Just because the opinion of the Assessment Officer changed, Assessment cannot be reopened: Bombay High Court

The decision that simply because the opinion of the Assessment Officer changed, assessment cannot be reopened is upheld by the High Court of Bombay through the learned bench led by HONOURABLE MR. JUSTICE K.R. Shriram and HONOURABLE MR. JUSTICE N.R. Borkar in the case of Bhavani Gems Private Limited Versus Assistant Commissioner of Income Tax (Writ Petition No. 804 Of 2022).

Brief facts of the case are that the notice issued under section 148 of the Income Tax Act of 1961 has been challenged by the petitioner/assessee. The assessment proceedings for the fiscal year 2014-15 were concluded under section 143(3) of the Income Tax Act, with the petitioner’s total income assessed at Rs. 35,81,93,760 and the returned income accepted. The notice was delivered to the petitioner. As a result, after four years have passed since the conclusion of the relevant assessment year, reopening of the evaluation was requested. Section 147 of the Income Tax Act’s proviso would apply. There was a bar to reopening unless respondents met their burden of proving that the petitioner had failed to fully and truthfully disclose material information during assessment. The AO has stated that he has two reasons for reopening the case. First, during the year under consideration, the petitioner issued 625000 Rs.10 shares 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. According to the Assessing Officer, the petitioner could have charged just Rs.204.52 in premium instead of the Rs.230 invoiced, resulting in an excess premium of Rs.25.48 per share. Section 56(2)(viib) of the Income Tax Act obliged the petitioner to add Rs. 1,59,25,000 to his income. Second, the petitioner did not acquire Rs. 26 crores in goodwill; rather, it was self-generated goodwill entered into the books of account prior to the conversion of the partnership firm into the assessee company. The cost of internally created goodwill should have been shown as ‘Nil,’ and internally generated goodwill should not be recognised as an asset, because it was generated internally by the former firm and not acquired or purchased for any consideration.

The Counsel for petitioner, K.Gopal argued that the Assessing Officer accurately analysed grounds for how much premium the petitioner may have been charged and arrived at a value of Rs.25.48 as the excess charge that had to be applied to the petitioner’s income. The petitioner also noted that when calculating the share premium, the goodwill of Rs. 26 crores was taken into consideration.

The court held that the reopening was solely based on the Assessing Officer’s change of opinion from that held earlier throughout the assessment proceedings, and that this change of opinion does not establish rationale or reason to infer that income liable to tax had escaped assessment.


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