2017 (10) TMI 1529 - AT - Income Tax

Validity of Reopening of assessment - validity of reasons to believe - change of opinion - capital gain computation - conclusion only on the basis of value u/s.50C(1) to reopen the assessment - assessment proceedings completed u/s.143(3) - HELD THAT - Provisions of the section 147 of the Act does not enable the AO to exercise his jurisdiction for reopening the concluded assessment . There is no dispute to the fact that Sec.50C(1) is a deeming provision, which, mandates that if the Fair Market Value adopted by the SRO for stamp duty purpose is more than the sale consideration disclosed by the assessee, the Fair Market Value adopted by the SRO for stamp duty purpose should be deemed to sale consideration - assessee in terms of Sec.50C(2) can object to adopt such value, it cannot be denied that value u/s.50C(1), automatically it cannot be considered as understatement in sale value - it is not appropriate on the part of the AO to jump to a conclusion only on the basis of value u/s.50C(1) to reopen the assessment , when the same documents which were already brought on record at the time of original assessment, he failed to take a cognizance of that documents and framed the original assessment. In the present case, the AO observed that on verification of documents, it was seen that the value u/s.50C was fixed by DRO, of property at ₹ 735 lakhs. Hence, it means that the said details were called for by Ao at the time of original assessment. But inadvertently the same were not taken into account while framing the assessment and, therefore, it cannot be said that there is any fresh material to come to different conclusions. The relevant materials are available on record, but the Assessing Officer failed to apply his mind to that material in making the assessment order. In our considered opinion, Assessing Officer cannot recourse to the provisions of section 147 for his own failure to apply his mind to the material which, according to him, is relevant which is available on record - there was no tangible fresh material adverting to the reasons recorded for issuing reopening notice. AO reopened the assessment originally completed by him on the basis of the same records as were available before him while completing the original assessment and there was no new tangible material that had come to his possession on the basis of which the assessment was reopened. - Decided in favour of assessee.

Issues Involved:
1. Reopening of assessment.
2. Application of Section 50C of the Income Tax Act.
3. Classification of profit as short-term capital gains.
4. Treatment of profit arising out of an adventure in the nature of trade.
5. Validity of additional grounds raised by the assessee.

Detailed Analysis:

1. Reopening of Assessment:

The primary issue was whether the reopening of the assessment under Section 147 of the Income Tax Act was valid. The assessee argued that the original assessment was completed under Section 143(3) and that the reopening was based on the same documents already on record, which constituted a mere change of opinion. The assessee contended that there was no tangible fresh material to justify the reopening of the assessment. The Tribunal cited several judicial precedents, including the Delhi High Court's decision in Kelvinator India Ltd. and the Supreme Court's rulings, emphasizing that a mere change of opinion does not justify reopening an assessment. The Tribunal concluded that the Assessing Officer (AO) had no new tangible material and that the reopening was an arbitrary exercise of power, thus quashing the reassessment order.

2. Application of Section 50C of the Income Tax Act:

The AO invoked Section 50C, which mandates that the value adopted by the Stamp Duty Authorities should be deemed as the sale consideration for computing capital gains. The assessee argued that the AO's action was based on the same documents already considered during the original assessment. The Tribunal noted that the AO did not have any new material to suggest that income had escaped assessment and that the AO's action was merely a change of opinion. The Tribunal referenced various judicial decisions, including the Gujarat High Court's ruling in Garden Silk Mills P. Ltd., to support its conclusion that the AO's invocation of Section 50C was not justified.

3. Classification of Profit as Short-Term Capital Gains:

The assessee initially declared the profit from the sale of land as short-term capital gains but later claimed it as business income in the revised return filed after the notice under Section 148. The AO rejected the revised return as invalid, stating it was filed beyond the stipulated time and after the notice under Section 148. The Tribunal did not delve into this issue in detail, as it quashed the reassessment order based on the invalid reopening of the assessment.

4. Treatment of Profit Arising Out of an Adventure in the Nature of Trade:

The assessee claimed that the profit from the sale of land should be treated as arising out of an adventure in the nature of trade, not as short-term capital gains. The AO and the Commissioner of Income Tax (Appeals) [CIT(A)] treated the profit as short-term capital gains. The Tribunal did not address this issue separately, as it quashed the reassessment order on the grounds of invalid reopening.

5. Validity of Additional Grounds Raised by the Assessee:

The assessee raised additional grounds, including the argument that the value assessed for stamp duty purposes should not substitute the actual sale consideration without admissible evidence and that the AO did not refer the matter for valuation by the District Valuation Officer. However, during the hearing, the assessee's counsel endorsed that these additional grounds were not pressed. Consequently, the Tribunal dismissed the additional grounds as not pressed.

Conclusion:

The Tribunal quashed the reassessment order, concluding that the reopening of the assessment was invalid due to the absence of new tangible material and that it constituted a mere change of opinion by the AO. The Tribunal refrained from addressing other grounds raised by the assessee, given its decision to quash the reassessment order. The appeal of the assessee was partly allowed.

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