2011 (7) TMI 377 - HC - Income Tax

Escaping of Income u/s 45(2) - Conversion of Capital Asset in Stock in Trade - AO to make assessment on capital gains in the regular assessment completed under Section 143(3) is a ground justifying revision of assessment under Section 147 of the Act. - Held that - It is immaterial whether the escapement is either on account of ignorance of law or omission on the part of the assessee or the Assessing Officer. - So long as income chargeable to tax has escaped assessment and the Assessing Officer has reason to believe so, whether suo motu found by him from records or whether brought to his notice by the audit party or any other agency, the Assessing Officer will be justified in revising the assessment within the period of limitation provided therein. - Decided against Assessee.

Summary

Issues:
Validity of reassessment completed under Section 147 of the Income-tax Act for the assessment year 1995-96.

Analysis:
The High Court of Kerala addressed the issue of whether the Tribunal was justified in upholding the order of the CIT (Appeals) canceling the reassessment completed on the respondent assessee for the assessment year 1995-96 as invalid. The case involved a Limited Company that converted land into stock-in-trade, resulting in a substantial profit. The Assessing Officer reopened the assessment for 1995-96 due to the sale of a major portion of the land, which should have attracted capital gains tax under Section 45(2) of the Income-tax Act. The Tribunal sustained the CIT (Appeals) order, prompting the Revenue to appeal. The key question was whether the reassessment under Section 147 was justifiable.

The Court examined the nature of income that escaped assessment in the original assessment under Section 143(3) and the applicability of Section 45(2) which deals with tax on profits or gains from the conversion of a capital asset into stock-in-trade. It was observed that the Assessing Officer should have charged taxable capital gains for each year the land was sold after conversion. The Revenue argued that the reassessment was valid under Section 147, citing relevant case law. On the other hand, the assessee contended that the reassessment was unwarranted as all facts were disclosed during the original assessment.

The Court ruled that the reassessment was justified as income chargeable to tax under Section 45(2) had indeed escaped assessment for 1995-96. The Assessing Officer's lack of consideration for the assessee's liability under Section 45(2) during the original assessment was a valid ground for reassessment. The Court emphasized that the reassessment provisions under Section 147 allow for revising assessments in cases of non-assessment or under-assessment of taxable income. The Court rejected the argument that the reassessment was a result of a change of opinion, highlighting the importance of the Assessing Officer's reasonable belief of income escapement.

In conclusion, the Court allowed the appeal, reversing the orders of the Tribunal and the CIT (Appeals), and upheld the reassessment completed under Section 147 of the Income-tax Act for the assessment year 1995-96. The assessee was given the option to apply for a waiver of interest under relevant sections of the Act, to be considered by the Assessing Officer.