No Tangible Material for AO to have ‘reason to believe’ for Escapement of Income: Bombay HC quashes Re-Assessment Notice [Read Order]

The Bombay High Court quashed re assessment notice on the ground that no tangible material for Assessing Officer (AO) to have ‘reason to believe’ for escapement of income.

A return of income was fled for the assessment year 2008-09 in which the Petitioner, Abott India Limited, claimed Rs.48 crores as expenditure on gifts as a part of sales promotion expenses and Rs.2 crores as expenditure on account of distribution of samples of medicines manufactured by the Petitioner and debited under the category ‘physician sample’.

Notice impugned in the Petition, was issued under Section 148 of the Income Tax Act, which sought to re-assess the income of the Petitioner for the assessment year 2008-09 on the ground that the Assessing Officer had reason to believe that the income of the Petitioner for the relevant assessment year had escaped assessment within the meaning of Section 147 of the Income Tax Act.

The Petitioner challenges the notice issued by the Assistant Commissioner of Income Tax issued under Section 148 of the Income Tax Act, 1961 for the purpose of reopening of the assessment for the assessment year 2008-09 and the order rejecting objections challenging the validity of the re-assessment proceedings.

The basis of the challenge is primarily on the ground, firstly, that there was no failure on the part of the Petitioner to disclose fully and truly the material facts. Secondly, that the action for re-assessment was nothing but a change of opinion and, lastly, that there was no tangible material based upon which the assessment could be re-opened.

The Counsel for the Revenue argued that the case of the Petitioner was a fit case for re-opening inasmuch as a claim which was otherwise prohibited by the terms of regulations framed by Medical Council of India could not have been allowed as deduction in terms of the specific prohibition contained under Section 37(1) of the Act.

The Counsel for the Petitioner argued that the Circular dated 1 August 2012 issued by the CBDT and the amendment incorporated in regulation 6.4 of the Regulations of 2002 in 2009 were not at all applicable to the assessment year 2008-09 and, therefore, it was urged that the assessing officer could not have any basis for his ‘reason to believe’ that the claim was prohibited in terms of Section 37 r/w the CBDT circular dated Circular No.5/2012 (F.No.225/142/2012-ITA.II), dated 01.08.2012 and the regulations of 2002.

Quashing the re assessment notice the Bench comprising Justice Kamal Khatta and Justice Dhiraj Singh Thakur, noted that “It is clear that the assessing officer had not at all discussed as to what was the material which was not disclosed by the assessee fully and truly, which was otherwise necessary for assessment. There would be no tangible material or basis for the assessing officer to have ‘reason to believe’ that income for the said assessment year 2008-09 had escaped assessment.”

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