Bombay High Court Quashes Reassessment Proceedings Against Castrol India Initiated On Basis Of A Change Of Opinion

The Bombay High Court has quashed reassessment proceedings against Castrol India initiated on the basis of a change of opinion.

The bench of Justice K. R. Shriram and Justice Neela Gokhale has observed that the reasons to believe notice itself indicates that the AO was already seized with information prior to passing the original assessment order, and as such, there is no tangible information on the basis of which he has allegedly formed the requisite belief.

During the assessment year 2016–17, the petitioner incurred expenses towards corporate social responsibility (CSR) under Section 135 of the Companies Act, 2013. The return of income of the petitioner for the relevant assessment year, as revised from time to time, declared a total income of Rs. 1051,29,97,660. A disallowance was made for the amount of CSR in the return of income in consonance with Explanation 2 to Section 37. The petitioner also claimed a deduction of Rs. 1,79,41,595 (being 50% of the aggregate donation) under Section 80G as permissible by law.

The petitioner's return of income was selected for scrutiny. Pursuant to the initiation of assessment proceedings, a notice was issued under Section 142(1) seeking details along with supporting evidence in respect of the claim of deduction.

The petitioner received notice under Section 148 conveying reasons to believe that income chargeable to tax for the relevant assessment year has escaped assessment and required the petitioner to deliver a return for the assessment year. Petitioner complied by filing its return, however, requesting the Assessing Officer a copy of the reasons recorded for reopening the assessment. The reasons to believe escapement of income were provided by a letter to which the petitioner filed its objections on August 28, 2021. The AO rejected the objections in the order. This order, along with a notice dated March 27, 2021, alleges that income has escaped assessment, which is the subject matter of the challenge.

The assessee challenged the reopening of the assessment by contending that the jurisdictional pre-conditions have not been fulfilled in the present case as the belief formed by the AO is based on an audit objection without fulfilling an objective criteria. The assessment cannot be reopened on the basis of a change of opinion, and the belief so formed must be based on fresh and tangible material having a rational and a live nexus with the belief.

The department contended that the CSR expenses are treated by the petitioner under two different heads, defeating the very purpose of public welfare by converting them into a tax-saving tool.

The court held that the reopening of the assessment is merely on the basis of a change of opinion of the AO from that held earlier during the course of assessment proceedings, and this change of opinion does not constitute justification and/or reason to believe that income chargeable to tax has escaped assessment.

Counsel For Petitioner: Percy Pardiwalla

Counsel For Respondent: Suresh Kumar

Case Title: Castrol India Ltd. Versus Deputy Commissioner of Income-tax

Case No.: Writ Petition No.3079 Of 2022

Click Here To Read The Order