Change of Opinion by AO not Justification for assuming Income Chargeable to Tax by AO: Bombay HC [Read Order]

The Bombay High Court recently ruled that change of opinion by the Assessing Officer ( AO ) is not justification for assuming income chargeable to tax.

An assessment order came to be passed in which, it is stated that the case was selected for limited scrutiny assessment on the issues relating to investments in immovable property, capital gains / income on sale of property and in view of material available on record, no addition on the issues is made. The assessment order also states that the assessment is passed accepting the income computed as per order under Section 143(1) of the Income Tax Act.

The petitioner replied to the said notice objecting to the reopening vide petitioner’s Chartered Accountant's letter. Notwithstanding, petitioner’s objections, the order dated 31st March 2022 under Section 148A(d) of the Income Tax Act has been passed and notice issued under Section 148 of the Income Tax Act, holding that the asset sold was short term capital asset and gain arising on the transfer of such asset is short term capital gain. It is this order and the notice both dated 31st March 2022 which are impugned in this petition.

In fact, the AO in the assessment order has noted that the issue of investment in immovable property and capital gain / income on sale of property was considered under limited scrutiny assessment and in view of the material on record no addition on the issue is made. The information relied upon while issuing notice under Section 148A(b) of the Income Tax Act also relates to the said flat and entirely contradictory view is taken in the impugned order that the asset sold was short term capital asset and gain arising on transfer of the said flat is short term capital gain.

A Division Bench of Justices Dr Neela Gokhale and KR Shriram observed that “In our view, it is clear case of change of opinion. We say this because the issue as to whether there was a short term capital gain with respect to the said flat, was the subject matter of consideration during the assessment proceedings. It is settled law 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.”

“In our view, the reopening of the assessment purely on the basis of change of opinion of the AO from that held earlier during the course of assessment proceedings. This change of opinion does not constitute justification for assuming that income chargeable to tax has escaped assessment” the Bench noted.

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