessment.
8. Permissibility of reassessment based on change of opinion.
9. Compliance with the proviso to Section 147 regarding disclosure of material facts.
10. Legal implications of reopening assessment without new tangible material.

Analysis:
1. The Petitioner challenged the notice dated 26 March 2021 seeking to reopen the assessment for A.Y. 2014-15 under Section 148 of the Income Tax Act, 1961. The Petitioner contended that the reassessment was based on the same material facts available during the original assessment, which amounted to a change of opinion and was impermissible.

2. The Petitioner argued that the reassessment must be based on new information or material, and the existence of a valid reason to believe is essential for jurisdiction under Section 147 of the Act. The Petitioner highlighted that the proviso to Section 147 restricts reassessment after four years from the end of the relevant assessment year unless there is a failure to disclose material facts by the assessee.

3. The Respondent justified the reopening based on the disallowance of expenses incurred in violation of Indian Medical Council regulations. The Respondent contended that the underassessment of income due to such expenses was a tangible reason for reopening the assessment, not a mere change of opinion. The Respondent argued that the Petitioner failed to disclose fully and truly all material facts necessary for assessment.

4. The Court examined the reasons for reopening, which cited Circular No. 5/2012, and found that the Petitioner had disclosed all material facts during the original assessment. The Court held that the reassessment was not justified as it appeared to be based on a change of opinion rather than the escapement of income due to undisclosed material facts.

5. Referring to a prior judgment, the Court emphasized that the Assessing Officer cannot reopen an assessment after a lapse of four years without disclosing what material fact was not fully disclosed by the assessee. In this case, the Court found that the assessment was sought to be reopened based on a change of opinion, not on the failure of the assessee to disclose material facts.

6. Consequently, the Court allowed the Petition, quashing the notice seeking to reopen the assessment and the order rejecting the objections of the Petitioner. The Court held that the reassessment was not justified and disposed of the Petition with no order as to costs.