2009 (8) TMI 49 - HC - Income Tax

Reassessment u/s 148 - reason for re-opening of an assessment - petitioner submitted that the initiation of the proceedings under Section 147/148 of the Act is a change of opinion and as such proceedings are liable to be quashed - Held that - while accepting the return there was no application of mind by the AO, simply the intimation u/s 143(1) was sent and the assessment of the said years were not framed under Section 143 (3), therefore, it can not be said that the regular assessments were framed - the assessee firm had credited misc. receipts as rent from property amounting to Rs. 8,83,080 and sales of Rs. 30,82,001/- and gross profit of Rs. 6,28,459/- only and debited business expenditure to the tune of Rs. 11,20,413/- giving a net profit of Rs. 3,91,158/- which was less than the rent, received - Issuance of notice u/s 148 upheld - It is a settled law that res-judi-cata does not apply to income tax proceedings and each assessment year being a separate unit and is new and is based on different facts and circumstances

Issues Involved:
1. Quashing of reassessment notices under Section 147/148 of the Income Tax Act, 1961 for assessment years 2001-02 and 2002-03.
2. Whether the initiation of reassessment proceedings constitutes a 'change of opinion'.
3. Validity of treating rental income as "income from property" instead of "income from business".
4. Legitimacy of the Assessing Officer's reasons for reopening the assessment.
5. Applicability of res judicata to income tax proceedings.

Detailed Analysis:

1. Quashing of Reassessment Notices:
The petitioner sought relief to quash the reassessment notices dated 15.12.2003 and 8.1.2004 issued under Section 147/148 of the Income Tax Act for the assessment years 2001-02 and 2002-03. The court noted that the returns for these years were initially accepted under Section 143(1) without detailed scrutiny, implying no application of mind by the Assessing Authority. As such, the reassessment notices were not a result of a change of opinion but were based on new information.

2. Change of Opinion:
The petitioner argued that the reassessment was a 'change of opinion' since the issue of "income from property" had already been settled for the assessment year 2000-01. The court rejected this argument, stating that since the initial returns were accepted under Section 143(1) without scrutiny, there was no formation of an opinion by the Assessing Authority. Therefore, the reassessment did not constitute a change of opinion.

3. Income Classification:
The petitioner contended that the rental income should be treated as "income from business" as previously determined for the assessment year 2000-01. However, the court highlighted that the Assessing Officer had reasons to believe that the petitioner had claimed excessive business expenditure to reduce taxable property income. The court referenced the CIT(A)'s initial order and the Supreme Court's decision in East India Housing and Land Development Trust Ltd. v. CIT, which supported treating rental income as "income from property".

4. Reasons for Reopening Assessment:
The court examined the reasons provided by the Assessing Officer for reopening the assessment, which included the observation that the petitioner had credited significant rental income and claimed excessive business expenditure. The court found these reasons to be germane and relevant, thus justifying the reassessment proceedings. The court also noted that the sufficiency of these reasons is not justiciable at the stage of issuing the notice.

5. Applicability of Res Judicata:
The petitioner argued that the principle of res judicata should apply since the issue had been previously settled. The court clarified that res judicata does not apply to income tax proceedings, as each assessment year is a separate unit. The court further noted that the reassessment for the years in question was based on different facts and circumstances, distinct from the earlier year.

Conclusion:
The court dismissed the writ petitions, upholding the validity of the reassessment notices under Section 147/148. It emphasized that the reassessment was not a result of a change of opinion and was supported by relevant material. The court also clarified that its observations should not influence the final decision of the Assessing Authority in the reassessment proceedings.

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