Assessment Can't Be Reopened On Mere Change Of Opinion Of AO: Bombay High Court

The division bench of Justice K.R. Shriram and Justice N.R. Borkar observed that the reopening of assessment was merely on the basis of a change of opinion of the Assessing Officer 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.

The petitioner/assessee has assailed the notice issued under section 148 of the Income Tax Act, 1961. The assessment proceedings for A.Y. 2014-15 were completed under section 143(3) of the Income Tax Act, assessing the total income of the petitioner at Rs. 35,81,93,760 and accepting the returned income.

The petitioner received the notice. Therefore, reopening of assessment was proposed after the expiry of 4 years from the end of the relevant assessment year. The proviso to section 147 of the Income Tax Act would apply. There was a bar to reopening unless respondents discharged the onus of showing that there had been a failure on the part of the petitioner to fully and truly disclose material facts during assessment.

The AO has recorded two reasons for reopening.

Firstly, the petitioner had issued 625000 shares of Rs.10 each at a premium of Rs.230 per share, i.e., for Rs.240/-, and received a total share premium of Rs.12,78,25,000 during the year under consideration. According to the Assessing Officer, the petitioner could have charged a premium of only Rs.204.52 against the Rs.230 charged and, therefore, an excess premium of Rs.25.48 per share has been charged. The amount of Rs. 1,59,25,000, which was required to be added to the petitioner's income under section 56(2)(viib) of the Income Tax Act.

Secondly, a goodwill amount of Rs. 26 crores was not acquired by the petitioner but was self-generated goodwill introduced in the books of account before the conversion of the partnership firm into the assessee company. Since the goodwill was internally generated by the erstwhile firm and not acquired or purchased by paying any consideration, the cost of the same should have been shown at 'Nil' and internally generated goodwill should not be recognised as an asset.

The petitioner contended that the Assessing Officer had calculated reasons as to how much premium the petitioner could have been charged and had correctly arrived at a figure of Rs.25.48 as the excess charge which was required to be added to the petitioner's income.

The court held that the reason for reopening was purely on the basis of a change of opinion. Queries have been raised during the assessment proceedings regarding the large share premium received during the year, the details of investors and the petitioner have provided all the details sought for. While providing the workings, the petitioner also explained that the goodwill of Rs. 26 crores has been factored while arriving at the share premium. Even in the assessment order, the Assessing Officer has referred to notices issued under section 143(2) as well as 142(1) of the Income Tax Act, and the Assessing Officer has also confirmed having received all the information.

"Since all these details have been disclosed in the documents filed along with the return of income, including balance sheet and answers to all queries raised, it cannot be stated that there was any failure on the part of petitioner to truly and fully disclose any material facts. Statement in the reasons recorded that there was failure to fully and truly disclose material facts, in our view, is only to get over the restrictions provided in proviso to section 147 of the Act," the court said.

Case Title: Bhavani Gems Private Limited Versus Assistant Commissioner of Income Tax

 Citation: 2022 LiveLaw (Bom) 192

Case No : Writ Petition No. 804 Of 2022

Dated: 27.04.2022

Counsel For Petitioner: Advocate K.Gopal

Counsel For Respondent: Advocate Mamta Omle

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