2022 (10) TMI 726 - AT - Income Tax

Reopening of assessment u/s 147 - disallowing the claim of exemption u/s 54F - notice issued beyond periods of four years - Change of opinion - HELD THAT - AO has held that the capital gains on sale of the property is exempt from tax. Subsequently, on the same facts and materials available on record, the Assessing Officer came to conclusion that there is an escapement of income, that is capital gains on sale of property is not exempt. On perusal of the orders of authorities below, we find that no new material or any fresh information was brought on record. We also find that the subsequent reopening on the same set of facts with no failure on the part of the assessee to disclose material facts would tantamount to mere change of opinion . As relying on case of CIT v. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT . We hold that the action of the Assessing Officer in reopening the assessment under section 147 of the Act is bad in law. As the impugned notice issued after four years of the end of the relevant assessment year is not sustainable in law and is liable to be quashed, when there was not even a whisper in the reasons that there was any omission or failure on the part of the assessee in disclosing fully and truly the material facts for assessment. See Lakhmani Mewal Das 1976 (3) TMI 1 - SUPREME COURT In this case, the assessment was reopened beyond four years from the end of the relevant assessment year under consideration; the proviso to section 147 of the Act applies. Once the proviso to section 147 of the Act applies, it is the duty of the Assessing Officer to prove that the assessee has failed to furnish fully and truly all material facts to complete the assessment. In this case the Assessing Officer was not able to establish that there is failure on the part of the assessee to disclose fully and truly all materials. Therefore, in our opinion, the reopening is invalid beyond four years from the end of the relevant assessment year. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the reopening of assessment under section 147 of the Income Tax Act, 1961.
2. Applicability of section 54F of the Income Tax Act, 1961 for exemption of capital gains.

Issue-wise Detailed Analysis:

1. Validity of the reopening of assessment under section 147 of the Income Tax Act, 1961:

The primary issue was whether the reopening of the assessment by the Assessing Officer (AO) under section 147 was valid. The AO issued a notice under section 148 on 07.03.2016, claiming that there was an escapement of income because the assessee did not meet the conditions of section 54F for exemption of capital gains. The AO argued that the assessee purchased the flat after two years from the date of sale, which disqualified him from the exemption.

The Tribunal noted that the original assessment was completed under section 143(3) on 31.01.2013, where the AO had already considered all materials and held that the capital gains were exempt. The Tribunal found that the reopening was based on the same facts and materials without any new tangible material, making it a mere "change of opinion." The Tribunal cited the Supreme Court's judgment in CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC), which held that a mere change of opinion cannot justify reopening an assessment.

The Tribunal further observed that the reopening was beyond four years from the end of the relevant assessment year, invoking the proviso to section 147. This proviso requires the AO to prove that the assessee failed to disclose fully and truly all material facts necessary for assessment. The Tribunal found no such failure on the part of the assessee, making the reopening invalid and bad in law.

Supporting this conclusion, the Tribunal referred to several judgments, including Fenner (India) Ltd. v. DCIT 241 ITR 672, Hindustan Lever Ltd. v. R.B. Wadkar, ACIT (1) 268 ITR 332, and ITO v. Lakhmani Mewal Das (1976) 103 ITR 437, which emphasized that reopening beyond four years requires clear evidence of the assessee's failure to disclose material facts.

2. Applicability of section 54F of the Income Tax Act, 1961 for exemption of capital gains:

The AO disallowed the exemption under section 54F on the grounds that the assessee purchased the flat after two years from the date of sale of the original property. However, the Tribunal did not delve into the merits of this issue in detail, as it had already concluded that the reopening itself was invalid.

The Tribunal's decision to quash the assessment order under section 143(3) r.w.s. 147 rendered the AO's disallowance of the exemption under section 54F moot. The Tribunal allowed the appeal filed by the assessee, setting aside the order passed by the Commissioner of Income Tax (Appeals) and quashing the assessment order.

Conclusion:

The Tribunal concluded that the reopening of the assessment under section 147 was invalid due to the lack of new tangible material and the absence of any failure on the part of the assessee to disclose fully and truly all material facts. Consequently, the disallowance of the exemption under section 54F was also invalid. The appeal filed by the assessee was allowed, and the assessment order was quashed.