2020 (7) TMI 573 - HC - Income Tax

Validity of Reopening of assessment - validity of reasons to believe - change of opinion - disallowance of improvement cost of land claimed by the assessee and the assessee had shown the sale of the land under the head of short term capital gain - as per AO correct market value of the property that should have been adopted by the assessee @ 50% of value fixed by the District Revenue Officer u/s 50C as two persons including the assessee had done the business and each of them shared the profit on equal ratio - HELD THAT - The assessee is expected to file his return of income along with his books and documents. It is for the Assessing Officer to consider the same in accordance with law and complete the assessment. The assessee is not there to advice the Assessing Officer as to how he should go about in assessing the income of the assessee, as it is the statutory duty of the Assessing Officer. Admittedly, the Sale Deed dated 02.05.2008, is only the document, which is the subject matter of the assessment. This document was very much available with the Assessing Officer when he completed the assessment under Section 143(3), dated 05.12.2011. At that juncture, all that the Assessing Officer was concerned about is the claim made by the assessee as expenses for the improvement of the land by levelling, sand filling, road laying etc. The stand taken by the assessee was disbelieved, as no material evidence was produced by the assessee to substantiate such expenses. Based on the very same document, the assessment was reopened by serving notice on 26.03.2014, stating that the assessee should have adopted the value of the land as computed by the District Revenue Officer under the Indian Stamp Act for the purposes of computation of the stamp duty payable on such instrument. As rightly pointed out by the learned counsel for the assessee the words or assessable stood inserted by Finance (No.2) Act, 2009 w.e.f., 01.10.2009 and this provision has been held to be prospective and this issue was considered in the case of R.Sugantha Ravindran 2013 (3) TMI 271 - MADRAS HIGH COURT . Therefore, the revenue cannot refer to Section 50C of the Act to non-suit the assessee. As decided in CALCUTTA DISCOUNT COMPANY LIMITED 1960 (11) TMI 8 - SUPREME COURT duty of the assessee is to make full and true disclosure of all primary facts and once it is done, it is for the Assessing Authority to decide what inference of fact or law could be drawn there from. The law does not require the assessee to state the conclusion that could reasonably be drawn from the primary facts and if there were, in fact, some reasonable grounds for thinking that there had been any non-disclosure as regards any primary facts, which could have a material bearing on the question of under assessment , that would be sufficient to give jurisdiction to the ITO to issue notices under Section 34 (1922 Act) and whether these grounds are adequate or not for arriving at a conclusion that there was a non-disclosure of material facts could not be opened for the Court's investigation. Tribunal was right in allowing the assessee's appeal.

Summary

Issues Involved:
1. Justification of the reopening of assessment under Section 147 of the Income Tax Act.
2. Consideration of the Supreme Court decision regarding reopening of assessment based on new information.
3. Validity of reopening of assessment when the Assessing Officer has reason to believe that income has escaped assessment.

Issue-wise Detailed Analysis:

1. Justification of the reopening of assessment under Section 147 of the Income Tax Act:
The core issue was whether the reopening of the assessment under Section 147 was proper and valid. The assessee had initially filed a return declaring a total income of ?1,31,99,850/- for the assessment year 2009-10. The Assessing Officer (AO) completed the assessment under Section 143(3) with an addition of ?23,29,000/- due to disallowance of improvement cost of land. Subsequently, the assessment was reopened because the AO believed that the sale consideration for capital gains should have been based on the market value determined under Section 50C. The Tribunal held that the reopening was a mere change of opinion, as the AO had no fresh tangible material to justify the reopening within four years. The Tribunal's decision was supported by the Delhi High Court's interpretation in CIT vs. Kelvinator India Ltd., which was affirmed by the Supreme Court, stating that "reason to believe" cannot be based on a mere change of opinion.

2. Consideration of the Supreme Court decision regarding reopening of assessment based on new information:
The Tribunal's decision was challenged by the Revenue, arguing that the reopening was justified as the notice under Section 148 was served within four years. The Revenue cited the case of Chunibhai Ranchhodbhai Dalwadi vs. Assistant Commissioner of Income-tax, where reopening was held valid based on new information. However, the Tribunal found that the AO had already considered the sale deed during the original assessment, and no new material was presented to justify reopening. The Tribunal also referred to the case of CIT vs. Ashley Services Ltd., where reopening was deemed a review of the original assessment without fresh material, making it unsustainable.

3. Validity of reopening of assessment when the Assessing Officer has reason to believe that income has escaped assessment:
The Tribunal emphasized that the words "reason to believe" in Section 147 should not be interpreted to allow arbitrary reopening based on a change of opinion. The AO must have tangible material to justify reopening. The Tribunal noted that the original assessment under Section 143(3) had already considered the relevant documents, and the reopening was based on the same information, making it invalid. The Tribunal further supported its decision by referring to the case of R.Sugantha Ravindran, where it was held that the insertion of the words "or assessable" in Section 50C was prospective and could not apply to transactions before 01.10.2009.

Conclusion:
The Tribunal concluded that the reopening of the assessment was invalid as it was based on a mere change of opinion without fresh material. The Tribunal's decision was supported by various judicial precedents, including the Supreme Court's interpretation in Kelvinator India Ltd. and the High Court's decision in Ashley Services Ltd. The appeal filed by the Revenue was dismissed, and the substantial questions of law were answered in favor of the assessee.