AO could not reopen the assessment after a period of 4 years merely on the basis of change of opinion

Issue

Writ petition filed before the Bombay HC under Article 226 of the Constitution of India by challenging notice dated 29/3/2019 issued by Income Tax Officer under section 148 of the Income-tax Act, 1961 (said Act, for the sake of brevity) seeking to reopen the assessment for the Assessment Year 2012-2013 and consequential order dated 25/9/2019 passed by Assistant Commissioner of Income Tax disposing of all objections of Petitioner. 

Facts  

• Petitioner is a private limited company engaged in the business of selling hair care products, providing consultancy services, treatment in the hair care and beauty sector. 
• Petitioner filed its return of income on 28/9/2012 declaring revenue of Rs.37,02,86,962/- from the sale of products and revenue of Rs.15,34,79,584/- from the provision of services. 
• Return of Income was processed, and intimation under Section 143(1) of the Income Tax Act was issued. 
• Subsequently, Petitioner’s case was selected for scrutiny assessment by respondents. During the assessment, a notice under section 142(1) of said Act was issued whereby inter alia details of advertisement was sought. 
• Thereafter, authorized representatives of petitioners were called by the Assessing Officer for discussion. In which assessing officer asked for the copy of the agreement with Brand Equity Treaties Limited containing securities premium and advertisement details. Petitioner provided the same. 
• The assessment order was passed on 12/11/2014 under Section 143(3) of the Act accepting the return of income of Petitioner. 
• On 29/3/2019, Income Tax Officer issued a notice under Section 148 of the Income Tax Act stating that he had reason to believe that Petitioner’s income chargeable to tax for the Assessment year 2013- 2014 had escaped assessment. In response to the said notice, Petitioner filed its return of income on 18/4/2019. Thereafter, Petitioner filed a reply dated 22/4/2019 seeking reasons for reopening of assessment to enable Petitioner to file its objections. 
• On 1/7/2019 Income Tax Officer vide letter provided the reasons to the petitioner by stating that advertisement and marketing expenditure incurred by Petitioner was not deductible in view of provisions of Section 37 of the said Act, as Petitioner was prohibited from advertising under the provisions of the Indian Medical Council Act, 1956 read with Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (the Regulations, for the sake of brevity). 
• On 25/9/2019, Assistant Commissioner of Income Tax passed an order rejecting the objections of Petitioner. Section 37 (1) of the Act provides any expenditure incurred for a purpose which is an offence or which is prohibited by law shall not be allowed. 

Findings  

In case of Ananta Landmark (P.) Ltd. vs Deputy Commissioner of Income Tax wherein this Court held that where assessment was not sought to be reopened on 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 was a case wherein assessment was sought to be reopened on account of change of opinion of Assessing Officer about manner of computation of deduction under Section 57, reopening was not justified. It is also held that when the primary facts necessary for assessment are fully and truly disclosed, the Assessing Officer is not entitled to a change of opinion for commencing proceedings for reassessment. It is also held that when on consideration of the material on record, one view is conclusively taken by the Assessing Officer, it would not be open for the Assessing Officer to reopen assessment based on the very same material and to take another view.  

This Court in the case of Jainam Investments vs Assistant Commissioner of Income Tax in paragraph 13 held that the Assessing Officer could not reopen the assessment even within a period of 4 years merely on the basis of change of opinion and the Assessing Officer has no power to review the assessment which has been concluded unless there is tangible material to come to the conclusion that there is escapement of income from assessment. 15.  

Judgement  

Bombay HC held that the Assessing Officer could not have reopened the assessment merely on the basis of change of opinion and could not have issued a notice of reopening of assessment to Petitioner. 

Therefore, this Court set aside a notice issued by the Income Tax officer to the petitioner on the ground of change of opinion, it is unnecessary to go into other contentions raised by Petitioner, which are kept open to be adjudicated in appropriate proceedings. 

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