2016 (7) TMI 1404 - AT - Income Tax

Reopening of assessment - Held that - As explained above and respectfully follow the law as laid down by the Hon ble Supreme Court of India in the case of CIT vs. Kelvinator of India Ltd. (2010 (1) TMI 11 - SUPREME COURT OF INDIA) as aforesaid, we are of the view that both the authorities below have gone wrong in deciding the reopening as valid. Therefore, we quash the orders of the authorities below on this legal issue and decide the same in favor of the assessee.

Summary

Issues Involved:
1. Validity of the reassessment proceedings initiated by the Income Tax Officer.
2. The computation of Long Term Capital Gains (LTCG) and the allowance of deduction under Section 54EC.
3. Levy of interest on the reassessed income.

Detailed Analysis:

1. Validity of the Reassessment Proceedings:
The primary issue raised by the assessee was the legality of the reassessment proceedings initiated by the Income Tax Officer (ITO). The assessee contended that the notice issued under Section 148 of the Income Tax Act was "wholly illegal, without jurisdiction" and did not fulfill the pre-requisite conditions for valid jurisdiction. The assessee argued that the reassessment was based on a mere change of opinion, which is not permissible under the law. The original assessment had already considered the material facts, and no new or tangible material had surfaced to justify the reopening of the case. The Tribunal found that the reassessment sought to review the original assessment without any fresh or tangible material, which was actuated by a change of opinion. Citing the Supreme Court's decision in CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC), the Tribunal held that reassessment based on a change of opinion is impermissible. Consequently, the Tribunal quashed the reassessment proceedings as invalid.

2. Computation of Long Term Capital Gains (LTCG) and Deduction under Section 54EC:
The assessee had declared long-term capital gains on the sale of a property and claimed a deduction under Section 54EC for investments made in specified bonds. The Assessing Officer (AO) observed that the investment in bonds was made beyond the six-month period stipulated under Section 54EC and hence, disallowed the deduction for ?30 lakhs. The AO noted that the cheque for the investment was debited from the assessee's account on 26.08.2005, whereas the property was sold on 21.02.2005. The Tribunal did not delve into the merits of this issue since the reassessment proceedings were already quashed on legal grounds.

3. Levy of Interest:
The assessee also contested the levy of interest on the reassessed income, arguing that it was mechanical and not justified under the facts of the case. However, since the Tribunal quashed the reassessment proceedings, the issue of interest levy became moot and was not adjudicated separately.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, quashing the reassessment proceedings as illegal and without jurisdiction. Consequently, the issues on the merits of the reassessment, including the computation of LTCG and the deduction under Section 54EC, were not adjudicated. The Tribunal's decision was pronounced in the open court on 01/07/2016.