2016 (1) TMI 1464 - AT - Income Tax

Reopening of assessment u/s 147 - assessee had PE in India - HELD THAT - AO had completed the original assessment u/s 143(3) of the Act after considering all the materials submitted by the assessee. Later, the AO reopened the assessment u/s 147 relying on the same materials submitted by the assessee. There was no fresh material or any information which gives the impression that the income of the assessee has escaped assessment. The initiation of reassessment proceedings u/s 147 on the basis of the same material on record and holding there was escapement of income as the income arose from transfer of the asset is to be assessed as business income is on change of opinion. It was held in the case of Phool Chand Bajranglal 1993 (7) TMI 1 - SUPREME COURT where the AO comes into possession of fresh information or new facts, which lead him to form a reasonable belief that income has escaped assessment, he can reopen the assessment. In the present case, AO had not found any fresh information nor new facts. Also held in the case of Tractbel Industry Engg. Vs. Asst. DIT 2011 (1) TMI 1470 - DELHI HIGH COURT , during the course of original assessment proceedings, the assessee was called upon to give information and details regarding the nature of business activities in India, it was stated in the letter that the assessee does not have any PE in India. AO in original assessment accepted the contention of assessee. Reassessment on the ground that the assessee had PE in India on the same facts was held to be not justified and liable to be quashed. In the present case also, the AO had accepted the contention of assessee i.e. treating the income as capital gains and the source of income was reassessed and intended to treat the income as business income. It clearly establishes that the AO has changed his opinion, therefore, the reopening of assessment deserves to be quashed.

Summary

Issues:
- Validity of reopening assessment proceedings
- Classification of assessee's activity as an adventure in the nature of trade

Analysis:

Validity of reopening assessment proceedings:
The appeal pertains to the Revenue challenging the order of the Commissioner of Income-tax (Appeals) for the Assessment Year 2008-09. The Revenue contended that the reassessment proceedings initiated by the Assessing Officer (AO) under section 147 were valid. The AO had reopened the assessment based on the audit objection, alleging an escapement of income. However, it was argued that the reassessment was solely based on the same material already considered during the original assessment under section 143(3). The Tribunal observed that there was no fresh material or new information to support the claim of income escapement. Citing the case of Phool Chand Bajranglal Vs. ITO, it was established that for a valid reassessment, the AO must possess fresh information or new facts leading to a reasonable belief of income escapement, which was lacking in this case. Additionally, the Tribunal referred to the case of Tractbel Industry Engg. Vs. Asst. DIT, where it was held that reassessment based on the same facts as the original assessment, without any new grounds, amounts to a change of opinion and is not justified. Therefore, the Tribunal upheld the decision of the CIT(A) to quash the reassessment proceedings.

Classification of assessee's activity as an adventure in the nature of trade:
The core issue revolved around the classification of the assessee's activity as an adventure in the nature of trade, specifically concerning the gains derived from a development agreement. The AO contended that the assessee's actions, such as applying for municipal permission and entering into a development agreement, indicated a trade activity rather than a mere investment. However, the assessee argued that the property in question was acquired as an asset and treated as such in the balance sheet. The CIT(A) supported the assessee's stance, emphasizing that the actions taken by the assessee did not inherently transform the nature of the transaction into a trade adventure. The Tribunal concurred with the CIT(A)'s decision, highlighting that the initial intention and subsequent improvements made by the assessee did not alter the fundamental character of the transaction. Therefore, the gains were rightfully treated as capital gains, as admitted by the assessee. Consequently, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s ruling on this issue.

In conclusion, the Tribunal upheld the CIT(A)'s decision to quash the reassessment proceedings initiated by the AO, citing the lack of fresh material or new grounds for income escapement. Additionally, the Tribunal agreed with the classification of the assessee's activity as not constituting an adventure in the nature of trade, resulting in the gains being treated as capital gains. The appeal of the Revenue was ultimately dismissed by the Tribunal.