Case Note & Summary
The petitioner, a private limited company engaged in selling hair care products and providing consultancy services, challenged a notice dated 29 March 2019 issued under Section 148 of the Income-tax Act, 1961, seeking to reopen the assessment for Assessment Year 2012-2013, and the consequential order dated 25 September 2019 rejecting its objections. The petitioner had filed its return of income declaring revenue from sale of products and from services. The return was processed and subsequently selected for scrutiny assessment. During the original assessment proceedings, the Assessing Officer examined the issue of advertisement and marketing expenditure by calling for details and agreements, and after discussion, passed an assessment order under Section 143(3) on 12 November 2014 accepting the returned income. Nearly four and a half years later, the Assessing Officer issued the impugned notice under Section 148, stating that he had reason to believe that income chargeable to tax had escaped assessment. The main reason was that the advertisement and marketing expenditure incurred by the petitioner was not deductible under Section 37 of the Act as it was prohibited by the Indian Medical Council Act, 1956, read with the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, since the petitioner was allegedly soliciting patients. The petitioner objected, contending that the reopening was based on a mere change of opinion, that all material facts had been fully and truly disclosed, and that there was no fresh tangible material. The Assessing Officer rejected the objections. The High Court, after examining the records, found that during the original assessment, the Assessing Officer had applied his mind to the very issue of advertisement and marketing expenses. Notices and order sheet entries showed that the officer had called for differentiation of expenses and copies of agreements, and the issue was discussed at length before the assessment order was passed. Relying on decisions including Ananta Landmark (P.) Ltd. vs Deputy Commissioner of Income Tax, Jainam Investments vs Assistant Commissioner of Income Tax, Aroni Commercial Limited vs Dy. CIT, and Marico Limited vs The Assistant Commissioner of Income Tax, the Court held that reassessment could not be initiated merely on a change of opinion, whether within or beyond four years, when all primary facts had been disclosed. The Court quashed the impugned notice and the order rejecting objections, making the rule absolute in all three connected petitions.
Headnote
A) Income Tax - Reassessment - Change of Opinion - Section 148, Income-tax Act, 1961 - The Court held that once the Assessing Officer had applied his mind and examined the issue of advertisement/marketing expenditure during original assessment, reopening on the same set of facts constitutes a mere change of opinion and is impermissible. The notice under Section 148 and the consequential order rejecting objections were quashed. (Paras 12, 15)
B) Income Tax - Reassessment Beyond Four Years - Full and True Disclosure - Sections 147, 148, Income-tax Act, 1961 - Following Ananta Landmark (P.) Ltd. vs Deputy Commissioner of Income Tax, the Court held that where primary facts necessary for assessment were fully and truly disclosed, the Assessing Officer is not entitled to reopen assessment on account of a change of opinion about the manner of computation. (Para 13)
C) Income Tax - Reassessment Within Four Years - Change of Opinion - Relying on Jainam Investments vs Assistant Commissioner of Income Tax, the Court held that even within four years, reassessment cannot be based merely on a change of opinion; there must be tangible material to conclude that income had escaped assessment. (Para 14)
Issue of Consideration
Whether the reopening of assessment under Section 148 of the Income-tax Act, 1961, beyond four years, based on change of opinion without any failure on the part of the assessee to disclose fully and truly all material facts, is valid?
Final Decision
The impugned notices under Section 148 and consequential orders rejecting objections in all three writ petitions were quashed and set aside; rule made absolute in terms of the order.
Law Points
- reopening of assessment
- change of opinion
- full and true disclosure
- Section 148 Income-tax Act
- 1961
- escapement of income
- tangible material
- writ jurisdiction under Article 226
Case Details
2021 LawText (BOM) (11) 31
Writ Petition No.3263 of 2019 with Writ Petition No.3264 of 2019 and Writ Petition No.3296 of 2019
K. R. Shriram, Amit B. Borkar
Mr. Sukhsagar Syal, Mr. Sujit B. Shelar, Mr. Akhileshwar Sharma
Rich Feel Health and Beauty Private Limited
1. Income Tax Officer Ward 13(3)(2), 2. Assistant Commissioner of Income Tax, Circle 13(3)(1), 3. Pr. Commissioner of Income-tax-13, Mumbai, 4. Union of India
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Nature of Litigation
Writ petition under Article 226 of the Constitution of India challenging notice under Section 148 of the Income-tax Act, 1961 and the consequential order rejecting objections to reopening of assessment.
Remedy Sought
Quashing of the notice dated 29 March 2019 and the order dated 25 September 2019 rejecting objections.
Filing Reason
The Assessing Officer issued notice under Section 148 on the ground that advertisement and marketing expenditure claimed by the petitioner was not deductible under Section 37 due to prohibition under Indian Medical Council Regulations, 2002; petitioner contended it was a change of opinion based on the same facts already examined during original assessment.
Previous Decisions
Assessment order dated 12 November 2014 under Section 143(3) accepting returned income; notice under Section 148 dated 29 March 2019; order rejecting objections dated 25 September 2019.
Issues
Whether reopening of assessment after four years based on mere change of opinion is valid when all primary facts were fully disclosed.
Whether the Assessing Officer could reopen assessment even within four years on the ground of change of opinion without any tangible material.
Whether the prohibition under Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 applies to a company incurring advertisement expenditure.
Submissions/Arguments
Petitioner argued that the original assessment had examined the advertisement/marketing expenditure and the reopening was a change of opinion, not based on any new material; all primary facts were fully and truly disclosed; the regulatory bar applies only to medical practitioners, not companies.
Respondents argued that the expenses were not properly disclosed under specific heads and their nature was not explained; the Assessing Officer later noticed that petitioner was soliciting patients in violation of the regulations; the assessee would have an opportunity to explain during reassessment proceedings.
Ratio Decidendi
Once the Assessing Officer has applied his mind to a particular issue during original assessment, reopening on the same set of facts and material amounts to an impermissible change of opinion. Reassessment under Section 148, whether within or beyond four years, cannot be initiated solely on the ground of change of opinion without any tangible material indicating escapement of income, especially when the assessee had made full and true disclosure of all primary facts.
Judgment Excerpts
It appears that the Assessing Officer had applied his mind in the original assessment to the fact that Petitioner had incurred advertisement and marketing expenditure.
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.
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.
Once the Assessing Officer had applied his mind in the regular assessment proceedings of Petitioner having incurred advertisement and marketing expenditure, it is not open for the Assessing Officer to reopen the assessment.
Procedural History
Return of income filed on 28 September 2012; processed under Section 143(1); scrutiny assessment initiated; notice under Section 142(1) issued seeking details of advertisement; after discussion and submission of documents, assessment order passed on 12 November 2014 under Section 143(3) accepting returned income; notice under Section 148 issued on 29 March 2019 for Assessment Year 2012-2013; petitioner filed return and objected; reasons provided on 1 July 2019; objections rejected on 25 September 2019; writ petition filed; ad-interim stay granted on 6 December 2019; judgment delivered on 15 November 2021.
Acts & Sections
- Income-tax Act, 1961: 37, 57, 142(1), 143(1), 143(3), 148
- Indian Medical Council Act, 1956:
- Constitution of India: 226
