2022 (4) TMI 627 - HC - Income Tax

Reopening of assessment u/s 147 - assessment of profit from sale of investment - AO held properties sold should have been treated as business income and not capital gains - HELD THAT - The reasons to reopen is recorded after the notice has been issued. On this ground alone, the notice has to be quashed and set aside. It is also Petitioner s case that the same issue which is mentioned in the reasons for reopening was a subject matter of consideration during the assessment proceedings and the assessment order dated 20th December, 2010 in fact even discussed this item. Therefore, reopening is based on change of opinion which is not permissible. Revision u/s 263 on Assessment of profit on sale of investment - We are in agreement with her in as much as in the assessment order dated 28th December, 2010, the assessing officer has recorded that assessee has in the profit and loss account shown profit on sale of investment. He has also recorded that assessee has carried out activities only in respect of capital gains. In fact, by this conclusion he has disallowed certain expenses and has added it back to total income by assessee as per Section 37(1) of the said Act. Therefore, issue raised by the assessing officer to reopen has been in the active consideration of the assessing officer who passed the original assessment order dated 28th December, 2010. Therefore, it is a clear case of change of opinion and it is not permissible to reopen based on change of opinions. It is also correct that after the assessment order was passed, the Commissioner of Income Tax had commenced revision proceedings under Section 263 of the Act on the very same issue of profit on sale of investment and the revision proceedings were dropped by an order dated 6th March, 2013. Therefore, the same issue cannot form a reason to believe for assessment officer to issue notice under Section 148. In our view, if only this fact has been brought to the notice of the Commissioner who accorded sanction under Section 151, certainly this sanction would not have been granted. - Decided in favour of assessee.

Summary

Issues:
1. Validity of notice issued under Section 148 of the Income Tax Act, 1961 for assessment year 2008-09.
2. Grounds for reopening assessment based on profit from the sale of investments.
3. Challenge to the notice on grounds of change of opinion and previous revision proceedings under Section 263 of the Act.

Analysis:
1. The Petitioner challenged the notice issued under Section 148, contending that the reasons for reopening were recorded after the notice was issued, which should render the notice invalid. Additionally, the Petitioner argued that the same issue was already considered during the assessment proceedings and the assessment order discussed the matter, indicating a change of opinion in reopening the assessment. Moreover, the subject matter of the reasons for reopening was also part of revision proceedings under Section 263, which were subsequently dropped. The Petitioner asserted that the assessing officer cannot reopen the assessment on the same issue after revision proceedings.

2. The Respondent argued that the profit made on flats by the Petitioner in the real estate business should be treated as stock in trade and the profit from the sale of flats should be considered as business receipts rather than capital gains, aligning with the assessing officer's stance for reopening the assessment based on this premise.

3. The Court analyzed the contentions and found merit in the Petitioner's arguments. It noted that the assessing officer had already considered the issue of profit on the sale of investments in the original assessment order, disallowing certain expenses and adding them back to the total income. The Court concluded that the grounds for reopening the assessment constituted a clear case of change of opinion, which is impermissible. Additionally, the Commissioner's initiation of revision proceedings under Section 263 on the same issue, followed by their withdrawal, further supported the Court's decision that the assessing officer could not validly reopen the assessment based on the same issue.

4. Ultimately, the Court allowed the Petition, quashing and setting aside the notice dated 28th March, 2013 issued under Section 148 of the Income Tax Act, 1961. The Court's decision was based on the findings that the reasons for reopening the assessment were not valid due to being a result of a change of opinion and having been subject to previous revision proceedings under Section 263, which were subsequently dropped.

5. The judgment highlights the importance of adherence to legal procedures and the prohibition against reopening assessments based on a mere change of opinion, emphasizing the need for assessing officers to ensure the validity and legality of their actions in accordance with the provisions of the Income Tax Act, 1961.