The main legal point established in the judgment is that the reopening of assessment based on a change of opinion of the Assessing Officer does not constitute justification or reasons to believe that income chargeable to tax has escaped assessment.

JUDGMENT :

K.R. SHRIRAM, J.

1 Petitioner is impugning a notice dated 30th March 2021 issued under Section 148 of the Income Tax Act, 1961 (the Act) for Assessment Year 2017-2018.

2 Petitioner is engaged in the business of real estate development and construction. For Assessment Year 2018-2019 petitioner filed its return of income on 30th October 2017, which was revised on 1st June 2018, declaring a total loss of Rs.1,41,16,482/-. Petitioner’s case was selected for scrutiny assessment and notices were issued under Section 142(1) read with Section 129 of the Act. Petitioner responded to the notices and also filed documents. An assessment order dated 20th December 2019 came to be passed in which petitioner’s loss was assessed at Rs.1,05,42,877/-.

3 Subsequently petitioner received a notice dated 30th March 2021 under Section 148 of the Act that there are reasons to believe that petitioner’s income chargeable to tax for Assessment Year 2017-2018 has escaped assessment. Petitioner was also provided reasons for reopening of assessment. The reasons read as under :

REASONS FOR REOPENING OF ASSESSMENT

In the above mentioned case, the assessee has e-filed its return of income of A.Y. 2017-18 on 30/10/2017 declaring total loss of Rs.(-) 1,42,40,038/-. The case was selected for scrutiny and assessment u/s 143(3) of the Act was completed on 20.12.2019 assessing total loss at Rs.(-) 1,05,42,877/-.

2. On perusal of the assessment records of the assessee for A.Y. 2017-18, it is seen that the assessee has taken short-term/long term borrowings in F.Y. 2015-16 which is still outstanding of Rs.362825259/- on 31st March, 2017. The assessee has not commenced the project as stated in Notes to Accounts that due to delay in commencement of a project with finance cost, the net worth of the company as on 31.03.2017 has become negative and management is quite confident on completion of the said project to continue its business as a going concern. During the year under consideration, the assessee has debited financial costs of Rs.5,67,95,525/- in Profit and Loss Account and arrived business loss of Rs.(-) 1,41,16,482/- due to above expense. Since there is no business activity during the year under consideration and project is yet to be commenced, hence the amount of financial cost of Rs.5,67,95,525/- along with depreciation of Rs.19,03,026/- and other expenses of Rs.18,02,593/- should be capitalized as preliminary expenses under the head work in progress. The fact was not verified by the assessing officer while finalizing the assessment. The same has not been brought to the notice of the assessing officer by the assessee with a view to conceal the above facts from the assessing officer

3. In view of the above, amount of financial cost of Rs.5,67,95,525/- has to be disallowed and added to the total income of the assessee.

4. Hence, it is clear that there is failure on the part of assessee to disclose fully and truly all material facts necessary for the assessment for the year in question within the meaning of First provision to section 147(1) of the Act.

5. In view of the above, I have reason to believe that income chargeable to tax to the tune of Rs.5,67,95,525/- has escaped assessment within the meaning of section 147 of the Act for the A.Y. 2017-18. It is therefore proposed to issue notice u/s 148 of the Income-tax Act, 1961 for A.Y. 2017-18 to reassess such income and also any other income chargeable to tax which has escaped assessment and which may come to notice subsequently in the course of proceedings under this section.

4 Petitioner’s case is the issue of petitioner’s short term/long term borrowings and non commencement of project, the financial cost, etc. came up for discussion during the assessment proceedings.

5 Ms. Anchlia submitted that the entire basis of reopening could be change of opinion because once the Assessing Officer has raised query and petitioner has responded that would mean that it was under consideration of the Assessing Officer during th