2016 (9) TMI 1614 - HC - Income Tax

Validity of reopening of assessment u/s 147 - balcony coverage charges known as balcony premium paid to the Surat Municipal Corporation - HELD THAT - It appears that the reasons for which reopening is contemplated is with respect to balcony premium to the extent of Rs. 79.95 lakhs (rounded off). The material on record indicates that the said issue during the process of assessment had been gone into. The learned counsel has referred to a communication dated 25.7.2007 in which the query was put up came to be answered and it has been stated by the assessee that the said amount has been paid to the Surat Municipal Corporation and the copy of acknowledgment of the said balcony premium is also attached to the communication dated 25.7.2007. It is further emerging from the record that the account with respect to M/s. Shanti Enterprise i.e. assessee has also indicated in it the very amount of balcony premium fee which is evident from page 15 of the compilation of the petition. Even the said figure is also reflected from the other relevant documents. Issue relating to the balcony premium was the subject matter of assessment proceedings and therefore reopening on this issue if permitted the same would be based upon the change of opinion which is impermissible and therefore it also appears to us that the impugned notice is not valid. The contention of the Revenue that the impugned action is within the period of four years and therefore it is always open for the authority to reopen the assessment cannot be accepted. Simply because the action is within the period of four years would not give a leverage to the authority to just go on repeating the exercise of examining the issue which has already been gone into. There appears to be no tangible material distinct from what was made a part of the assessment proceedings and therefore reopening of the assessment is not permissible. The proposition of law is aptly clear as stated above and therefore in our opinion permitting the authority to reopen the assessment would not be valid. We cannot shut our eyes over the aforesaid circumstance simply because it is within the period of four years and having regard to the decisions of Apex Court which propounded that the Courts would be failing to perform their duty if reliefs were refused without adequate reasons we see that the action on the part of the respondent authority is impermissible in view of aforesaid set of circumstance. We are of the opinion that the action of reopening of assessment is invalid and not permissible in view of settled position of law and therefore relief sought deserves to be granted by quashing and setting the notice for reopening and therefore is hereby quashed and set aside.

Summary

Issues Involved:
1. Legality and validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Rejection of objections raised by the petitioner against the reopening of assessment.
3. Whether the reopening of assessment constitutes a change of opinion.
4. The nature of the balcony premium charges and their treatment in the assessment.

Detailed Analysis:

1. Legality and Validity of the Notice under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the issuance of the notice under Section 148 of the Income Tax Act, 1961, arguing that it was based on a change of opinion. The court examined the circumstances under which the original assessment was conducted. It was noted that during the original assessment proceedings, the petitioner had provided detailed explanations and documents regarding the balcony premium charges. The court found that the reopening of the assessment was based on the same material that had already been considered, thus constituting a change of opinion, which is impermissible under the law. The court referenced the Supreme Court's decision in Commissioner of Income-Tax v. Kelvinator of India Ltd., which held that reopening an assessment on a mere change of opinion is not allowed.

2. Rejection of Objections Raised by the Petitioner:
The petitioner had filed objections against the reopening of the assessment, which were rejected by the authority. The court scrutinized the reasons provided for the rejection and found them to be inadequate. The court observed that the petitioner had fully disclosed all material facts during the original assessment proceedings, and the reasons for reopening did not present any new tangible material that was not already considered. Therefore, the rejection of the objections was deemed unjustified.

3. Whether the Reopening of Assessment Constitutes a Change of Opinion:
The court delved into whether the reopening of the assessment was due to a change of opinion by the Assessing Officer. It was highlighted that the balcony premium charges were thoroughly scrutinized during the original assessment, and the necessary explanations were provided by the petitioner. The court cited the Gujarat High Court's decision in Gujarat Power Corporation Ltd. v. Assistant Commissioner of Income-Tax, which emphasized that if an Assessing Officer, after thorough scrutiny, does not reject a claim, it indicates that an opinion was formed. The court concluded that the reopening was indeed based on a change of opinion, which is not permissible.

4. Nature of the Balcony Premium Charges and Their Treatment in the Assessment:
The court examined the nature of the balcony premium charges, which were paid to the Surat Municipal Corporation for regularizing unauthorized construction. The revenue contended that these charges were in the nature of a penalty and should be disallowed. However, the court noted that during the original assessment, the petitioner had provided detailed explanations and documents clarifying that the balcony premium was a legitimate business expense and was debited to the work-in-progress account. The court found that the issue had already been addressed during the original assessment, and there was no new material to justify the reopening.

Conclusion:
The court concluded that the reopening of the assessment was invalid as it was based on a change of opinion. The impugned notice dated 25.3.2010 and the order dated 2.11.2010 rejecting the objections were quashed and set aside. The court emphasized the importance of not reopening assessments without new tangible material and upheld the principle that mere change of opinion is not a valid ground for reopening an assessment. The rule was made absolute, and no order as to costs was passed.