2014 (6) TMI 966 - AT - Income Tax

Reopening of assessment - assessment of capital gains on sale of land - Held that - After the initial return of income in which assessee had not disclosed long term capital gains on the sale of land, it voluntarily filed a revised return of income on 28.08.2006 admitting long term capital gains of ₹ 34,21,819/- on the sale of land. Thereafter, the case was picked up for scrutiny and this very issue was examined thoroughly. The assessment was completed under section 143(3) on 14.12.2007 and some expenditure claimed was disallowed. The issue of assessment of capital gains on sale of land was considered thoroughly by the assessing officer and information on this issue was available on the very 1st page of the computation given by the assessee in the revised return of income. In fact, this was the only issue which was presented in the revised return. Therefore there was no reason to even suspect that such an issue could not be discovered by the assessing officer during the assessment proceedings. Indeed, the assessment order dated 14.12.2007 provides a discussion of this very issue and the assessing officer clearly goes on to say in para-1 as well as in para-4 of that order that long-term capital gain has to be assessed on the sale of land. It is very clear from above that after a detailed scrutiny and investigation the assessing officer had formed an opinion on the taxation of profit on sale of land as capital gains. Now, without any further information and without providing an iota of evidence to show any default on the part of the assessee, the assessing officer is not permitted as per law to reopen the assessment and change his opinion to assess the profit on sale of land as business income. The aforementioned facts very clearly show that this is only a change of opinion. - Decided in favour of assessee

Summary

Issues involved:
Validity of reopening assessment under section 147 of the Income-tax Act, 1961 based on change of opinion beyond the four-year period.

Analysis:

Issue 1: Reopening of assessment based on change of opinion beyond the four-year period
The appeal by the Revenue challenged the order of the CIT(A)-III, Hyderabad for the assessment year 2005-06. The assessee, engaged in real estate and share dealing, filed its return admitting total income. The AO completed the assessment determining a higher total income, which the assessee contested as a mere change of opinion in the reassessment proceedings. The AR cited judgments to support the contention that all primary facts were disclosed during the original assessment.
The CIT(A) noted that the notice for reopening was issued after the four-year period, emphasizing that the assessing officer had already formed an opinion on the issue of taxation of profit on the sale of land as capital gains during the initial assessment. Without new evidence, the AO could not change the opinion to assess the profit as business income, rendering the reopening invalid as a mere change of opinion.
The CIT(A) referred to a High Court decision highlighting the stringent conditions for valid reopening beyond four years, emphasizing the need to establish a failure on the part of the assessee to disclose material facts. The CIT(A) allowed the appeal, deeming the reopening invalid. The Revenue appealed, arguing the validity of the reopening under section 147.

Issue 2: Assessment proceedings and change of opinion
The Tribunal observed that the notice for reopening was issued beyond the four-year period and analyzed the case history. The assessee voluntarily filed a revised return admitting long-term capital gains, which was thoroughly examined during the initial assessment. The assessing officer clearly addressed the issue in the assessment order, indicating that the issue was presented in the revised return. The Tribunal reiterated that without new evidence, the AO could not change the opinion formed during the initial assessment, citing a judgment to support this position.
Relying on a Bombay High Court judgment, the Tribunal concluded that the AO's change of opinion after four years to reopen an already completed assessment was invalid. Referring to an Apex Court judgment, the Tribunal emphasized that the concept of "change of opinion" acts as a check against abuse of power in reopening assessments. Citing a Full Bench decision of the Delhi High Court, the Tribunal held that reassessment based on a decided issue in favor of the assessee amounts to a mere change of opinion, rendering the reopening invalid.
Ultimately, the Tribunal dismissed the Revenue's appeal, affirming that the reopening was based on a mere change of opinion and hence invalid.

This detailed analysis covers the issues involved in the legal judgment regarding the validity of reopening assessment under section 147 of the Income-tax Act, 1961 based on a change of opinion beyond the four-year period.