Reassessment – Notice u/s 148 – Query raised with regard to a particular issue during regular assessment implies A.O. has applied his mind – Reassessment on change of opinion – Impermissible

Reassessment – Notice u/s 148 – Query raised with regard to a particular issue during regular assessment implies A.O. has applied his mind – Reassessment on change of opinion – Impermissible

For the A.Y. 2007-08, the A.O. issued a notice u/s 148 to reopen the assessment u/s 147 on the ground that the assessee had claimed deduction for depreciation on the assets acquired with the bank loan, which the bank had written off under a one-time settlement as bad debts and the write-back by the assessee was to be treated as income. The assessee’s objections were rejected. In the reassessment order the A.O. brought to tax the waiver of principal amount of bank loan as income of the assessee u/s 41(1) / 28(iv).

The Tribunal held that the assessment was reopened based on information which was already on record and no new tangible material was brought on record to suggest escapement of income in respect of waiver of loan on one time settlement by the bank which was claimed by the assessee as deduction. The Tribunal allowed the assessee’s appeal.

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:

‘i) The reason to believe that any income chargeable to tax had escaped assessment u/s 147 has to arise not on account of a mere change of opinion but on the basis of some tangible material. Once there was a query raised with regard to a particular issue during the regular assessment proceedings, it must follow that the A.O. had applied his mind and taken a view in the matter as reflected in the assessment order.

ii) A query was raised by the A.O. in the original assessment in respect of the waiver of loan on account of the one-time settlement with the bank and the assessee had filed a detailed submission as to why the principal amount waived by the bank on account of the one-time settlement was not taxable. Reassessment on a change of opinion was impermissible. No question of law arose.’