2022 (1) TMI 1232 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - change of opinion - HELD THAT - The issue raised is regarding the finished stocks which was for unsold flats of two projects at Kandivali and Bandra and according to respondents petitioner s has not offered tax under the head income from house property. Dr. Shivram states that the same issue was raised during the assessment proceedings as could be seen from Item No.16 in the annexure to notice dated 8th October 2018 issued under Section 142(1) of the Act and petitioner has replied to the same vide petitioner s letter dated 8th November 2021. Dr. Shivram states that this issue has not been discussed in the assessment order but still relying on Aaroni Commercials Ltd. 2014 (2) TMI 659 - BOMBAY HIGH COURT submitted that once a query has been raised and it has been replied to the Assessing Officer is deemed to have applied his mind and considered the same even if that issue has not been discussed in the assessment order. Mr. Suresh Kumar requests the matter be taken up after a week so that he can take instructions in the meanwhile. Stand over to 24th January 2022. Respondents in the meanwhile shall not take any further steps pursuant to the order passed on 10th December 2021 rejecting petitioner s objection.

Summary

Issues: Notice under Section 148 of the Income Tax Act for Assessment Year 2016-2017 based on change of opinion; Tax treatment of finished stocks of unsold flats; Application of mind by the Assessing Officer during assessment proceedings.

In this judgment by the Bombay High Court, the petitioner challenged a notice issued under Section 148 of the Income Tax Act for the Assessment Year 2016-2017, contending it was based purely on a change of opinion, which is impermissible in law. The petitioner's representative argued that the notice relied on assessment records, the filed return, profit and loss account, and balance sheet. Additionally, a key issue raised was the treatment of finished stocks worth ?65,53,57,872 as unsold flats in two projects at Kandivali and Bandra, with the respondents alleging that the petitioner had not offered tax under the head income from house property. The petitioner's representative pointed out that this issue had been raised earlier during assessment proceedings, as evidenced by correspondence and submissions made by the petitioner. Referring to a legal precedent, Aaroni Commercials Ltd. vs. Deputy Commissioner of Income-tax -2(1) (2014) 44 taxmann.com 304 (Bombay), it was argued that once a query is raised and responded to, the Assessing Officer is deemed to have applied his mind, even if the issue was not explicitly discussed in the assessment order.

During the proceedings, the respondent requested a week's time to seek instructions. The Court ordered the matter to stand over to 24th January 2022, directing that the respondents should not take any further steps based on the order passed on 10th December 2021, which rejected the petitioner's objection. The judgment reflects a detailed analysis of the legal principles governing notice under Section 148, the treatment of specific items in tax assessments, and the significance of Assessing Officer's consideration of raised queries during the assessment process. It underscores the importance of procedural fairness and adherence to legal standards in income tax matters, emphasizing the need for thorough examination and proper application of mind by tax authorities to ensure the integrity and legality of tax assessments.