2016 (5) TMI 475 - HC - Income Tax

Reopening of assessment - sale of land and building - Held that - It is evident that the petitioners had asserted that they had sold their ownership rights in the New Delhi property, which was accepted by the relevant assessing officer and certain benefits were permitted to the petitioners on such basis. The deed of sale was available with the department and it was evident therefrom that the ownership rights were transferred by the petitioners and not merely their leasehold rights, since the leasehold rights in the property had been converted to ownership rights between the agreement for sale and the deed of conveyance. - Decided against revenue Valuation of the property - Held that - For the purpose of the valuation of the property, including its cost of acquisition, the petitioners had relied on the report of a licensed valuer. A valuation report is, loosely speaking, an opinion based on the facts narrated in support of such opinion. The entirety of the valuation report was before the department in course of the previous reassessment or scrutiny assessment and the relevant assessing officer accepted the same. The present attempt to question the valuation report amounts to a change of opinion or a review of the assessment, which is impermissible. The assessee had disclosed all facts and the basis for the valuation. That was accepted by the department. That is not a matter which can be reopened by claiming that there was a mistake in the valuation report.- Decided against revenue Assessment of cost or sale price of the New Delhi property - inclusion of amount received on account of rent or occupation charges - Held that - It is evident that the government was in possession of the property for a considerable period without paying any occupation charges therefor. In the arbitration proceedings instituted by the petitioners and other co-sharers (they were then all co-lessees in respect of the property but co-lessors qua the occupant) an award was made for payment of damages on account of rent or occupation charges. It is nobody s case that such amount was received in the relevant assessment year; at least that is not asserted in the recorded reasons. Further, in the context of what should be the consideration for the sale of a property or the assessment of any capital gain thereon, the occupation charges received is not a relevant factor and the omission to mention the same cannot be seen to be any failure to disclose any material fact pertaining to the relevant assessment. Indeed, it is such amount as was collectively awarded to the petitioners and the co-sharers by the arbitral award that may be the root cause for the issuance of the notice under Section 148 of the Act. Since the receipt of such sum may have been in an assessment year other than the assessment year for which it was due, the petitioners claimed the share of the money received on such account as a capital receipt and not a revenue receipt. The department has rejected such contention and a revision is pending on such score. However, such aspect of the matter has no nexus either with the valuation of the property or with the relevant assessment. - Decided against revenue Non disclosure of possession of the property - Held that - Such assertion is demonstrably wrong since the information furnished pursuant to queries made in course of the previous reassessment covered such matter - Decided against revenue Deduction claimed under Section 54 - wrongful claim on the ground that it was a sale of the leasehold rights in a property and not a sale of a house property - Held that - As noticed above, the leasehold rights had been converted to ownership rights prior to the sale deed being executed and such fact was known to the department in course of the previous reassessment and scrutiny assessment. In any event, when the deduction was allowed, the assessing officer is deemed to have taken such matter into consideration and any reassessment on such score would amount to a change of opinion or review which is impermissible. - Decided against revenue

Summary

Issues Involved:
1. Validity of notices issued under Section 148 for reassessment under Section 147 of the Income Tax Act, 1961.
2. Compliance with the first proviso to Section 147 regarding the requirement to disclose fully and truly all material facts.
3. Examination of the reasons recorded for reopening the assessment.
4. Consideration of legal precedents relevant to Section 147 and 148 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Notices Issued Under Section 148:
The court examined whether the notices issued under Section 148 for reassessment under Section 147 were valid. The petitioners argued that the reassessment notices were invalid as they did not comply with the jurisdictional preconditions required under the first proviso to Section 147. The department contended that the recorded reasons indicated material facts had not been disclosed or a false impression was given.

2. Compliance with the First Proviso to Section 147:
The petitioners asserted that the first proviso to Section 147 required the department to demonstrate that the assessee had failed to disclose fully and truly all material facts necessary for the assessment. The court referred to various legal precedents, including Calcutta Discount Company Limited v. Income-tax Officer and Gemini Leather Stores v. I.T.O., B-Ward, Agra, to emphasize that the department must show that a material fact was either not disclosed or falsely represented.

3. Examination of the Reasons Recorded for Reopening the Assessment:
The court scrutinized the reasons recorded by the assessing officer for reopening the assessment:
- Clause (a): The court found no actionable ground as the petitioners had sold their ownership rights, not merely leasehold rights, which was accepted by the department.
- Clauses (b) and (d): These clauses questioned the valuation of the property. The court held that the valuation report was accepted in the previous assessment, and reopening the matter amounted to a change of opinion, which is impermissible.
- Clause (e): The officer claimed that rent or occupation charges should have been considered in the assessment. The court found this irrelevant to the valuation or assessment of capital gains.
- Clause (f): The assertion that the petitioners did not disclose possession of the property was found incorrect as such information was provided during the previous reassessment.
- Clause (g): The officer's perception that the deduction under Section 54 was wrongful was dismissed as the leasehold rights had been converted to ownership rights, known to the department during the previous assessment.

4. Consideration of Legal Precedents:
The court referred to several judgments to support its analysis:
- Commissioner of Income-tax v. Kelvinator of India Limited: Emphasized that "reason to believe" must be based on tangible material and not a mere change of opinion.
- GKN Driveshafts (India) Limited v. Income Tax Officer: Highlighted the procedure for challenging reassessment notices and the requirement for a speaking order.
- Phool Chand Bajrang Lal v. Income-Tax Officer: Discussed the purpose of Section 147 to prevent parties from escaping liability by making false statements.
- Srikrishna Private Limited v. I.T.O., Calcutta: Stressed the obligation of the assessee to disclose true and complete material facts.

Conclusion:
The court concluded that the reasons recorded for seeking reassessment did not disclose any material fact that the petitioners failed to fully or truly disclose. The decision to issue the notices under Section 148 appeared to be a counter-blast to the petitioners' contention regarding the damages received in a different assessment year. Consequently, the notices were set aside as there was no basis for the official to believe that any income had escaped assessment. There was no order as to costs, and urgent certified website copies of the judgment were allowed to be supplied to the parties.