Change Of Opinion Does Not Constitute Justification To Believe Income Chargeable To Tax Has Escaped Assessment: Bombay High Court

The Bombay High Court has held that a change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment.

The bench of Justice K. R. Shriram and Justice Neela Gokhale has observed that 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 contain references and/or discussions to disclose its satisfaction with respect to the query raised. The only requirement is that the assessing officer ought to have considered the objection now raised in the grounds for issuing notice under Section 148 of the Act during the original assessment proceedings.

The petitioner/assessee is in the business of real estate development and construction. For Assessment Year 2018-2019, the petitioner filed its return of income on October 30, 2017, which was revised on June 1, 2018, declaring a total loss of Rs. 1,41,16,482. Petitioner's case was selected for scrutiny assessment, and notices were issued under Section 142(1), read with Section 129 of the Income Tax Act.

The petitioner responded to the notices and also filed documents. An assessment order came to be passed in which the petitioner's loss was assessed at Rs. 1,05,42,877.

The petitioner received a notice dated March 30, 2021, under Section 148 of the Income Tax Act that there are reasons to believe that the petitioner's income chargeable to tax for Assessment Year 2017-2018 has escaped assessment.

The assessee contended that the entire basis of reopening could be a change of opinion because once the assessing officer has raised a query and the petitioner has responded, that would mean that it was under consideration of the assessing officer during the proceedings. Therefore, on the same basis, there cannot be a reopening of the assessment.

The department contended that since there was no business activity during the year under consideration and the project was yet to be commenced, the financial cost, along with depreciation and other expenses, should be capitalized as preliminary expenses under the head work in progress. Even though a query has been raised during the assessment proceedings, the same has not been discussed in the assessment order, and, therefore, there is no question of change of opinion.

The court noted that in the assessment order there is no elaborate discussion regarding these items, but there has been a disallowance of interest on TDS debited to the profit and loss account. It is an indication that the subject matter of financial costs and other expenses has been discussed during the assessment proceedings.

The court held that a change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment.

Counsel For Petitioner: Neha Anchlia

Counsel For Respondent: Suresh Kumar

Case Title: Geopreneur Realty Private Limited Versus UOI

Case No.: Writ Petition No.2095 Of 2022

Click Here To Read The Order