2020 (6) TMI 431 - HC - Income Tax

Reopening of assessment - change of opinion - under valuation of the stock - HELD THAT - It appears that the assessee had furnished all the necessary details with regard to the valuation of the stock. The stock certificate of the valuation issued by the site supervisor was also on record. In the tax audit report, we find reference as regards the method of valuation. It has been stated therein that the assessee is a developer and builder . The assessee is in the business of construction and sale of flats, buildings, land etc. it is impracticable to maintain item wise quantitative records of the items of building materials, which is shown in the Balance-Sheet as a closing stock in trade which is incomplete work at site. The valuation is taken on the basis of the valuation carried out by the site engineer. We, once again, go back to the reasons assigned for the purpose of reassessment. In the reasons, we find reference of the balance-sheet Form No.3CD, profit and loss account, and the very same material is now sought to be looked into for the purpose of reassessment. In the overall view of the matter, we are convinced that this is a case of mere change of opinion. The law in this regard is well settled as explained in the case of CIT vs. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT .The impugned notice is hereby quashed and set aside. - Decided in favour of assessee.

Issues Involved:

1. Validity of reopening assessment under Section 148 of the Income Tax Act.
2. Whether reassessment was based on a mere change of opinion or new information.
3. Applicability of audit objections in initiating reassessment.
4. Compliance with the statutory requirements for reopening assessment beyond four years.

Detailed Analysis:

1. Validity of Reopening Assessment under Section 148 of the Income Tax Act:

The petitioner challenged the notice issued by the Revenue under Section 148 of the Income Tax Act for reopening the assessment for the A.Y. 2011-12. The petitioner argued that the notice was beyond the period of four years from the end of the relevant assessment year and claimed that all necessary information had been furnished during the original assessment. The court noted that the reopening was based on the alleged undervaluation of closing stock by ?1,61,00,000/-.

2. Whether Reassessment was Based on a Mere Change of Opinion or New Information:

The court analyzed whether the reassessment was based on new information or merely a change of opinion. The Revenue argued that the reassessment was justified as the petitioner had undervalued the closing stock based on the valuation by the site supervisor, which resulted in under-assessment of income. However, the court observed that the sample document related to the sale of Flat No.702, which was used as the basis for reassessment, was already on record during the original assessment. The court concluded that the reassessment was based on the same material that was available during the original assessment, indicating a mere change of opinion.

3. Applicability of Audit Objections in Initiating Reassessment:

The petitioner argued that the reassessment was initiated based on audit objections rather than the Assessing Officer's independent belief. The court referred to the Supreme Court's decision in Commissioner of Income Tax vs. P.V.S Beedies Pvt. Ltd., which held that reassessment could not be quashed merely because the ground was brought to the notice of the Assessing Officer by the audit party, provided the Assessing Officer applied his mind and found the ground valid. The court, however, found that in this case, the reassessment was not based on new information but on the same material available during the original assessment.

4. Compliance with Statutory Requirements for Reopening Assessment Beyond Four Years:

The court examined whether the statutory requirements for reopening the assessment beyond four years were met. It noted that under Section 147 of the Act, reassessment could be initiated if there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The court found that the petitioner had disclosed all necessary details regarding the valuation of the stock, including the method of valuation and the stock certificate issued by the site supervisor. Therefore, the court concluded that there was no failure on the part of the petitioner to disclose material facts.

Conclusion:

The court ruled that the reassessment was based on a mere change of opinion and not on new information. It held that the statutory requirements for reopening the assessment beyond four years were not met, as the petitioner had disclosed all necessary details during the original assessment. Consequently, the court quashed the impugned notice for reassessment under Section 148 of the Income Tax Act.

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