2011 (9) TMI 171 - HC - Income Tax

Income escaping assessment - notice issued u/s 148. - Held that - The Revenue has evidently treated the AOP as a valid entity in law and has brought it to tax in the order of assessment for A.Y. 2007-08. Once there is an AOP, the income has to be assessed in the hands of AOP. The AOP has been assessed as such and it is on that basis that the Department has pursued the assessment proceedings pertaining to the AOP. In this view of the matter, we are inclined to accept the contention of the Petitioner that the Assessing Officer properly instructed in law could not possibly have come to the conclusion that there was any escapement of tax. It must be emphasized that the assessment of the AOP is not sought to be reopened. Hence, the Assessing Officer has purported to reopen the assessment of the assessee for Assessment Year 2007-08 purely on the basis of a change in opinion and there was no valid or tangible material on the basis of which this could have been done. - Decided in favor of assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment.
2. Whether the reopening of the assessment was based on a change of opinion.
3. The existence of tangible material to justify the reopening of the assessment.
4. Applicability of Sections 86 and 167B of the Income Tax Act, 1961.

Issue-wise Analysis:

1. Validity of the Notice Issued Under Section 148:
The primary challenge in these proceedings under Article 226 of the Constitution was to the notice dated 11 January 2011 issued under Section 148 of the Income Tax Act, 1961, which sought to reopen the assessment for the assessment year 2007-08. The Petitioner argued that the reopening was invalid as the necessary conditions for reopening under Section 148 were not met.

2. Reopening Based on Change of Opinion:
The Petitioner contended that the reopening of the assessment was merely based on a change of opinion. It was argued that the Assessing Officer had already examined the relevant documents and information during the original assessment proceedings. The Assessee had disclosed all necessary information, including its share of profit from the Association of Persons (AOP), Fortaleza Developers, and the Assessing Officer was aware of the facts during the original assessment.

3. Existence of Tangible Material:
The Petitioner argued that there was no tangible material to justify the reopening of the assessment. The material on which the Assessing Officer relied to reopen the assessment was already part of the record during the original assessment proceedings. The Supreme Court's decision in CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312 was cited, which held that the power to reopen an assessment must be based on tangible material indicating that income had escaped assessment, and not merely on a change of opinion.

4. Applicability of Sections 86 and 167B:
The Petitioner further argued that the AOP had been assessed separately and brought to tax, and the income received by the Assessee from the AOP was exempt under Section 167B(2) of the Income Tax Act, 1961. The Revenue's contention that the AOP's activity was not genuine was not sufficient to reopen the assessment of the Assessee. The Court noted that the AOP had filed its return of income and had been assessed, and the validity of the AOP was not in question. Sections 86 and 167B were applicable, and the income received by the Assessee as a member of the AOP was not liable to be taxed again in the hands of the Assessee.

Conclusion:
The Court concluded that the reopening of the assessment was based on a change of opinion and lacked tangible material. The Assessing Officer had no valid basis to reopen the assessment as the necessary conditions under Section 148 were not met. The notice dated 11 January 2011 was set aside, and the rule was made absolute. There was no order as to costs.