2012 (8) TMI 528 - HC - Income Tax

Validity of reopening of assessment - AY 81-82, 82-83 and 83-84 - income from house property - arrears of compensation received under Requisition Act not offered to tax by assessee - assessee contested reopening on ground that same was within knowledge of AO since receipt of such arrears were mentioned in its Notes of Account for AY 83-84 and that it would be accounted for in AY 84-85 - Held that - Once the absence of the relevant material before the AO is established, the burden is on the assessee to establish that the AO in some manner and for some reason had knowledge of such material and considered it while making the assessment orders. An AO is not concerned with only one assessee or three assessment orders. The exigencies and the burden of the work may well result in his inability to correlate the material between various assessment proceedings even though made only within a few days of each other. The burden would rest heavily upon the assessee to establish otherwise. There is nothing on record that persuades us to come to a conclusion that the AO while making the assessment orders for the A.Ys. 1981-1982 and 1982-1983 recollected Note 16 to its Accounts for year ending 31.12.1982 included in the return of income for the A.Y. 1983-1984. Thus, reassessment proceedings for the AYs 1981-1982 and 1982-1983 are upheld. AY 83-84 - Held that - It is not even suggested that the AO was aware of the provisions of the Requisition Act, 1952 when he made the original assessment orders. In any event, Note 16 of the Accounts did not state that the payment was made pursuant to the provisions of the Requisition Act, 1952. It merely referred to the fact of the enhancement of compensation. This was therefore, further material which the AO was informed about only subsequently. The possession of such information subsequently justified the AO to have reason to believe that the income chargeable to tax had escaped assessment. Reopening of AY 83-84 upheld - Decided against assessee

Summary

Issues Involved:
1. Validity of reopening the assessment under section 147(b) of the Income Tax Act, 1961.
2. Legality of taxing arrears during the said assessment years.

Issue-Wise Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147(b):

The primary issue is whether the Income Tax Officer (ITO) was justified in reopening the assessment under section 147(b) of the Income Tax Act, 1961. The applicant owned a building in Mumbai, part of which was requisitioned by the Government of India, with compensation revised from Rs.3618.21 to Rs.19,259.29 per month effective from 7.3.1975. The applicant received arrears of rent amounting to Rs.14,68,172.28 on 31.3.1983. The assessments for the years 1981-1982, 1982-1983, and 1983-1984 were initially completed considering the original compensation. The ITO issued a notice under section 148 for reopening the assessment for these years under section 147(b), based on information received from the Estate Manager of the Government of India regarding the enhanced compensation.

The applicant challenged the reopening, arguing that all relevant information was already before the AO when the original assessments were made. However, the court noted that Note 16 to the Accounts, included only in the return for A.Y. 1983-1984, stated that the arrears would be accounted for in the accounts for the year ending 31.12.1983, which was not done. The court held that the failure to account for the arrears and the subsequent information from the Estate Manager justified the AO's belief that income had escaped assessment, validating the reopening under section 147(b).

The court concluded that the reassessment proceedings for A.Ys. 1981-1982 and 1982-1983 were valid as the relevant material was not before the AO during the original assessments. For A.Y. 1983-1984, the court presumed the AO had considered Note 16 but found that the subsequent failure to account for the arrears and additional information justified the reassessment.

2. Legality of Taxing Arrears During the Said Assessment Years:

The second issue raised by the applicant was whether taxing the arrears during the said assessment years was contrary to law, as the arrears had not accrued in favor of the applicant during those years. The court, however, restricted the scope of the reference to the question framed by the Tribunal, which pertained only to the validity of the reopening under section 147(b). The court held that it was not permissible to consider the second issue in this reference, as it was not framed in the reference by the Tribunal. Therefore, the court did not address the legality of taxing the arrears during the said assessment years.

Conclusion:

The court upheld the reassessment proceedings for A.Ys. 1981-1982, 1982-1983, and 1983-1984, validating the reopening under section 147(b) based on the subsequent information and failure to account for the arrears. The reference was answered in the negative and in favor of the Revenue, affirming the Tribunal's decision.